VANCOUVER, March 21 /PRNewswire-FirstCall/ - Inex Pharmaceuticals Corporation released its 2006 audited operating results today and announced plans to build on the year’s scientific, business and financing successes. In 2007, the Company will focus on advancing its anti-cancer product candidate INX-0167 toward clinical trials while continuing to support its partners as they advance products based on INEX’s technology.
Timothy M. Ruane, President and Chief Executive Officer of INEX, said the past 12 months included a number of achievements including partnership agreements with Alnylam Pharmaceuticals, Inc. and Hana Biosciences, Inc. as well as the settlement of convertible debt and the completion of a $16.0 million equity financing.
“As a result of our business and financing successes we believe we have the financial stability for the next two to three years to advance our internal pipeline and to support our partners to advance their products using our technology. In the next 18 months, we expect there will be a minimum of six products using our technology in clinical trials,” said Ruane.
INX-0167
INX-0167 is the Company’s lead internal product candidate using DNA oligonucleotides to stimulate the immune system to treat cancer. Preclinical studies have demonstrated the capability of INX-0167 to enhance natural killer cell activity and to dramatically improve the anti-tumour effectiveness of monoclonal antibodies when tested in lymphoma and breast cancer models. In 2007, the Company will focus on safety and toxicology studies in animals to identify a safe initial dose for beginning Phase 1 human clinical trials. INX-0167 targets Toll-like receptor 9 (TLR9) which stimulates an immune response including the activation of natural killer cells.
Partnerships
The partnership with Alnylam announced in 2006 and expanded in early 2007 is developing drugs that consist of Alnylam’s proprietary small interfering RNA (siRNA) oligonucleotides encapsulated in INEX’s oligonucleotide delivery technology. Alnylam siRNA drugs have demonstrated the capability to switch off genes that produce disease-causing proteins through a mechanism known as RNA interference (RNAi). The partnership with Alnylam also gives INEX rights to develop three siRNA drugs that use Alnylam’s RNAi technology and to develop immune stimulatory drugs using Alnylam’s RNA technology.
A partnership with Hana was signed in 2006 for the development and commercialization of INEX’s targeted chemotherapy products - Marqibo(R) (sphingosomal vincristine), INX-0125 (sphingosomal vinorelbine) and INX-0076 (sphingosomal topotecan). The Company also has partnerships with two other companies, Esperion Therapeutics, Inc. (now owned by Pfizer Inc.) and Aradigm Corporation to whom was licensed, in 1999 and 2004 respectively, technology and patents for development into drug products. All costs are borne by the partners and INEX has the opportunity to receive milestones and royalties on success.
Upcoming Events
Over the next 12 months, INEX expects to provide progress updates on the following objectives of either INEX or its partners:
First Half 2007 - Complete the spin-out of Tekmira Pharmaceuticals Corporation (“Tekmira”). - Commencement by Hana of a pivotal Phase 2 clinical trial to evaluate Marqibo as a treatment for relapsed acute lymphoblastic leukemia. Second Half 2007 - Completion by Hana of a Phase 1 clinical trial evaluating INX-0125. - Commencement by Hana of a Phase 1 clinical trial evaluating INX-0076. - Commencement by Hana of a Phase 3 clinical trial to evaluate Marqibo as a treatment for front-line acute lymphoblastic leukemia. - Continuation of toxicology and other studies in preparation for filing of an investigational new drug (IND) application for approval to evaluate INX-0167 in human clinical trials. - Filing of an IND by Alnylam for approval to begin clinical trials for PCS-01, a siRNA gene-silencing product targeting hypercholesterolemia. - Announcement of a gene target for the first of INEX’s three siRNA gene silencing products included in the Alnylam partnership. Financial Results
The following is selected financial information for fiscal years 2006, 2005 and 2004:
