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Ondine Biopharma Corporation Announces Second Quarter 2010 Financial Results



8/13/2010 9:09:44 AM

VANCOUVER, BRITISH COLUMBIA--(Marketwire - August 13, 2010) - Ondine Biopharma Corporation (the "Company" or "Ondine") (TSX: OBP)(AIM: OBP), a medical device company developing photodisinfection based products, announced its financial results for the second quarter ended June 30, 2010.

"Highlights of the second quarter included the introduction of new products for the dental market as well as the establishment of a new subsidiary dedicated to photodynamic treatment of chronic sinusitis," said Carolyn Cross, Chairman and CEO of Ondine. "The introduction of second-generation laser hardware and photosensitizer solutions to the dental market expands our Periowave platform, increasing the therapeutic window, improving handling and retention characteristics and enhancing outcomes for both patients and clinicians. We expect to leverage these enhancements across all our photodisinfection platforms, including MRSAid™, our groundbreaking treatment for MRSA superbug colonization hospital healthcare settings.

"Our establishment of a new subsidiary focused on photodynamic treatment of chronic sinusitis is an exciting development for Ondine and our shareholders. We believe that photodisinfection using our proprietary nasal catheters and sensitizer solutions will provide a safe and effective option for many patients who have tried all alternatives, ranging from long courses of antibiotic treatment to sinus surgery, and yet continue to suffer from this debilitating condition. Both of these developments are expected to contribute further cash flows in the short term, and growth in shareholder value in the long term."

FINANCIAL RESULTS

For the three months ended June 30, 2010 ("Second Quarter 2010") the Company recorded a loss of $1.11 million, or $0.01 per common share, compared with a loss of $0.34 million, or $0.00 per common share, for the three months ended June 30, 2009 ("Second Quarter 2009"). Revenue, net of cost of sales, for Second Quarter 2010 was $0.21 million, including gross margin of $0.02 million (40.8%) on Periowave™ product sales of $0.04 million compared to revenue, net of cost of sales, for Second Quarter 2009 of $0.27 million, including gross margin of $0.21 million (67%) on Periowave™ product sales of $0.32 million.

For the six months ended June 30, 2010 ("First Half 2010"), the Company recorded a loss of $2.25 million or $0.02 per common share compared with a loss of $1.79 million or $0.03 per common share during the six months ended June 30, 2009 ("First Half 2009"). Revenue, net of cost of sales, for First Half 2010 was $0.49 million, including gross margin of $0.09 million (59.5%) on Periowave™ product sales of $0.16 million compared to revenue, net of cost of sales, for First Half 2009 of $0.39 million, including gross margin of $0.33 million (65.4%) on Periowave™ product sales of $0.51 million.

RECENT DEVELOPMENTS

During April 2010, the Company closed two tranches of a non-brokered private placement by issuing 13,800,000 units at $0.06 per unit for aggregate gross proceeds of $828,000. Each unit consists of one common share of the Company and one share purchase warrant entitling the holder to acquire one common share of the Company at an exercise price of $0.075 until one year from closing.

On April 12, 2010, pursuant to a settlement agreement, the Company issued 947,688 common shares in full and final settlement of $113,723 owing to an arms length party for past advisory services provided to the Company.

On June 17, 2010, Terry Holland ceased to be a director of the Company by not standing for re-election at the annual general meeting of the shareholders held on that date. The Company would like to express its sincere appreciation to Mr. Holland, who served as a director and audit committee chairman of the Company for more than six years. Mr. Holland made significant contributions to the Company at both board and operating levels helping to guide Ondine into becoming a manufacturer and leader in the field of photodynamic therapy.

During June 2010, the Company entered into a loan agreement with Carolyn Cross pursuant to which she advanced the Company $500,000, which is due on September 1, 2010. The loan is interest free until the due date, but thereafter, the principal amount will accrue interest at a rate of 5% per annum payable monthly.

