LAVAL, QC, May 8 /PRNewswire-FirstCall/ - Neurochem Inc. reported results for the first quarter ended March 31, 2007. The Company reported a net loss of $24,618,000 ($0.63 per share) for the quarter, compared to $17,134,000 ($0.45 per share) for the same period the previous year. The increase is primarily due to research and development (R&D) expenses which amounted to $19,712,000 this quarter, compared to $13,726,000 for the same period the previous year, relating to the development of tramiprosate (ALZHEMED(TM)) for the ongoing Phase III clinical trial in Europe and the North American open-label extension of the Phase III study, as well as a conduct of a QT cardiac status Phase I study. Tramiprosate (ALZHEMED(TM)) is the Company’s investigational product candidate for the treatment of Alzheimer’s disease (AD). For the quarter and year ended March 31, 2007, R&D expenses also included costs incurred to support the North American Phase III clinical trial for tramiprosate (ALZHEMED(TM)), the ongoing open-label extension of the eprodisate (KIACTA(TM)) Phase II/III study, as well as ongoing drug discovery programs.
As at March 31, 2007, the Company had available cash, cash equivalents and marketable securities of $35,470,000, compared to $56,821,000 on December 31, 2006. The decrease is primarily due to funds used in operating activities.
On May 2, 2007, Neurochem entered into a private placement of U.S.$80,000,000 aggregate principal amount of convertible notes, consisting of U.S.$40,000,000 of 6% senior convertible notes due in 2027 and U.S.$40,000,000 of 5% senior subordinated convertible notes due in 2012. The latter shall be subject to mandatory conversion into common shares of Neurochem within 5 days of the effectiveness of a registration statement registering the underlying securities. In connection with this transaction, Neurochem issued warrants to purchase an aggregate of 2,250,645 common shares of Neurochem until May 2, 2012.
Consolidated Financial Results Highlights
The following discussion and analysis should be read in conjunction with the Company’s unaudited consolidated financial statements for the quarter ended March 31, 2007, as well as the Company’s audited consolidated financial statements for the year ended December 31, 2006, which have been prepared in accordance with Canadian generally accepted accounting principles. For discussion regarding related-party transactions, contractual obligations, disclosure controls and procedures, internal control over financial reporting, critical accounting policies and estimates, recent accounting pronouncements, and risks and uncertainties, refer to the Annual Report and the Annual Information Form for the year ended December 31, 2006, which are available on SEDAR at www.sedar.com or on EDGAR at www.sec.gov. All dollar figures are Canadian dollars, unless specified otherwise.
Results of operations
For the three-month period ended March 31, 2007, the net loss amounted to $24,618,000 ($0.63 per share), compared to $17,134,000 ($0.45 per share) for the corresponding period in the previous year.
Revenue from collaboration agreement amounted to $437,000 for the current quarter, compared to $607,000 for the same period in the previous year. This revenue is earned under the agreement with Centocor, Inc. (Centocor) in respect of eprodisate (KIACTA(TM)), an oral investigational product candidate for the treatment of Amyloid A (AA) amyloidosis. Revenue recognized is in respect of the non-refundable upfront payment received from Centocor, which is being amortized over the estimated period through to the anticipated regulatory approval date of the investigational product candidate. The estimated period is subject to change based on additional information that the Company may receive periodically. The other portion of the upfront payment received from Centocor (U.S.$6,000,000) has been classified as deferred revenue and is not being amortized as earned revenue given that it is potentially refundable. In the event that the Company receives an approval letter issued by the U.S. Food and Drug Administration (FDA), the amount would no longer be refundable and would be amortized as earned revenue. In August 2006, the Company received an approvable letter from the FDA requesting additional information on eprodisate (KIACTA(TM)), following the Company’s New Drug Application (NDA) submitted in February 2006. Neurochem submitted a response to the FDA in October, 2006. The FDA advised Neurochem in November 2006 that the response submitted was complete, as it responded to all of the items raised in the August approvable letter, and that April 16, 2007 was the goal date for a decision on eprodisate (KIACTA(TM)). In April 2007, Neurochem received notification from the FDA that the decision date for the FDA’s review of the NDA had been extended three months to July 16, 2007, to provide the FDA time for the review of an amendment to the eprodisate (KIACTA(TM)) NDA submitted by the Company in February 2007. Neurochem is also seeking marketing approval for eprodisate (KIACTA(TM)) for the treatment of AA amyloidosis in the European Union, Switzerland and Canada. The Company was advised by the European Medicines Agency (EMEA) in September 2006 that its Marketing Authorization Application is valid and that the regulatory review has started.
Reimbursable costs revenue amounted to $150,000 for the current quarter, compared to $230,000 for the same period in the previous year and consists of costs reimbursable by Centocor in respect of eprodisate (KIACTA(TM))-related activities. The Company earns no margin on these reimbursable costs.
