CALGARY, Oct. 26 /PRNewswire-FirstCall/ - Oncolytics Biotech Inc. (“Oncolytics”) today announced its financial results and highlights for the three and nine month periods ending September 30, 2005.
Recent Highlights - Commenced patient enrolment in a combination REOLYSIN(R)/radiation clinical trial in the U.K. - Commenced patient enrolment in a Phase I systemic administration clinical trial in the U.S. - Strengthened the management team with the appointment of Karl Mettinger, M.D., Ph.D. to the position of Chief Medical Officer - Secured a 2nd European patent entitled “Method of Producing Infectious Reovirus” - Secured a first Canadian patent entitled “The use of ribozymes in the detection of adventitious agents” - Subsequent to the quarter end, announced that Oncolytics collaborators would make two presentations at the AACR-NCI-EORTC Conference in November 2005 - Subsequent to the quarter end, announced that patient treatment has been concluded in its Phase I recurrent malignant gliomas trial in Canada - Subsequent to the quarter end, announced the issuance of two additional Canadian patents covering methods and treatment of various cancers and other cellular proliferative disorders.
“The Company made progress in the quarter in further advancing the expanding clinical program for REOLYSIN(R) and strengthening its international intellectual property portfolio,” said Dr. Brad Thompson, President and CEO of Oncolytics. “We were also pleased to have appointed Dr. Mettinger to our management team, who will play an important role in the further development and implementation of a clinical trial program that best supports a registration path for REOLYSIN(R).”
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the unaudited financial statements of Oncolytics Biotech Inc. (“Oncolytics” or the “Company”) as at and for the three and nine months ended September 30, 2005 and 2004, and should also be read in conjunction with the audited financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contained in Oncolytics’ annual report for the year ended December 31, 2004. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”).
FORWARD-LOOKING STATEMENTS
The following discussion contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements, including the Company’s belief as to the potential of REOLYSIN(R) as a cancer therapeutic, the Company’s expectation regarding the adequacy of its existing capital resources, and the Company’s expectations as to the success of its research and development programs in 2005 and beyond, future financial position, business strategy and plans for future operations, and statements that are not historical facts, involve known and unknown risks and uncertainties, which could cause the Company’s actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, among others, the availability of funds and resources to pursue research and development projects, the efficacy of REOLYSIN(R) as a cancer treatment, the success and timely completion of clinical studies and trials, the Company’s ability to successfully commercialize REOLYSIN(R), uncertainties related to the research and development of pharmaceuticals, uncertainties related to competition, changes in technology, the regulatory process and general changes to the economic environment. Investors should consult the Company’s quarterly and annual filings with the Canadian and U.S. securities commissions for additional information on risks and uncertainties relating to the forward-looking statements. Forward-looking statements are based on assumptions, projections, estimates and expectations of management at the time such forward looking statements are made, and such assumptions, projections, estimates and/or expectations could change or prove to be incorrect or inaccurate. Investors are cautioned against placing undue reliance on forward-looking statements. The Company does not undertake to update these forward-looking statements except as required by law.
OVERVIEW Oncolytics Biotech Inc. is a Development Stage Company
Since its inception in April of 1998, Oncolytics has been a development stage company and has focused its research and development efforts on the development of REOLYSIN(R), its potential cancer therapeutic. The Company has not been profitable since its inception and expects to continue to incur substantial losses from its research and development. The Company does not expect to generate significant revenues until, if and when, its cancer product becomes commercially viable.
General Risk Factors
Prospects for biotechnology companies in the research and development stage should generally be regarded as speculative. It is not possible to predict, based upon studies in animals, or early studies in humans, whether a new therapeutic will ultimately prove to be safe and effective in humans, or whether necessary and sufficient data can be developed through the clinical trial process to support a successful product application and approval.
If a product is approved for sale, product manufacturing at a commercial scale and significant sales to end users at a commercially reasonable price may not be successful. There can be no assurance that the Company will generate adequate funds to continue development, or will ever achieve significant revenues or profitable operations. Many factors (e.g. competition, patent protection, appropriate regulatory approvals) can influence the revenue and product profitability potential.
