SOUTH SAN FRANCISCO, Calif., July 25 /PRNewswire-FirstCall/ -- Monogram Biosciences, Inc. today reported financial results for the quarter ended June 30, 2006.
Second Quarter Results
The Company had revenue of $13.4 million for the second quarter of 2006, which was 8 percent higher than revenue of $12.4 million for the second quarter of 2005. Driving this increase was revenue from the Company’s HIV testing products, which grew 16 percent to $12.8 million in the second quarter of 2006 compared to $11.0 million for the same period in 2005.
For the second quarter of 2006, a net loss of $21.8 million, or $0.17 per common share, was recorded, compared to a net profit of $0.7 million, or $0.01 per common share, for the same period in 2005. Included in these results were substantial non-cash items related to the Contingent Value Rights (CVRs) and stock-based compensation, which are described below under “Proforma Results.” On a proforma basis, adjusted for these non-cash items, the net loss was $3.3 million, or $0.03 per share, in the second quarter of 2006 compared to a net loss of $2.6 million, or $0.02 per share, in the same period of 2005.
Six Months’ Results
The Company had revenue of $26.6 million for the first half of 2006, which was 19 percent higher than revenue of $22.4 million for the same period in 2005. Revenue from the Company’s HIV testing products grew 26 percent to $25.0 million in the first half of 2006 compared to $19.9 million for the same period in 2005.
For the six months ended June 30, 2006, a net loss of $25.1 million, or $0.19 per common share, was recorded, compared to a net loss of $6.7 million, or $0.06 per common share, for the same period in 2005. On a proforma basis, adjusted for non-cash items, the net loss was $4.7 million, or $0.04 per share, in the six months ended June 30, 2006 compared to a net loss of $6.7 million, or $0.06 per share, in the same period of 2005.
Cash Resources
The Company had $35.2 million in cash resources (comprising cash, cash equivalents and short-term investments) at June 30, 2006. During the second quarter, the Company received proceeds of $25 million from Pfizer’s investment in Monogram and paid out approximately $57 million in settlement of the liability under the CVRs. Adjusting for these items, cash resources at June 30, 2006 were approximately unchanged from March 31, 2006.
Recent Corporate Highlights
“This has been a pivotal quarter for Monogram,” said William D. Young, Chairman and CEO of Monogram. “We entered into an important collaboration with Pfizer to make our Co-Receptor Tropism Assay available globally in support of maraviroc, Pfizer’s first-in-class CCR5 inhibitor. We eliminated the overhang of the CVRs on our financial position and on our stock, expanded our intellectual property position and made substantial progress in improving the consistency and reproducibility of our eTag assay.”
“The use of our Co-Receptor Tropism Assay for patient selection in the phase III trials of maraviroc provides the potential for a ‘first’ in HIV in the form of a drug that requires a molecular diagnostic for patient selection,” added Young. “We are tremendously excited about moving forward with our Pfizer collaboration to prepare for commercial availability of our assay should this be required as part of clinical use after approval of the drug.”
“In oncology, we have continued to refine the eTag assay as we simultaneously gain experience from its routine operation in our lab and continue our evaluation of correlations between protein dimers and clinical response,” continued Young. “We are seeing good consistency in two separate cohorts of breast cancer samples, and plan to continue these studies to develop and validate predictive algorithms.
“As important as the operational progress in both HIV and oncology, is the expansion of the intellectual property around our key technologies and their commercial applications,” said Young. “In this regard, we have recently received notices of allowance from the U.S. Patent Office in respect of five patents that we believe will provide important protection for the detection of co-receptor tropism in HIV and the detection of protein dimers using eTag technology.”
“Finally, with the CVR liability settled, we can now move forward without the overhang that the CVR represented for our stock and our financial position. With $35.2 million in cash, we feel we are well placed financially to advance our opportunities in HIV and oncology.”
