VANCOUVER, Nov. 10 /PRNewswire-FirstCall/ - Inex Pharmaceuticals Corporation reported today financial results for its third quarter 2005. For the nine months ended September 30, 2005, INEX recorded a net loss of $5.3 million ($0.14 per common share). This compares with a net loss of $19.0 million ($0.49 per common share) for the same period in 2004. For the three months ended September 30, 2005, INEX recorded a net loss of $2.1 million ($0.05 per common share) as compared to $5.2 million ($0.14 per common share) for the same period in 2004.
The significantly lower net loss in the first nine months of 2005 is partly attributable to the termination of the Enzon Pharmaceuticals Corporation (“Enzon”) development and commercialization partnership for Marqibo(TM) 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. The Company does do not expect similar payments into the future and expects to continue to incur losses into the future.
The Company’s December 2004 and June 2005 workforce reductions and program cut backs have generated further savings as reflected in year-to-date and third quarter losses as compared to the 2004 comparative periods. Also, in September 2005, INEX signed a sub-lease agreement for its excess lab and office space. The agreement is effective October 1, 2005. INEX expects to receive approximately $0.2 million in fourth quarter income from the new tenant as it passes through about two-thirds of its lease and certain operating expenses under this agreement. Furthermore, since the end of the third quarter and in conjunction with the exit of this excess lab and office space, the Company has so far generated over $0.4 million from the sale of surplus lab equipment.
In the third quarter the Company continued its focus on partnering its Targeted Chemotherapy platform assets, including Marqibo, INX-0125 (sphingosomal vinorelbine) and INX-0076 (sphingosomal topotecan). INEX has reached agreement in principle with the US Food and Drug Administration (“FDA”) on a path to commercial approval for Marqibo based on phase 3 clinical trial designs using complete response rate as the primary endpoint. Large cooperative medical groups have expressed an interest in participating in these phase 3 trials. Two early-stage products in the Targeted Chemotherapy platform also have potential for clinical development. The Company has received approval from the FDA to begin clinical trials to evaluate INX-0125 and INX-0076 is also ready for advancement towards clinical trials.
Revenue
Revenues from research and development collaborations, licensing fees and milestone payments were $15.4 million for the first nine months of 2005 and $10.3 million for the comparable period in 2004. The increase in revenue was a result of recognition of deferred revenue and a one-time payment as a result of the termination of the Enzon partnership on March 16, 2005.
No revenue was earned in the three months ended September 30, 2005 as compared to $3.3 million in revenues in the comparative period in 2004. INEX does not currently have any sources of revenue.
Expenses Research and Development
Research and development expenses decreased to $1.9 million for the third quarter of 2005 and $8.3 million for the nine month period ended September 30, 2005 as compared to $6.3 million and $18.3 million in the same periods in 2004. Decreased external costs related to products in the pipeline is the primary reason for this drop in research and development expenses. Preclinical study, clinical trial and drug manufacture costs have been significantly reduced with many of the Company’s phase 2 clinical trials for Marqibo and preclinical studies for INX-0125 (sphingosomal vinorelbine), which were ongoing during the nine months ended September 30, 2004, now being completed.
A significant decline in salary expenses resulting from our December 2004 and June 2005 workforce reductions has also contributed to reduced research and development expenses. INEX’s internal research and development staff was 15 at September 30, 2005 (total staff 23) as compared to 118 at September 30, 2004 (total staff 164).
As previously disclosed, the Company expects research and development costs for 2005 to be less than $10.0 million.
General and Administrative
General and administrative expenses decreased to $0.6 million for the third quarter of 2005 and $3.3 million for the nine month period ended September 30, 2005 as compared to $2.4 million and $7.1 million in the comparative periods in 2004. The decline in general and administrative expenses is largely attributable to reduced salaries and overhead expenses resulting from the December 2004 and June 2005 workforce reductions.
INEX expects general and administrative costs for 2005 to be approximately $4.5 million.
