MethylGene Shareholders Approve Non-Dilutive Financing of Up to $9.1 Million and Company Reports First Quarter 2010 Financial Results

MONTREAL, QUEBEC--(Marketwire - May 14, 2010) - MethylGene Inc. (TSX: MYG) today announced that at the Company’s annual and special shareholders’ meeting held today in Montreal, shareholders voted in favor of the arrangement resolution. This arrangement provides gross proceeds of up to $9.1 million in non-dilutive capital to MethylGene, of which $7.2 million is to be received at closing which is expected to take place on or about May 19, 2010.

Financial Results Reported in Canadian Dollars

The Company also announced financial results for the first quarter ended March 31, 2010.

Total revenues for the first quarter ended March 31, 2010 were $474,000 compared to $1.7 million for the same period last year. The first quarter 2009 revenues included the final revenues from the Celgene collaboration which terminated in the first quarter of 2009.

Gross research and development expenditures in the first quarter of 2010 were $3.8 million (down 48 percent) compared to $7.4 million in the first quarter of 2009. This decrease is primarily due to lower clinical development expenses related to mocetinostat, as well as lower expenditures in discovery research. General and administrative expenses in the first quarter of 2010 of $1.3 million were essentially flat with the same period last year. MethylGene incurred a foreign exchange loss of $68,000 in the first quarter of 2010 versus a gain of $645,000 in the first quarter of 2009 due to the strengthening of the Canadian dollar in the first quarter of 2010. The net loss for the first quarter ended March 31, 2010 was $4.5 million or ($0.11) per share compared to a net loss of $6.1 million or ($0.17) per share for the corresponding period last year. These results reflect lower operating expenses due to cost control efforts and our focus on key clinical development projects.

As of March 31, 2010, the Company had $11.8 million of cash, cash equivalents and marketable securities. These figures do not include the $7.2 million cash expected at closing from the non-dilutive arrangement. Assuming the arrangement closes as expected on or about May 19, 2010, and 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 will be sufficient to carry out its currently planned research and development plans and operations into the second quarter of 2011.

Current Objectives:

 -- Complete the two ongoing Phase I clinical trials (Trials 101 and 102) which are evaluating our kinase (Met) inhibitor, MGCD265, in patients with solid tumors; -- Complete MGCD265 Trial 103 to determine the maximum tolerated dose of MGCD265 in combination with two comparator agents (Tarceva® or Taxotere®) in preparation for a randomized trial with the chosen comparator agent in non-small cell lung cancer patients (Trial 104); -- 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; 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 discovery, 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, is in 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.

Summary financial statements follow.

 MethylGene Inc. Incorporated under the Quebec Companies Act BALANCE SHEETS (In thousands of Canadian dollars) March 31, December 31, 2010 2009 $ $ -------------------------- ASSETS Current Cash and cash equivalents 10,660 14,210 Marketable securities 1,099 3,863 Research and development tax credits receivable 1,206 992 Unbilled revenue 318 328 Interest receivable 13 17 Other current assets 1,255 1,033 -------------------------- Total current assets 14,551 20,443 Security deposits 385 385 Property, plant and equipment 953 1,173 -------------------------- 15,889 22,001 -------------------------- -------------------------- LIABILITIES AND SHAREHOLDERS’ EQUITY Current Accounts payable and accrued liabilities 4,411 5,811 Current portion of unearned revenue 584 584 Current portion of lease abandonment cost 195 196 -------------------------- Total current liabilities 5,190 6,591 Unearned revenue 2,383 2,529 Lease abandonment cost 332 380 -------------------------- Total liabilities 7,905 9,500 -------------------------- Shareholders’ equity Capital stock 119,189 119,189 Contributed surplus 9,044 9,014 Deficit (120,234) (115,712) Accumulated other comprehensive income (15) 10 -------------------------- Total shareholders’ equity 7,984 12,501 -------------------------- 15,889 22,001 -------------------------- -------------------------- MethylGene Inc. STATEMENTS OF OPERATIONS AND DEFICIT (In thousands of Canadian dollars, except for share and per share amounts) Three-month period ended March 31, 2010 2009 $ $ -------------------------- REVENUES Research collaborations and contract revenues 328 1,527 License and up-front fees 146 138 -------------------------- 474 1,665 -------------------------- EXPENSES Research and development 3,832 7,406 Government assistance (214) (296) -------------------------- Net research and development 3,618 7,110 General and administrative 1,307 1,280 Interest income (7) (131) Amortization and write-off of property, plant and equipment 3 6 Loss (gain) on disposal of property, plant and equipment (4) 4 Corporate and other transaction costs - 47 Bank charges and interest 7 8 Foreign exchange loss (gain) 68 (645) -------------------------- 4,992 7,679 -------------------------- Loss before income tax (4,518) (6,014) Future income tax expense (4) (97) -------------------------- Net loss for the period (4,522) (6,111) Deficit, beginning of period (115,712) (92,122) -------------------------- Deficit, end of period (120,234) (98,233) -------------------------- -------------------------- Basic and diluted loss per share (0.11) (0.17) Weighted average number of common shares 40,418,580 36,682,398 -------------------------- MethylGene Inc. STATEMENTS OF COMPREHENSIVE LOSS (In thousands of Canadian dollars) Three-month period ended March 31, 2010 2009 $ $ -------------------------- Net loss for the period (4,522) (6,111) -------------------------- Other comprehensive loss Change in unrealized (losses) gains on cash equivalents and marketable securities, net of income tax recovery of $1 (2009 - tax expense of $28) (10) 64 Reclassification to net loss of realized gains on cash equivalents and marketable securities, net of income tax recovery of $3 (2009 - $125) (15) (281) Comprehensive loss for the period (25) (217) -------------------------- (4,547) (6,328) -------------------------- -------------------------- MethylGene Inc. STATEMENTS OF CASH FLOWS (In thousands of Canadian dollars) Three-month period ended March 31, 2010 2009 $ $ -------------------------- OPERATING ACTIVITIES Net loss for the period (4,522) (6,111) Items not affecting cash Amortization of property, plant and equipment 224 265 Write-off of property, plant and equipment - 2 Loss (gain) on disposal of property, plant and equipment (4) 4 Stock-based compensation expense 30 70 Future income tax expense 4 97 -------------------------- (4,268) (5,673) Net change in non-cash working capital balances related to operations (1,871) (911) Change in long-term portion of unearned revenue (146) (137) -------------------------- Cash flows related to operating activities (6,285) (6,721) -------------------------- INVESTING ACTIVITIES Acquisitions of property, plant and equipment (5) - Purchases of marketable securities (1,099) (10,539) Proceeds from maturities of marketable securities 3,863 30,855 Proceeds from disposal of property, plant and equipment 5 1 -------------------------- Cash flows related to investing activities 2,764 20,317 -------------------------- Foreign exchange gain (loss) on cash equivalents held in foreign currency (29) 110 -------------------------- Increase (decrease) in cash and cash equivalents (3,550) 13,706 Cash and cash equivalents, beginning of period 14,210 5,947 -------------------------- Cash and cash equivalents, end of period 10,660 19,653 -------------------------- -------------------------- Cash and cash equivalents consist of: Cash 1,118 3,390 Cash equivalents 9,542 16,263 -------------------------- 10,660 19,653 -------------------------- --------------------------