Corporate: -- Closed a $25 million investment by Pfizer, Inc. through a 3% Senior Secured Convertible Note, due in 2010 and convertible at a price of $2.7048 per share. -- Eliminated the overhang represented by the CVRs. -- Ended the second quarter of 2006 with total cash and cash investments of $35.2 million. -- Recorded record quarterly revenue of $13.4 million. HIV: -- Initiated planning under our multi-year collaboration agreement with Pfizer to provide worldwide availability of Monogram’s Co- Receptor Tropism Assay for patient use. -- Provided testing services in the Phase III clinical trial for maraviroc, Pfizer’s investigational CCR5-inhibitor drug. -- Provided testing services in support of a first-in-class integrase inhibitor compound in a Phase III trial by Merck & Co. -- Provided testing services, including assays for co-receptor tropism and drug susceptibility, to Schering Plough to support the clinical development of vicriviroc, Schering Plough’s investigational CCR5 receptor antagonist. -- Received notices of allowance for four U.S. patents for assessing the efficacy of entry inhibitors, including the measurement of resistance of HIV to entry inhibitors, and the identification of co-receptor usage by HIV (i.e. CCR5 and CXCR4). Oncology: -- Developed numerous enhancements to the eTag assay and incorporated these into the development laboratory, where we have been running the assay on a routine basis since January 2006 to assess and optimize assay characteristics. -- Continued the analysis of activated signaling pathways in clinical cohorts in breast cancer to establish and confirm observed relationships between EGFR/Her family receptor interactions and clinical response and survival. Consistent patterns are emerging from this work and, if confirmed through further analysis of existing cohorts, will be evaluated in a validating study. -- Received a notice of allowance for a U.S. patent for the use of Monogram’s eTag technology for detecting protein dimers. The patent covers detection of homodimers and heterodimers and detection of specific protein dimers, including some, such as Her2, that are thought to play a significant role in cancer. Outlook The following are the key objectives on which we are focused: HIV: -- Continue to grow annual HIV testing revenues, driven by the use of our assays in support of our pharmaceutical company customers’ HIV drug development pipeline, including current and anticipated clinical trials of CCR5 entry inhibitors and integrase inhibitors. -- Continue planning, through our collaboration with Pfizer, for possible use of our Co-Receptor Tropism Assay with Pfizer’s maraviroc and other CCR5 entry inhibitor drugs in potential early access programs as well as in commercial use around the world following approval of the drugs by the FDA and international regulatory agencies. Oncology: -- Validate the eTag EGFR/HER test panel in our CLIA certified clinical laboratory for clinical application to breast cancer, non-small-cell lung cancer and other EGFR pathway-driven tumors. -- Demonstrate the clinical utility of the eTag assay by developing predictive algorithms of patient response to targeted inhibitors of the EGFR/HER pathway in breast and lung cancers. -- Develop clinical data in support of the anticipated introduction of our first commercial eTag assay in oncology, a test panel measuring activated EGFR/HER family receptors related to approved targeted cancer therapies. -- Establish and extend research and clinical collaborations with pharmaceutical and biotechnology companies for application of the eTag technology to drug development.
Following the financial statements below, Monogram has provided supplemental information to help investors and media gain further insights into its business.
Proforma Results
There were several non-cash items that affected results for the quarters ended June 30, 2006 and 2005 and were recorded as follows:
-- “Mark-to-market” adjustments to the liability established for the payment on the CVRs issued as part of the merger consideration for ACLARA are reflected as non-operating income and expense in the statement of operations. The adjustment in the quarter ended June 30, 2006 was based on the actual determination, in June 2006, at $0.88 per CVR. In prior quarters, these adjustments were based on the actual closing price of the CVRs on the OTC bulletin board, which was $0.63 per CVR at both December 31, 2005 and March 31, 2006. This revaluation led to a $16.5 million unfavorable adjustment in the second quarter of 2006. -- Unfavorable adjustments of $2.0 million and $0.7 million for stock-based compensation are reflected in operating expenses for the second quarter of 2006 and 2005, respectively. These items include the net impact in 2005 of variable accounting on all former ACLARA stock options as a result of the CVRs, recognition of expense based on the value of CVRs related to former ACLARA stock options that vested during the period in 2005 and 2006, and charges in the second quarter of 2006 for stock-based compensation in accordance with SFAS 123R which was adopted by the Company effective January 1, 2006.
The Company is reporting proforma results excluding these items to provide a clearer view of ongoing expenses without the impact of merger-related costs and non-cash stock-based compensation. A reconciliation of these proforma results to GAAP results is included with the Statement of Operations data attached to this release.
Capital Structure and Contingent Value Rights
At June 30, 2006, a total of 130.6 million shares of common stock were outstanding. Stock options and warrants outstanding are 19.1 million shares and 1.7 million shares of common stock, respectively. Pfizer’s $25 million convertible note is convertible into approximately 9.2 million shares of common stock.
In June 2006, a payment of approximately $57 million in cash was made in full settlement of the outstanding CVRs. There are no CVRs outstanding at June 30, 2006.
