Gordon McCauley, President and CEO of Allon, said that the current financial market crisis and related economic uncertainties have no direct impact on Allon’s capability to continue the clinical development of its products.
“The $20 million equity financing completed July 15 gives Allon a strong balance sheet from which to operate,” McCauley said. “We will continue to manage our financial resources prudently as we develop our products.”
The Company said key events during the Third Quarter included:
• Successful completion of the $20 million equity financing;
• Presentation of human efficacy and safety data, as well as animal efficacy and pathology data, at ICAD 2008, the world’s leading scientific Alzheimer’s conference; and
• Release of top-line data evaluating the Company’s drug AL-208 in a Phase IIa clinical trial.
Targeting milestones from financial strength
Gordon McCauley, President and CEO of Allon, said the $20 million equity financing completed July 15 is providing the Company with the financial strength to proceed with final plans for the Phase IIb Alzheimer’s trial and to negotiate partnership terms confidently with multiple major pharmaceutical companies.
“We intend to meet both these milestones this year, but the financing has given us some breathing room. We know we can take the time necessary to complete the best trial design and negotiate the best partnership which is imperative given the importance of these two milestones,” said McCauley.
The financing was a bought deal public offering of 19,050,000 common shares at a price of $1.05 per Common Share, resulting in gross proceeds to Allon of $20,002,500. The offering was underwritten by a syndicate led by GMP Securities L.P. and including Canaccord Capital Corporation and Cormark Securities Inc.
AL-108 at ICAD 2008
McCauley also said that data Allon presented July 28 and July 30 to the International Conference on Alzheimer’s Disease and Related Disorders (ICAD 2008) has resulted in a strong positive response from Alzheimer’s physicians and researchers.
Allon made several presentations to ICAD 2008 validating the therapeutic potential of addressing the “tangles” component of the classic Alzheimer’s “plaques and tangles” pathology.
The data presented to ICAD included the complete human efficacy and safety data from Allon’s Phase IIa trial in amnestic mild cognitive impairment (aMCI) patients, a precursor to Alzheimer’s disease, and animal data from several studies. McCauley said the data showed the potential for AL-108 as a treatment for Alzheimer’s disease by improving specific memory function in humans and also reducing the classic Alzheimer’s “tangles” pathology in mice.
The clinical data were presented by Dr. Donald E. Schmechel, a Duke University geriatrics professor and the principal investigator of the clinical trial, and by Professor Illana Gozes of Tel Aviv University, discoverer of AL-108 and Chief Scientific Officer of Allon. The animal data were presented by Prof. Gozes and one of her research collaborators.
Phase IIa clinical trial results
On August 28, Allon released data from a Phase IIa clinical trial evaluating the potential of Allon’s drug AL-208 to prevent or reduce mild cognitive impairment (MCI) in patients who undergo coronary artery bypass graft (CABG) surgery.
The trial determined that that neither patients given AL-208 nor patients given placebo were significantly impaired by the surgery — and that a single-dose of AL-208 had no observable effect because no functional deficit was present.
Approximately two weeks after surgery, patients in both the treated and placebo groups performed at a level similar to age-matched normal adults on executive function and memory tests.
“The data show that this surgery did not impact the cognition of these patients — and that our drug did not and could not provide a solution where no problem existed,” McCauley said.
The data confirm that the drug is safe and well-tolerated. The overall incidence of adverse events was similar between the placebo and AL-208 groups (60% versus 61%) and the majority of the adverse events were mild to moderate in intensity.
McCauley said Allon will develop AL-208 as an Alzheimer’s drug administered subcutaneously as a complement to the intranasal formulation of AL-108. AL-108 and AL-208 are both derived from the same compound developed from the Company’s Activity Dependent Neuroprotective Protein (ADNP) technology platform.
Subsequent event
Allon announced October 7, 2008 that that it has been granted a United States patent covering composition, delivery and method of use for new neuroprotective drugs comprised of combinations of peptides from the Company’s two proprietary technology platforms, activity-dependent neuroprotective protein (ADNP) and activity-dependent neurotrophic factor (ADNF).
The Company said the combinations have demonstrated the capacity to improve cognitive performance and provide neuroprotection in animal models. Testing has shown that combinations of ADNP- and ADNF-derived peptides appear to be complementary and may warrant further investigation to evaluate the commercial potential of a combination therapy.