Research and development expenses, before research tax credits and grants, amounted to $19,712,000 for the current quarter, compared to $13,726,000 for the same period in the previous year. The increase is due to expenses incurred in relation to the development of tramiprosate
(ALZHEMED(TM))
primarily in respect of the ongoing Phase III clinical trial in Europe and the North American open-label extension of the Phase III study, as well as the conduct of a QT cardiac status Phase I study. Tramiprosate (ALZHEMED(TM)) is the Company’s investigational product candidate for the treatment of Alzheimer’s disease (AD). Tramiprosate (ALZHEMED(TM)) has completed its 18-month North American Phase III clinical trial during the current quarter and the Company announced in April 2007 that the database had been locked. The analysis is ongoing and entails employing an accurate statistical model that appropriately describes the data and provides accurate results. Neurochem has been advised by its external team of statisticians that adjustment to the initial statistical model, as set out in the statistical plan, would be necessary to provide accurate results. The procedure to arrive at a reliable model involves a detailed analysis of potential confounding factors such as the effect of concomitant medications, baseline characteristics of the study population or differences in clinical sites. The top-line results of this clinical trial are expected to be released during the second quarter of 2007. The North American Phase III clinical trial included 1,052 enrolled patients at 67 clinical centers across the U.S. and Canada. All patients who completed the North American Phase III clinical trial were eligible to receive tramiprosate (ALZHEMED(TM)) in an 18-month open-label extension of the Phase III study. The European Phase III clinical trial on tramiprosate (ALZHEMED(TM)) was launched in September 2005 with a minimum of 930 mild-to-moderate AD patients being expected to participate in the trial. This study also has a duration of 18 months and the trial is being conducted at approximately 70 clinical centers in ten European countries. As of March 31, 2007, 893 patients had been successfully screened in the European clinical trial, of which 833 were randomized; the remaining 60 patients are expected to be randomized and included in the clinical trial. Enrolment of patients participating in the European clinical trial is ongoing and will not close until after the results from the North American Phase III trial become available. Both Phase III clinical trials are multi-centre, randomized, double-blind, placebo-controlled, three-armed, parallel-designed trials. For the quarter ended March 31, 2007, research and development expenses also included costs incurred to support the North American Phase III clinical trial for tramiprosate (ALZHEMED(TM)), the ongoing open-label extension of the eprodisate (KIACTA(TM)) Phase II/III study, as well as ongoing drug discovery programs. The Company expects research and development expenses to increase in the future as product candidates progress through the stages of clinical development and as the Company continues to invest in product research and development.
Research tax credits and grants amounted to $593,000 this quarter, compared to $535,000 for the corresponding period in the previous year. Research tax credits represent refundable tax credits earned under the Quebec Scientific Research and Experimental Development Program for expenditures incurred in Quebec. The increase is mainly attributable to increased research and development expenses incurred in Quebec, eligible for refundable tax credits.
General and administrative expenses totaled $4,054,000 for the current quarter, compared to $3,442,000 for the same quarter in the previous year, and reflect the increase in the overall activity level at the Company.
Reimbursable costs amounted to $150,000 for the current quarter , compared to $230,000 for the same period in the previous year, and consist of costs incurred on behalf of Centocor in respect of eprodisate (KIACTA(TM))-related activities and reimbursable by Centocor.
Stock-based compensation amounted to $1,081,000 for the current quarter, compared to $916,000 for the corresponding quarter in the previous year. This expense relates to stock options and stock-based incentives, whereby compensation cost is measured at fair value at the date of grant and is expensed over the award’s vesting period. The increase is due to new stock options granted during the past year.
Depreciation, amortization and patent cost write-off amounted to $407,000 for the current quarter, compared to $493,000 for the same quarter in the previous year. The decrease is mainly attributable to patent costs of $106,000 written off during the first quarter of 2006.
Interest income amounted to $718,000 for the current quarter, compared to $643,000 for the same quarter in the previous year. The increase is mainly attributable to higher interest rates and is partially offset by lower average cash balances during the current quarter, compared to the same period in the previous year.
Accretion expense amounted to $1,173,000 for the current quarter, and mainly represents the imputed interest under GAAP on the U.S.$42,085,000 aggregate principal amount of 6% convertible senior notes issued in November 2006.
Foreign exchange gain amounted to $121,000 for the current quarter, compared to a loss of $46,000 for the same quarter in the previous year. Foreign exchange gains or losses arise on the movement in foreign exchange rates related to the Company’s net monetary assets held in foreign currencies, primarily U.S. dollars.
Other income amounted to $284,000 for the current quarter, compared to $285,000 for the same quarter in the previous year. Other income consists of non-operating revenue, primarily sub-lease revenue.