In developing a product for approval, the Company will rely upon its employees, contractors, consultants and collaborators and other third party relationships, including the ability to obtain appropriate product liability insurance. There can be no assurance that these reliances and relationships will continue as required.
In addition to developmental and operational considerations, market prices for securities of biotechnology companies generally are volatile, and may or may not move in a manner consistent with the progress being made by the Company.
Highlights
During the third quarter of 2005, the Company’s net loss was $3,509,503 compared to $3,096,042 for the third quarter of 2004. In the third quarter of 2005, the Company experienced increases in its clinical trial and manufacturing and related process development expenses. In the third quarter, the Company commenced patient enrollment in its U.S. systemic (intravenous) and U.K. combination radiation therapy clinical trials. The Company has five active clinical trial studies of which four are enrolling patients. In anticipation of these additional trials and the need to supply ongoing enrollment and research efforts, the Company has continued to manufacture REOLYSIN(R) entering into multiple production supply contracts. Finally, the Company received two additional patents (one Canadian and one European) for a total of 13 U.S., two European, and one Canadian patents.
The Company exited the third quarter of 2005 with cash and cash equivalents (including short-term investments) of $28,206,326 compared to $33,919,223 as at December 31, 2004.
THIRD QUARTER RESULTS OF OPERATIONS
(for the three months ended September 30, 2005 and 2004)
Net loss for the three month period ended September 30, 2005 was $3,509,503 compared to $3,096,042 for 2004. The increase in the Company’s net loss in the third quarter of 2005 was due to increases in the Company’s operating activities as follows:
Research and Development Expenses (“R&D”) 2005 2004 $ $ ------------------------------------------------------------------------- Manufacturing and related process development expenses 1,767,524 1,160,983 Clinical trial expenses 372,825 184,347 Pre-clinical trial expenses and research collaborations 64,611 181,397 Other R&D expenses 613,103 705,654 ------------------------------------------------------------------------- Research and development expenses 2,818,063 2,232,381 ------------------------------------------------------------------------- ------------------------------------------------------------------------- For the third quarter of 2005, R&D increased to $2,818,063 compared to $2,232,381 for the third quarter of 2004. The increase in R&D was due to the following: Manufacturing & Related Process Development Expenses (“M&P”) 2005 2004 $ $ ------------------------------------------------------------------------ Product manufacturing expenses 1,655,390 640,630 Technology transfer expenses - 78,602 Process development expenses 112,134 441,751 ------------------------------------------------------------------------ Manufacturing and related process development expenses 1,767,524 1,160,983 ------------------------------------------------------------------------ ------------------------------------------------------------------------
During the third quarter of 2005, the Company’s product manufacturing expenses increased to $1,655,390 compared to $640,630 in the third quarter of 2004. The Company uses Cobra Biomanufacturing Plc (“Cobra”) to manufacture clinical material in order to supply its U.S. clinical trials and to ensure supply for future clinical trial activity. In the third quarter of 2005, in addition to the existing multiple production run supply contract, the Company entered into additional production run supply contracts. The Company presently anticipates that this manufacturing activity will continue into 2006.
In 2004, the Company entered into an agreement with Cobra to commence the manufacturing of REOLYSIN(R) and therefore incurred expenses associated with the transfer of the Company’s manufacturing technology. This transfer was completed in 2004; consequently the Company did not incur technology transfer expenses in the third quarter of 2005.
During the third quarter of 2005, the Company incurred process development expenses of $112,134 compared to $441,751 in the third quarter of 2004. In the third quarter of 2005, the Company incurred process development costs associated with improving the process yields. Process development activity in 2004 was a result of the technology transfer to Cobra.
Clinical Trial Programs 2005 2004 $ $ ------------------------------------------------------------------------ Direct clinical trial expenses 372,825 184,347 ------------------------------------------------------------------------ ------------------------------------------------------------------------
During the third quarter of 2005, the Company’s direct clinical trial expenses increased to $372,825 compared to $184,347 in the third quarter of 2004. The Company has five ongoing clinical trials in 2005 compared to two clinical trials in 2004. Therefore, in the third quarter of 2005, the increase in direct clinical trial expenses reflects patient enrollment in the U.K. systemic (intravenous) and combination radiation therapy studies as well as other direct clinical trial costs associated with its two U.S. and Canadian studies.