Restructuring Costs
Net restructuring costs for the first nine months of 2005 of $5.8 million fell entirely in the second quarter. There were no restructuring costs in the first nine months of 2004. Following a corporate restructuring in December 2004, the Company further reduced its workforce on June 21, 2005 from 57 to 30 employees. Eight of the remaining employees were interim employees of which one remains at the end of the third quarter leaving a total of 23 employees at the end of the third quarter. This restructuring was necessary to conserve cash and to facilitate a new strategic path for the Company’s lead anticancer drug Marqibo, its other Targeted Chemotherapy products and its early stage Targeted Immunotherapy pipeline. The following table summarizes restructuring costs recorded in the consolidated financial statement of operations for the nine month period ended September 30, 2005:
(in millions Cdn$) ------------------------------------------------------------------------- Employee severance compensation $ 4.5 Cancellation of unvested stock options for severed employees(1) (0.2) Leasehold improvement impairment loss(2) 1.5 ------------------------------------------------------------------------- Total $ 5.8 (1) The cancellation of unvested stock options for severed employees resulted in the reversal of the stock-based compensation expense previously recorded on those options of $0.2 million. (2) The reduction of our workforce has rendered a portion of INEX’s premises surplus to requirements, and results in an impairment loss on the leasehold improvements. The loss is based on the net book value of the leasehold improvements as during the period of the Company’s sub-lease of this portion of the building, it will not realise any benefit from these assets. Amortization
Amortization expense was $0.5 million for the three month period ended September 30, 2005 and $1.7 million year-to-date as compared to $0.9 million and $2.5 million for the comparable periods in 2004. The decrease is largely due to the Lynx medical technology 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 the current fiscal period. Also, there was minimal amortization expense on leasehold improvements in the third quarter of 2005 due to the $1.5 million impairment loss recorded in the second quarter of 2005 (see “Restructuring Costs”).
Other Income/Losses
Interest income for the nine month period ended September 30, 2005 was $0.4 million and $0.1 million for the three months ended September 30, 2005 as compared to $0.7 million and $0.2 million for the comparable periods in 2004. The decrease was the result of a decrease in the average balance of cash, cash equivalents and short-term investments held. It is anticipated that in future periods, interest income will continue to fluctuate in relation to cash balances and interest yields. See “Risks and Uncertainties”.
Interest expense on the US dollar denominated exchangeable and development notes (the “Notes”) was $3.0 million for the nine month period ended September 30, 2005 and $2.9 million for the comparable period and $1.0 million for the third quarter of 2005 and third quarter of 2004. The increase in interest expense due to compounding was largely 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 and can be paid, at INEX’s sole discretion, in cash, or by the issuance of INEX common shares based on the market price of those shares at the time of maturity, or by any combination of cash and common shares.
Foreign exchange and other income for the three month period ended September 30, 2005 was $1.7 million as compared to $1.9 million in the comparable period in 2004. For the nine months ended September 30, 2005, foreign exchange and other income was $1.3 million as compared to $0.8 million for the comparable period in 2004. Foreign exchange and other income in the three and nine month periods ended September 30, 2005 consists mainly of unrealized foreign exchange gains on US dollar denominated holdings and obligations. Continued fluctuation in the Canada/US dollar exchange rates is expected in future periods. See “Risks and Uncertainties”.
Long-term Investment
During the second quarter of 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 INEX spun out in 2001, as its percentage of losses, based on ownership percentage, exceeded the Company’s initial investment. Consequently, and according to the Company’s existing investment policy, the remaining deferred dilution gain was recognized.
In the third quarter of 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. This was offset by the Company’s equity in Protiva’s year to date loss recorded in the third quarter of $1.0 million and an impairment loss of $0.2 million on the balance of the investment in Protiva. As a result of the dilution in this investment, INEX no longer has significant influence over Protiva so now applies the cost method of accounting to this investment.
Income Taxes
In the first quarter of 2005, we 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 the first quarter of 2004.
Risks and Uncertainties
The Company’s funding needs may vary depending on a number of factors including:
- the extent to which INEX continues development or can extract significant value from its technologies - ability to attract corporate partners, and their effectiveness in carrying out the development and ultimate commercialization of INEX’s product candidates - the decisions, and the timing of decisions, made by health regulatory agencies regarding the Company’s technology and products - the Company’s decision to in-license or acquire additional products for development - competing technological and market developments - prosecuting and enforcing patent claims and other intellectual property rights
Substantial additional funds will be required to continue with the active development of the Company’s pipeline products and technologies. The Company will seek to obtain additional funds for these purposes through a variety of sources including public or private equity or debt financing, collaborative arrangements with pharmaceutical companies and government grants. There can be no assurance that additional funding will be available at all or on acceptable terms to permit further development of INEX’s products. In addition, bank financing arrangements have not been established and there can be no assurance that the Company will be able to establish such arrangements or that bank financing can be arranged on satisfactory terms. Also, the Company’s outstanding exchangeable and development notes, which together with accrued interest would total US$39.2 million at maturity in April 2007, may hinder the Company’s ability to raise additional funding. If these notes are settled at maturity through the issuance of common shares INEX’s share capital will be diluted.
