VANCOUVER, Nov. 2 /PRNewswire-FirstCall/ - Inex Pharmaceuticals Corporation reported today in its third quarter 2006 operating results that the Company continues to advance its internal and partnered product development programs and is working towards closing the spin-out of Tekmira Pharmaceuticals Corporation (“Tekmira”). The Tekmira spin-out is dependent on the outcomes of court hearings to be held during the fourth quarter.
Timothy M. Ruane, President and Chief Executive Officer of INEX, said, “Although we can’t begin operating as Tekmira until the legal approvals are received, we and our partners are continuing to make significant progress in advancing our products and technology.”
INEX announced October 18, 2006 that a hearing in the Supreme Court of British Columbia originally scheduled for October 23, 2006 has been rescheduled for November 7 and 8, 2006. The court will hear INEX’s request for a court order to transfer the ongoing legal dispute with Protiva Biotherapeutics, Inc. (“Protiva”) from INEX to Tekmira and a court approval of the Plan of Arrangement to transfer all of the Company’s assets to Tekmira. The court will also hear Protiva’s motion to try to prevent the spin-out of Tekmira.
“We remain confident in our legal and contractual positions versus Protiva and we are working to close the Tekmira spin-out as quickly as possible,” Ruane said.
PRODUCT DEVELOPMENT
INX-0167 / The Company’s internal product development is currently focused on INX-0167, a product candidate that stimulates the immune system to attack cancer cells. The Company plans to begin formal toxicology studies in early 2007 that will complete a package of preclinical data sufficient to file in late 2007 an Investigational New Drug (“IND”) application with the United States Food and Drug Administration (“FDA”) for permission to evaluate INX-0167 in human clinical trials.
At the Annual Meeting of the American Association of Immunologists held May 12-16, 2006, the Company presented preliminary preclinical data showing that INX-0167 can generate a potent immune response in non-human primates. Additional data on INX-0167 will be presented at the American Society of Hematology meeting being held December 9-12, 2006.
Alnylam Pharmaceuticals collaboration / INEX announced July 17, 2006 that it was accelerating its collaboration with Alnylam Pharmaceuticals, Inc. , a leader in the development of therapeutics based on RNA interference (“RNAi”). The collaboration, announced March 25, 2006, explores the use of INEX’s liposomal delivery technology for the systemic delivery of Alnylam’s RNAi therapeutic products. RNAi therapies have shown the potential to block the action of disease-causing genes. Due to the rapid progress made so far, INEX and Alnylam decided to move into the next phase of the collaboration, which includes looking at additional gene targets. In conjunction with this decision, Alnylam made further payments during the quarter to INEX totalling approximately $2.1 million, $1.1 million of which relates to an option to take a broad exclusive license to INEX’s technology.
Hana Biosciences partnership / INEX announced August 30, 2006, that its partner Hana Biosciences had enrolled the first patient in a phase 1 human clinical trial evaluating the safety, tolerability and preliminary efficacy of INX-0125 (sphingosomal vinorelbine) as a treatment for advanced solid tumors. Commencement of patient dosing for this trial triggered a US$1.0 million milestone payment from Hana to INEX as part of the agreement announced May 8, 2006 in which Hana licensed three products from INEX’s Targeted Chemotherapy pipeline, including INX-0125, Marqibo and INX-0076.
Protiva Dispute / On March 28, 2006, the Company announced it had received a statement of claim filed by Protiva in the Supreme Court of British Columbia. INEX holds a minority interest in Protiva. Under the Company’s agreements with Protiva, it believes it has retained all rights to certain oligonucleotide delivery technology, including the delivery of small interfering RNA. INEX also believes that any technology advancements made by Protiva and its collaborators or by INEX for the delivery of oligonucleotides are owned by INEX or should be licensed to INEX on an exclusive, worldwide paid-up and royalty-free basis.
FINANCIAL RESULTS
For the nine months ended September 30, 2006, INEX’s net income was $20.9 million ($0.54 per common share, basic and fully diluted) as compared to a net loss of $5.3 million ($0.14 per common share, basic and fully diluted) for the comparable period in 2005. For the three months ended September 30, 2006, the Company’s net income was $3.6 million ($0.09 per common share, basic and fully diluted) as compared to a net loss of $2.1 million ($0.05 per common share, basic and fully diluted) for the comparable period in 2005.
There are a number of factors contributing to changes in the 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 $7.0 million for the third quarter as compared to nil for the comparable period in 2005 and was $13.1 million for the first nine months of 2006 as compared to $15.4 million in the comparable period in 2005. Revenue in the first nine months of 2005 was primarily a consequence of the recognition of deferred revenue and a one-time payment as a result of the termination of a previous partnership with Enzon Pharmaceuticals, Inc. (“Enzon”). Revenue in 2006 arises from licensing and collaboration payments from partnerships with Hana and Alnylam.