Pre-Clinical Trial Expenses and Research Collaborations 2005 2004 $ $ ------------------------------------------------------------------------ Research collaboration expenses 64,611 122,816 Pre-clinical trial expenses - 58,581 ------------------------------------------------------------------------ Pre-clinical trial expenses and research collaborations 64,611 181,397 ------------------------------------------------------------------------ ------------------------------------------------------------------------
During the third quarter of 2005, the Company’s research collaboration expenses were $64,611 compared to $122,816 for the third quarter of 2004. The Company incurs research collaboration expenses as it continues to investigate various characteristics and potential applications of the reovirus, such as the interaction of the immune system and the reovirus, the use of the reovirus as a co-therapy with existing chemotherapeutics and radiation and the possibility of new uses for the reovirus in therapy. These expenses will fluctuate from period to period depending on the progress of these collaborations.
During the third quarter of 2005, the Company did not incur any preclinical trial expenses compared to $58,581 in the third quarter of 2004. The frequency of the Company’s pre-clinical studies change from period to period as the Company moves through its clinical trial program. As well, depending on the results of the Company’s research collaborations, the Company may increase its pre-clinical trial activity.
Other R&D 2005 2004 $ $ ------------------------------------------------------------------------ Cancellation of contingent payment obligation - 400,000 Other R&D 613,103 305,654 ------------------------------------------------------------------------ Other R&D 613,103 705,654 ------------------------------------------------------------------------ ------------------------------------------------------------------------
During the third quarter of 2004, the Company reduced its future contingent payment obligation by entering into an agreement that cancelled a portion of its future contingent obligation to one of its non-management founding shareholders for consideration of $400,000 (cash and shares). In the third quarter of 2005, there was no such activity.
Other R&D expenses include compensation expenses for employees (excluding stock based compensation) consulting fees, travel and other miscellaneous R&D expenses. In the third quarter of 2005, other R&D expenses were $613,103 compared to $305,654 for the third quarter of 2004. The increase in other R&D expenses mainly reflects an increase in consulting activity and related costs, costs associated with the activities of the scientific advisory board and employee compensation levels.
Operating Expenses 2005 2004 $ $ ------------------------------------------------------------------------ Public company related expenses 390,473 360,763 Office expenses 195,127 204,703 ------------------------------------------------------------------------ Operating expenses 585,600 565,466 ------------------------------------------------------------------------ ------------------------------------------------------------------------
For the third quarter of 2005, the Company’s operating expenses were $585,600 compared to $565,466 for the third quarter of 2004. The Company’s operating activities have remained consistent and therefore the related operating costs have remained stable.
Foreign Exchange Loss 2005 2004 $ $ ------------------------------------------------------------------------ Foreign exchange loss 97,997 239,881 ------------------------------------------------------------------------ ------------------------------------------------------------------------
The Company acquires investments in foreign currency to pay for anticipated expenses that are to be incurred in the United States (“U.S.”) and the United Kingdom (“U.K.”). As a result of recent movements in the U.S. and U.K. exchange rates the Company recorded a foreign exchange loss of $97,997 for the third quarter of 2005 compared to $239,881 for the third quarter of 2004.