(in millions of Cdn$ except per share date) 2006 2005 2004 ------------------------------------------------------------------------- Total revenues $ 15.9 $ 15.4 $ 14.6 Research and development expenses 5.3 10.2 26.8 General and administrative expenses 4.5 4.4 9.3 Restructuring costs - 5.7 5.1 Amortization 0.8 2.1 6.6 Total income (loss) 21.1 (9.4) (33.7) Income (Loss) per share 0.55 (0.24) (0.88) Diluted income (loss) per share 0.55 (0.24) (0.88) Total assets 7.0 21.5 49.4 Total long-term liabilities 0.1 40.4 38.7 Deficit (195.3) (222.3) (212.9) Total shareholders’ equity (deficit) 0.2 (21.5) (12.6)
The factors that have caused period to period variations in revenues, expenses and loss per year between 2006 and 2005 are explained in further detail below. The most significant factor causing the period to period variations between 2005 and 2004 were the December 2004 and June 2005 workforce reductions and program cut backs as reflected in reduced research and development and general and administrative expenses and a charge for restructuring costs. The December 2004 scaling back of activities and workforce reduction was in response to the December 1, 2004 FDA’s Oncologic Drugs Advisory Committee (“ODAC”) vote to not support accelerated approval for Marqibo. INEX’s workforce was further reduced in June 2005 in order to conserve cash and to facilitate a new strategic path for its targeted chemotherapy products and early stage pipeline based on oligonucleotide drugs.
Amortization expense decreased by $4.5 million in 2005 as compared to 2004 largely due to medical technology acquired in 1998 from Lynx Therapeutics being written off to nil through a $3.4 million impairment loss in the fourth quarter of 2004 and therefore no ongoing amortization expense for this technology in 2005.
The decrease in total assets from 2004 to 2005 was primarily due to decreasing cash and cash equivalents and a reduced property and equipment value resulting from both disposals and impairment charges tied to the restructurings following the December 2004 decision of ODAC.
RESULTS OF OPERATIONS
For the fiscal year ended December 31, 2006, net income was $21.1 million ($0.55 per common share) as compared to a net loss of $9.4 million ($0.24 loss per common share) for 2005.
There are a number of factors contributing to changes in results including the gain on the purchase and settlement of the exchangeable and development notes and revenue from INEX’s current collaborative partnerships with Hana and Alnylam.
Revenue / Revenue from research and development collaborations, licensing fees and milestone payments was $15.9 million for 2006 as compared to $15.4 million for 2005. Revenue in 2005 was primarily a consequence of the recognition of deferred revenue and a one-time payment as a result of the termination of a previous partnership with Enzon Pharmaceuticals, Inc. (“Enzon”). Revenue in 2006 arises from licensing and collaboration payments from partnerships with Hana and Alnylam.
Revenue is detailed in the following table: (in millions Cdn$) 2006 2005 ------------------------------------------------------------------------- Research and development collaborations Enzon $ - $ 1.3 Alnylam 1.4 - Hana 1.2 - ------------------------------------------------------------------------- Total research and development collaborations $ 2.6 $ 1.3 Licensing fees and milestone payments Enzon revenue Amortization of up-front payment $ - $ 11.2 Milestones and termination payment - 2.7 Aradigm initial licensing fee - 0.2 Alnylam initial licensing fee 1.0 - Hana revenue Amortization of Up-front Payments 11.2 - Milestone 1.1 - ------------------------------------------------------------------------- Total licensing fees and milestone payments $ 13.3 $ 14.1
Alnylam revenue / On March 25, 2006, INEX signed an exclusive research collaboration agreement with Alnylam to evaluate Alnylam’s RNAi therapeutics with INEX’s systemic lipid-based technology. This agreement was amended on July 14, 2006. Under the amended agreement, Alnylam paid INEX $1.4 million (US 1.2 million) in collaboration payments and $1.7 million (US$1.5 million) in licensing payments. Collaboration revenue from this agreement was recognized in 2006 as Research and development collaborations revenue as services were performed and related expenditures were incurred.