On July 6, 2010, the Company entered into non-binding letters of intent (the "LOIs") with a syndicate of private equity investors based in Europe to purchase a majority position in the Company's wholly owned subsidiary, Sinuwave Technologies Corporation ("Sinuwave"). Sinuwave will be dedicated to the development of photodisinfection solutions for the chronic sinusitis market. Under the terms of the LOIs, the syndicate would receive a 70% ownership interest in Sinuwave in return for an upfront cash payment to the Company of US$600,000 and an initial private placement into Sinuwave of US$500,000 (the "Sinuwave Sale"). The syndicate would also commit to provide Sinuwave with additional funding of up to US$1 million by way of equity purchases over a two year period in two tranches. In addition, the syndicate would have the right to invest a further US$1 million in Sinuwave on exercise of share purchase warrants. The parties contemplate that the Company would develop and manufacture, for a defined period of time, any products created under this initiative entitling it to manufacturing margins on the product sales, and would be entitled to ongoing management consulting and product development fees as well as royalties. The Company would also be entitled to additional payments totaling up to US$250,000 based on the achievement of certain regulatory milestones.

In July 2010, the Company completed the development and quality release of a cordless hand held laser ("HHL"), initially for use with the Periowave™ photodisinfection system. Periowave Dental Technologies Inc. ("PDT"), the Company's business partner, has taken pre-orders for this product and the Company expects to ship the initial commercial order of HHL units to PDT in August 2010.

Financial Review

The $0.46 million increase in loss for First Half 2010, when compared to First Half 2009, was primarily due to i) the $0.24 million decrease in gross margin described above, ii) an increase in research and development ("R&D") expenses of $0.33 million; and iii) the results for First Half 2009 included a $0.68 million gain on the sale of the dental business on June 5, 2009 to Periowave Dental Technologies, Inc. (the "Dental Sale"), while there was no comparable transaction in First Half 2010. These increases in loss were partially offset by an increase in consulting revenue of $0.33 million and a decrease of $0.43 million in marketing and sales ("M&S") expenses. General and administration ("G&A) expenses were comparable in both periods.

The $0.77 million increase in loss for Second Quarter 2010, when compared to Second Quarter 2009, was primarily due to i) the $0.19 million decrease in gross margin described above, ii) an increase in R&D expenses of $0.24 million; ii) an increase in G&A expenses of $0.05 million, primarily due to an increase in salaries and wages; and iii) the results for Second Quarter 2009 included a $0.68 million gain on the Dental Sale, while there was no comparable transaction in Second Quarter 2010. These increases in loss were partially offset by an increase in consulting revenue of $0.13 million and a decrease of $0.29 million in M&S expenses.

Sales during First Half 2010 consisted of Periowave™ product, primarily laser base stations, sold to Periowave Dental Technologies, Inc. ("PDT Inc") under a manufacturing and supply agreement entered into in June of 2009 as part of the Dental Sale. During First Half 2009 the Company's sales consisted of Periowave™ product, primarily treatment kits, sold to three distributions in Canada and to a distributor in the United Kingdom. The margins obtained on the sales in First Half 2010 were lower than the margins obtained on the Company's sales during First Half 2009 reflecting the Company's new position as supplier to PDT Inc. However, the gross margin percentage for First Half 2010 was comparable to that for First Half 2009 due to the sale in the first quarter of 2010 of laser base stations that had previously been written off by the Company and accordingly there was no cost of sales in connection with the sale of that product. The gross margin percentage that will be earned on the Company's future sales under the manufacturing agreement referred to above will be lower than the gross margin percentage realized during First Half 2010.

Although Ondine sold its dental healthcare business to PDT Inc in June 2009, the Company expects that its continuing involvement in the dental market through its agreements with PDT Inc will be an important source of future cash flows for Ondine. The Company i) earns gross margin on its Periowave™ product sales to PDT Inc under a manufacturing and supply agreement; ii) receives consulting fees from PDT Inc under a management services agreement, which, together with the fees earned from PDT Inc in connection with a research and development agreement, accounts for the increase in consulting fees described above; and iii) receives royalties on PDT Inc's sales of Periowave™ product. The Company is also entitled to i) a net-receipts royalty if PDT Inc enters into a licensing agreement for Periowave™ with a third party; ii) milestone payments based on cumulative sales thresholds achieved by PDT Inc; and, iii) in lieu of future royalties and milestone payments, a share, based on a sliding scale over time, of the net sales proceeds if PDT Inc sells the dental healthcare business to a third party. Accordingly, one of the Company's near term business objectives is to continue to support PDT Inc as PDT Inc markets Periowave™ in Canada and Europe and as PDT Inc seeks to expand its sales activities into new markets, principally the United States.

