Altamira Gold Corp. press release

BELLUS HEALTH reports results for first quarter of fiscal 2008

2008-05-05

TSXV - TSX Venture Exchange · Gold · Copper · Canada

LAVAL, QC, May 5 /CNW Telbec/ - BELLUS Health Inc. (NASDAQ: BLUS; TSX: BLU, formerly known as Neurochem Inc.) reported results for the first quarter ended March 31, 2008. The Company reported a net loss of $12,902,000 ($0.26 per share) for the quarter, compared to $21,016,000 ($0.54 per share) for the same period the previous year. The decrease in the net loss is mainly due to a reduction in research and development (R&D) expenses, before research tax credits and grants, which amounted to $8,780,000 this quarter, compared to $16,828,000 for the same period the previous year. The decrease in R&D expenses is mainly attributable to a reduction in expenses incurred in relation to the development of tramiprosate (ALZHEMED(TM); homotaurine) for the treatment of Alzheimer's disease, following the Company's decision in November 2007 to terminate the tramiprosate (ALZHEMED(TM)) pharmaceutical drug development program and to take steps to commercialize homotaurine (VIVIMIND(TM)) as a branded nutraceutical.

As at March 31, 2008, the Company had available cash, cash equivalents and marketable securities of $43,448,000, compared to $58,672,000 at December 31, 2007. BELLUS Health is expecting to further reduce its burn rate during fiscal 2008.

Consolidated Financial Results Highlights

The shareholders of Neurochem Inc. approved the change of its name to "BELLUS Health Inc." at the Annual and Special Shareholders' Meeting on April 15, 2008. The new stock ticker symbols, BLUS (NASDAQ) and BLU (TSX), came into use on April 21, 2008.

The Management's Discussion and Analysis (MD&A) provides a review of the Company's operations, performance and financial position for the quarter ended March 31, 2008, compared with the quarter ended March 31, 2007. It should be read in conjunction with the Company's unaudited consolidated financial statements for the three-month period ended March 31, 2008, as well as the Company's audited consolidated financial statements for the year ended December 31, 2007, which have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP). 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, 2007, as well as registration statements and other public filings, which are available on SEDAR at www.sedar.com - or on EDGAR at www.sec.gov. This document contains forward-looking statements, which are qualified by reference to, and should be read together with the "Forward-Looking Statements" cautionary notice, which can be found at the end of this MD&A. This MD&A was prepared by management with information available as of May 5, 2008.

As previously reported, effective July 1, 2007, the Company adopted the US dollar as its functional and reporting currency, as a significant portion of its revenue, expenses, assets, liabilities and financing are denominated in US dollars. All currency figures reported in this document, including comparative figures, are reported in US dollars, unless otherwise specified.

Results of Operations

For the three-month period ended March 31, 2008, the net loss amounted to $12,902,000 ($0.26 per share), compared to $21,016,000 ($0.54 per share) for the corresponding period the previous year.

Revenue from collaboration agreement amounted to $205,000 for the current quarter, compared to $373,000 for the same period the previous year. This revenue was 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. During the current quarter, the Company announced its decision to pursue the drug development program for eprodisate (KIACTA(TM)) and that it will initiate a second Phase III clinical trial for eprodisate (KIACTA(TM)) in close cooperation with the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMEA). The trial is expected to begin in the fourth quarter of 2008, with approximately 150 patients to be followed for a period of 24 months. As part of the decision, the Company withdrew its marketing applications for eprodisate (KIACTA(TM)) in the U.S., the European Union and Switzerland. On April 15, 2008, the Company announced that it had regained full ownership rights and control of eprodisate (KIACTA(TM)) from Centocor. The refundable portion ($6,000,000) of the upfront payment received from Centocor in 2005 has been classified in accrued liabilities as of March 31, 2008, given that it will be refunded to Centocor.

Reimbursable costs revenue amounted to $22,000 for the current quarter, compared to $128,000 for the same period 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 $8,780,000 for the current quarter, compared to $16,828,000 for the same period the previous year. The decrease in the current quarter compared to the same period the previous year is mainly attributable to a reduction in expenses incurred in relation to the development of tramiprosate (ALZHEMED(TM); homotaurine) for the treatment of Alzheimer's disease (AD), following the Company's decision in November 2007 to terminate the tramiprosate (ALZHEMED(TM)) pharmaceutical drug development program. Leveraging the many years of accumulated knowledge and the experience it has gained in developing tramiprosate (ALZHEMED(TM)) for the treatment of AD, BELLUS Health will prioritize and accelerate the development of a prodrug of tramiprosate (ALZHEMED(TM)), a new chemical entity (NCE), for the treatment of AD. A prodrug is a pharmaceutical substance which is administered in an inactive form and, once absorbed into the body, is metabolized in vivo into its active form (in this case, tramiprosate).