Revenue is detailed in the following table: Three months ended Nine months ended Sept 30, Sept 30, Sept 30, Sept 30, (in millions Cdn$) 2006 2005 2006 2005 ------------------------------------------------------------------------- Research and development collaborations Enzon $ - $ - $ - $ 1.3 Alnylam 0.3 - 0.7 - Hana 0.3 - 0.8 - ------------------------------------------------------------------------- Total research and development collaborations $ 0.6 $ - $ 1.5 $ 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 0.2 - 0.3 - Hana revenue Amortization of Up-front Payments 5.1 - 10.2 - Milestone 1.1 - 1.1 - ------------------------------------------------------------------------- Total licensing fees and milestone payments $ 6.4 $ - $ 11.6 $ 14.1
Alnylam revenue / On March 25, 2006, INEX signed an exclusive research collaboration agreement with Alnylam to evaluate Alnylam’s RNAi therapeutics with the Company’s systemic liposomal technology. This agreement was amended on July 14, 2006. Under the amended agreement, Alnylam will pay 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 is being recognized as Research and development collaborations revenue as services are performed and related expenditures are incurred.
Alnylam has made licensing payments of $0.6 million (US$0.5 million) for four consecutive three month options to execute a global license for specific RNAi therapeutic targets. Income from these options is being recognized as licensing fees and milestone payments on a straight-line basis over the period of the option 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 the Company’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.
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 three of the Company’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 1,118,568 Hana shares to the Company (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.
In accordance with INEX’s revenue recognition policy, $15.3 million of the Up-front Payments was deferred and is being amortized on a straight line basis from April 3, 2006 to December 31, 2006 when the Company expects to deliver substantially all the services under the Service Agreement with Hana and $0.2 million has been allocated to the surplus laboratory equipment transferred to Hana giving a gain on disposal of nil.
On August 29, 2006, the Company 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 the Company’s agreement with the former holders of the exchangeable and development notes (the “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) have been transferred to the Former Noteholders. Under the agreement INEX will pay certain of the future contingent Hana milestones and royalties to the Former Noteholders. The remaining contingent obligation under the agreement with the Former Noteholders as at September 30, 2006 is $26.8 million (US$23.9 million).
Revenue projection / Revenue from the Hana and Alnylam partnerships in the fourth quarter of 2006 is expected to be approximately $6.4 million giving a total projected revenue for 2006 of approximately $19.5 million.
Expenses / Research and development / Research and development expenses decreased to $1.3 million for the third quarter of 2006 from $1.9 million in the same period in 2005 and to $3.8 million for the first nine months of 2006 from $8.3 million in the same period in 2005. This decrease relates primarily to reduced research and development personnel, reduced external costs for products in the pipeline and reduced facility overheads. Research and development salary expenses declined in the nine month period ending September 30, 2006 as compared to the same period in 2005 as a result of a workforce reduction in June 2005. INEX’s internal research and development staff was 17 at September 30, 2006 (total staff 26) as compared to 36 just prior to the June 2005 restructuring (total staff 57) and 18 at June 30, 2005 (total staff 30). 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 and for which spending is now passed through to INEX’s new Targeted Chemotherapy partner, Hana.
Research and development costs in the fourth quarter of 2006 are expected to be at a similar level to those of the third quarter of 2006.
General and administrative / General and administrative expenses increased to $1.2 million for the three months ended September 30, 2006 as compared to $0.6 million in the same period in 2005. This increase relates to legal and consulting fees incurred as a result of the revised Plan of Arrangement for spinning out Tekmira. At $3.3 million general and administrative expenses were the same for the nine month periods ended September 30, 2006 and September 30, 2005. Legal and consulting fees increased significantly in the nine months ended September 30, 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 were substantially cut after the June 2005 workforce reductions. Lease and operating expenses have also been reduced through a sub-lease agreement for the Company’s excess lab and office space effective October 1, 2005.
It is expected that further professional fees will be incurred as the Company seeks to complete its corporate reorganization and general and administrative costs in the fourth quarter of 2006 are expected to approximately $1.0 million.
Amortization / Amortization expense was $0.1 million for the third quarter of 2006 and $0.5 million for the comparable period in 2005. Current year to date amortization expense is $0.8 million as compared to $1.7 million for the nine months ended September 30, 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 of all of INEX medical technology at June 30, 2006 Total amortization for 2006 is expected to be approximately $0.9 million.
Other Income/Losses / Interest income / Interest income was $0.09 million for the third quarter and $0.30 million for the first nine months of 2006 as compared to $0.13 million for the third quarter and $0.39 for the first nine months of 2005. The decrease in interest income is a result of a decrease in the average cash and cash equivalents held during the 2006 periods as compared to the 2005 periods, somewhat offset by higher average interest rates in 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 nil for the three months and $1.9 million for the nine months ended September 30, 2006 as compared to $1.0 million and $3.0 million for the comparable periods in 2005. On June 20, 2006, INEX signed a purchase and settlement agreement with the holders of the Notes. There is no interest charged on the Notes after their purchase and settlement on June 20, 2006.