2008 Milestones update
Allon expects to complete the following milestones during 2008:
• Complete a development and commercialization partnership with a major pharmaceutical company.
• Complete patient enrolment of a Phase II trial evaluating AL-108 as a treatment for schizophrenia-related cognitive impairment.
Allon earlier guided that enrolment in this trial would be completed during the Third Quarter and that top-line results would be reported during the Fourth Quarter. The Company now expects enrolment to be completed during the Fourth Quarter and the top-line results to be announced during the First Quarter of 2009. The trial is being managed and largely funded by TURNS (Treatment Units for Research on Neurocognition and Schizophrenia), which is supported by the U.S. National Institute of Mental Health.
• Receive approval to initiate a Phase IIb clinical trial evaluating AL-108 in mild to moderate Alzheimer’s patients.
• Conduct preclinical studies that will enable an Investigational New Drug application with the United States Food and Drug Administration for approval to begin evaluating AL-309 in human clinical trials.
Results of Operations
The Company reported a net loss of $2,309,735 ($0.03 per share) for the three month period ended September 30, 2008 and $9,373,295 ($0.15 per share) for the nine month period ended September 30, 2008. Net losses for the three and nine month periods ended September 30, 2007 were $3,242,315 ($0.05 per share) and $8,612,351 ($0.17 per share) representing a quarter over quarter decrease of $932,580 and year-to-date increase of $760,944.
The quarter over quarter decrease is largely a result of decreased research and development expenses and foreign exchange gains as opposed to foreign exchange losses in 2007.
The year-to-date increase is the result of higher research and development and general and administrative expenses, partially offset by foreign exchange gains in 2008.
The Company expects overall expenditures for the remainder of 2008 to be comparable to Q3 2008.
Research and Development
For the three months ended September 30, 2008, research and development expenses were $1,673,805 compared to $2,127,980 for the three months ended September 30. 2007. For the nine months ended September 30, 2008, research and development expenses were $7,129,114 compared to $5,796,837 for the nine months ended September 30, 2007.
Quarter over quarter research and development expenses decreased by $454,175 while year-to-date expenses increased by $1,332,277 over the same period in 2007.
The quarter over quarter decrease results from the decrease in clinical trial activity during Q3 2008. In Q3 2007, the Company had three ongoing Phase II clinical trials, two of which were fully funded by the Company. In Q3 2008, one of these trials was completed and the second was completed during the quarter, thereby reducing the development expenses.
The year to date increase results from an additional Phase I study, increased patent and licensing expenses as well as increased preclinical expenses in preparation for the Phase IIb Alzheimer’s study.
With the completion of a Phase II clinical trial for AL-108 in aMCI and completion of a Phase II clinical trial for AL-208 in MCI-CABG during Q1 2008 and Q3 2008 respectively, research and development costs decreased during Q2 2008 and have remained consistent for Q3 2008. The Company expects that research and development costs for the remainder of the year will be similar to Q3.
General and Administrative
For the three months ended September 30, 2008, general and administrative expenses were $872,355 compared to $573,174 for the three months ended September 30, 2007. For the nine months ended September 30, 2008 general and administrative expenses were $2,463,100 compared to $1,801,517 for the nine months ended September 30, 2007. Quarter over quarter expenses increased by $299,181 compared to a $661,583 year to date increase over 2007. The increased expenses primarily resulted from additional business development and investor relations activity, and the addition of personnel.
Amortization
Amortization expense for three month period ended September 30, 2008 was $136,570 compared to $136,416 for the three month period ended September 30, 2007. Amortization expense for the nine month period ended September 30, 2008 was $411,935 compared to $409,415 for the nine month period ended September 30, 2007. Tangible assets are depreciated on a straight-line basis over the expected life of the asset. Intangible assets are depreciated on a straight-line basis over the life of the patent.
Other (Income)/Expenses
For the three month period ended September 30, 2008, the Company recognized other income of $372,995 compared to other expenses of $404,745 for the three month period ended September 30, 2007. The Company recognized other income of $630,854 for the nine month period ended September 30, 2008 compared to other expenses of $604,582 for the nine months ended September 30, 2007. The $777,740 and $1,235,436 quarter over quarter and year-to-date increases are primarily due to the fluctuations in foreign exchange rates.