The Company is also developing NC-503 for the treatment of Type II diabetes and certain features of metabolic syndrome. A Phase II clinical trial in diabetic patients was launched in Canada and patient randomization commenced in early May. The study is a 26-week, double-blind, placebo-controlled, randomized study. Interim results are anticipated in late 2008 or early 2009. Results from animal models using a validated rat model of diabetes and certain features of metabolic syndrome have shown that NC-503 protects the kidney and decreases the glycemic levels in obese diabetic Zucker rats, when compared to the control group. Treatment with NC-503 correlated with the preservation of approximately 40% more cells secreting insulin than in the control group.

In light of some encouraging results from preliminary post-hoc analysis of the data from the North American Phase III trial for tramiprosate (ALZHEMED(TM)) which suggest an effect of homotaurine in protecting memory function and given that homotaurine occurs naturally in certain algae, BELLUS Health is taking steps to commercialize homotaurine as a branded natural health product under the trade name VIVIMIND(TM), through a wholly-owned nutraceutical subsidiary, OVOS Natural Health Inc. The launch activities of VIVIMIND(TM) are in preparation and the product should be available by the end of the year. The Company's strategy aims to provide revenue generation in the short to medium term through sale of natural health products and mid to long-term development of a pipeline in pharmaceuticals.

Research tax credits and grants amounted to $397,000 this quarter, compared to $506,000 for the corresponding period 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 decrease is mainly attributable to lower research and development expenses incurred in Quebec during the current quarter which are eligible for refundable tax credits.

General and administrative expenses totaled $3,314,000 for the current quarter, compared to $3,460,000 for the same quarter the previous year. These costs are incurred to support the overall activities of the Company.

Reimbursable costs amounted to $22,000 for the current quarter, compared to $128,000 for the same period 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 $1,035,000 for the current quarter, compared to $923,000 for the corresponding quarter the previous year. This expense relates to stock options and stock-based incentives, whereby compensation cost in relation to stock options 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.

Interest income amounted to $498,000 for the current quarter, compared to $613,000 for the same quarter the previous year. The decrease is mainly attributable to lower interest rates prevailing in the markets during the current period, compared to the same periods the previous year. Accretion expense amounted to $1,207,000 for the current quarter, compared to $1,001,000 for the same quarter the previous year.

Accretion expense represents the imputed interest under GAAP on the $42,085,000 aggregate principal amount of 6% convertible senior notes issued in November 2006, as well as on the $4,500,000 balance of 6% senior convertible notes (Senior Notes) issued in May 2007. The Company accretes the carrying values of the convertible notes to their face value through a charge to earnings over their expected life of 60 months and 54 months, respectively. The increase is due to accretion expenses recorded on the Senior Notes issued in May 2007. Refer to the Liquidity and Capital Resources section for more details on the convertible notes.

Change in fair value of embedded derivatives amounted to a gain of $42,000 for the current quarter and represents the variation in the fair value of the embedded derivatives, including the embedded derivative related to the Senior Notes issued in May 2007.

Write-down of third party asset-backed commercial paper amounted to a loss of $375,000 for the current quarter and represents a provision recorded on the valuation of asset-backed commercial paper held by the Company. See Liquidity and Capital Resources section for more details.

Foreign exchange gain amounted to $754,000 for the current quarter, compared to a gain of $108,000 for the same quarter the previous year. Foreign exchange gains or losses arise on the movement in foreign exchange rates in relation to the Company's net monetary assets denominated in currencies other than US dollars, which is its functional and reporting currency, and consists primarily of monetary assets and liabilities denominated in Canadian dollars. Foreign exchange gain for the current quarter includes $924,000 of gain recognized on the reclassification from deferred revenue (non monetary liability) to accrued liability (monetary liability) of the refundable amount ($6,000,000) due to Centocor, following the recovery by the Company of ownership rights and control of eprodisate (KIACTA(TM)).

Other income amounted to $278,000 for the current quarter, compared to $242,000 for the same quarter 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 nil for the current quarter, compared to $327,000 for the corresponding quarter the previous year. Non-controlling interest amounted to nil for the current quarter, compared to $109,000 for the corresponding quarter the previous year. These items result from the consolidation of the Company's interest in a holding company (Innodia Holding) that owns shares of Innodia Inc., for which BELLUS Health is the primary beneficiary. The share of loss recorded last year has reduced the Company's long-term investment in Innodia Holding to a nominal value. Innodia Inc. is a private, development-stage company engaged in developing novel drugs for the treatment of Type II diabetes and underlying diseases.

Liquidity and Capital Resources

As at March 31, 2008, the Company had available cash, cash equivalents and marketable securities of $43,448,000, compared to $58,672,000 at December 31, 2007. The decrease is primarily due to funds used in operating activities.

