MethylGene Reports Second Quarter 2010 Financial Results and Provides Clinical Update for MGCD265

MONTREAL, QUEBEC--(Marketwire - July 30, 2010) - MethylGene Inc. (TSX: MYG) today announced financial results for the second quarter ended June 30, 2010. In addition, the Company provided a clinical trial update for its multi-targeted (Met) kinase oncology inhibitor, MGCD265.

Financial Results Reported in Canadian Dollars

Total revenues for the second quarter ended June 30, 2010 were $512,000 compared to $388,000 for the same period last year due to increased collaboration revenue from Otsuka and final revenue reconciliation from the termination of the Celgene collaboration reflected in the second quarter of 2009.

Gross research and development expenditures in the second quarter of 2010 were $2.9 million, down 49 percent, compared to $5.8 million in the second quarter of 2009. This decrease is primarily due to lower research and development expenses as we continue to focus development on our key programs. General and administrative expenses in the second quarter of 2010 were $1.2 million, an increase of $176,000 compared to the second quarter of 2009. The increase was due primarily to higher professional fees which were partially offset by lower compensation expenses. MethylGene incurred a foreign exchange gain of $54,000 in the second quarter of 2010 versus a loss of $726,000 in the second quarter of 2009. The magnitude of the second quarter gain in 2010 versus the loss in the second quarter of 2009 is the result of lower average U.S. denominated assets and a higher average exchange rate for the Canadian dollar versus the U.S. dollar in the second quarter of 2010 versus the second quarter of 2009. The net loss for the second quarter ended June 30, 2010 was $3.4 million or ($0.09) per share compared to a net loss of $6.9 million or ($0.19) per share for the corresponding period last year. These results reflect continued lower operating expenses due to cost control efforts and our focus on key clinical development projects.

As of June 30, 2010, the Company had $14.9 million of cash, cash equivalents, marketable securities and restricted cash. Based on our current assumptions, the Company believes that its current cash, cash equivalents, marketable securities, interest income, projected revenues from current collaborations, projected timing of clinical trials and refundable investment tax credits should be sufficient to carry out its currently planned research and development plans and operations into the second quarter of 2011.

MGCD265 Update (Preliminary Data)

MethylGene continued to enroll patients into the ongoing MGCD265 clinical trials (Trials 101, 102 and 103), which are evaluating the compound in solid tumor patients. The Company has begun BID (twice a day) dosing in all three trials. For the MGCD265-docetaxel combination arm of Trial 103, 16 patients have been enrolled of which six patients are ongoing including four metastatic Stage IV non-small cell lung cancer (NSCLC) patients. Five of the six patients have been treated for four cycles or more including one NSCLC patient who has an objective partial response (PR) and four patients (three NSCLC and one pancreatic) who have experienced stable disease (SD). The NSCLC patients have received three to six prior therapies, including treatment with taxanes and all were smokers. The current treatment duration for these patients (as of July 28, 2010) ranges from 24 to 46 weeks and all four patients experienced tumor shrinkage, as well as a 98 percent decrease in carcinoembryonic antigen (CEA) levels in the patient experiencing a PR. These four NSCLC patients exceed the time to disease progression (TDP) of approximately 12 weeks reported for second-line NSCLC patients treated with docetaxel as described in the Taxotere® label (TAX317 study). The current progression-free survival (PFS) mean and median for these four patients following administration of the MGCD265-docetaxel combination is 34 and 33 weeks respectively.

In the MGCD265-erlotinib arm of Trial 103, 21 patients have been enrolled of which six patients are ongoing. Seven patients experiencing SD were treated for more than four cycles. One of these patients with gastric cancer experienced significant clinical benefit demonstrated by the removal of an indwelling catheter to drain ascites and a decrease in the thickening of the gastric wall. This patient has now been on study for over six cycles. Another patient with metastatic medulloblastoma (an aggressive form of brain cancer) experienced stable disease and was on study for approximately six cycles.

The Company’s current goal for all MGCD265 trials is to identify a recommended Phase II dose and schedule in preparation for a randomized, placebo-control, double-blind MGCD265 Phase II trial (Trial 104) in refractory NSCLC patients with the selected comparator agent (erlotinib or docetaxel). There is a current bias to the docetaxel combination based on safety and efficacy data to date.

Current Objectives

 -- Complete the two ongoing Phase I clinical trials (Trials 101 and 102) evaluating MGCD265 in patients with solid tumors; -- Complete MGCD265 Trial 103 in solid tumor patients to identify a recommended Phase II dose and regimen in combination with two comparator agents (Tarceva® or Taxotere®) in preparation for a randomized trial with the chosen comparator agent in NSCLC patients (Trial 104); -- Continue to enroll refractory or relapsed follicular lymphoma patients in the mocetinostat Phase II trial (Trial 008); -- Report updated clinical trial data at appropriate scientific venues for MGCD265 and the completed Phase I studies for MGCD290 a fungal Hos2 inhibitor; and -- Continue to seek and evaluate partnerships, collaborations, strategic relationships and other alternatives, as well as monetize assets to enhance clinical outcomes for the Company’s development stage compounds and to provide additional resources to the Company. 

