NEW YORK, March 20 /PRNewswire-FirstCall/ -- XTL Biopharmaceuticals, Ltd. , a biotechnology company focused on the acquisition, development and commercialization of therapeutics for the treatment of infectious diseases, with a focus on hepatitis C, today announced its financial results for year ended December 31, 2005.
Earlier today, XTL announced that it has entered into definitive agreements with institutional investors relating to a private placement of $28 million in gross proceeds through the issuance of ordinary shares, represented by American Depositary Receipts (ADRs), and warrants. JPMorgan Securities Inc. acted as the lead-placement agent. Brean Murray, Carret & Co., LLC, Oppenheimer & Co., Inc., and Punk, Ziegel & Company, L.P. served as co-placement agents in the transaction. The Company has agreed to register the ordinary shares, including those issuable upon exercise of the warrants, under the Securities Act of 1933, list the ADRs for trading on the Nasdaq Stock Market and to apply to the UK Listing Authority for the new ordinary shares to be admitted to trading on the London Stock Exchange. The proceeds of the private placement will be held in escrow until the securities are registered and listed for trading. The Company believes that proceeds raised from this offering will be sufficient to fund its operations into 2008.
At December 31, 2005, the Company had cash and cash equivalents of $13.4 million, compared to cash, cash equivalents and short-term bank deposits of $22.9 million at December 31, 2004. The year-over-year decrease of $9.5 million is attributable primarily to operating expenses associated with the development of our hepatitis C product candidates, XTL-2125 and XTL-6865, as well as to the development of the DOS hepatitis C pre-clinical program, recently acquired from Vivo Quest, Inc. This decrease was partially offset by approximately $1.5 million in proceeds from the exercise of share options during 2005.
The loss for the year ended December 31, 2005 was $14,015,000, or $0.08 per ordinary share, compared to the loss of $16,473,000, or $0.12 per ordinary share, for the year ended December 31, 2004, representing a decrease in net loss of $2,458,000. The decrease in loss was primarily attributable to a decrease of $4,672,000 in research and development costs and due to a $583,000 reduction in business development costs. This was partially offset by a $1,783,000 charge associated with acquired in-process research and development pursuant to the VivoQuest license and asset purchase agreements that were completed in September 2005, and an increase of $1,323,000 in general administrative expenses. In 2005, general and administrative expenses included a non-cash compensation charge of $2,641,000 associated with stock options in accordance with FAS 123R, that was adopted by the Company in 2005.
Ron Bentsur, Chief Executive Officer of XTL, commented, "First, I want to take this opportunity to thank the investors who participated in our highly successful private placement which priced yesterday in which we raised $28 million. This transaction serves as a strong first step in introducing XTL to the U.S. marketplace. Mr. Bentsur added, "2005 was an important year for the Company. We completed a refocusing plan designed to enable the Company to focus its resources on the development of its lead programs through to clinical proof-of principle. We initiated a Phase 1 clinical trial of XTL-6865 for the treatment of hepatitis C chronic patients in September 2005 and we are weeks away from commencing dosing into our placebo-controlled Phase 1 study for XTL-2125, also in hepatitis C chronic patients. We further strengthened our hepatitis C program with the completion of the Vivo Quest transaction in September 2005. On the HepeX-B front, we successfully completed the transition of the HepeX-B development activities to Cubist and were very pleased with the Phase 2b clinical trial results released at year's end."
Contacts: XTLbio Ron Bentsur, Chief Executive Officer Tel: +1-212-531-5971 ABOUT XTL BIOPHARMACEUTICALS LTD.