Gain on purchase and settlement of exchangeable and development notes / The current year to date Gain on purchase of exchangeable and development notes is $25.96 million. On June 20, 2006 the Company signed a purchase and settlement agreement with the Former Noteholders and recorded a gain on settlement of $26.84 million. On August 29, 2006, Hana paid the Company a milestone of $1.11 million (US$1.00 million) (see Hana revenue). After paying a royalty of $0.22 million (US$0.20 million) the balance of the milestone payment of $0.89 million (US$0.80 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.
It should be noted that the net impact on income resulting from the Hana milestone paid on August 29, 2006 is nil as the revenue recorded is offset by the royalty expense and the adjustment to Gain on purchase and settlement of exchangeable and development notes.
Foreign exchange and other gains (losses) / Foreign exchange and other gains (losses) showed losses of $0.011 million for the third quarter and gains of $1.6 million for the first nine months of 2006 as compared to gains of $1.7 million for the third quarter and gains of $1.3 for the first nine months of 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. The Company 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).
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. The $0.003 million income tax income year to date and in the third quarter of 2006 represents an adjustment to the US income tax provision now that the 2004 and 2005 US income tax returns have finalized and filed.
Capital Expenditures / Capital expenditures were $0.02 million in the third quarter and $0.09 million in the first nine months of 2006 and nil and $0.05 million for the comparable periods in 2005. Of the capital additions in the nine months of 2006, $0.13 million were funded by capital leases.
RISKS AND UNCERTAINTIES
Our funding needs and those of Tekmira if the spin-out is completed may vary depending on a number of factors including:
- revenues earned from the Service Agreement with Hana - the cost of the corporate reorganization that will see all transferable assets and liabilities spun out into Tekmira - 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 its product candidates - the decisions, and the timing of decisions, made by health regulatory agencies regarding INEX’s technology and products - the Company’s decisions to in-license or acquire additional products for development - competing technological and market developments - prosecuting and enforcing 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. INEX’s 2005 Annual Report and Annual Information Form are available at www.sedar.com.
FINANCIALS Consolidated Balance Sheets (Expressed in Canadian Dollars) September 30 December 31 2006 2005 ------------------------------------------------------------------------- unaudited ASSETS Current assets Cash and cash equivalents $ 6,799,394 $ 12,173,022 Accounts receivable 1,267,116 301,922 Prepaid expenses and other assets 209,418 209,160 ------------------------------------------------------------------------- Total current assets 8,275,928 12,684,104 Property and equipment 639,904 1,107,170 Medical technology - 7,688,820 ------------------------------------------------------------------------- $ 8,915,832 $ 21,480,094 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) Current liabilities Accounts payable and accrued liabilities $ 1,432,627 $ 1,933,402 Income tax payable - 433,799 Current portion of obligations under capital leases 95,003 57,594 Current portion of deferred lease inducements 140,735 140,735 ------------------------------------------------------------------------- Total current liabilities 8,852,580 2,565,530 Obligations under capital leases 100,657 99,302 Exchangeable and Development Notes - 40,158,926 Deferred lease inducements 29,225 134,777 ------------------------------------------------------------------------- Total liabilities 8,982,462 42,958,535 Shareholders’ deficiency: Common share capital: September 30, 2006 - 38,566,788 180,237,917 180,237,917 December 31, 2005 - 38,566,788 Additional paid-in capital 15,134,546 20,569,880 Deficit (195,439,093) (222,286,238) ------------------------------------------------------------------------- Total shareholders’ deficiency (66,630) (21,478,441) ------------------------------------------------------------------------- $ 8,915,832 $ 21,480,094 ------------------------------------------------------------------------- Consolidated Statements of Operations and Deficit (Expressed in Canadian Dollars) Three months ended Nine months ended September 30 September 30 September 30 September 30 2006 2005 2006 2005 ------------------------------------------------------------------------- unaudited unaudited unaudited unaudited Revenue Research and development collabo- rations $ 581,393 $ - $ 1,521,426 $ 1,299,398 Licensing fees and milestone payments 6,426,226 - 11,567,013 14,136,818 ------------------------------------------------------------------------- 7,007,619 - 13,088,439 15,436,216 ------------------------------------------------------------------------- Expenses