VANCOUVER, May 3 /PRNewswire-FirstCall/ - Inex Pharmaceuticals Corporation reported today as part of its first quarter 2006 financial results continued progress towards completing the spin-off of its Targeted Immunotherapy platform and product candidates into a new public company and completing a partnering transaction for its Targeted Chemotherapy products.
Targeted Immunotherapy Spin-Out
On January 26, 2006, INEX shareholders voted in favour of spinning out the Targeted Immunotherapy assets into a new public company, called Tekmira Pharmaceuticals Corporation (“Tekmira”). INEX needs to receive certain regulatory and court approvals before the spin-out can be completed. On May 18, 2006 the British Columbia Court of Appeal will hear appeals from INEX and from Stark Trading and Shepherd Investments Ltd. (collectively “Stark”). INEX is appealing the Supreme Court of British Columbia’s (the “Court”) ruling that provided the holders of INEX’s outstanding convertible promissory notes the right to a separate vote on INEX’s spin-out plan. Stark is appealing the Court’s ruling that the spin-out of Tekmira can take place given the terms of the convertible promissory notes and the Court’s decision to dismiss Stark’s bankruptcy petition. After the appeal hearing is completed, INEX will move forward to complete the spin-out of Tekmira as quickly as possible.
Stark is the majority holder of certain promissory notes issued by Inex International Holdings, a subsidiary of INEX. The promissory notes are not due until April 2007 and can be repaid in cash or in shares, at INEX’s option, at maturity.
Targeted Chemotherapy Partnership
On March 17, 2006, INEX announced that it had signed a Letter of Intent to license three products from its Targeted Chemotherapy pipeline to Hana Biosciences, Inc. . Upon closing of the transaction, Hana will pay INEX US$11.5 million in an up-front payment, consisting of cash and Hana shares. INEX will receive an additional US$30.5 million if development and regulatory milestones are achieved and will also receive royalties on product sales. Hana will be responsible for all future development of the three products including all future expenses. The Hana transaction is expected to close during the second quarter of 2006.
Financial Results
For the three months ended March 31, 2006, net loss was $3.9 million ($0.10 per common share) as compared to net income of $8.1 million ($0.21 per common share, fully diluted $0.06 per common share) for comparable period in 2005.
The significantly lower net loss in 2006 is partly attributable to the termination of the Enzon Pharmaceuticals Corporation (“Enzon”) development and commercialization partnership for Marqibo(R) which resulted in the recognition of $11.2 million of deferred revenue and $4.0 million of development expense recovery and milestone payments during the first quarter of 2005.
INEX’s June 2005 workforce and program cut backs generated further savings as reflected in reduced research and development and general and administrative expenses in 2006 as compared 2005.
Revenue/Revenue from research and development collaborations, licensing fees and milestone payments was $0.01 million for the first quarter of 2006 as compared to $15.4 million for the first quarter of 2005. Revenue in the first quarter of 2005 was primarily a consequence of the recognition of deferred revenue and a one-time payment as a result of the termination of the Enzon partnership.
On March 25, 2006, INEX signed an exclusive research collaboration agreement with Alnylam Pharmaceuticals, Inc. (“Alnylam”) to evaluate their RNAi therapeutics with INEX’s systemic liposomal delivery technology. Under the collaboration agreement, Alnylam will pay INEX a total of $0.64 million (US$0.55 million) in three equal payments as certain milestones are achieved. As at March 31, 2006, work had not begun on the collaboration so no collaboration revenue has been recognized. Under the agreement, Alnylam also paid $0.1 million (US$0.1 million) for an option to execute a global exclusive license for specific RNAi therapeutic targets. The option commenced on March 25, 2006 and expires on June 24, 2006, and is being recognized over this period. Accordingly, INEX recorded $0.01 million as licensing fees and milestone payments in the first quarter of 2006.
In the second quarter of 2006, INEX expects to complete a license agreement to its Targeted Chemotherapy products with Hana which will include an up-front payment of US$11.5 million consisting of cash and Hana shares. Also, INEX expects to transfer its product expertise to Hana under a technology transfer agreement under which INEX will be reimbursed for time spent.