XTL Biopharmaceuticals Ltd. ("XTL") is engaged in the acquisition, development and commercialization of therapeutics for the treatment of infectious diseases, with a focus on hepatitis C. XTL is developing XTL-2125 - a small molecule, non-nucleoside inhibitor of the hepatitis C virus polymerase. XTL-2125 is expected to enter Phase 1 clinical trial in chronic hepatitis C patients in 1H 2006. XTL is also developing XTL-6865 - a combination of two monoclonal antibodies against the hepatitis C virus - presently in Phase 1 clinical trials in patients with chronic hepatitis C. XTL's hepatitis C pipeline also includes several families of pre-clinical hepatitis C small molecule inhibitors. In addition, XTL has out-licensed to Cubist Pharmaceuticals an antibody therapeutic against hepatitis B, HepeX-B, which has recently completed a Phase 2b clinical study in transplant patients. XTL is publicly traded on the NASDAQ, London, and Tel-Aviv Stock Exchanges .
Cautionary Statement
Some of the statements included in this press release, particularly those anticipating future financial performance, clinical and business prospects for our clinical compounds for hepatitis C, XTL-2125 and XTL-6865, growth and operating strategies and similar matters, may be forward-looking statements that involve a number of risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Among the factors that could cause our actual results to differ materially are the following: our ability to successfully complete cost-effective clinical trials for the drug candidates in our pipeline which would affect our ability to continue to fund our operations with our available cash reserves, we may not be able to meet anticipated development timelines for the drug candidates in our pipeline due to recruitment, clinical trial results, manufacturing capabilities or other factors; and other risk factors identified from time to time in our reports filed with the Securities and Exchange Commission and the London Stock Exchange . Any forward-looking statements set forth in this press release speak only as of the date of this press release. We do not intend to update any of these forward-looking statements to reflect events or circumstances that occur after the date hereof. This press release and prior releases are available at http://www.xtlbio.com. The information in our website is not incorporated by reference into this press release and is included as an inactive textual reference only.
XTL BIOPHARMACEUTICALS LTD. (A Development Stage Company) CONSOLIDATED BALANCE SHEETS (in thousands of U.S. dollars) December 31 2005 2004 ___________ ___________ A s s e t s CURRENT ASSETS: Cash and cash equivalents 13,360 12,788 Short-term bank deposits -- 10,136 Accounts receivable - trade -- 543 Accounts receivable - other 431 306 ___________ ___________ T o t a l current assets 13,791 23,773 ___________ ___________ EMPLOYEE SEVERANCE PAY FUNDS 449 830 ___________ ___________ RESTRICTED LONG-TERM DEPOSIT 110 113 ___________ ___________ PROPERTY AND EQUIPMENT, NET 762 908 ___________ ___________ INTANGIBLE ASSETS, NET -- 39 ___________ ___________ T o t a l assets 15,151 25,624 ========= ========= Liabilities and shareholders' equity CURRENT LIABILITIES: Accounts payable and accruals 2,007 3,134 Deferred gain 399 399 ___________ ___________ T o t a l current liabilities 2,406 3,533 ___________ ___________ LIABILITY IN RESPECT OF EMPLOYEE SEVERANCE OBLIGATIONS 695 1,291 DEFERRED GAIN 798 1,198 ___________ ___________ COMMITMENTS AND CONTINGENCIES (Note 7) T o t a l liabilities 3,899 6,022 ___________ ___________ SHAREHOLDERS' EQUITY: Ordinary shares of NIS 0.02 par value (authorized: 300,000,000 as of December 31, 2005 and 2004; issued and outstanding: 173,180,441 as of December 31, 2005 and 168,079,196 as of December 31, 2004) 864 841 Additional paid in capital 110,179 104,537 Deficit accumulated during the development (99,791) (85,776) stage ___________ ___________ T o t a l shareholders' equity 11,252 19,602 ___________ ___________ T o t a l liabilities and shareholders' equity 15,151 25,624 ========= ========= Michael Weiss Ron Bentsur Chairman of the Board of Chief Executive Officer Directors Date of approval of the financial statements: March 17, 2006 The accompanying notes are an integral part of the financial statements. XTL BIOPHARMACEUTICALS LTD. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands of U.S. dollars, except share and per share amounts) Period from March 9, 1993* Year ended December 31 to December 31, 2005 2004 2003 2005 (Unaudited) ___________ ___________ ___________ ___________ REVENUES: Reimbursed out-of-pockets expenses 2,743 3,269 -- 6,012 License 454 185 -- 639 ___________ ___________ ___________ __________ 3,197 3,454 -- 6,651 COST OF REVENUES: Reimbursed out-of-pockets expenses 2,743 3,269 -- 6,012 License (with respect to 54 32 -- 86 royalties) ___________ ___________ ___________ __________ 2,797 3,301 -- 6,098 GROSS MARGIN 400 153 -- 553 ___________ ___________ ___________ __________ RESEARCH AND DEVELOPMENT COSTS (includes non-cash compensation of $112, $30 and $0, in 2005, 2004 and 2003, respectively) 7,313 11,985 14,022 82,890 L E S S - PARTICIPATIONS -- -- 3,229 10,950 ___________ ___________ ___________ __________ 7,313 11,985 10,793 71,940 IN - PROCESS RESEARCH AND DEVELOPMENT COSTS 1,783 -- -- 1,783 GENERAL AND ADMINISTRATIVE EXPENSES (includes non-cash compensation of $2,641, $2 and $0, in 2005, 2004 and 2003, respectively) 5,457 4,134 3,105 29,012 BUSINESS DEVELOPMENT COSTS (includes non-cash compensation of $10 in 2005, and $0, in 2004 and 2003, 227 810 664 4,513 respectively) __________ ___________ ___________ __________ OPERATING LOSS 14,380 16,776 14,562 106,695 FINANCIAL 443 352 352 7,143 INCOME - net __________ ___________ ___________ __________ LOSS BEFORE INCOME TAXES 13,937 16,424 14,210 99,552 INCOME TAXES 78 49 78 239 ___________ ___________ ___________ __________ LOSS FOR THE 14,015 16,473 14,288 99,791 PERIOD ========= ========= ========= ======== BASIC AND DILUTED LOSS PER ORDINARY SHARE $0.08 $0.12 $0.13 ========= ========= ========= WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTING BASIC AND DILUTED LOSS PER ORDINARY SHARE 170,123,003 134,731,766 111,712,916 ========= ========= ========= * Incorporation Date The accompanying notes are an integral part of the financial statements. XTL BIOPHARMACEUTICALS LTD. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of U.S. dollars) Period from March 9, 1993 (a) Year ended December 31 to December 31, 2005 2004 2003 2005 (Unaudited) ________ ________ ________ ________ CASH FLOWS FROM OPERATING ACTIVITIES: Loss for the period (14,015) (16,473) (14,288) (99,791) Adjustments to reconcile loss to net cash used in operating activities: Depreciation and 242 319 440 2,829 amortization Linkage difference on 3 -- -- 3 restricted long-term deposits Acquisition of in process 1,783 -- -- 1,783 research and development Loss on disposal of 6 1 2 18 property and equipment Increase (decrease) in liability in respect of employee severance obligations (159) 30 129 1,228 Impairment charges 26 -- 354 380 Loss (gain) from sales of -- 13 (27) (410) available for sale securities Stock based compensation expenses (employee and non- employee) 2,763 32 -- 3,278 Loss (gain) on amounts funded in respect of employee severance pay funds (6) (4) 5 (91) Changes in operating assets and liabilities: Decrease (increase) in 543 (543) -- -- accounts receivable - trade Decrease (increase) in (125) 400 (440) (431) accounts receivable - other Increase (decrease) in (1,127) 133 499 2,007 accounts payable and accruals Increase (decrease) in (400) 1,597 -- 1,197 deferred gain ______ ________ ________ ________ Net cash used in (10,466) (14,495) (13,326) (88,000) operating activities ________ ________ ________ ________ CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in short-term 10,136 7,193 14,724 -- deposits Restricted long-term -- 46 (20) (113) deposits, net Investment in available -- -- (71) (3,363) for sale securities Proceeds from sales of -- 722 1,048 3,773 available for sale securities Employee severance pay (50) (136) (112) (891) funds Purchase of property and (38) (180) (81) (4,021) equipment Proceeds from disposals 27 5 2 149 of property and equipment Acquisition in respect of (548) -- -- (548) license and purchase of ________ ________ ________ ________ assets Net cash provided by 9,527 7,650 15,490 (5,014) (used in) investing ________ ________ ________ ________ activities XTL BIOPHARMACEUTICALS LTD. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands of U.S dollars) Period from March 9, 1993 (a) Year ended December 31 to December 31, 2005 2004 2003 2005 (Unaudited) ________ ________ ________ ________ CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of share capital - -- 15,430 -- 104,371 net of share issuance expenses Exercise of share warrants and 1,511 19 4 2,003 stock options Proceeds from long-term debt -- -- -- 399 Proceeds from short-term debt -- -- -- 50 Repayment of long-term debt -- -- -- (399) Repayment of short-term debt -- -- -- (50) ________ ________ ________ ________ Net cash provided by financing 1,511 15,449 4 106,374 activities ________ ________ ________ ________ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 572 8,604 2,168 13,360 BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,788 4,184 2,016 -- ________ ________ ________ ________ BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD 13,360 12,788 4,184 13,360 ======= ======= ======= ======= Supplementary information on investing and financing activities not involving cash flows: Issuance of ordinary shares in respect of license, and purchase of 1,391 -- -- 1,391 assets Conversion of convertible -- -- -- 1,700 subordinated debenture into shares Supplemental disclosures of cash flow information: Income taxes paid (mainly - tax advance in respect of excess expenses) 49 107 161 321 ======= ======= ======= ======= Interest paid -- -- -- 350 ======= ======= ======= ======= (a) Incorporation Date The accompanying notes are an integral part of the financial statements XTL BIOPHARMACEUTICALS LTD. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1) GENERAL
The consolidated financial statements of the Company are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced a significant loss from operations. For the year ended December 31, 2005, the Company incurred a net loss of $14 million and had an accumulated deficit of $100 million. These matters raise substantial doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern will depend upon its ability to raise additional capital in the short term. The Company is actively pursuing raising additional capital to fund its operations although there is no assurance that such capital will be available to the Company. Failure to secure additional capital or to expand its revenue base would result in the Company depleting its available funds and not being able to pay its obligations when they become due. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
RESEARCH AND DEVELOPMENT COSTS AND PARTICIPATIONS
Research and development costs are expensed as they are incurred and consist primarily of salaries and related personnel costs, fees paid to consultants and other third-parties for clinical and laboratory development, facilities-related and other expenses relating to the design, development, testing, and enhancement of product candidates.
Participations from government (and from others) for development of approved projects are recognized as a reduction of expense as the related costs are incurred.
In connection with purchase of assets, amounts assigned to intangible assets to be used in a particular research and development project that have not reached technological feasibility and have no alternative future use are charged to in- process research and development costs at the purchase date.
2) REVENUE RECOGNITION
The Company recognizes the revenue from the licensing agreement with Cubist under the provisions of the EITF 00-21 "Revenue Arrangements with Multiple Deliverables" and SAB 104 "Revenue Recognition." Under those pronouncements, companies are required to allocate revenues from multiple-element arrangements to the different elements based on sufficient objective and reliable evidence of fair value. Since the Company does not have the ability to determine the fair value of each unit of accounting, the agreement was accounted for as one unit of accounting, after failing the separation criteria, and the Company recognizes each payment on the abovementioned agreement ratably over the expected life of the arrangement.
In addition, through 2005, Cubist had requested that the Company provide development services to be reimbursed by Cubist. As required by EITF 01-14 "Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred," amounts paid by the Company, as a principal, are included in the cost of revenues as reimbursable out-of-pocket expenses, and the reimbursements the Company receives as a principal are reported as reimbursed out-of-pocket revenues.