YEAR TO DATE RESULTS OF OPERATIONS
(for the nine months ended September 30, 2005 and 2004)
Net loss for the nine month period ended September 30, 2005 was $8,841,272 compared to $8,964,166 for 2004. The decrease in the Company’s net loss was due to the following:
Research and Development Expenses (“R&D”) 2005 2004 $ $ ------------------------------------------------------------------------ Manufacturing and related process development expenses 3,584,430 3,361,014 Clinical trial expenses 1,154,677 433,139 Pre-clinical trial expenses and research collaborations 524,472 735,463 Other R&D expenses 1,235,455 1,153,096 ------------------------------------------------------------------------ Research and development expenses 6,499,034 5,682,712 ------------------------------------------------------------------------ ------------------------------------------------------------------------
For the nine month period ending September 30, 2005, R&D increased to $6,499,034 compared to $5,682,712 for 2004. The increase in R&D was due to the following:
Manufacturing & Related Process Development (“M&P”) 2005 2004 $ $ ------------------------------------------------------------------------ Product manufacturing expenses 3,406,588 2,215,007 Technology transfer expenses - 535,800 Process development expenses 177,842 610,207 ------------------------------------------------------------------------ Manufacturing and related process development expenses 3,584,430 3,361,014 ------------------------------------------------------------------------ ------------------------------------------------------------------------
Production manufacturing expenses were $3,406,588 for the nine month period ending September 30, 2005 compared to $2,215,007 for the nine month period ending September 30, 2004. The Company has continued to focus on the production of REOLYSIN(R) in order to supply its expanding clinical trial program along with other research activity. In the first part of 2005, the Company entered into a multiple cGMP (“good manufacturing practices”) production run supply contract with Cobra. In the third quarter of 2005, the Company continued to expand its cGMP production contracts by adding additional manufacturing runs. As well, the Company contracted Cobra to supply non-cGMP product to be used in non-human research and collaborative studies.
In 2004, the Company entered into an agreement with Cobra to commence the manufacturing of REOLYSIN(R) and therefore incurred expenses associated with the transfer of the Company’s manufacturing technology. This transfer was completed in 2004; consequently the Company did not incur technology transfer expenses in 2005.
The Company expects that its product manufacturing expenses will continue to increase throughout the remainder of 2005. The balance of the Company’s current supply contracts with Cobra will be completed by the end of 2005 and it anticipates that additional production runs will be scheduled in order to ensure a supply of REOLYSIN(R) for its existing and future clinical trial and collaborative programs.
Process development expenses were $177,842 for the nine month period ending September 30, 2005 compared to $610,207 for the nine month period ending September 30, 2004. In 2005, the Company has incurred process development costs associated with improving the process yields. Process development activity in 2004 was a result of the technology transfer to Cobra.
Clinical Trial Programs 2005 2004 $ $ ------------------------------------------------------------------------ Direct clinical trial expenses 1,154,677 433,139 ------------------------------------------------------------------------ ------------------------------------------------------------------------
Direct clinical trial expenses for the nine month period ending September 30, 2005 were $1,154,677 compared to $433,139 for the nine month period ending September 30, 2004. The Company’s clinical trial program has continued to expand in 2005 with the addition of three new clinical trial studies in 2005. As a result, direct clinical trial expenses continue to increase as patients are enrolled in the Company’s two systemic (intravenous) trials in the U.K. and U.S., the combination radiation therapy trial in the U.K. and the Canadian malignant glioma clinical trial. As well, the Company has incurred trial site initiation costs associated with the two U.S. clinical trial studies and the combination radiation therapy study in the U.K.
The Company expects its direct clinical trial expenses to continue to increase for the remainder of 2005. In the third quarter of 2005 patient enrollment commenced in the U.K. combination radiation therapy and the U.S. systemic (intravenous) clinical trials. As well, the Company expects that the U.S. malignant glioma trial will commence patient enrollment before the end of 2005.
Pre-Clinical Trial and Research Collaboration Expenses 2005 2004 $ $ ------------------------------------------------------------------------ Research collaboration expenses 427,719 172,546 Pre-clinical trial expenses 96,753 562,917 ------------------------------------------------------------------------ Pre-clinical trial expenses and research collaborations 524,472 735,463 ------------------------------------------------------------------------ ------------------------------------------------------------------------
Research collaboration expenses for the nine month period ending September 30, 2005 were $427,719 compared to $172,546 for the nine month period ending September 30, 2004. In 2005, the Company has expanded its research collaboration program to include studies investigating various characteristics and potential applications of the reovirus, such as the interaction of the immune system and the reovirus, the use of the reovirus as a co-therapy with existing chemotherapeutics and radiation and the possibility of new uses for the reovirus in therapy. These expenses will fluctuate from period to period depending on the progress of these collaborations.