Licensing fees and milestone revenue is shown in the following table: Three months ended March 31, March 31, (in millions Cdn$) 2006 2005 ------------------------------------------------------------------------- Licensing fees and milestone payments Enzon revenue Amortization of up-front payment(1) $ - $ 11.2 Milestones and termination payment(2) - 2.7 Aradigm initial licensing fee(3) - 0.2 Alnylam initial licensing fee 0.01 - ------------------------------------------------------------------------- Total licensing fees and milestone payments $ 0.01 $ 14.1 Research and development collaborations(2) - 1.3 ------------------------------------------------------------------------- Total Revenue $ 0.01 $ 15.4 (1) Amortization of the up-front US$12.0 million payment received from Enzon at the start of the strategic partnership in January 2004. As a result of Enzon terminating the strategic partnership on March 16, 2005, the balance of previously deferred revenue was recognized as revenue in the first quarter of 2005. (2) In the first quarter of 2005 INEX received a product development payment and milestone payment totaling $6.0 million (US$5.0 million) as part of Enzon’s termination of the strategic partnership. Of this $6.0 million, $2.0 million was accrued at December 31, 2004 and $4.0 million was recognized in the first quarter of 2005 including $2.7 million in milestone and termination payments and $1.3 million in research and development collaborations payments. (3) Licensing fee received from Aradigm Corporation (“Aradigm”) according to the agreement dated December 8, 2004 under which Aradigm licensed certain of INEX’s sphingosomal technology.
Expenses/Research and development/Research and development expenses decreased to $1.3 million for the three months ended March 31, 2006 from $3.9 million in the same period in 2005. This decrease relates primarily to reduced research and development personnel and reduced external costs for products in the pipeline. First quarter research and development salary expenses declined as compared with the first quarter of 2005 as a result of a workforce reduction in June 2005. The Company’s internal research and development staff was 17 at March 31, 2006 (total staff 27) as compared to 37 at March 31, 2005 (total staff 60). Also contributing to the decrease in research and development costs is decreased external costs related to the Company’s Targeted Chemotherapy platform for which spending was reduced after Enzon terminated the strategic partnership in the first quarter of 2005.
General and administrative/General and administrative expenses fell to $1.1 million for the three months ended March 31, 2006 as compared to $1.4 million in the same period in 2005. The decline is largely attributable to reduced salaries and related costs resulting from the June 2005 workforce reductions. INEX also reduced its lease and operating expenses through a sub- lease agreement for its excess lab and office space effective October 1, 2005. Legal and consulting fees were, however, substantially higher in the first quarter of 2006 as compared to the first quarter of 2005 as INEX sought advice and assistance with its Hana and Alnylam deals and in defending its right to complete the spin-out of Tekmira and in defending the bankruptcy petitions filed by the Company’s majority debt holder.
Amortization/Amortization expense was $0.4 million for the three months ended March 31, 2006. This compares with $0.6 million for the comparable period in 2005. The decrease is largely due to minimal amortization expense on leasehold improvements in the first quarter of 2006 due to the $1.5 million impairment loss recorded in the second quarter of 2005 and the sale of laboratory equipment in the fourth quarter of 2005.
Other Income/Losses/Interest income/Interest income was $0.10 million for the three months ended March 31, 2006 as compared to $0.14 million for the three months ended March 31, 2005. The decrease is a result of a decrease in the average cash and cash equivalents held during the first quarter of 2006 as compared to the first quarter of 2005, somewhat offset by higher average interest rates in the first quarter of 2006. The Company anticipates that in future periods interest income will continue to fluctuate in relation to cash balances and interest yields.
Interest on exchangeable and development notes/Interest expense on the US dollar denominated exchangeable and development notes (the “Notes”) was $1.0 million for the three months ended March 31, 2006 as compared to $1.0 million for the comparable period in 2005. The increase in interest expense due to compounding (as calculated in US dollars) was offset by a decrease in the US to Canadian dollar foreign exchange rate. The interest expense accrued on the Notes is not payable until the Notes mature in April 2007.
Foreign exchange and other losses/Foreign exchange and other losses for the first quarter of 2006 was $0.2 million as compared to $0.1 million in the first quarter of 2005. Other losses are largely the result of unrealised foreign exchange losses on the US dollar denominated exchangeable and development notes. The Company expects continued fluctuation in Canada/US dollar exchange rates in future periods.
Investment in Protiva Biotherapeutics Inc. (“Protiva”)/In the third quarter of 2005, Protiva issued new share capital thereby reducing INEX’s ownership percentage from 34% to 7% such that INEX no longer has significant influence over Protiva, therefore, INEX now applies the cost method of accounting to this investment.
