VEDBAEK, Denmark, November 26 /PRNewswire-FirstCall/ -- Exiqon A/S, traded at the NASDAQ OMX Copenhagen (“EXQ”), reports continued strong growth in research product sales during the third quarter of 2008. Revenues were positively affected by the execution of a license agreement with Roche Diagnostics for use of Exiqon’s LNA(TM) technology. Initial fourth quarter sales were negatively affected by supply of arrays that failed Exiqon’s internal quality tests causing a slow down in executed sales orders. Although the supply problems have now been addressed, Exiqon revises its 2008 total year guidance of revenue of DKK 140-150 million to now DKK 120-130 million. As a result, a net loss of DKK 115-125 is now anticipated compared to previous expectations of a net loss of DKK 100-115 million.
Lars Kongsbak, President and CEO says: “Product demand remains strong and business sound. The quality issue affecting our array supply at the beginning of the fourth quarter has had a short term impact but corrective measures have been taken and we are now reducing our backlog.
We are exited about the thorough validation of the Oncotech EDR test by the EORTC trial in October which demonstrates the Oncotech EDR test can successfully be applied in treatment guidance of women diagnosed with ovarian cancer. This is the first time a prospective trial documented that cellular tests can be used to personalize treatments. This is important news for women worldwide, for the medical profession and for our company and we will work to promote a more widespread use of these tests.”
Operational status and expectations for the remainder of the year
Exiqon has three revenue driving businesses: the diagnostic business that sells the Oncotech EDR assay and will be marketing Exiqon’s new diagnostic tests based on miRNA Exiqon Diagnostics. The tools business, based on sales of innovative proprietary reagents for miRNA research based on LNA(TM) named Exiqon Life Sciences; and the contract research business focused on collaborations with pharmaceutical companies to target new medication for patient populations profiled on the basis of miRNA biomarkers that is named Exiqon Pharma Services.
To prepare the company for future challenges, the management team has been expanded with a VP of Sales in Exiqon Diagnostics, Ronald Blum, and VP Manufacturing, Life Sciences, Carsten Heinze. Chief Operating Officer, Michael Kallelis has left the company and his position will not be replaced.
Exiqon Life Sciences
Exiqon is a leading provider of research products for miRNA analyses based on LNA(TM). These research products target needs in the pharmaceutical industry and in academia for biomarker identification and drug target identification.
A review of 65 peer reviewed scientific papers published by October, 2008 shows that LNA(TM) is used in 23% of all scientific papers that review miRNA. In 100% of the papers that use in situ hybridization, LNA(TM) was used reflecting the truly enabling capabilities of Exiqons LNA(TM) technology.
Exiqon Life Sciences continues to benefit from a strong demand for miRNA research products. Expanding the portfolio of research products remains a key success criteria in supporting the continued growth of the Life Sciences business.
During the third quarter of 2008 Exiqon expanded its product line for detection of miRNAs by a new miRNA array that allows for simultaneous screening of more than 1300 different miRNAs and the expansion of our real-time PCR offering for quantitative analysis of miRNA. Planned near term research product release includes a kit for miRNA sample preparation of miRNA from biological material. Expensed cost of preparations for new product launches and the cost of unused capacity influence the short-term gross margin during the current build-up phase. Expanding the product portfolio will support continued strong growth in product sales which is a key success criteria in turning the Life Science segment cash flow positive.
Exiqon Diagnostics
Exiqon Diagnostics offers a variety of diagnostics tests that can optimize the use of existing medicine and avoid unnecessary and non-effective treatment. These tests are offered through the CLIA laboratory in Tustin, California. Cellular based Oncotech EDR tests rely on fresh cancer tissue. New diagnostic tests based on miRNA are being developed to complement the current product offering. These new molecular diagnostic tests can be performed on tissue in formalin fixed paraffin embedded blocks (FFPE).
Portfolio of cellular based Oncotech EDR tests
Exiqon is the leading provider of cellular tests for extreme drug resistance analysis (EDR). The Oncotech EDR test is available for all major cancers. More information is available at http://www.oncotech.com.