Pre-clinical trial expenses for the nine month period ending September 30, 2005 were $96,753 compared to $562,917 for the nine month period ending September 30, 2004. The frequency of the Company’s pre-clinical studies change from period to period as the Company moves through its clinical trial program. As well, depending on the results of the Company’s research collaborations, the Company may increase or decrease its pre-clinical trial activity.
Other R&D 2005 2004 $ $ ------------------------------------------------------------------------ Cancellation of contingent payment obligation - 400,000 Other R&D 1,235,455 753,096 ------------------------------------------------------------------------ Other R&D 1,235,455 1,153,096 ------------------------------------------------------------------------ ------------------------------------------------------------------------
Other R&D expenses include compensation expenses for employees (excluding stock based compensation) consulting fees, travel and other miscellaneous R&D expenses. For the nine month period ending September 30, 2005, other R&D expenses were $1,235,455 compared to $753,906 for the nine month period ending September 30, 2004. The increase in other R&D expenses mainly reflects an increase in consulting activity and related costs, costs associated with the activities of the scientific advisory board and employee compensation levels.
Operating Expenses 2005 2004 $ $ ------------------------------------------------------------------------ Public company related expenses 1,484,605 1,472,261 Office expenses 626,822 640,622 ------------------------------------------------------------------------ Operating expenses 2,111,427 2,112,883 ------------------------------------------------------------------------ ------------------------------------------------------------------------
For the nine month period ending September 30, 2005, the Company’s operating expenses decreased to $2,111,427 compared to $2,112,883 for the nine month period ending September 30, 2004. The Company has not had to increase its administrative costs to support the increase in its research and development activity.
Stock Based Compensation 2005 2004 $ $ ------------------------------------------------------------------------ Stock based compensation 25,952 788,974 ------------------------------------------------------------------------ ------------------------------------------------------------------------
Stock based compensation recorded during the nine month period ending September 30, 2005 was $25,952 compared to $788,974 for the nine month period ending September 30, 2004. The decline has been a result of the reduction in the number of stock options granted in 2005 compared to 2004. As well, the options that were granted in 2004 vested immediately requiring compensation expense to be recorded on the grant date. The options that have been issued in 2005 vest over four years requiring compensation expense to be recorded over the vesting period.
Foreign Exchange Loss 2005 2004 $ $ ------------------------------------------------------------------------ Foreign exchange loss 198,481 353,964 ------------------------------------------------------------------------ ------------------------------------------------------------------------
The Company acquires investments in foreign currency to pay for anticipated expenses that are to be incurred in the United States (“U.S.”) and the United Kingdom (“U.K.”). As a result of recent movements in the U.S. and U.K. exchange rates the Company recorded a foreign exchange loss of $198,481 for the nine month period ending September 30, 2005 compared to $353,964 for the nine month period ending September 30, 2004.
Commitments
As at September 30, 2005, the Company has committed to payments totaling $1,818,500 for activities primarily related to product manufacturing and ongoing research collaborations. The Company anticipates that these committed payments will occur over the next twelve months. All of these committed payments are considered to be part of the Company’s normal course of business.
LIQUIDITY AND CAPITAL RESOURCES Liquidity
As at September 30, 2005, the Company had cash and cash equivalents (including short-term investments) and working capital positions (current assets less current liabilities) of $28,206,326 and $27,778,367 respectively compared to $33,919,223 and $33,268,097 respectively for December 31, 2004. The decrease at September 30, 2005 reflects the Company’s cash outflows from research and development expenses, operational expenses, and intellectual property expenditures offset by cash inflows from the exercise of warrants and options that raised $3,384,787.
The Company desires to maintain adequate cash and short-term investment reserves to support its planned activities which include its clinical trial program, production manufacturing, and its intellectual property expansion and protection. The Company presently anticipates that its average cash usage for 2005 will be approximately $1,000,000 per month and its existing capital resources are adequate to fund its current plans for research and development activities through 2007. The Company continues to assess its clinical trial program and related manufacturing needs as further information becomes available. Any change in these activities would have implications on the Company’s cash requirements.
In the event that the Company chooses to seek additional capital, the Company will look to fund additional capital requirements primarily through the issue of additional equity. The Company recognizes the challenges and uncertainty inherent in the capital markets and