On May 2, 2007, the Company issued $80,000,000 aggregate principal amount of convertible notes, consisting of $40,000,000 6% senior convertible notes due in 2027 and $40,000,000 5% senior subordinated convertible notes due in 2012. The 6% senior convertible notes have an initial conversion price equal to the lesser of $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 were subject to mandatory conversion into common shares under certain circumstances. 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 $12.68 per share, subject to adjustments in certain circumstances. During the year ended December 31, 2007, $35,500,000 of the 6% senior convertible notes were converted into 5,619,321 common shares and the totality of the 5% senior subordinated convertible notes were converted into 4,444,449 common shares. Net proceeds from the offering were $74,279,000 and, as of March 31, 2008, $19,052,000 has yet to be spent. As at March 31, 2008, the use of proceeds has conformed in all material respects with the expectations set forth in the prospectus filed publicly.

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 $60,000,000 of funds in return for the issuance of common shares. The ELOC facility was amended in February 2008 and the term was extended to February 2010. Under the amended ELOC facility, the maximum amount of each drawdown is limited to the lower of $6,000,000 or 12.5% of the volume-weighted price calculation of the common shares at the time of drawdown. The common shares will be issued at a discount of 4.0% to market price if the volume-weighted average price (VWAP) per share is $6 or higher, and 7% if the VWAP per share is lower than $6 at the time of drawdown. A placement fee equal to 2.4% of gross proceeds will be payable to the placement agent. The ELOC shall 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 or (iii) the Company suffers a material adverse effect which cannot be cured prior to the next drawdown notice. The Company may terminate the securities purchase agreement (i) if Cityplatz fails to fund a properly notified drawdown within five trading days of the end of the applicable settlement period or (ii) after it has drawn down at least $15,000,000 under the ELOC. As at March 31, 2008, the Company had not drawn any funds under the ELOC.

"Restricted Cash" presented on the Consolidated Balance Sheet is composed of short-term investments pledged to a bank as collateral for three letters of credit (LC); the first LC is in the amount of $6,000,000 and was issued in connection with the refundable upfront payment received under the collaboration agreement with Centocor. The second and third LC total $769,000 (CDN$790,000) and were issued in relation to leases.

As at March 31, 2008, the Company held $6,633,000 principal amount of third party Asset-Backed Commercial Paper (ABCP). These investments were due to mature in August 2007, but, as a result of a disruption in the credit markets, particularly in the ABCP market, they did not settle on maturity and currently remain outstanding. There are currently no market quotations available for these ABCP. On April 25, 2008, the restructuring plan announced by the Pan-Canadian Investors Committee (the Committee) in December 2007 was approved by the ABCP holders and will result into the conversion of the ABCP into longer term financial instruments. As at March 31, 2008, the Company estimated the fair value of these ABCP at approximately $5,065,000, which is presented in Restricted Cash. During the quarter ended March 31, 2008, the Company recorded an additional write-down of $375,000, due to changes in assumptions as derived from information provided by the Committee's restructuring plan. For the year ended December 31, 2007, the Company had recorded a write-down of $1,184,000. The Company estimated the fair value of the ABCP using a probability weighted discounted cash flow approach, based on its best estimates of the time period over which the assets are going to generate cash flows ranging from 8 to 28 years based on the proposed restructuring, the coupon interest rate, the discount rate to apply to the net cash flows anticipated to be received commensurate with the return on comparably rated notes in accordance with the risk factors of the different investments and other qualitative factors. This estimate of the fair value of the ABCP is not supported by observable market prices or rates, therefore is subject to uncertainty, including, but not limited to, the successful implementation of the restructuring plan being considered, the estimated amounts to be recovered, the yield of the substitute financial instruments and the timing of future cash flows. The resolution of these uncertainties could be such that the ultimate fair value of these investments may vary from the Company's current estimate. Changes in the near term could require changes in the recognized amount of these assets. The Company does not expect there will be a material adverse impact on its business as a result of the third party ABCP liquidity issue.

As at March 31, 2008, the Company's workforce comprised 170 employees. The Company is taking steps to reduce its research activities and associated workforce to focus on key projects.

As at April 30, 2008, the Company had 48,848,095 common shares outstanding, 220,000 common shares issuable to the Chief Executive Officer upon the achievement of specified performance targets, 5,071,270 options granted under the stock option plan, 2,884,471 shares currently issuable under the convertible notes, and 2,250,645 warrants outstanding, for a total of 59,274,481 common shares, on a fully diluted basis.

The Company believes that its available cash and short-term investments, expected interest income, potential funding from partnerships, research collaborations and licensing agreements, estimated amounts that could be drawn under the equity line of credit facility, potential revenue from the commercialization of nutraceutical products, research tax credits, grants, and access to capital markets should be sufficient to finance the Company's operations and capital needs during the next 12 months. However, in light of the uncertainties associated with the regulatory approval process, clinical trial results, commercialization of nutraceutical products, 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.