On March 28, 2006 the Company announced that it had received a statement of claim filed by Protiva in the Supreme Court of British Columbia. Under agreements with Protiva, INEX believes it has certain rights to obtain a fully paid-up, exclusive license from Protiva for certain oligonucleotide technology. In its statement of claim, Protiva is asking for a declaration that INEX has no claim over the disputed technology. Protiva has also asked for relief against certain of INEX’s directors and officers in connection with this dispute. On April 28, 2006, INEX and its directors filed Statements of Defense in the Supreme Court of British Columbia denying Protiva’s allegations and filed counter-claims asserting INEX’s rights to the disputed technology.
Income taxes/In the first quarter of 2005 the Company accrued $0.5 million (US$0.4 million) of income taxes payable relating to a portion of the termination payment received from Enzon, which may give rise to a tax liability. There is no comparative item for 2006.
Capital Expenditures/Capital expenditures were $0.15 million during the first quarter of 2006, as compared to $0.04 million for the comparable quarter in 2005. Of the capital additions in the first quarter of 2006, $0.11 million were funded by capital leases.
RISKS AND UNCERTAINTIES
The Company’s funding needs may vary depending on a number of factors including:
- completion and the timing of completion of a licensing agreement with Hana - the cost, completion and the timing of the expected spin-out of the Targeted Immunotherapy assets into Tekmira and Tekmira’s assumption of the majority of INEX’s operating expenditures - the extent to which the Company continues development or can extract significant value from its technologies - INEX’s ability to attract corporate partners, and their effectiveness in carrying out the development and ultimate commercialization of the Company’s product candidates - the decisions, and the timing of decisions, made by health regulatory agencies regarding the Company’s technology and products - INEX’s decision to in-license or acquire additional products for development - competing technological and market developments - prosecuting and enforcing the Company’s patent claims and other intellectual property rights
INEX’s risks and uncertainties are discussed in detail in the “Management’s Discussion and Analysis of Financial Operations” portion of the Company’s 2005 Annual Report and in its Annual Information Form dated March 29, 2006 and remain substantially unchanged. INEX’s 2005 Annual Report and Annual Information Form is available at www.sedar.com.
FINANCIALS Consolidated Balance Sheets March 31 December 31 (Expressed in Canadian Dollars) 2006 2005 ------------------------------------------------------------------------- unaudited ASSETS Current assets Cash and cash equivalents $ 8,890,997 $ 12,173,022 Accounts receivable 364,733 301,922 Accrued revenue 11,356 - Prepaid expenses and other assets 502,789 209,160 ------------------------------------------------------------------------- Total current assets 9,769,875 12,684,104 Property and equipment 1,058,789 1,107,170 Medical technology 7,448,980 7,688,820 ------------------------------------------------------------------------- $ 18,277,644 $ 21,480,094 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS’ DEFICIENCY Current liabilities Accounts payable and accrued liabilities $ 1,184,913 $ 1,933,402 Income tax payable 435,664 433,799 Current portion of obligations under capital leases 91,713 57,594 Current portion of deferred lease inducements 140,735 140,735 ------------------------------------------------------------------------- Total current liabilities 1,853,025 2,565,530 Obligations under capital leases 148,784 99,302 Exchangeable and Development Notes 41,329,907 40,158,926 Deferred lease inducements 99,593 134,777 ------------------------------------------------------------------------- Total liabilities 43,431,309 42,958,535 Shareholders’ deficiency: Common share capital: March 31, 2006 - 38,566,788 180,237,917 180,237,917 December 31, 2005 - 38,566,788 Additional paid-in capital 20,799,616 20,569,880 Deficit (226,191,198) (222,286,238) ------------------------------------------------------------------------- Total shareholders’ deficiency (25,153,665) (21,478,441) ------------------------------------------------------------------------- ------------------------------------------------------------------------- $ 18,277,644 $ 21,480,094 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Operations and Deficit Three months ended March 31 March 31 (Expressed in Canadian Dollars) 2006 2005 ------------------------------------------------------------------------- unaudited unaudited Revenue Research and development collaborations $ - $ 1,299,398 Licensing fees and milestone payments 11,356 14,136,818 ------------------------------------------------------------------------- 11,356 15,436,216 ------------------------------------------------------------------------- Expenses Research and development 1,271,909 3,912,004 General and administrative 1,144,950 1,430,272 Amortization 433,383 597,072 ------------------------------------------------------------------------- 2,850,242 5,939,348 ------------------------------------------------------------------------- (Loss) Income from operations (2,838,886) 9,496,868 Interest income 96,360 139,305 Interest on exchangeable and development notes (991,535) (1,022,495) Foreign exchange and other losses (170,899) (91,003) Dilution gain from Protiva Biotherapeutics Inc. - 660,496 Equity in loss of Protiva Biotherapeutics Inc. - (660,496) ------------------------------------------------------------------------- (Loss) Income before income taxes (3,904,960) 8,522,675 Income taxes - 451,000 ------------------------------------------------------------------------- Net (loss) income $ (3,904,960) $ 8,071,675 Deficit, Beginning of period (222,286,238) (179,206,217) ------------------------------------------------------------------------- Deficit, End of period $(226,191,198) $(171,134,542) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares Basic 38,566,788 38,566,788 Diluted 38,566,788 141,684,387 (Loss) Income per common share Basic $ (0.10) $ 0.21 Diluted $ (0.10) $ 0.06 Consolidated Statements of Cash Flow Three months ended March 31 March 31 (Expressed in Canadian Dollars) 2006 2005 ------------------------------------------------------------------------- unaudited unaudited OPERATIONS (Loss) Income for the period $ (3,904,960) $ 8,071,675 Items not involving cash: Amortization of property and equipment 193,552 357,241 Amortization of medical technology 239,840 239,831 Amortization of deferred lease inducements (35,184) (34,797) Amortization of other long-term assets - 799,034 Interest on exchangeable and development notes 991,535 1,022,495 Unrealized foreign exchange gain (loss) on exchangeable and development notes 179,446 254,913 Dilution gain from Protiva Biotherapeutics Inc. - (660,496) Equity in loss of Protiva Biotherapeutics Inc. - 660,496 Stock-based compensation expense 229,736 144,993 Gain from sale of property and equipment (10,948) - Change in deferred revenue - (11,155,715) Net change in non-cash working capital (1,114,420) (3,061,000) ------------------------------------------------------------------------- (3,231,403) (3,361,330) ------------------------------------------------------------------------- INVESTMENTS Proceeds from sale of property and equipment 16,492 - Acquisition of property and equipment (18,993) (43,727) ------------------------------------------------------------------------- (2,501) (43,727) ------------------------------------------------------------------------- FINANCING Repayment of long-term debt, net of security deposit - (202,502) Repayment of obligations under capital leases (48,121) (42,850) ------------------------------------------------------------------------- (48,121) (245,352) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (3,282,025) (3,650,409) Cash and cash equivalents, beginning of period 12,173,022 30,045,776 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 8,890,997 $ 26,395,367 ------------------------------------------------------------------------- ------------------------------------------------------------------------- About INEX
INEX is a Canadian biopharmaceutical company developing and commercializing proprietary drugs and drug delivery systems to improve the treatment of cancer. Further information about INEX can be found at www.inexpharm.com.
Forward Looking Statements
There are forward-looking statements contained herein that are not based on historical fact, including without limitation statements containing the words “believes,” “may,” “plans,” “will,” “estimate,” “continue,” “anticipates,” “intends,” “expects,” and similar expressions. Such forward- looking statements involve 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 such forward-looking statements. Such factors include, among others, INEX’s stage of development, lack of product revenues, additional capital requirements, risks associated with the completion of clinical trials and obtaining regulatory approval to market INEX’s products, the ability to protect its intellectual property and dependence on collaborative partners. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments.
Contact Information Investors Ian Mortimer Vice President, Finance and Chief Financial Officer Phone: 604-419-3200 Email: info@inexpharm.com Website: www.inexpharm.com Media Karen Cook James Hoggan & Associates Inc. Phone: 604-739-7500 Email: kcook@hoggan.com
Inex Pharmaceuticals Corporation
CONTACT: Investors - Ian Mortimer, Vice President, Finance and ChiefFinancial Officer, Phone: (604) 419-3200, Email: info@inexpharm.com,Website: www.inexpharm.com; Media - Karen Cook, James Hoggan & AssociatesInc., Phone: (604) 739-7500, Email: kcook@hoggan.com