3) STOCK-BASED COMPENSATION
Prior to January 1, 2005, the Company accounted for employee stock-based compensation under the intrinsic value model in accordance with Accounting Principles Board Opinion No. 25 - "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations. Under APB 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Company's ordinary shares and the exercise price. When the number of the underlying shares or the exercise price is not known at the grant date, the Company updated, at each period, the compensation expenses until such data becomes known. In addition, in accordance with FAS 123 No. "Accounting for Stock-Based Compensation" ("FAS 123"), which was issued by the Financial Accounting Standards Board ("FASB"), the Company disclosed pro forma data assuming it had accounted for employee share option grantsusing the fair value-based method defined in FAS 123.
In December 2004, the FASB issued the revised FAS No. 123R "Share - Based Payment" ("FAS 123R"), which addresses the accounting for share-based payment transactions in which a company obtains employee services in exchange for (a) equity instruments of a company or (b) liabilities that are based on the fair value of a company's equity instruments or that may be settled by the issuance of such equity instruments. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB 107") regarding the SEC's interpretation of FAS 123R.
FAS 123R eliminates the ability to account for employee share-based payment transactions using APB 25, and requires instead that such transactions be accounted for using the grant-date fair value based method. FAS 123R is effective as of the annual reporting period that begins after June 15, 2005. Early adoption of FAS 123R is encouraged. FAS 123R applies to all awards granted or modified after the effective date of the standard. In addition, compensation cost for the unvested portion of previously granted awards that remain outstanding on the effective date shall be recognized on or after the effective date, as the related services are rendered, based on the awards' grant-date fair value as previously calculated for the pro-forma disclosure under FAS 123.
The Company implemented early adoption of FAS 123R, as of January 1, 2005, using the modified prospective application transition method, as permitted by FAS 123R. Under such transition method, the Company's financial statements for periods prior to the effective date of FAS 123R (January 1, 2005) have not been restated. As a result of the early adoption, the Company reduced the deferred share-based compensation against the additional paid in capital.
The fair value of stock options granted with service conditions, was determined using the Black-Scholes valuation model, which is consistent with the Company's valuation techniques previously utilized for options in footnote disclosures required under FAS 123, as amended by FAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." Such value is recognized as an expense over the service period, net of estimated forfeitures, using the straight-line method under FAS 123R. The fair value of stock options granted with market conditions, was determined using a lattice model that incorporated a Monte Carlo Simulation method. Such value is recognized as an expense using the graded method under FAS123R.
The estimation of stock awards that will ultimately vest requires significant judgment, and to the extent actual results or updated estimates differ from the Company's current estimates, such amounts will be recorded as a cumulative adjustment in the period those estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates, may differ substantially from the Company's current estimates.
Both the Black-Scholes model and a lattice model incorporating the Monte Carlo simulation method take into account a number of valuation parameters.
The application of FAS 123R had the following effect on reported amounts, for the year ended December 31, 2005, relative to amounts that would have been reported using the intrinsic value method under previous accounting ($ in thousands, except per share amounts):
Using Impact of the As previous adoption of reported accounting FAS 123R _____________ _____________ ___________ Loss for the year 12,130 1,885 14,015 Basic and diluted loss per (0.07) (0.08) ordinary share
The following table illustrates the effect on loss and loss per share assuming the Company had applied the fair value recognition provisions of FAS 123 to its stock-based employee compensation, for years presented prior to the adoption of FAS 123R:
Period from March 9, 1993* Year ended December 31 to December 31, 2004 2003 2004 (Unaudited) ($ in thousands except per share amounts) ________________________________________ Loss for the 16,473 14,288 85,776 period, as reported Deduct: stock- based employee compensation expense, included in -- -- (483) reported loss Add: stock-based employee compensation expense determined under fair value method for all 239 821 6,355 awards __________ __________ __________ Loss - pro-forma 16,712 15,109 91,648 __________ __________ __________ Basic and diluted loss per share: As reported 0.12 0.13 ========= ========= Pro-forma 0.12 0.14 ========= =========
The Company accounts for equity instruments issued to third party service providers (non - employees) in accordance with the fair value method prescribed by FAS123, and as of January 1, 2005, by F