Conference Call Details
Monogram will host a conference call today at 10 a.m. Eastern Time. To participate in the live teleconference please call (800) 289-0743, or (913) 981-5546 for international callers, fifteen minutes before the conference begins. Live audio of the call will be simultaneously broadcast over the Internet and will be available to members of the news media, investors and the general public. Access to live and archived audio of the conference call will be available by following the appropriate links at www.monogrambio.com and clicking on the Investor Relations link. Following the live broadcast, a replay of the call will also be available at (888) 203-1112, or (719) 457-0820 for international callers. The replay passcode is 7043661.
The information provided on the teleconference is only accurate at the time of the conference call, and Monogram assumes no obligation to provide updated information except as required by law.
About Monogram
Monogram is advancing individualized medicine by discovering, developing and marketing innovative products to guide and improve treatment of serious infectious diseases and cancer. The Company’s products are designed to help doctors optimize treatment regimens for their patients that lead to better outcomes and reduced costs. The Company’s technology is also being used by numerous biopharmaceutical companies to develop new and improved antiviral therapeutics and vaccines as well as targeted cancer therapeutics. More information about the Company and its technology can be found on its web site at www.monogrambio.com.
Forward Looking Statements
Certain statements in this press release and attached supplemental information are forward-looking. These forward-looking statements include references to the potential for an HIV drug that requires a molecular diagnostic for patient selection, plans for further development of the eTag technology and anticipated validation in a CLIA setting, expected protection provided by recently allowed patents, the ability of the Company to advance its opportunities in HIV and oncology, activities expected to occur in connection with the Pfizer collaboration, and the statements under “Outlook”. These forward-looking statements are subject to risks and uncertainties and other factors, which may cause actual results to differ materially from the anticipated results or other expectations expressed in such forward-looking statements. These risks and uncertainties include, but are not limited to: the risk that regulatory authorities may not require a molecular diagnostic for patient selection for an HIV drug, risks related to the implementation of the collaboration with Pfizer; risks and uncertainties relating to the performance of our products; the growth in revenues; the size, timing and success or failure of any clinical trials for CCR5 inhibitors, entry inhibitors or integrase inhibitors; the use of our Co-Receptor Tropism Assay for patient use in the event of approval of any CCR5 inhibitors; the ability of our eTag assays to predict response to particular therapeutic agents, our ability to successfully conduct clinical studies and the results obtained from those studies; whether larger confirmatory clinical studies will confirm the results of initial studies; our ability to establish reliable, high-volume operations at commercially reasonable costs; expected reliance on a few customers for the majority of our revenues; the annual renewal of certain customer agreements; actual market acceptance of our products and adoption of our technological approach and products by pharmaceutical and biotechnology companies; our estimate of the size of our markets; our estimates of the levels of demand for our products; the impact of competition; the timing and ultimate size of pharmaceutical company clinical trials; seasonal effects on revenue due to holiday periods which often affect the first and third quarters; whether payors will authorize reimbursement for our products and services; whether the FDA or any other agency will decide to further regulate our products or services; whether we will encounter problems or delays in automating our processes; the ultimate validity and enforceability of our patent applications and patents; the possible infringement of the intellectual property of others; whether licenses to third party technology will be available; whether we are able to build brand loyalty and expand revenues; and whether we will be able to raise sufficient capital in the future, if required. For a discussion of other factors that may cause our actual events to differ from those projected, please refer to our most recent annual report on Form 10-K and quarterly reports on Form 10-Q, as well as other subsequent filings with the Securities and Exchange Commission. We do not undertake, and specifically disclaim any obligation, to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