The reduction in M&S expenses resulted from the elimination of substantially all of those expenses subsequent to the closing of the Dental Sale. The bulk of the increase in R&D expenses was due to an increase in consulting and professional fees, primarily in connection with the Company's product, the photodynamic endotracheal tube treatment system (the "PETT System"), for in situ disinfection of endotracheal tubes to prevent ventilator-associated pneumonia (VAP) and an increase in costs incurred in connection with the development of a cordless hand held laser, initially for use in the Periowave™ product. The PETT System to prevent VAP was acquired by the Company in December 2009 as part of the acquisition of Advanced Photodynamic Technologies, Inc.

The Company intends to continue to focus its resources on development of a select number of new applications of its platform PDD technology. In addition to the applications referred to above, during First Half 2010 the Company continued to invest in research and development of, among other things, our MRSAid™ product for decolonization of pathogenic bacteria, such as methicillin-resistant Staphylococcus aureus (MRSA) in the anterior nares and in the Periowave™ PMA submission, primarily in connection with a number of FDA audits of certain of the Company's clinical studies. The PMA was submitted by the Company on behalf of PDT to obtain FDA approval for the sale of Periowave™ in the United States for the treatment of periodontitis in adults as an adjunct to standard methods of care.

As at June 30, 2010 the Company had cash and cash equivalents totaling $0.63 million compared with $1.05 million as at December 31, 2009. Accounts payable and accrued liabilities at both June 30, 2010 and December 31, 2009 were $1.1 million. During the First Six Months of 2010, the Company used cash of approximately $1.8 million for operating activities, received total cash proceeds of $0.89 million, net of issuance costs, from the April private placement as described herein and on the exercise of share purchase warrants by Carolyn Cross, Chairman and CEO, and received a loan of $0.5 million as described herein.

Based on the Company's current level of activities and its future plans, the Company will need to raise additional capital in the near term to continue with its planned operating activities. Although there has been some improvement in certain sectors of the capital markets, the Company continues to believe that future market conditions may make it more difficult and time consuming than normal for companies at its stage of development to secure additional funding. Assurances can not be given that additional funding will be available on terms that are acceptable to the Company. In the interim, the Company will continue to control its expenses and defer capital outlays in order to extend the period it can operate utilizing its existing cash balances. Should the Company be unable to obtain additional cash in a timely manner, it would have to severely curtail or cease its activities and their can be no assurances that the Company would be able to continue in business.

At June 30, 2010 the Company had 126,796,145 common shares outstanding.

Additional analysis of the Company's financial results for the Second Quarter of 2010 is included in our management's discussion and analysis of financial condition and results of operations (MDA) for the quarter ended June 30, 2010, which will be available on the Company's website and on www.sedar.com.

About Ondine Biopharma Corporation

Ondine is developing non-antibiotic therapies for the treatment of a broad spectrum of bacterial, fungal and viral infections. The Company is focused on developing leading edge products utilizing its patented light-activated technology. Photodisinfection provides broad-spectrum antimicrobial efficacy without encouraging the formation and spread of antibiotic resistance. The Company is based in Vancouver, British Columbia, Canada, with a research and development laboratory in Bothell, Washington, USA. For additional information, please visit the Company's website at: www.ondinebiopharma.com.

Forward-Looking Statements:

Certain statements contained in this release containing words like "believe", "intend", "may", "expect" and other similar expressions, are forward-looking statements that involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those projected in the Company's forward-looking statements include the following: market acceptance of our technologies and products; our ability to obtain financing; our financial and technical resources relative to those of our competitors; our ability to keep up with rapid technological change; government regulation of our technologies; our ability to enforce our intellectual property rights and protect our proprietary technologies; the ability to obtain and develop partnership opportunities; the timing of commercial product launches; the ability to achieve key technical milestones in key products and other risk factors identified from time to time in the Company's public filings.