If adequate funding is not available, INEX may be required to delay, reduce or eliminate one or more of its research or development programs. The Company may need to obtain funds through arrangements with collaborators or others that may require the relinquishment of most or all rights to product candidates at an earlier stage of development or on less favorable terms than would otherwise be sought if the Company were better funded. Insufficient financing may also mean failing to prosecute the Company’s patents or relinquishing rights to some of the Company’s technologies that would otherwise be developed or commercialized.
INEX’s risks and uncertainties are discussed in detail in the “Management’s Discussion and Analysis of Financial Operations” portion of the Company’s 2004 Annual Report and in its Annual Information Form dated March 22, 2005 and remain substantially unchanged. INEX’s 2004 Annual Report and Annual Information forms are available at www.sedar.com.
Consolidated Balance Sheets (Expressed in Canadian Dollars) September 30, December 31, 2005 2004 ------------------------------------------------------------------------- unaudited ASSETS Current assets Cash and cash equivalents $ 14,188,848 $ 30,045,776 Accounts receivable 196,405 2,163,629 Accrued revenue - 1,999,766 Property and equipment held for sale 326,056 - Prepaid expenses and other assets 452,895 333,363 ------------------------------------------------------------------------- Total current assets 15,164,204 34,542,534 Long-term investment - 691,410 Property and equipment 947,900 4,125,111 Property and equipment held for sale 368,413 - Medical technology 7,928,653 8,648,146 Other long-term assets - 1,398,367 ------------------------------------------------------------------------- $ 24,409,170 $ 49,405,568 ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS’ DEFICIENCY Current liabilities Accounts payable and accrued liabilities $ 1,796,108 $ 9,944,457 Income tax payable 433,687 - Current portion of obligations under capital leases 56,513 107,282 Current portion of long-term debt - 825,428 Current portion of deferred revenue - 2,208,000 ------------------------------------------------------------------------- Total current liabilities 2,286,308 13,085,167 Obligations under capital leases 114,049 156,380 Long-term debt - 1,045,202 Exchangeable and Development Notes 39,152,059 37,522,788 Deferred lease inducements 310,308 414,699 Deferred revenue - 8,947,715 Deferred dilution gain - 852,672 ------------------------------------------------------------------------- Total liabilities 41,862,724 62,024,623 Shareholders’ deficiency Common share capital: September 30, 2005 - 38,566,788 180,237,917 180,237,917 December 31, 2004 - 38,566,788 Additional paid-in capital 20,498,844 20,069,127 Deficit (218,190,315) (212,926,099) ------------------------------------------------------------------------- Total shareholders’ deficiency (17,453,554) (12,619,055) ------------------------------------------------------------------------- $ 24,409,170 $ 49,405,568 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Operations and Deficit (Expressed in Three Months Ended Nine Months Ended Canadian September 30, September 30, September 30, September 30, Dollars) 2005 2004 2005 2004 ------------------------------------------------------------------------- unaudited unaudited unaudited unaudited restated restated Revenue Research and development collabor- ations $ - $ 1,567,313 $ 1,299,398 $ 4,199,587 Licensing fees and milestone payments - 1,755,195 14,136,818 6,102,128 ------------------------------------------------------------------------- - 3,322,508 15,436,216 10,301,715 ------------------------------------------------------------ Expenses Research and development 1,888,256 6,329,484 8,317,121 18,255,377 General and administrative 584,761 2,414,683 3,305,728 7,102,446 Restructuring costs - - 5,823,634 - Amortization 481,484 897,856 1,677,079 2,547,007 ------------------------------------------------------------------------- 2,954,501 9,642,023 19,123,562 27,904,830 ------------------------------------------------------------ Income (loss) from operations (2,954,501) (6,319,515) (3,687,346) (17,603,115) Interest income 133,359 185,886 393,817 726,536 Interest on exchangeable and development notes (987,715) (988,922) (3,010,126) (2,945,459) Foreign exchange and other income 1,740,611 1,912,295 1,329,177 820,787 Dilution gain from Protiva Biotherapeutics Inc. 1,214,548 386,231 2,067,220 1,092,523 Equity in loss of Protiva Biotherapeutics