PhenoSense and eTag are trademarks of Monogram Biosciences, Inc. MONOGRAM BIOSCIENCES, INC. SELECTED STATEMENT OF OPERATIONS DATA (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Revenue: Product revenue $12,757 $11,005 $25,003 $19,858 Contract revenue 620 1,409 1,623 2,550 Total revenue 13,377 12,414 26,626 22,408 Operating costs and expenses: Cost of product revenue 5,664 4,975 11,345 9,314 Research and development 5,208 4,914 9,783 8,948 Sales and marketing 4,067 3,313 7,445 5,821 General and administrative 4,282 3,155 7,863 4,857 Total operating costs and expenses 19,221 16,357 36,436 28,940 Operating loss (5,844) (3,943) (9,810) (6,532) Interest and other income, net 544 569 1,143 1,104 CVR valuation adjustment (16,464) 4,062 (16,450) (1,244) Net Income (loss) (21,764) 688 (25,117) (6,672) Net income (loss) per common share: Basic $(0.17) $0.01 $(0.19) $(0.06) Diluted $(0.17) $0.01 $(0.19) $(0.06) Weighted-average shares used in computing net income (loss) per common share: Basic 130,348 122,815 129,983 120,099 Diluted 130,348 129,087 129,983 120,099 Reconciliation of Proforma Results to GAAP Net income (loss) $(21,764) $688 $(25,117) $(6,672) Adjustments for non cash items: CVR valuation adjustment 16,464 (4,062) 16,450 1,244 Stock based compensation 2,041 741 3,925 (1,246) Proforma net income (loss) (3,259) (2,633) (4,742) (6,674) Proforma net income (loss) per common share: Basic $(0.03) $(0.02) $(0.04) $(0.06) Diluted $(0.03) $(0.02) $(0.04) $(0.06)
Management believes that this proforma financial data supplements our GAAP financial statements by providing investors with additional information which allows them to have a clearer picture of the Company’s operations, financial performance and the comparability of the Company’s operating results from period to period as they exclude the effects of costs related to the Company’s merger with ACLARA that management believes are not indicative of the Company’s ongoing operations and the impact of stock-based compensation. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Above, management has provided a reconciliation of the proforma financial information with the comparable financial information reported in accordance with GAAP.
MONOGRAM BIOSCIENCES, INC. SELECTED BALANCE SHEET DATA (In thousands) (Unaudited) June 30, December 31, 2006 2005 ASSETS (Note 1) Current assets: Cash and cash equivalents $3,584 $7,616 Short-term investments 31,567 57,398 Restricted cash - 50 Accounts receivable, net 6,977 9,063 Prepaid expenses 768 1,107 Inventory 1,309 1,170 Other current assets 566 790 Total current assets 44,771 77,194 Property and equipment, net 8,348 8,580 Goodwill 9,927 9,927 Other assets 2,251 1,977 Total assets $65,297 $97,678 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $1,123 $1,751 Accrued compensation 2,363 2,271 Accrued liabilities 5,759 4,116 Current portion of restructuring costs 1,466 1,417 Deferred revenue 824 383 Current portion of loans payable and capital lease obligations 204 596 Contingent value rights 2,694 42,676 Total current liabilities 14,433 53,210 Long-term convertible promissory note 25,000 - Long-term portion of restructuring costs 1,554 1,916 Other long-term liabilities 673 781 Total Liabilities 41,660 55,907 Commitments Stockholders’ equity: Common stock 130 128 Additional paid-in capital 274,314 267,526 Accumulated other comprehensive loss (402) (514) Deferred compensation - (81) Accumulated deficit (250,405) (225,288) Total stockholders’ equity 23,637 41,771 Total liabilities and stockholders’ equity $65,297 $97,678 (1) The balance sheet data at December 31, 2005 is derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission. MONOGRAM BIOSCIENCES, INC. SUPPLEMENTAL INFORMATION
To provide additional insights to investors, the following information is provided in a question and answer format.
HIV 1. What is the nature of the collaboration agreement with Pfizer? The collaboration agreement announced in May 2006 provides a framework in which Pfizer and Monogram will collaborate to make Monogram’s Co-Receptor Tropism Assay available globally. Monogram’s Co-Receptor Tropism Assay has been used for patient selection in Pfizer’s phase III trial of maraviroc, its CCR5 inhibitor drug for treatment of HIV. Having been used for patient selection in the clinical trials, it is possible that the test will also be required in clinical use after drug approval. This collaboration puts in place arrangements that are designed to make sure that the test can be available in countries outside of the U.S. where Pfizer, after regulatory approval, wishes to commercialize maraviroc. The agreement runs through December 31, 2009, but is renewable by Pfizer for five separate one year terms after that date. Monogram will be responsible for making the Co-Receptor Tropism Assay available in the U.S. Outside the U.S., Pfizer will take the lead in commercializing the assay. The agreement is subject to certain performance standards by Monogram and a Joint Steering Committee oversees the collaboration. Also in May 2006, we extended the existing Co-Receptor Tropism assay services agreement with Pfizer to provide support for potential additional Pfizer clinical programs through December 31, 2009. 