Ondine Biopharma Corporation

Incorporated under the laws of British Columbia


CONSOLIDATED BALANCE SHEETS

As at                           (Unaudited - expressed in Canadian Dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                        June 30, 2010     December 31, 2009
                                                    $                     $
---------------------------------------------------------------------------
ASSETS                                                                     
Current                                                                    
Cash and cash equivalents                     626,742             1,055,773
Accounts receivable                           167,631               152,929
Inventories                                   270,971               205,512
Prepaid expenses and deposits                 262,636               143,796
---------------------------------------------------------------------------
Total current assets                        1,327,980             1,558,010
Capital assets                                431,826               451,094
Intangible assets                             533,088               610,012
---------------------------------------------------------------------------
                                            2,292,894             2,619,116
---------------------------------------------------------------------------
---------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY                                        
Current                                                                    
Accounts payable and accrued                                               
 liabilities                                1,097,696             1,102,681
Deposit payable                               190,000                     -
Income taxes payable                            3,045                 1,482
Current portion of deferred tenant                                         
 inducement                                     1,974                46,437
Loan payable                                  500,000                     -
Deferred revenue                               22,258                95,391
Future income tax                              30,776                32,576
---------------------------------------------------------------------------
Total current liabilities                   1,845,749             1,278,567
Deferred tenant inducement, net of                                         
 current portion                              133,950                62,711
---------------------------------------------------------------------------
Total liabilities                           1,979,699             1,341,278
---------------------------------------------------------------------------
Shareholders' equity                                                       
Share capital                              55,433,329            54,767,640
Contributed surplus                         5,806,698             5,191,921
Deficit                                   (60,926,832)          (58,681,723)
---------------------------------------------------------------------------
Total shareholders' equity                    313,195             1,277,838
---------------------------------------------------------------------------
                                            2,292,894             2,619,116
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Ondine Biopharma Corporation

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

                                 (Unaudited - expressed in Canadian dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                           Three months ended June   Six months ended June 
                                     30,                      30,          
                           ------------------------ -----------------------
                                  2010        2009         2010        2009
                                     $           $            $           $
---------------------------------------------------------------------------
REVENUE                                                                    
Product sales                   42,544     315,578      158,708     509,761
Cost of sales                   25,196     104,165       64,235     176,492
---------------------------------------------------------------------------
Gross margin                    17,348     211,413       94,473     333,269
Consulting revenue             181,071      56,178      382,049      56,178
Royalty revenue                  9,564           -       16,150           -
---------------------------------------------------------------------------
                               207,983     267,591      492,672     389,447
---------------------------------------------------------------------------
EXPENSES                                                                   
Research and development       836,614     593,249    1,708,728   1,383,634
General and administration     449,660     394,504      970,967     976,910
Marketing and sales                263     291,131        4,990     436,554
Depreciation and                                                           
 amortization                   73,986      60,799      146,614     122,309
---------------------------------------------------------------------------
                            (1,360,523) (1,339,683)  (2,831,299) (2,919,407)
---------------------------------------------------------------------------
Other                                                                      
Sale of dental business              -     683,388            -     683,388
Gain on settlement of debt      52,123           -       52,123           -
Interest and miscellaneous                                                 
 income                          8,610          52       16,610         361
Foreign exchange                                                           
 gain/(loss)                   (15,279)     47,743       26,577      59,079
---------------------------------------------------------------------------
                                45,454     731,183       95,310     742,828
---------------------------------------------------------------------------
Loss before income taxes    (1,107,086)   (340,909)  (2,243,317) (1,787,132)
  Current income tax                                                       
   expense                           -           -       (7,161)          -
  Future income tax                                                        
   recovery                          -           -        5,369           -
---------------------------------------------------------------------------
Loss and comprehensive loss                                                
 for the period             (1,107,086)   (340,909)  (2,245,109) (1,787,132)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Basic and diluted loss per                                                 
 common share                    (0.01)      (0.00)       (0.02)      (0.03)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Weighted average number of                                                 
 common shares outstanding 125,625,985  75,173,439  118,128,872  70,363,511
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Ondine Biopharma Corporation