Share of loss in a company subject to significant influence amounted to $372,000 for the current quarter, compared to $816,000 for the corresponding quarter in the previous year. Non-controlling interest amounted to $123,000 for the current quarter, compared to $262,000 for the corresponding quarter in the previous year. These items result from the consolidation of the Company’s interest in a holding company that owns shares of Innodia Inc. (Innodia Holding), for which Neurochem is the primary beneficiary. The share of loss recorded in the current quarter reduced the Company’s long-term investment in Innodia Holding to nil. Innodia Inc. is a private development stage company engaged in developing novel drugs for the treatment of type 2 diabetes and underlying diseases.
In January 2007, the litigation between Neurochem and Immtech Pharmaceuticals, Inc. (formerly known as Immtech International, Inc. (Immtech)) came to a conclusion when Immtech, the University of North Carolina at Chapel Hill (UNC), and Georgia State University Research Foundation, Inc. filed with the Federal District Court for the Southern District of New York, U.S.A. a Notice of Voluntary Dismissal. The plaintiffs voluntarily dismissed their complaint against Neurochem without any payment, license, business agreement, concession or compromise by Neurochem. The dispute concerned an agreement entered into between Immtech and Neurochem in April 2002 under which Neurochem had the right to apply its proprietary anti-amyloid technology to test certain compounds to be provided by Immtech.
Liquidity and capital resources
As at March 31, 2007, the Company had available cash, cash equivalents and marketable securities of $35,470,000, compared to $56,821,000 at December 31, 2006. The decrease is primarily due to funds used in operating activities.
In August 2006, the Company entered into a securities purchase agreement in respect of an equity line of credit facility (ELOC) with Cityplatz Limited (Cityplatz), that provides the Company up to U.S.$60,000,000 of funds in return for the issuance of common shares at a discount of 3.0% to market price at the time of draw downs over term, less a placement fee equal to 2.4% of gross proceeds payable to the placement agent, Rodman & Renshaw, LLC. The ELOC established by the securities purchase agreement will terminate on February 9, 2009. The ELOC shall also terminate if (i) the Company’s common shares are de-listed from NASDAQ unless the common shares are listed at such time on another trading market specified in the agreement and such de-listing is in connection with a subsequent listing on another trading market specified in the agreement, (ii) the Company is subject to a change of control transaction, (iii) the Company suffers a material adverse effect which cannot be cured prior to the next drawdown notice, or (iv) the registration statement does not become effective by the 12-month anniversary of the date of the securities purchase agreement. The Company may terminate the securities purchase agreement upon five trading days’ notice (i) if Cityplatz shall fail to fund a properly noticed drawdown within five trading days of the end of the applicable settlement period or (ii) after it has drawn down at least U.S. 25,000,000 under the ELOC. Either party may also terminate the securities purchase agreement upon five trading days’ notice if the volume-weighted average price of the Company’s common shares is below U.S.$5 for more than 30 consecutive trading days, as adjusted. As at March 31, 2007, the Company had not drawn any funds under the ELOC.
As at April 30, 2007, the Company had 38,779,333 common shares outstanding, 220,000 common shares issuable to the Chief Executive Officer upon the achievement of specified performance targets, 2,680,902 options granted under the stock option plan and 2,134,471 shares potentially issuable under the convertible notes, for a maximum of 43,814,706 common shares, on a fully diluted basis.
On May 2, 2007, the Company entered into a private placement of U.S.$80,000,000 aggregate principal amount of convertible notes, consisting of U.S.$40,000,000 of 6% senior convertible notes due in 2027 and U.S.$40,000,000 of 5% senior subordinated convertible notes due in 2012. The 6% senior convertible notes have an initial conversion price equal to the lesser of U.S.$12.68 or the 5-day weighted average trading price of the common shares preceding any conversion subject to adjustments in certain circumstances. The Company will pay interest on the 6% senior convertible notes until maturity on May 2, 2027, subject to earlier repurchase, redemption or conversion. The 5% senior subordinated convertible notes shall be subject to mandatory conversion into common shares within 5 days of the effectiveness of a registration statement registering the underlying securities (Registration Date) at a price equal to the lesser of U.S.$12.68 or the 5-day weighted average trading price of the common shares ending on the Registration Date, subject to adjustments in certain circumstances. Neurochem will pay interest on the 5% senior subordinated convertible notes until maturity on May 2, 2012, subject to earlier repurchase, redemption or conversion. In connection with this transaction, the Company issued warrants to purchase an aggregate of 2,250,645 common shares until May 2, 2012, at an initial purchase price of U.S.$12.68 per share, subject to adjustments in certain circumstances. Neurochem will use the net proceeds from the private placement for general corporate purposes, which may include, but are not limited to, advancing its current clinical development programs or initiating new ones, research for new or existing products and capital expenditures.