Research and development 1,310,967 1,888,256 3,762,493 8,317,121 General and administrative 1,156,969 584,761 3,328,288 3,305,728 Restructuring costs - - - 5,823,634 Impairment of medical technology - - 7,210,515 - Amortization 143,610 481,484 764,082 1,677,079 ------------------------------------------------------------------------- 2,611,546 2,954,501 15,065,378 19,123,562 ------------------------------------------------------------------------- Income (Loss) from operations 4,396,073 (2,954,501) (1,976,939) (3,687,346) Interest income 92,977 133,359 298,114 393,817 Interest on exchangeable and development notes - (987,715) (1,872,729) (3,010,126) Gain on purchase and settlement of exchangeable and development notes (888,186) - 25,955,993 - Foreign exchange and other gains (losses) 11,178 1,740,611 1,565,693 1,329,177 Dilution gain from Protiva Biotherapeutics Inc. - 1,214,548 - 2,067,220 Equity in loss of Protiva Biotherapeutics Inc. - (978,804) - (1,670,214) Impairment loss on investment in Protiva Biotherapeutics Inc. - (235,744) - (235,744) Loss on disposal of Hana Biosciences, Inc. shares - - (3,069,049) - ------------------------------------------------------------------------- Income (Loss) before income taxes 3,612,042 (2,068,246) 20,901,083 (4,813,216) Income taxes (3,494) - (2,688) 451,000 ------------------------------------------------------------------------- Net income (loss) $ 3,615,536 $ (2,068,246) $ 20,903,771 $ (5,264,216) Deficit, Beginning of period (199,054,629) (216,122,069) (222,286,238) (212,926,099) Discount on exchangeable and development notes - - 5,943,374 - ------------------------------------------------------------------------- Deficit, End of period $(195,439,093) $(218,190,315) $(195,439,093) $(218,190,315) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares Basic 38,566,788 38,566,788 38,566,788 38,566,788 Diluted 38,576,025 38,566,788 38,579,150 38,566,788 Income (Loss) per common share Basic $ 0.09 $ (0.05) $ 0.54 $ (0.14) Diluted $ 0.09 $ (0.05) $ 0.54 $ (0.14) Consolidated Statements of Cash Flow (Expressed in Canadian Dollars) Three months ended Nine months ended September 30 September 30 September 30 September 30 2006 2005 2006 2005 ------------------------------------------------------------------------- unaudited unaudited unaudited unaudited OPERATIONS Income (Loss) for the period $ 3,615,536 $ (2,068,246) $ 20,903,771 $ (5,264,216) Items not involving cash: Amortization of property and equipment 143,608 235,637 285,784 945,916 Impairment loss on property and equipment - - - 1,528,064 Amortization of medical technology - 237,097 478,305 719,493 Impairment loss on medical technology - 7,210,515 Amortization of deferred lease inducements (35,184) (34,797) (105,552) (104,391) Amortization of other long-term assets - 8,750 - 809,242 In kind contribution of capital assets - - - 61,043 Interest on exchangeable and development notes - 987,715 1,872,729 3,010,126 Unrealized foreign exchange gain (loss) on exchangeable and development notes - (2,174,543) (1,659,484) (1,380,855) Gain on purchase and settlement of exchangeable and development notes 888,186 (25,955,993) Dilution gain from Protiva Biotherapeutics Inc. - (1,214,548) - (2,067,220) Equity in loss of Protiva Biotherapeutics Inc. - 978,804 - 1,670,214 Impairment loss on investment in Protiva Biotherapeutics Inc. - 235,744 - 235,744 Loss on disposal of Hana Biosciences, Inc. shares - - 3,069,049 - Milestone Hana Biosciences, Inc. shares received (552,650) - (552,650) - Royalty payment of Hana Biosciences, Inc. shares 108,557 - 108,557 - Stock-based compensation expense 196,302 181,974 508,040 429,717 Gain from sale of property and equipment - (20,861) (10,948) (33,809) Change in deferred revenue (3,251,616) - (6,451,416) (11,155,715) Net change in non-cash working capital (210,788) (4,716,414) (1,671,043) (3,867,204) ------------------------------------------------------------------------- 901,951 (7,363,688) (1,970,336) (14,463,851) ------------------------------------------------------------------------- INVESTMENTS Proceeds from sale of property and equipment - 20,861 16,492 33,809 Acquisition of property and equipment (15,238) - (92,233) (52,281) ------------------------------------------------------------------------- (15,238) 20,861 (75,741) (18,472) ------------------------------------------------------------------------- FINANCING Repayment of long-term debt, net of security deposit - (873,953) - (1,281,505) Repayment of obligations under capital leases (22,634) (13,409) (92,958) (93,100) Repayment of exchangeable and development notes (444,093) - (3,234,593) - ------------------------------------------------------------------------- (466,727) (887,362) (3,327,551) (1,374,605) ------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 419,986 (8,230,189) (5,373,628) (15,856,928) Cash and cash equivalents, beginning of period 6,379,408 22,419,037 12,173,022 30,045,776 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 6,799,394 $ 14,188,848 $ 6,799,394 $ 14,188,848 --------------------------------------------------------------
