Neurochem, Inc. Reports Results For Second Quarter Of Fiscal 2006; Announces Equity Line Of Credit Facility

LAVAL, QC, Aug. 9 /PRNewswire-FirstCall/ - Neurochem Inc. reported results for the second quarter ended June 30, 2006. The Company reported a net loss of $20,374,000 ($0.53 per share), compared to $18,694,000 ($0.54 per share) for the corresponding period last year. For the six-month period ended June 30, 2006, the net loss amounted to $37,508,000 ($0.97 per share), compared to $35,664,000 ($1.08 per share) for the same period last year. The increase is mainly due to research and development (R&D) expenses which amounted to $14,342,000 this quarter compared to $12,897,000 for the same period last year. For the six-month period, R&D expenses were $28,068,000 compared to $24,862,000 for the corresponding period of the previous year. The increase in R&D expenses is primarily due to expenses incurred in relation to the development of tramiprosate (Alzhemed(TM)) for the ongoing Phase III clinical trials in North America and Europe. Tramiprosate (Alzhemed(TM)) is the Company’s investigational product candidate for the treatment of Alzheimer’s disease (AD).

As at June 30, 2006 the Company reported cash, cash equivalents and marketable securities of $41,931,000, compared to $71,091,000 on December 31, 2005. The decrease is primarily due to funds used in operations and is partially offset by proceeds received from the exercise of a warrant in February of 2006 by Picchio Pharma.

Neurochem also announced that it has entered into a securities purchase agreement in respect of an equity line of credit facility, with a 24 month term, that provides the Company up to US $60 million 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 the term. Rodman & Renshaw acted as placement agent for this transaction. The agreement provides for an obligation for Neurochem to drawdown at least US $25 million over the two-year term of the facility. The agreement is conditional on the registration of the underlying securities and approval from the appropriate securities regulators.

“With a pending decision from the U.S. Food and Drug Administration on the potential approval of Fibrillex(TM) and the advancement of the two Phase III clinical trials for Alzhemed(TM), we stand on the threshold of important developments in the near future,” said Dr. Francesco Bellini, Chairman, President and CEO of Neurochem Inc. “Given the cash on hand and the key activities in progress, we believe this facility gives our Company the flexibility required to raise funds at an appropriate time,” he concluded.

Conference Call

Neurochem will host a conference call on August 9, 2006, at 5:00 P.M ET. The telephone numbers to access the conference call are 1-416-644-3416 or 1-866-250-4877. A replay of the call will be available until Thursday, August 17, 2006. The telephone numbers to access the replay of the call are 1-416-640-1917 or 1-877-289-8525. The access code for the replay is 21199732(pound key).

Consolidated Financial Results Highlights

The following discussion and analysis should be read in conjunction with the Company’s unaudited consolidated financial statements for the six-month period ended June 30, 2006, as well as the Company’s audited consolidated financial statements for the year ended December 31, 2005, which have been prepared in accordance with Canadian generally accepted accounting principles. For discussion regarding related-party transactions, contractual obligations, disclosure controls and procedures, critical accounting policies, recent accounting pronouncements, and risks and uncertainties, refer to the Annual Report and the Annual Information Form for the year ended December 31, 2005. All dollar figures are Canadian dollars, unless specified otherwise.

Results of operations

For the three-month period ended June 30, 2006, the net loss amounted to $20,374,000 ($0.53 per share), compared to $18,694,000 ($0.54 per share) for the corresponding period last year. For the six-month period ended June 30, 2006, the net loss amounted to $37,508,000 ($0.97 per share), compared to $35,664,000 ($1.08 per share) for the same period last year. The 2006 second quarter results include the International Chamber of Commerce Court of Arbitration final award of $2,089,000 (approximately U.S. $1.9 million) in respect of the Immtech Pharmaceuticals, Inc. dispute.

Revenue from collaboration agreement amounted to $608,000 for the current quarter ($1,215,000 for the six-month period), compared to $822,000 for the same period last year ($2,027,000 for the six-month period). This revenue is earned under the agreement with Centocor, Inc. (Centocor) in respect of eprodisate (Fibrillex(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 February 2006, the Company completed the submission of a New Drug Application (NDA) with the FDA for eprodisate (Fibrillex(TM)). In April 2006, the Company received notification from the FDA that it had filed and designated the eprodisate (Fibrillex(TM)) NDA for priority review, with a goal date of August 13, 2006, when the FDA is expected to render a decision.