About MethylGene

MethylGene Inc. (TSX: MYG) is a publicly-traded, clinical stage biopharmaceutical company focused on the development and commercialization of novel therapeutics with a focus on cancer. The Company’s product candidates include: MGCD265, an oral, multi-targeted kinase inhibitor targeting the Met, VEGF, Ron and Tie-2 receptor tyrosine kinases that is in multiple clinical trials for cancer; MGCD290, a fungal Hos2 inhibitor for use in combination with fluconazole for serious fungal infections which has completed Phase I clinical studies; and mocetinostat (MGCD0103), an oral, isoform-selective HDAC inhibitor for cancer which has been in multiple Phase II clinical trials and is currently in a Phase II trial in refractory or relapsed follicular lymphoma. Mocetinostat is licensed to Taiho Pharmaceutical Co. Ltd in certain Asian countries. A fourth compound discovered using MethylGene’s HDAC platform, EVP-0334 - a potential cognition enhancing agent for neurodegenerative diseases has successfully completed Phase I trials sponsored by EnVivo Pharmaceuticals Inc. MethylGene also has a funded collaboration with Otsuka

Pharmaceutical Co. Ltd. for applications in ocular diseases using the Company’s proprietary kinase inhibitor chemistry. Please visit our website at www.methylgene.com.

Certain statements contained in this news release, other than statements of fact that are independently verifiable at the date hereof, may constitute forward-looking statements. Such statements, based as they are on the current expectations of management of MethylGene, inherently involve numerous risks and uncertainties, known and unknown, many of which are beyond MethylGene’s control. These risks and uncertainties could cause future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Such results, performance or achievements include, but are not limited to, the timing and effects of regulatory action; the continuation of collaborations; the results of clinical trials; the timing of enrollment or completion of clinical trials; the success, efficacy or safety of MGCD265, MGCD290 or mocetinostat (MGCD0103); the ability to scale up, formulate and manufacture sufficient GMP, clinical or commercialization quantities of MGCD265, MGCD290 or mocetinostat, and the relative success or the lack of success in developing and gaining regulatory approval and/or market acceptance for any compound or new product including MGCD265, MGCD290 or mocetinostat. Such risks include, but are not limited to, the impact of general economic conditions, economic conditions in the pharmaceutical industry, changes in the regulatory environment in the jurisdictions in which MethylGene does business, stock market volatility, fluctuations in costs, expectations with respect to our intellectual property position and our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others, changes in the competitive landscape including changes in the standard of care for the various indications in which MethylGene is involved, and changes to the competitive environment due to consolidation, as well as other risks, as described in MethylGene’s Annual Information Form for the fiscal year ending December 31, 2009, under the heading “Risk Factors” which you are urged to read and all other documents filed by the Company that can be found at www.sedar.com. Consequently, actual future results may differ materially from the anticipated results expressed in the forward-looking statements. The reader should not place undue reliance on the forward-looking statements included in this presentation. These statements speak only as an update on the date they are made and MethylGene is under no obligation to revise such statements as a result of any event, circumstance or otherwise except in accordance with law.