During 2006, Alnylam made licensing payments of $0.6 million (US$0.5 million) for a 12 month option to execute a global license for specific RNAi therapeutic targets. Income from this option is being recognized as Licensing fees and milestone payments on a straight-line basis over the period that the option covers from March 25, 2006 to March 24, 2007. Alnylam has also paid $1.1 million (US$1.0 million) relating to an option to take a broad exclusive license to certain of INEX’s technology. Income from this option is being recognized as Licensing fees and milestone payments on a straight-line basis over the period of the option from September 26, 2006 to March 24, 2007 leaving $0.7 million as Deferred revenue at the end of 2006.
Hana revenue / On May 6, 2006, INEX signed a number of agreements with Hana including an agreement to issue worldwide licenses (the “License Agreement”) for INEX’s targeted chemotherapy products, Marqibo, INX-0125 and INX-0076. Under the License Agreement, Hana paid a non-refundable up-front cash payment of $1.7 million (US$1.5 million) and issued INEX with 1,118,568 Hana shares (together the “Up-front Payments”). The value of the Hana shares on May 6, 2006, based on a share price of $12.34 (US$11.15) was $13.8 million (US$12.5 million) giving a total of $15.5 million (US$14.0 million) in Up-front Payments. Also on May 6, 2006, INEX signed an asset transfer agreement with Hana to transfer certain of surplus laboratory equipment as part consideration for the Up-front Payments from Hana. The net book value of the assets transferred under this agreement was $0.2 million. Effective April 3, 2006, INEX also signed a Service Agreement under which Hana is reimbursing the Company for expenses and time spent in maintaining and transferring the technology and product expertise related to the three products.
In accordance with INEX’s revenue recognition policy, $15.3 million of the Up-front Payments was deferred and was initially being amortized on a straight line basis from April 3, 2006 to December 31, 2006 by which time INEX had expected to deliver substantially all services under the Service Agreement. After reviewing the delivery of services to Hana in the fourth quarter of 2006, INEX now expects to deliver substantially all services by the end of 2007 so has extended the amortization of the Up-front Payments, effective October 1, 2006, to December 31, 2007. As a result, at the end of 2006, $4.1 million is included in Deferred revenue in respect of Up-front Payments from Hana. The $0.2 million balance of the Up-front Payment has been allocated to the surplus laboratory equipment transferred to Hana giving a gain on disposal of nil.
On August 29, 2006, INEX received a notice from Hana that they had enrolled the first patient in a Phase 1 clinical trial of INX-0125 thereby triggering a milestone payment of $1.1 million (US$1.0 million).
Under the License Agreement INEX could receive up to an additional US$29.5 million in cash or Hana shares for development and regulatory milestones and will also receive royalties on product sales.
Under INEX’s agreement with the former holders of the exchangeable and development notes (“Former Noteholders”), the Up-front Hana shares, $2.8 million (US$2.5 million) in cash and the $1.1 million (US$1.0 million) milestone payment less royalties of $0.2 million (US$0.2 million) paid to the University of British Columbia, have been transferred to them. INEX has agreed to pay certain of the future contingent Hana milestones and royalties to the Former Noteholders.
Aradigm revenue / The Aradigm revenue is a licensing fee received from Aradigm according to an agreement dated December 8, 2004 under which Aradigm licensed certain INEX sphingosomal technology for the delivery of ciprofloxacin.
Expenses / Research and development / Research and development expenses decreased to $5.3 million for 2006 as compared to $10.2 million for 2005. This decrease relates primarily to reduced research and development personnel, reduced external costs for products in INEX’s pipeline and reduced facility overheads. Research and development salary expenses declined $1.4 million as compared with 2005 due to workforce reductions in June 2005. Internal research and development staff was 21 at December 31, 2006 (total staff 30) as compared to 37 (total staff 57) just prior to the June 2005 restructuring. Effective October 1, 2005, INEX reduced its lease and operating expenses through a sub-lease agreement for certain of its laboratory and office space. Also contributing to the decrease in research and development costs is decreased external costs related to the targeted chemotherapy platform for which spending was reduced after Enzon terminated a strategic partnership in the first quarter of 2005 and for which spending was passed through to Hana from April 2006.