The current market for cellular based EDR tests is limited by the requirement for fresh tissue. The requirement for fresh tissue is not fully compatible with standard procedures at hospitals as most tissues are available as formalin fixed paraffin embedded blocks (FFPE). Providing molecular diagnostic tests based on biomarkers such as miRNA will allow Exiqon Diagnostics to overcome limitations associated with the fresh tissue requirement.
Exiqon has a broad portfolio of new molecular diagnostic products; these will be laboratory developed tests (LDT’s):
Portfolio of laboratory developed tests (LDT’s):
The first LDT will be announced before year end 2008 and is targeting one of the major cancers addressing a patient population of approximately 30,000 yearly in the US. Additional products are being developed for expected launch in 2009. Exiqon has identified miRNA targets involved in major cancers (lung, colon, breast and ovary cancer) for our LDT’s. These tests will address sub-segments of the indications and may provide information such as prognosis and recurrence in these indications. In part, these tests will be based on in situ hybridization (ISH. The current product development time for such products is on average 9-12 months. Clinical validation will take anywhere from months to years depending on the type of clinical validation that is sought. Thorough clinical validation is required to secure recommendation by oncology organizations like ASCO and to obtain an optimal reimbursement.
Portfolio of molecular diagnostic drug resistance tests
Exiqon is also developing new molecular diagnostic tests for drug resistance testing in major cancers including colon, lung (NSCLC), ovary and breast, where a cellular based EDR test is currently offered. The current Oncotech EDR-test will be complemented by a new molecular diagnostic test based on miRNA profiling. The new molecular diagnostic tests will likely rely on a multitude of miRNA biomarkers. These tests will be developed for use on FFPE samples and allow Exiqon Diagnostic to overcome limitations associated with the requirement of fresh tissue that is necessary for the current Oncotech EDR test.
The first new molecular diagnostic test based on miRNA profiling is planned for colon cancer addressing a market of more than 112,000 annual incidences. This test is expected to be commercially available late H2 2009.
Molecular diagnostic CUP-test
Exiqon Diagnostics is collaborating with Rigshospitalet, Onkologisk Klinik, The Finsen Center and Klinisk Biokemisk Afdeling at Rigshospitalet on the development and verification of a miRNA-based diagnostic test for cancer of unknown primary site. The Danish National Advanced Technology Foundation has awarded a grant of DKK 14 million for the development and clinical validation of this test. Cancer of unknown primary is a problem in approximately 5% of all diagnosed cancer patients, which amounts to approximately 72,000 patients annually in the US alone. Accurate diagnosis for cancer of unknown primary is critical in the process of determining the optimal treatment.
Exiqon Diagnostics expects to make its molecular diagnostic CUP-test commercially available in 2010.
Exiqon Pharma Services
Exiqon’s objective for collaborations through its Pharma Service unit is to support the trend towards personalized medicine by facilitating the discovery of new miRNA biomarkers that may eventually be used in companion diagnostic products by drug developing companies. Exiqon is uniquely positioned to service the pharmaceutical industry in this process. Exiqon offers access to more than 150,000 primary tumor samples, extreme drug resistance testing and biomarker discovery as well as a significant know how.
During the last quarter of 2008, Exiqon expects to present data that will demonstrate how the Oncotech-EDR test may be used on new drug candidates to help identify miRNA biomarkers that may be used in potential companion products.
Comments on the interim report for the third quarter of 2008
The financial performance in the third quarter and the first nine months of 2008 was consistent with expectations regardless of difficulties at the beginning of the fourth quarter:
Revenue and margins
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Revenue increased 504% compared to the third quarter of 2007 which is in particular attributable to the license agreement with Roche, and due to the acquisition of Oncotech in Q1 2008 from which revenue is fully recognized in the third quarter of 2008. The organic growth in research product sales was 141% compared to the third quarter of 2007.