The Company earned interest revenue of $142,172 and $305,247 during the three and nine month periods ended September 30, 2008 compared to $222,846 and $462,764 for the same periods ended September 30, 2007. Reduced interest earnings primarily resulted from lower interest rates for the nine months ended September 30, 2008 compared to 2007.
The Company incurred a foreign exchange translation gain of $239,701 and $346,172 during the respective three and nine month periods ended September 30, 2008 compared to foreign exchange translation losses of $650,247 and $1,091,306 for the same periods ended September 30, 2007. The Company’s foreign exchange exposure is primarily limited to translation of U.S. dollar balances in cash and short-term investment accounts to Canadian dollars. During 2008, the Canadian dollar declined against the U.S. dollar resulting in foreign exchange gains on the Company’s U.S. dollar cash and short term investments, compared to the same period in 2007 when the Canadian dollar appreciated significantly against the U.S. dollar resulting in foreign exchange losses on our U.S. dollar cash and short term investments. The Company’s policy is to maintain sufficient U.S. denominated cash, cash equivalent and short-term investment balances to match its anticipated U.S. dollar operating expenses. Foreign exchange risk is detailed further in Note 10 of the Company’s Financial Statements.
Liquidity and Capital Resources
At September 30, 2008 the Company had cash and short-term investments of $21,657,248 compared to $13,126,865 at December 31, 2007.
Short-term investments are held in high-grade, liquid commercial paper and other low risk investments which are recorded at fair value. The Company has no exposure to liquidity or other risks associated with certain Asset-Backed Securities. At September 30, 2008 maturities on investments were all less than two months. Working capital at September 30, 2008 was $21.6 million compared to $11.9 million at December 31, 2007. The working capital increase is a result of the financing in July 2008 less the Company’s investment in research and development associated with the completion of two Phase II clinical trials for AL-108 in aMCI and AL-208 in MCI-CABG, the progression of the Company’s Phase II clinical trial in schizophrenia and other research and development initiatives.
About Allon’s neuroprotective platforms
Allon’s two neuroprotective technology platforms are based on two naturally occurring proteins secreted by the brain in response to a range of insults. The platforms are activity-dependent neuroprotective protein (ADNP) and activity-dependent neurotrophic factor (ADNF). Because the two platforms are based on different proteins, the drugs from each are different molecules with different therapeutic mechanisms and distinct commercial opportunities. Clinical-stage drugs AL-108 and AL-208 are derived from ADNP, while preclinical stage drug AL-309 is derived from ADNF.
About Allon
Allon Therapeutics Inc. is a clinical-stage biotechnology company developing treatments for major neurodegenerative conditions. In Q1 2008, Allon’s drug AL-108 demonstrated human efficacy in amnestic mild cognitive impairment, a precursor to Alzheimer’s disease. Allon has Phase II human efficacy programs pursuing two large underserved markets: Alzheimer's disease and schizophrenia-related cognitive impairment. The Company is listed on the Toronto Stock Exchange under the trading symbol "NPC" (Neuro Protection CompanyTM) and based in Vancouver. For additional information please visit the Company's website: www.allontherapeutics.com.
Forward Looking Statements
Statements contained herein, other than those which are strictly statements of historical fact may include forward-looking information. Such statements will typically contain words such as "believes", "may", "plans", "will", "estimate", "continue", "anticipates", "intends", "expects", and similar expressions. While forward-looking statements represent management’s outlook based on assumptions that management believes are reasonable, forward-looking statements by their nature are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by them. Such factors include, among others, the inherent uncertainty involved in scientific research and drug development, Allon's early stage of development, lack of product revenues, its additional capital requirements, the risks associated with successful completion of clinical trials and the long lead-times and high costs associated with obtaining regulatory approval to market any product which Allon may eventually develop. Other risk factors include the limited protections afforded by intellectual property rights, rapid technology and product obsolescence in a highly competitive environment and Allon’s dependence on collaborative partners and contract research organizations. These factors can be reviewed in Allon’s public filings at www. SEDAR.com and should be considered carefully. Readers are cautioned not to place undue reliance on such forward-looking statements and Allon disclaims any obligation to update or announce changes in any such factors except in its periodic filings.