With planned staffing and research and development activity increases, INEX (and subsequently Tekmira) expects research and development costs to be approximately $10.0 million in 2007.
General and administrative / General and administrative expenses were $4.5 million for 2006 as compared to $4.4 million for 2005. Legal and consulting fees increased significantly in 2006 and relate to the Hana and Alnylam partnerships, litigation with the former majority noteholder (prior to settlement), litigation with Protiva and ongoing spin-out activities. Salaries and related costs decreased substantially after the June 2005 workforce reductions.
INEX (and subsequently Tekmira) currently estimates that general and administrative expenses in 2007 will be approximately $4.0 million.
Restructuring costs / Net restructuring costs for the year ended December 31, 2006 were nil as compared to $5.7 million for the year ended December 31, 2005. In June 2005, INEX scaled back certain activities and implemented a workforce reduction of 61% or 35 employees.
Impairment of medical technology / In the second quarter of 2006, the licensing of INEX’s targeted chemotherapy technology to Hana and the purchase and settlement of the exchangeable and development notes, which includes the assignment or transfer of all of the Hana up-front payment and most of the milestone payments to the Former Noteholders, prompted a review of the fair value of medical technology. Potential net cash in-flows generated by the medical technology are several years away, are contingent upon the success of Hana’s development of Marqibo and the other licensed products and are not readily determinable. INEX therefore decided to take a full impairment loss on its medical technology and recorded impairment of medical technology of $7.2 million in the quarter ended June 30, 2006. There is no comparative figure for this expense item.
Amortization / Amortization expense was $0.8 million in 2006 as compared to $2.1 million in 2005. The decrease in amortization is primarily due to:
- minimal amortization expense on leasehold improvements in 2006 due to the $1.5 million impairment loss recorded in the second quarter of 2005 - the sale of laboratory equipment in the fourth quarter of 2005 - a provincial sales tax refund of $0.2 million recorded in the second quarter of 2006 and related to property and equipment that had already been fully amortized - the complete impairment charge of all medical technology at June 30, 2006
In 2007 INEX (and subsequently Tekmira) expects amortization expense as related to its property and equipment to be approximately $0.4 million. At this time INEX has not yet assessed the accounting implications of its expanded Alnylam collaboration agreement, signed on January 8, 2007, for its amortization expense in 2007.
Other Income/Losses / Interest income / Interest income was $0.4 million for the year ended December 31, 2006 as compared to $0.5 million for the year ended December 31, 2005. The decrease is a result of a decrease in the average cash and cash equivalents held throughout 2006 as compared to the prior year, somewhat offset by higher average interest rates during 2006. In the future interest income will continue to fluctuate in relation to cash balances and interest yields. See Risks and Uncertainties.
Interest on exchangeable and development notes / Interest expense on the US dollar denominated exchangeable and development notes (the “Notes”) was $1.9 million for the year ended December 31, 2006 as compared to $4.0 million for 2005. On June 20, 2006, INEX signed a purchase and settlement agreement with the holders of the Notes. There will be no interest charged on the Notes after their purchase and settlement on June 20, 2006.
Gain on purchase and settlement of the exchangeable and development notes / The gain on purchase of the exchangeable and development notes in the year ended December 31, 2006 was $26.0 million. On June 20, 2006 INEX signed a Purchase and Settlement Agreement with the Former Noteholders and recorded a gain on settlement of $26.8 million. On August 29, 2006, Hana paid a milestone of $1.1 million (US$1.0 million) (see Hana revenue). After paying a royalty of $0.2 million (US$0.2 million) the balance of the milestone payment of $0.9 million (US$0.8 million) was paid to the Former Noteholders and recorded as an adjustment to the Gain on purchase and settlement of exchangeable and development notes. There are no comparative amounts for this item.