In the third quarter of 2008, more than 54% of the revenue was generated by product sales compared to approximately 72% in the third quarter of 2007. The share is affected by a Roche license payment of DKK 20.2 million. Excluding Roche payment, product sales is generating 90 % of the revenue. Revenue from licenses, royalties and contract research are affected by payments under the license agreement with Roche, which was expected in the third quarter.
The composition of revenue during the first nine months compared to the first nine months:
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The geographic split in revenue compared to the first nine months of 2007 is illustrated in the chart below, which shows that approximately 2/3 of revenue is now generated in North America:
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In the third quarter of 2008, gross margin was 57% compared to 17% in the same period last year, totaling 46% in the first nine months of 2008. Direct contribution margin was 68% in the third quarter of 2008 compared to 58% in the third quarter of 2007, totaling 67% in the first nine months of 2008 due to the effect of the Oncotech acquisition in the third quarter of 2008. Gross margin is affected by new product offerings and cost of unused capacity during the current build-up phase. Initiatives have been implemented to secure an improved gross margin contribution from both research product sales and diagnostic product sales (EDR tests), which will include a review of processes, procedures and the supply chain.
Research and development costs
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In the third quarter of 2008, research and development costs increased172% compared to the third quarter of 2007 primarily caused by the effect of the acquisition of Oncotech. Moreover, increased research and development cost is the result of the aggressive plan for the development of molecular diagnostic products and the additional people involved in R&D compared to the third quarter of 2007. R&D costs for the full year are consequently expected to be significantly higher than last year.
SG&A
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In the third quarter of 2008, SG&A costs increased 122% compared to the third quarter of 2007 primarily caused by the effect of the acquisition of Oncotech, which has caused an increased cost base. Moreover, the status of Exiqon Inc. has been changed compared to the third quarter of 2007 following the establishment of a production facility in Boston and is no longer solely recognized as a sales and marketing cost but included on a functional basis. SG&A costs for the full year are consequently expected to be significantly higher than last year.
Total operating costs
Total operating costs increased 88% to DKK 125.1 million in the first nine months of 2008 from DKK 66.9 million in the same period of 2007 (excluding production costs). Operating costs are charged with DKK 1.6 million in respect of share-based payment. Net of this charge, total operating costs increased 112% to DKK 124.2 million in the first nine months of 2008 compared to DKK 59.7 million in the same period of 2007, which is in line with expectations.
Net financials
Net financial income totaled DKK 7.8 million in the first nine months of 2008 compared to DKK 4.9 million in the same period of 2007. Financial income primarily consists of interest on fixed-term deposit accounts, while financial expenses mainly consist of interest on finance leases and currency losses.
The net loss for the first nine months of 2008 totaled DKK 73.6 million compared to DKK 47.0 million in the same period of 2007. This is consistent with our expectations.
Net cash flows were negative in the amount of DKK 140.3 million in the first nine months of 2008 compared to a net cash inflow of DKK 338.4 million in the same period of 2007. The decrease is mainly due to the IPO in the third quarter of 2007 but is also due to higher operating costs compared to last year.
As of 30 September 2008, cash and cash equivalents totaled DKK 189.6 million compared to DKK 358.4 million as of 30 September 2007. As part of the company’s growth strategy working capital is invested in product development, production capacity, inventory and trade receivables during the build-up phase with the goal of reaching profitability by 2011 with its current cash position and break even of the Life Science business by 2009.
Events occurring after 30 September 2008
On October 27th, 2008 Exiqon announced that clinical trial results demonstrate that the use of the Oncotech EDR Assay predictive test can predict resistance to platinum-based chemotherapy before therapy is initiated.
These results are important to ovarian cancer treating physicians since ovarian cancer is known to show resistance to platinum-based agents. Currently, the standard first-line treatment regimen for late stage ovarian cancer contains platinum-based chemotherapy.