Reimbursable costs revenue amounted to $205,000 for the current quarter ($435,000 for the six-month period), compared to $213,000 for the same period last year ($657,000 for the six-month period) and consists of costs reimbursable by Centocor in respect of eprodisate (Fibrillex(TM))-related activities. The Company earns no margin on these reimbursable costs.

Research and development expenses, before research tax credits and grants, amounted to $14,342,000 for the current quarter ($28,068,000 for the six-month period), compared to $12,897,000 for the same period last year ($24,862,000 for the six-month period). The increase is primarily due to expenses incurred in relation to the development of tramiprosate (Alzhemed(TM)) for the ongoing Phase III clinical trials in North America and Europe. Tramiprosate (Alzhemed(TM)) is the Company’s investigational product candidate for the treatment of Alzheimer’s disease (AD). The 18-month North American Phase III clinical trial is expected to be completed in January 2007. This trial is being conducted in close to 70 clinical centers in the U.S. and in Canada, with 1,052 mild-to-moderate AD patients enrolled. In September 2005, the Company launched its Phase III clinical trial in Europe, with 930 mild-to-moderate AD patients expected to participate. The study duration is also 18 months and the trial will be conducted in approximately 70 centers in ten European countries. As of June 30, 2006, 491 patients had been successfully screened in the European clinical trial, of which 428 were randomized; the remaining 63 patients are expected to be randomized and included in the clinical trial. Enrollment for the European clinical trial is expected to be completed during the fall of 2006. The Phase III clinical trials on tramiprosate (Alzhemed(TM)) are designed to demonstrate the safety, efficacy and disease-modifying potential of the product candidate in the treatment of AD. In May 2006, the Company started an 18-month open-label extension study for patients who have completed the ongoing North American Phase III clinical trial for tramiprosate (Alzhemed(TM)). For the quarter and six-month period ended June 30, 2006, research and development expenses also included costs incurred to support the ongoing eprodisate (Fibrillex(TM)) Phase II/III open-label extension 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 $494,000 this quarter ($1,029,000 for the six-month period), compared to $542,000 for the corresponding period last year ($960,000 for the six-month period). Research tax credits represent refundable tax credits earned under the Quebec Scientific Research and Experimental Development Program for expenditures incurred in Quebec. The decrease is mainly attributable to lower research and development expenses incurred in Quebec, eligible for refundable tax credits.

General and administrative expenses totaled $3,366,000 for the current quarter ($6,808,000 for the six-month period), compared to $5,917,000 for the same quarter last year ($11,082,000 for the six-month period). The decrease is primarily attributable to a reduction in legal fees incurred by the Company with regards to the dispute with Immtech International, Inc. (now known as Immtech Pharmaceuticals, Inc. and referred to herein as Immtech). See Arbitral award below.

Arbitral award amounted to $2,089,000 (approximately U.S. $1.9 million) for the current quarter and relates to the dispute with Immtech. In connection with an agreement concluded in 2002, Immtech brought claims against the Company in legal proceedings filed on August 12, 2003, with the Federal District Court for the Southern District of New York, U.S.A. The dispute was presented to an arbitral tribunal (Tribunal) convened in accordance with the rules of the International Chamber of Commerce Court of Arbitration (ICC). An evidentiary hearing before the Tribunal was held in mid-September 2005 and the Tribunal issued its Final Award in early June 2006. The Tribunal held that Neurochem did not misappropriate any of Immtech’s compounds, information or trade secrets and that Immtech was not entitled to any interest in, or ownership or assignment of, Neurochem’s patent applications. While the Tribunal found that Neurochem had breached certain sections of the 2002 agreement, Immtech was awarded only U.S. $35,000 in damages, plus interest thereon, in connection with a disputed milestone payment, and not the compensatory damages of up to U.S. $50 million or any of the punitive damages that Immtech had been claiming. All of Immtech’s tort claims were rejected, as were its claims for injunctive relief and equitable relief; the Tribunal also denied Neurochem’s counterclaims. Immtech was awarded only a portion of the ICC’s administrative charges and arbitral fees and costs incurred by the Tribunal which had been previously advanced by Immtech, as well as a portion of Immtech’s arbitration-related legal fees. Those charges, fees and costs amounted to approximately U.S. $1.83 million. When added to the U.S. $35,000 in damages and interest thereon, Immtech was awarded, in total, approximately U.S. $1.9 million. On July 10, 2006, Immtech issued a letter to the Tribunal and the ICC seeking a further determination under the Final Award. On July 12, 2006, the Tribunal granted Neurochem 20 days to respond in writing to Immtech’s letter and Neurochem filed its response on July 28, 2006. The parties now await the decision of the Tribunal in relation to Immtech’s July 10 letter. In view of these developments, the status conference before the Federal District Court for the Southern District of New York has again been adjourned, until late September 2006. See note 7 to the unaudited Consolidated Financial Statements for the six-month period ended June 30, 2006.