Foreign exchange and other gains (losses) / Foreign exchange and other gains (losses) showed gains of $1.6 million in 2006 as compared to gains of $1.3 million in 2005. Historically, foreign exchange and other gains (losses) have largely resulted from foreign exchange gains and losses on the US dollar denominated exchangeable and development notes. After the purchase and settlement of the exchangeable and development notes on June 20, 2006 foreign exchange gains and losses are expected to be less significant. INEX does, however, expect continued fluctuation in Canada/US dollar exchange rates in future periods and these fluctuations will result in foreign exchange gains or losses on its US denominated cash investments, accounts receivable and accounts payable. See Risks and Uncertainties.
Investment in Protiva Biotherapeutics Inc. / In 2005, INEX’s Long-term Investment balance was reduced to nil as a result of the continued losses incurred by Protiva Biotherapeutics Inc. (“Protiva”), a company spun out of INEX in 2001, as INEX’s percentage of losses, based on ownership percentage, exceeded the initial investment. Consequently, and according to INEX’s existing investment policy, it recognized the remaining deferred dilution gain of $2.1 million.
Also in 2005, Protiva issued new share capital thereby reducing INEX’s ownership percentage from 34% to 7% that in turn gave rise to a dilution gain of $1.2 million. INEX also recorded $0.9 million as amortization of earlier dilution gains giving a total 2005 dilution gain from its Protiva investment of $2.1 million. INEX’s equity in Protiva’s loss for 2005 was $1.7 million and an impairment loss of $0.2 million was recorded on the balance of the Company’s investment in Protiva. As a result of this dilution, INEX no longer has influence over Protiva so now applies the cost method of accounting to this investment.
INEX is currently engaged in a contractual dispute with Protiva.
Loss on disposal of Hana Biosciences, Inc. shares / On June 20, 2006, as a part of the consideration for the purchase of the Notes, INEX transferred 1,118,568 Hana shares with a value at that time of $10.7 million (US$9.6 million) to the Former Noteholders. INEX initially recorded the 1,118,568 Hana shares on May 6, 2006, the date they were issued, at their then trading price of $12.34 (US$11.15) giving an aggregate value of $13.8 million (US$12.5 million). The loss in value of the Hana shares of $3.1 million has been recorded in the second quarter of 2006 as Loss on disposal of Hana shares. There is no comparative amount for this item.
Income taxes / In the first quarter of 2005 INEX accrued $0.5 million (US$0.4 million) of income taxes payable relating to a portion of the termination payment received from Enzon. The $0.003 million income tax in 2006 represents an adjustment to the US income tax provision now that INEX has finalized and filed its 2004 and 2005 US income tax returns.
Capital Expenditures / Capital expenditures were $0.11 million in 2006 and $0.05 million in 2005. Of the capital additions in 2006, $0.13 million were funded by capital leases.
INEX (and subsequently Tekmira) anticipates capital expenditures in 2007 of between $1.0 million and $1.5 million.
RISKS AND UNCERTAINTIES INEX’s funding needs may vary depending on a number of factors including: - revenues earned from its partnership with Alnylam and, to a lesser extent, its Service Agreement with Hana - its decisions to in-license or acquire additional products for development, in particular for its RNAi therapeutics program - the pace at which it is able to or decides to expand its staffing, research and development and operations in general - the extent to which it continues development or can extract significant value from its technologies - its ability to attract and retain corporate partners, and their effectiveness in carrying out the development and ultimate commercialization of its product candidates - the decisions, and the timing of decisions, made by health regulatory agencies regarding its technology and products - competing technological and market developments - prosecuting and enforcing its patent claims and other intellectual property rights
INEX’s risks and uncertainties are discussed in further detail in the “Management’s Discussion and Analysis of Financial Condition and Operations” portion of its 2006 Annual Report and in its Annual Information Form. Both the 2006 Annual Report and Annual Information Form will be available on www.sedar.com.