The results were reported based on a multi-institutional prospective randomized clinical trial on 719 late stage epithelial ovarian cancer patients conducted by The European Organization for Research and Treatment of Cancer (EORTC). Results were announced at the 2008 International Gynecologic Cancer Society (IGCS) biennial meeting in Bangkok, Thailand. In this study, Oncotech EDR Assays were performed on biopsies obtained from 246 patients. Results clearly demonstrate that resistance to carboplatin, as identified by the Oncotech EDR Assay, was a significant independent predictor for response to first-line treatment in advanced ovarian cancer patients.
Financial outlook 2008
Exiqon expects revenue of DKK 120-130 million in 2008 including both research product sales and diagnostic sales compared to previous expectations of revenue of DKK 140-150 million. As a result, a net loss of DKK 115-125 million including costs of incentive plans of DKK 6 million is expected for the full year 2008 compared to previous expectations of a net loss of DKK 100-115 million including the effect of costs of incentive plans of DKK 6 million.
Exiqon maintains its long-term financial goal of reaching profitability by 2011 with its current cash position and break even of the Life Science business by 2009.
Directors’ and Management’s statement on the interim report
The Board of Directors and the Executive Management have today considered and adopted the interim report of Exiqon A/S for the period 1 January - 30 September 2008.
The interim report is prepared in accordance with IAS 34 and additional Danish disclosure requirements for the presentation of financial statements by listed companies. The interim report is unaudited.
We consider the accounting policies to be appropriate, the accounting estimates made to be reasonable and the overall presentation of the interim report to be adequate, so that the interim report, in our opinion, gives a true and fair view of the assets, liabilities, financial position, and results of operations and cash flows of the group for the period 1 January - 30 September 2008. We consider the Management’s statement to give a true and fair description of the development in the Group’s activities and economic situation, the results of operations and the Group’s financial position as a whole and a description of the significant risks and uncertainty factors, which the Group faces.
Forward-looking statement:
Certain parts of this release contain forward looking information with respect to the plans, projections and future performance of the company, each of which involves significant uncertainties. The company’s actual results may differ materially from the information set forth in these statements. This is an English translation of the interim report prepared in Danish. In case of any discrepancies between the Danish version and this English translation thereof, the Danish version shall prevail.
Key figures for the Exiqon Group (unaudited)
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Condensed consolidated income statement (unaudited)
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Condensed consolidated balance sheet - assets (unaudited)
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Condensed consolidated balance sheet - equity and liabilities (unaudited)
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Condensed consolidated cash flow statement (unaudited)
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Condensed consolidated statement of changes in equity (unaudited)
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Notes to the interim financial statements
Note 1 Accounting policies
The interim report of the Exiqon Group for the period 1 January - 30 September 2008 has been presented in accordance with IAS 34 and additional Danish disclosure requirements for the presentation of financial statements by listed companies.
The accounting policies applied to the interim financial statements are consistent with those applied to the annual report for the financial year 2007.
After the annual report for the financial year 2007 was presented, the International Accounting Standards Board (IASB) has issued new and revised Standards and Interpretations. The Group has chosen to implement IFRS 8, Operating Segments before it comes in effect. This means that the segment information is based on how internal reporting to the Group’s Management is done.
Besides IFRS 8, the Group has chosen not to implement other new and revised Standards and Interpretations and it is the Management’s opinion that these new Standards and Interpretations will not have any significant effect on the Group’s financial statements. Exiqon made an agreement concerning the acquisition of Oncotech Inc. on 29 February 2008 and the numbers from the activity in Oncotech Inc. is included in the Group accounts as of 1 March 2008.
Significant estimates and assumptions by the Management:
In addition to the significant accounting estimates and assumptions listed in the annual report for 2007, the management has made significant estimates in respect of the recognition and measurement of the acquisition of Oncotech Inc. Thus, purchase price allocations are made at fair value of identified assets, liabilities and contingent liabilities. Purchase price allocation mainly relate to intangible assets. The measurement of fair value is related to management estimates which are based on the assets’ expected future earnings. The Management also makes estimates of the useful life of the assets and their depreciation and amortization profile which is systematically based on the expected distribution of the assets’ future economic benefits.