The Company believes that its available cash and short-term investments, expected interest income, potential funding from partnerships, research collaborations and licensing agreements, potential proceeds from the equity line of credit facility, research tax credits, grants, and access to capital markets should be sufficient to finance the Company’s operations and capital needs during the ensuing year. However, in light of the uncertainties associated with the regulatory approval process, clinical trial results, and the Company’s ability to secure additional licensing, partnership and/or other agreements, further financing may be required to support the Company’s operations in the future.
Neurochem Inc. Consolidated Financial Information(1) (in thousands of Canadian dollars, except per share data) Three-month period ended March 31 ------------------------------------------------------------------------- Consolidated Statements of Operations 2007 2006 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (unaudited) (unaudited) Revenues: Collaboration agreement $437 $607 Reimbursable costs 150 230 ------------------------------------------------------------------------- 587 837 ------------------------------------------------------------------------- Expenses (Income): Research and development 19,712 13,726 Research tax credits and grants (593) (535) General and administrative 4,054 3,442 Reimbursable costs 150 230 Stock-based compensation 1,081 916 Depreciation, amortization and patent cost write-off 407 493 Interest and bank charges 95 27 ------------------------------------------------------------------------- 24,906 18,299 ------------------------------------------------------------------------- Net loss before undernoted items: (24,319) (17,462) Interest income 718 643 Accretion expense (1,173) - Foreign exchange gain (loss) 121 (46) Other income 284 285 Share of loss in a company subject to significant influence (372) (816) Non-controlling interest 123 262 ------------------------------------------------------------------------- Net loss ($24,618) ($17,134) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net loss per share: Basic and diluted ($0.63) ($0.45) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding: Basic 38,904,808 38,154,106 Diluted 41,067,531 38,154,106 ------------------------------------------------------------------------- ------------------------------------------------------------------------- At At March 31 December 31 Consolidated Balance Sheets 2007 2006 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (unaudited) (audited) Cash, cash equivalents and marketable securities $35,470 $56,821 Other current assets 13,420 12,191 ------------------------------------------------------------------------- Total current assets 48,890 69,012 Capital assets and patents 10,726 10,479 Other long-term assets 1,480 3,720 ------------------------------------------------------------------------- Total assets $61,096 $83,211 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Current liabilities $29,296 $26,078 Long-term liabilities 56,374 58,288 Non-controlling interest 722 845 Shareholders’ deficiency (25,296) (2,000) ------------------------------------------------------------------------- Total liabilities and shareholders’ deficiency $61,096 $83,211 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Condensed from the Company’s unaudited consolidated financial statements. About Neurochem
Neurochem Inc. is focused on the development and commercialization of innovative therapeutics to address critical unmet medical needs. Eprodisate (KIACTA(TM)) is currently being developed for the treatment of Amyloid A (AA) amyloidosis, and is under regulatory review for marketing approval by the United States Food and Drug Administration and European Medicines Agency. Tramiprosate (ALZHEMED(TM)), for the treatment of Alzheimer’s disease, has completed a Phase III clinical trial in North America and is currently in a Phase III clinical trial in Europe, while tramiprosate (CEREBRIL(TM)), for the prevention of Hemorrhagic Stroke caused by Cerebral Amyloid Angiopathy, has completed a Phase IIa clinical trial.
To Contact Neurochem
For additional information on Neurochem and its drug development programs, please call the North American toll-free number 1 877 680-4500 or visit our Web Site at: www.neurochem.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, inherently involve numerous risks and uncertainties, known and unknown, many of which are beyond Neurochem’s control. Such risks include but are not limited to: the impact of general economic conditions, general conditions in the pharmaceutical industry, changes in the regulatory environment in the jurisdictions in which Neurochem does business, stock market volatility, fluctuations in costs, and changes to the competitive environment due to consolidation, that actual results may vary once the final and quality-controlled verification of data and analyses has been completed, as well as other risks disclosed in public filings of Neurochem. Consequently, actual future results may differ materially from the anticipated results expressed in the forward-looking statements. The reader should not place undue reliance, if any, on the forward-looking statements included in this news release. These statements speak only as of the date made and Neurochem is under no obligation and disavows any intention to update or revise such statements as a result of any event, circumstances or otherwise. Please see the Annual Information Form for further risk factors that might affect the Company and its business.
CONTACT: Lise Hebert, Ph.D., Vice President, Corporate Communications, (450) 680-4572, lhebert@neurochem.com
NEUROCHEM INC.
CONTACT: Lise Hebert, Ph.D., Vice President, Corporate Communications,(450) 680-4572, lhebert@neurochem.com