Reimbursable costs amounted to $205,000 for the current quarter ($435,000 for the six-month period), compared to $213,000 for the same period last year ($657,000 for the six-month period), and consist of costs incurred on behalf of Centocor in respect of eprodisate (Fibrillex(TM)) related activities and reimbursable by Centocor.

Stock-based compensation amounted to $1,016,000 for the current quarter ($1,932,000 for the six-month period), compared to $2,292,000 for the corresponding quarter last year ($3,062,000 for the six-month period). This expense relates to employee and director 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 decrease is attributable to expenses of $1,441,000 recorded in 2005 in relation to 140,000 common shares to be issued to the Chairman, President and Chief Executive Officer, pursuant to an agreement signed in December 2004.

Depreciation, amortization and write-off of patents amounted to $409,000 for the current quarter ($902,000 for the six-month period), compared to $575,000 for the same quarter last year ($1,145,000 for the six-month period). The decrease results mainly from the sale-leaseback transaction entered into by the Company in November 2005 in respect of its facilities and campus located in Laval, Quebec.

Interest and bank charges amounted to $23,000 for the current quarter ($50,000 for the six-month period), compared to $133,000 for the same quarter last year ($254,000 for the six-month period). The decrease is attributable to the reimbursement in November 2005, in connection with the sale-leaseback transaction, of the long-term debt previously contracted to finance the acquisition of facilities in 2004.

Interest income amounted to $580,000 for the current quarter ($1,223,000 for the six-month period), compared to $633,000 for the same quarter last year ($884,000 for the six-month period). The increase in the six-month period is mainly attributable to higher interest rates during the current period, compared to the same period last year.

Foreign exchange loss amounted to $524,000 for the current quarter (loss of $570,000 for the six-month period), compared to a gain of $1,406,000 for the same quarter last year (gain of $1,632,000 for the six-month period). 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. Foreign exchange losses recognized during 2006 are mainly attributable to the strengthening of the Canadian dollar compared to the U.S. dollar during the periods.

Other income amounted to $308,000 for the current quarter ($593,000 for the six-month period), compared to $296,000 for the same quarter last year ($347,000 for the six-month period). Other income consists of non-operating revenue, primarily sub-lease revenue.

Share of loss in a company subject to significant influence amounted to $891,000 for the current quarter ($1,707,000 for the six-month period), compared to $824,000 for the corresponding quarter last year ($1,579,000 for the six-month period). Non-controlling interest amounted to $296,000 for the current quarter ($558,000 for the six-month period), compared to $245,000 for the corresponding quarter last year ($470,000 for the six-month period). These items result from the consolidation of the Company’s interest in a holding company that owns shares of Innodia Inc., for which Neurochem is the primary beneficiary. In March 2006, the Company invested an additional amount of $1,660,000 in that holding company in connection with a financing by Innodia Inc. As a result of the transaction, the Company’s indirect equity investment in Innodia Inc. is approximately 23% of the issued and outstanding shares. Innodia Inc. is a private development stage company engaged in developing novel drugs for the treatment of type 2 diabetes and underlying diseases.

Liquidity and Capital Resources

As at June 30, 2006, the Company had available cash, cash equivalents and marketable securities of $41,931,000, compared to $71,091,000 at December 31, 2005. The decrease is primarily due to funds used in operations and is partially offset by proceeds received from the exercise of a warrant in February of 2006 by Picchio Pharma.

On February 16, 2006, Picchio Pharma, the Company’s largest shareholder, exercised the warrant previously issued pursuant to a February 2003 private placement which was otherwise scheduled to expire on February 18, 2006, generating total proceeds to the Company of $9,372,000 and resulting in the issuance of 1,200,000 common shares from treasury.