Note 2 Revenue
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Note 3 Segment information
Exiqon’s Management has defined two separate business areas on which to report: Tools and Diagnostics.
The Tools business comprises products and services for research use. The Diagnostics business comprises products and services for diagnostic use.
When the Management makes strategic decisions it distinguishes between these two segments. The performance in each segment is based on Revenue and Operating profit/(loss). To the extent possible revenue, costs, assets and liabilities are allocated to each segment. Items, which cannot be allocated, are included as “Other”. Financial items are managed on a Group level and included as “Other”. Intercompany transactions are included under the relevant segment and eliminated in the Group accounts.
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Comparative numbers include only the Tools business. No figures are included in the above table since diagnostic revenue is generated through Oncotech Inc. and no diagnostic revenue was generated in third quarter 2007.
Geographic
The revenue of the Exiqon Group is distributed on geographical segments as follows:
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Note 4 Cash and cash equivalents
Cash and cash equivalents are mainly invested in short fixed-term deposits, which are regularly renewed. These deposits involve only limited risk.
Note 5 Acquisition of subsidiary
On 29 February 2008 Exiqon A/S completed the acquisition of 100% of the shares in Oncotech Inc. The purchase price is paid by the issuance of 5,550,274 new shares of DKK 1 in Exiqon A/S corresponding to a value of DKK 205.4 million at a market price of DKK 37.0 per share on the transaction day. The final purchase price is adjusted as a result of the undertaking of the liabilities.
For the acquisition is paid an amount that exceeds the fair value of the identified assets, liabilities and contingent liabilities. This positive balance is primarily due to expected synergies between the activities in the acquired company and the Group’s existing activities, future growth possibilities and Oncotech’s employees.
The cost price may be specified as follows:
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The specification is preliminary since the final allocation of the purchase price is subject to change for up to twelve months after the acquisition date.
Transaction costs of DKK'000 7,372 is included in the purchase price.
Had Oncotech Inc. been acquired as of 1 January 2008, the Group’s revenue and loss for the period would have been:
As a consequence of depreciation and amortization the figures in the balance sheet differ from the figures on the note.
Note 6 Warrant status
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As of 30 September 2008, the following warrant programs are still outstanding:
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Warrant programme granted in May 2006
All warrants granted in May 2006 are fully vested. The exercise period expires on 21 January 2011.
Warrant programme granted in December 2006
All warrants granted in December 2006 are fully vested. The exercise period expires on 21 January 2011.
Warrant programme granted in May 2007
Warrants granted in May 2007 are divided into 36 tranches, with 1/36 vesting monthly over a 36 month period. The exercise period expires in 2010. The exercise price is 40 with a premium of 5% p.a. from the date of grant until exercise.
Warrant programme granted in January 2008
Warrants granted in January 2008 are divided into 36 tranches, with 1/36 vesting monthly over a 36 month period. The exercise period expires in 2011. The exercise price is 36.2 with a premium of 5% p.a. from the date of grant until exercise.
Warrant programme granted in February 2008
Warrants granted in February 2008 are divided into 36 tranches, with 1/36 vesting monthly over a 36 month period. The exercise period expires in 2011. The exercise price is 37.9 with a premium of 5% p.a. from the date of grant until exercise.
Warrant programme granted in April 2008
Warrants granted in April 2008 are divided into 36 tranches, with 1/36 vesting monthly over a 36 month period. The exercise period expires in 2011. The exercise price is 33.9 with a premium of 5% p.a. from the date of grant until exercise.
Warrant programme granted in September 2008
Warrants granted in September 2008 are divided into 36 tranches, with 1/36 vesting monthly over a 36 month period. The exercise period expires in 2011. The exercise price is 26 with a premium of 5% p.a. from the date of grant until exercise.
CONTACT: Additional information: Lars Kongsbak, CEO, phone
+45-45-66-08-88, cell: +45-40-90-21-01; Hans Henrik Chrois Christensen,
CFO, phone +45-45-66-08-88, cell: +45-40-90-21-31