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                (Unaudited - expressed in Canadian dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                      Total 
                                                                      Share-
                  Number of       Share Contributed                holder's
                     Common     Capital     Surplus     Deficit      Equity
                     Shares           $           $           $           $
---------------------------------------------------------------------------
Balance,                                                                   
 December 31,                                                               
 2008            61,359,176  51,336,368   4,087,139 (54,086,249)  1,337,258
Common shares                                                              
 issued for cash                                                            
 (net of issue                                                              
 costs):                                                                   

  February 2009                                                             
   Private                                                                  
   Placement      8,620,168     497,671           -           -     497,671
Units issued                                                               
 for cash (net                                                              
 of issue costs)                                                            
  June                                                               
   2009 Private                                                             
   Placement      8,395,275     503,054     347,293           -     850,347
  December 2009                                                             
   Private                                                                  
   Placement      8,000,000     253,644     144,113           -     397,757
Common shares                                                              
 issued for                                                                 
 acquisition of                                                             
 an investment   14,851,250   1,714,669      27,870           -   1,742,539
Common shares                                                              
 issued (net of                                                             
 issue costs)                                                               
 for acquisition                                                            
 of APT           8,856,458     438,927           -           -     438,927
Common shares                                                              
 issued for                                                                 
 research and                                                               
 development                                                                
 agreement          466,130      23,307           -           -      23,307
Stock-based                                                                
 compensation             -           -     585,506           -     585,506
Loss and                                                                   
 comprehensive                                                              
 loss for the                                                               
 year                     -           -           -  (4,595,474) (4,595,474)
---------------------------------------------------------------------------
Balance,                                                                   
 December 31,                                                               
 2009           110,548,457  54,767,640   5,191,921 (58,681,723)  1,277,838
 Units issued                                                               
 for cash (net                                                              
 of issue costs)                                                            
  April                                                              
   2010 Private                                                             
   Placement     13,800,000     504,994     314,797           -     819,791
Common shares                                                              
 issued for                                                                 
 settlement of                                                              
 debt (net of                                                               
 issue costs)       947,688      58,519           -           -      58,519
Common shares                                                              
 issued for                                                                 
 exercise of                                                                
 warrants         1,500,000      75,000           -           -      75,000
Reallocation of                                                            
 contributed                                                                
 surplus as a                                                               
 result of                                                                  
 warrant                                                                    
 exercise                 -      27,176     (27,176)          -           -
Stock-based                                                                
 compensation             -           -     327,156           -     327,156
Loss and                                                                   
 comprehensive                                                              
 loss for the                                                               
 period                   -           -           -  (2,245,109) (2,245,109)
---------------------------------------------------------------------------
Balance, June                                                              
 30, 2010       126,796,145  55,433,329   5,806,698 (60,926,832)    313,195
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Ondine Biopharma Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (Unaudited - expressed in Canadian dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                           Three months ended June   Six months ended June 
                                     30,                      30,          
                           ------------------------ -----------------------
                                 2010        2009         2010         2009
                                    $           $            $            $
---------------------------------------------------------------------------
OPERATING ACTIVITIES                                                       
Loss for the period        (1,107,086)   (340,909)  (2,245,109)  (1,787,132)
Add (deduct) items not                                                     
 affecting cash:                                                           
      Depreciation and                                                     
       amortization             73,986      60,799      146,614     122,309
      Gain on settlement of                                                
       debt                    (52,123)          -      (52,123)          -
      Gain on sale of                                                      
       assets                        -    (683,388)           -    (683,388)
      Stock-based                                                          
       compensation            163,520     170,992      327,156     291,524
      Deferred leasehold                                                   
       inducement                9,785     (11,001)      26,775     (21,591)
      Unrealized foreign                                                   
       exchange (gain) loss          -      (3,719)           -      (3,719)
  Changes in non-cash                                                      
   working capital items                                                   
   relating to operations:                                                 
      Accounts receivable     (158,195)   (177,041)     (14,702)  

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