As at July 31, 2006, the Company had 38,662,170 common shares outstanding, 220,000 common shares issuable to the Chief Executive Officer upon the achievement of specified performance targets and 2,663,607 options granted under the stock option plan.

The Company believes that its available cash and short-term investments, expected interest income, potential funding from research, potential partnerships and licensing agreements, research tax credits, grants, and access to capital markets should be sufficient to finance the Company’s operations and capital needs for the coming year. However, in light of the uncertainties associated with the regulatory approval process 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.

On August 9, 2006, the Company entered into a securities purchase agreement in respect of an equity line of credit facility, with a 24 month term, that provides the Company up to U.S. $60 million 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. The agreement provides for an obligation for Neurochem to drawdown at least U.S. $25 million over the two-year term of the facility. The agreement is conditional on the registration of the underlying securities and the required regulatory approvals.

Neurochem Inc. Consolidated Financial Information(1) (in thousands of Canadian dollars, except per share data) Three month Six-month period ended period ended June 30 June 30 ------------------------------------------------------------------------- Consolidated Statements of Operations 2006 2005 2006 2005 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Revenues: Collaboration agreement $ 608 $ 822 $ 1,215 $ 2,027 Reimbursable costs 205 213 435 657 ------------------------------------------------------------------------- 813 1,035 1,650 2,684 ------------------------------------------------------------------------- Expenses (income): Research and development 14,342 12,897 28,068 24,862 Research tax credits and grants (494) (542) (1,029) (960) General and administrative 3,366 5,917 6,808 11,082 Arbitral award 2,089 - 2,089 - Reimbursable costs 205 213 435 657 Stock-based compensation 1,016 2,292 1,932 3,062 Depreciation, amortization and write-off of patent costs 409 575 902 1,145 Interest and bank charges 23 133 50 254 ------------------------------------------------------------------------- 20,956 21,485 39,255 40,102 ------------------------------------------------------------------------- Net loss before undernoted items: (20,143) (20,450) (37,605) (37,418) Interest income 580 633 1,223 884 Foreign exchange (loss) gain (524) 1,406 (570) 1,632 Other income 308 296 593 347 Share of loss in a company subject to significant influence (891) (824) (1,707) (1,579) Non-controlling interest 296 245 558 470 ------------------------------------------------------------------------- Net loss ($20,374) ($18,694) ($37,508) ($35,664) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net loss per share: Basic ($0.53) ($0.54) ($0.97) ($1.08) Diluted ($0.53) ($0.54) ($0.97) ($1.08) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding: Basic 38,792,486 34,646,842 38,475,059 33,056,654 Diluted 38,792,486 36,347,525 38,475,059 35,490,532 ------------------------------------------------------------------------- ------------------------------------------------------------------------- At At June 30 December 31 Consolidated Balance Sheets 2006 2005 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (unaudited) (audited) Cash, cash equivalents and marketable securities $41,931 $71,091 Other current assets 15,241 13,298 ------------------------------------------------------------------------- Total current assets 57,172 84,389 Capital assets 10,440 10,327 Other long-term assets 3,046 2,230 ------------------------------------------------------------------------- Total assets $70,658 $96,946 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Current liabilities $24,905 $17,420 Long-term liabilities 20,364 28,745 Non-controlling interest 1,196 509 Shareholders’ equity 24,193 50,272 ------------------------------------------------------------------------- Total liabilities and shareholders’ equity $70,658 $96,946 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1)Condensed from the Company’s unaudited consolidated financial statements. About Neurochem

Neurochem is focused on the development and commercialization of innovative therapeutics to address critical unmet medical needs. Eprodisate (Fibrillex(TM)) is designated as an orphan drug, is a Fast Track product candidate and is also part of the U.S. Food and Drug Administration (FDA) Continuous Marketing Application Pilot 1 and Pilot 2 programs. In April 2006, the FDA filed and granted the eprodisate (Fibrillex(TM)) new drug application for priority review. Tramiprosate (Alzhemed(TM)), for the treatment of Alzheimer’s disease, is currently in Phase III clinical trials in both North America and Europe and 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, 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.

NEUROCHEM INC.

CONTACT: Lise Hebert, Ph.D., Vice President, Corporate Communications,(450) 680-4570, lhebert@neurochem.com

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