2. What are the economic aspects of the agreements with Pfizer? There were two separate aspects to the arrangements with Pfizer. The first was a $25 million financing and this is described in the Financial section of this Q&A. The second is a collaboration that is designed to make Monogram’s Co-Receptor Tropism Assay available globally. With regard to the U.S. market, we intend to make our tests available through the same direct channels that we have used successfully in the past. While we may work collaboratively with Pfizer’s commercial organization after approval of maraviroc, we will have full control over our U.S. marketing activities. We will independently set our commercial price for the Co-Receptor Tropism Assay and obtain reimbursement for the assay. Outside of the U.S. Pfizer will lead the commercial effort and so will be responsible for, and incur the costs of, sales, marketing, reimbursement and regulatory matters. We will be responsible for logistics and medical education in those countries where Pfizer elects to market maraviroc. However, Pfizer will reimburse us for all of our costs incurred in these activities. These costs are potentially substantial, but, due to Pfizer’s funding, will not place a burden on our P&L or cash flows. Pfizer will also buy tests from Monogram. 3. What is the status of the CCR5 class of HIV drugs and what has been the impact of the CCR5 clinical trials on your business? The initiation of phase III trials for the first in the new class of CCR5 inhibitor drugs in late 2004 was the primary factor in the 31% increase in our total revenue in 2005, compared to 2004. This strong revenue contribution continued in the first and second quarters of 2006. The most advanced CCR5 compound in clinical development is Pfizer’s maraviroc, for which a phase III trial has been ongoing throughout 2005 and is continuing in 2006. Enrolment is believed to be completed and Pfizer has indicated a goal of submitting an NDA for maraviroc to the FDA by the end of 2006. However we cannot be assured that this will in fact occur. A second planned phase III trial, by GlaxoSmithKline (GSK), was cancelled in October 2005 as a result of unfavorable phase II results. While the immediate testing opportunity presented by that particular trial is no longer present, we continue to work with GSK under a services agreement in support of its continuing HIV programs. A third program, by Schering Plough, is ongoing although it is not clear when, or if, a phase III trial may be initiated. We continue to provide testing services to Schering in support of the ongoing clinical development of vicriviroc, their investigational CCR5 inhibitor. Our testing services are used in clinical programs of CCR5 entry inhibitor drugs, for patient selection and monitoring utilizing our Co-Receptor Tropism Assay, and for optimization of patients’ background treatment regimens utilizing our PhenoSense GT test. The CCR5 inhibitor class of drugs has been the major driver of our revenue growth in recent quarters. While the large phase III programs are significant to our revenue, we have a total of over 60 pharmaceutical, biotechnology and research organizations for which pharmaceutical testing has been routinely conducted. In addition, other types of entry inhibitors, as well as a new class of integrase inhibitors, are progressing though the drug development pipeline and may provide additional opportunities for our pharmaceutical testing services. 4. What will be the future impact of new HIV drug classes on your business? The most immediate opportunity is represented by the CCR5 inhibitor class. This class of drug blocks the use by HIV of the patient’s CCR5 co-receptor, if this co-receptor is being used for entry by HIV into cells. Accordingly, knowing whether the CCR5 co-receptor is being used by HIV in a particular patient is critical for drug efficacy, and potentially for drug safety. The relevance of our tests will be determined in large part by how these drugs progress through their clinical trials and through FDA review and approval, although in the current Phase III trials our Co-receptor Tropism Assay is being used for patient selection and our PhenoSense GT assay is being used for optimization of background therapies prior to initiation of treatment with the investigational CCR5 inhibitor compound. There is always the risk that the drugs will not be successful in their trials, that trials will not be completed, that the drugs will not be approved by the FDA, or that if the drug is approved, our tests will not be deemed necessary. If the drugs are successful, however, then it is possible that our tests will be used in conjunction with the drugs in clinical use after FDA approval. Also, new HIV drugs are often made available in “early access programs” after completion of phase III clinical trials but before approval for marketing. In both of these circumstances, we believe the provision of testing services in support of the CCR5 inhibitor class of drugs could provide a meaningful increment to our HIV business over the long term. But this is not the only area of current drug development for HIV. There are other types of entry inhibitors, including Fuzeon(R) from Roche (the only currently approved drug in its class), as well as many others in earlier stages of development. For these drugs, we have our PhenoSense GT test that can be used for optimization of background therapy, and our PhenoSense Entry assay that can be used to assess resistance to this class of drugs, both in clinical trials and in commercial use. Also there is an exciting new HIV drug class, integrase inhibitors, the first of which has recently entered Phase III trials. For this class of drugs we can also