Inc. (978,804) (386,231) (1,670,214) (1,092,523) Impairment loss on investment in Protiva Biotherapeutics Inc. (235,744) - (235,744) - ------------------------------------------------------------------------- Loss before income taxes (2,068,246) (5,210,256) (4,813,216) (19,001,251) Income taxes - - 451,000 - ------------------------------------------------------------------------- Net loss $ (2,068,246) $ (5,210,256) $ (5,264,216) $ (19,001,251) Deficit, Beginning of period (216,122,069) (192,997,212) (212,926,099) (179,206,217) ------------------------------------------------------------------------- Deficit, End of period $(218,190,315) $(198,207,468) $(218,190,315) $(198,207,468) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Loss per common share $ (0.05) $ (0.14) $ (0.14) $ (0.49) Weighted average number of common shares 38,566,788 38,559,320 38,566,788 38,506,976 Consolidated Statements of Cash Flow (Expressed in Three Months Ended Nine Months Ended Canadian September 30, September 30, September 30, September 30, Dollars) 2005 2004 2005 2004 ------------------------------------------------------------------------- unaudited unaudited unaudited unaudited restated restated OPERATIONS Loss for the period $ (2,068,246) $ (5,210,256) $ (5,264,216) $ (19,001,251) Items not involving cash: Amortization of property and equipment 235,637 415,721 945,916 1,280,804 Impairment loss on property and equipment - - 1,528,064 - Amortization of medical technology 237,097 482,135 719,493 1,266,203 Amortization of deferred revenue - (770,444) - (4,786,175) Amortization of deferred lease inducements (34,797) (34,796) (104,391) (90,242) Amortization of other long-term assets 8,750 49,849 809,242 149,545 In kind cont- ribution of capital assets - - 61,043 - Increase in deferred lease inducements - - - 99,039 Interest on exchangeable and develop- ment notes 987,715 988,922 3,010,126 2,945,459 Unrealized foreign exchange gain on exchange- able and development notes (2,174,543) (2,340,205) (1,380,855) (1,158,873) Dilution gain from Protiva Biotherapeutics Inc. (1,214,548) (386,231) (2,067,220) (1,092,523) Equity in loss of Protiva Biotherapeutics Inc. 978,804 386,231 1,670,214 1,092,523 Impairment loss on Protiva Biotherapeutics Inc. 235,744 - 235,744 - Stock-based compensation expense 181,974 466,872 429,717 1,464,345 Gain from sale of property and equipment (20,861) - (33,809) - Change in deferred revenue - - (11,155,715) 15,874,865 Net change in non-cash working capital (4,716,414) (335,148) (3,867,204) (3,600,348) ------------------------------------------------------------------------- (7,363,688) (6,287,350) (14,463,851) (5,556,629) ------------------------------------------------------------------------- INVESTMENTS Proceeds from sale of property and equipment 20,861 - 33,809 - Acquisition of property and equipment - (170,627) (52,281) (1,161,137) Acquisition of medical technology - (65,650) - (7,374,548) Acquisition of other long- term assets - - - (1,196,363) Sale (purchase) of short-term investments, net - 2,697,777 - (1,953,182) ------------------------------------------------------------------------- 20,861 2,461,500 (18,472) (11,685,230) ------------------------------------------------------------------------- FINANCING Issuance of common shares pursuant to exercise of options - 66,326 - 758,743 Long-term debt, net of security deposit and financing costs - - - 1,046,304 Repayment of long-term debt, net of security deposit (873,953) (181,193) (1,281,505) (442,986) Repayment of obligations under capital leases (13,409) (44,727) (93,100) (131,656) ------------------------------------------------------------------------- (887,362) (159,594) (1,374,605) 1,230,405 ------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (8,230,189) (3,985,444) (15,856,928) (16,011,454) Cash and cash equivalents, beginning of period 22,419,037 34,081,744 30,045,776 46,107,754 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 14,188,848 $ 30,096,300 $ 14,188,848 $ 30,096,300 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information Interest paid 24,452 6,009 48,901 21,209 Foreign exchange gain included in foreign exchange and other income 1,865,555 2,768,115 1,625,062 1,496,959
Certain prior period comparative figures have been reclassified to conform to the current period’s presentation.
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 and Marqibo(TM) 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 Boas 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 Boas, James Hoggan &Associates Inc., Phone: (604) 739-7500, Email: kcook@hoggan.com
