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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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