Consolidated Balance Sheets (Expressed in Canadian Dollars) December 31 December 31 2006 2005 ------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 5,670,748 $ 12,173,022 Accounts receivable 704,663 301,922 Prepaid expenses and other assets 76,050 209,160 ------------------------------------------------------------------------- Total current assets 6,451,461 12,684,104 Property and equipment 582,503 1,107,170 Medical technology - 7,688,820 ------------------------------------------------------------------------- $ 7,033,964 $ 21,480,094 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) Current liabilities Accounts payable and accrued liabilities $ 1,763,523 $ 1,933,402 Income tax payable - 433,799 Current portion of obligations under capital leases 96,855 57,594 Current portion of deferred lease inducements 134,777 140,735 Deferred revenue 4,781,798 - ------------------------------------------------------------------------- Total current liabilities 6,776,953 2,565,530 Obligations under capital leases 75,728 99,302 Exchangeable and Development Notes - 40,158,926 Deferred lease inducements - 134,777 ------------------------------------------------------------------------- Total liabilities 6,852,681 42,958,535 Shareholders’ equity (deficit): Common share capital: December 31, 2006 - 38,566,788 180,237,917 180,237,917 December 31, 2005 - 38,566,788 Additional paid-in capital 15,211,567 20,569,880 Deficit (195,268,201) (222,286,238) ------------------------------------------------------------------------- Total shareholders’ equity (deficit) 181,283 (21,478,441) ------------------------------------------------------------------------- $ 7,033,964 $ 21,480,094 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Operations and Deficit Year ended (Expressed in Canadian Dollars) December 31 December 31 2006 2005 ------------------------------------------------------------------------- Revenue Research and development collaborations $ 2,533,896 $ 1,299,398 Licensing fees and milestone payments 13,323,313 14,136,818 ------------------------------------------------------------------------- 15,857,209 15,436,216 ------------------------------------------------------------------------- Expenses Research and development 5,275,082 10,177,612 General and administrative 4,491,410 4,395,812 Restructuring costs - 5,656,242 Impairment of medical technology 7,210,515 - Amortization 839,831 2,126,052 ------------------------------------------------------------------------- 17,816,838 22,355,718 ------------------------------------------------------------------------- Income (Loss) from operations (1,959,629) (6,919,502) Interest income 369,272 510,310 Interest on exchangeable and development notes (1,872,729) (4,006,408) Gain on purchase and settlement of exchangeable and development notes 25,955,993 - Foreign exchange and other gains 1,648,117 1,345,199 Dilution gain from Protiva Biotherapeutics Inc. - 2,067,220 Equity in loss of Protiva Biotherapeutics Inc. - (1,670,214) Impairment loss on investment in Protiva Biotherapeutics Inc. - (235,744) Loss on disposal of Hana Biosciences, Inc. shares (3,069,049) - ------------------------------------------------------------------------- Income (Loss) before income taxes 21,071,975 (8,909,139) Income taxes (2,688) 451,000 ------------------------------------------------------------------------- Net income (loss) $ 21,074,663 $ (9,360,139) Deficit, Beginning of period (222,286,238) (212,926,099) Discount on exchangeable and development notes 5,943,374 - ------------------------------------------------------------------------- Deficit, End of period $(195,268,201) $(222,286,238) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares Basic 38,566,788 38,566,788 Diluted 38,579,150 38,566,788 Income (Loss) per common share Basic $ 0.55 $ (0.24) Diluted $ 0.55 $ (0.24) Consolidated Statements of Cash Flow (Expressed in Canadian Dollars) Year ended December 31 December 31 2006 2005 ------------------------------------------------------------------------- OPERATIONS Income (Loss) for the period $ 21,074,663 $ (9,360,139) Items not involving cash: Amortization of property and equipment 361,532 1,155,059 Impairment loss on property and equipment - 1,528,064 Amortization of medical technology 478,299 959,326 Impairment loss on medical technology 7,210,515 Amortization of deferred lease inducements (140,735) (139,187) Amortization of other long-term assets - 809,242 In kind contribution of capital assets - 61,043 Interest on exchangeable and development notes 1,872,729 4,006,408 Unrealized foreign exchange loss on exchangeable and development notes (1,659,484) (1,370,