 MethylGene Inc. Incorporated under the Canada Business Corporation Act BALANCE SHEETS (In thousands of Canadian dollars) June 30, December 31, 2010 2009 $ $ ---------------------- ASSETS Current Cash and cash equivalents 12,278 14,210 Marketable securities 1,652 3,863 Restricted cash 200 - Research and development tax credits receivable 1,382 992 Unbilled revenue 375 328 Interest receivable 15 17 Loan receivable 31 - Other current assets 1,161 1,033 ---------------------- Total current assets 17,094 20,443 Security deposits 385 385 Restricted cash 800 - Property, plant and equipment 769 1,173 ---------------------- 19,048 22,001 ---------------------- LIABILITIES AND SHAREHOLDERS’ EQUITY Current Accounts payable and accrued liabilities 4,798 5,811 Current portion of unearned revenue 584 584 Current portion of lease abandonment cost 194 196 ---------------------- Total current liabilities 5,576 6,591 Unearned revenue 2,237 2,529 Lease abandonment cost 284 380 ---------------------- Total liabilities 8,097 9,500 ---------------------- Shareholders’ equity Capital stock 119,189 119,189 Contributed surplus 15,377 9,014 Deficit (123,648) (115,712) Accumulated other comprehensive income 33 10 ---------------------- Total shareholders’ equity 10,951 12,501 ---------------------- 19,048 22,001 ---------------------- MethylGene Inc. STATEMENTS OF OPERATIONS AND DEFICIT (In thousands of Canadian dollars, except for share and per share amounts) Three-month period Six-month period ended June 30, ended June 30, 2010 2009 2010 2009 $ $ $ $ -------------------------------------------------------- REVENUES Research collaborations and contract revenues 365 251 693 1,778 License and up- front fees 147 137 293 275 -------------------------------------------------------- 512 388 986 2,053 -------------------------------------------------------- EXPENSES Research and development 2,933 5,756 6,765 13,162 Government assistance (176) (270) (390) (566) -------------------------------------------------------- Net research and development 2,757 5,486 6,375 12,596 General and administrative 1,234 1,058 2,541 2,338 Interest income (9) (24) (16) (155) Amortization and write-off of property, plant and equipment 3 4 6 10 Gain on disposal of property, plant and equipment (1) (10) (5) (6) Corporate and other transaction costs - 71 - 118 Bank charges and interest 10 7 17 15 Foreign exchange (gain) loss (54) 726 14 81 -------------------------------------------------------- 3,940 7,318 8,932 14,997 -------------------------------------------------------- Loss before income tax (3,428) (6,930) (7,946) (12,944) Future income tax recovery (expense) 14 13 10 (84) -------------------------------------------------------- Net loss for the period (3,414) (6,917) (7,936) (13,028) Deficit, beginning of period (120,234) (98,233) (115,712) (92,122) -------------------------------------------------------- Deficit, end of period (123,648) (105,150) (123,648) (105,150) -------------------------------------------------------- Basic and diluted loss per share (0.09) (0.19) (0.20) (0.36) Weighted average number of common shares 40,418,580 36,682,398 40,418,580 36,682,398 -------------------------------------------------------- MethylGene Inc. STATEMENTS OF COMPREHENSIVE LOSS (In thousands of Canadian dollars) Three-month period Six-month period ended June 30, ended June 30, 2010 2009 2010 2009 $ $ $ $ -------------------------------------------------------- Net loss for the period (3,414) (6,917) (7,936) (13,028) -------------------------------------------------------- Other comprehensive loss Change in unrealized gains on cash equivalents and marketable securities, net of income tax expense of $12 for the three- month period ended June 30, 2010 (2009 - $52) and $11 for the six-month period ended June 30, 2010 (2009 - $81) 35 117 25 181 Reclassification to net loss of realized losses (gains) on cash equivalents and marketable securities, net of income tax expense of $2 for the three-month period ended June 30, 2010 (2009 - tax recovery of $39) and a tax recovery of $1 for the six-month period ended June 30, 2010 (2009 - $165) 13 (88) (2) (369) -------------------------------------------------------- 48 29 23 (188) -------------------------------------------------------- Comprehensive loss for the period (3,366) (6,888) (7,913) (13,216) -------------------------------------------------------- MethylGene Inc. STATEMENTS OF CASH FLOWS (In thousands of Canadian dollars) Three-month period Six-month period ended June 30, ended June 30, 2010 2009 2010 2009 $ $ $ $ -------------------------------------------------------- OPERATING ACTIVITIES Net loss for the period (3,414) (6,917) (7,936) (13,028) Items not affecting cash Amortization of property, plant and equipment 184 252 408 517 Write-off of property, plant and equipment - - - 2 Gain on disposal of property, plant and equipment (1) (10) (5) (6) Stock-based compensation expense 17 40 47 110 Future income tax (recovery) expense (14) (13) (10) 84 -------------------------------------------------------- (3,228) (6,648) (7,496) (12,321) Net change in non- cash working capital balances related to operations 198 1,114 (1,673) 203 Change in long- term portion of unearned revenue (147) (137) (293) (274) -------------------------------------------------------- Cash flows related to operating activities (3,177) (5,671) (9,462) (12,392) -------------------------------------------------------- INVESTING ACTIVITIES Acquisitions of property, plant and equipment - (9) (5) (9) Purchases of marketable securities (1,652) (13,539) (2,751) (24,078) Restricted cash (1,000) - (1,000) - Proceeds from maturities of marketable securities 1,099 9,087 4,962 39,942 Proceeds from disposal of property, plant and equipment 1 10 6 11 -------------------------------------------------------- Cash flows related to investing activities (1,552) (4,451) 1,212 15,866 -------------------------------------------------------- FINANCING ACTIVITIES Proceeds from reorganization 7,185 - 7,185 - Costs of reorganization (900) - (900) - -------------------------------------------------------- Cash flows related to financing activities 6,285 - 6,285 - -------------------------------------------------------- Foreign exchange gain on cash equivalents held in foreign currency 62 74 33 184 -------------------------------------------------------- Increase (decrease) in cash and cash equivalents 1,618 (10,048) (1,932) 3,658 Cash and cash equivalents, beginning of period 10,660 19,653 14,210 5,947 -------------------------------------------------------- Cash and cash equivalents, end of period 12,278 9,605 12,278 9,605 -------------------------------------------------------- Cash and cash equivalents consist of: Cash 775 2 775 2 Cash equivalents 11,503 9,603 11,503 9,603 -------------------------------------------------------- 12,278 9,605 12,278 9,605 --------------------------------------------------------