Standard Lithium Ltd. press release
BELLUS Health Reports Results for Third Quarter of Fiscal 2008 and on EMEA Update
TSXV - TSX Venture Exchange · Lithium · Bromine · Potash · Sodium · Canada
LAVAL, QC, Nov. 10 /CNW Telbec/ - BELLUS Health Inc. (NASDAQ: BLUS; TSX: BLU) reports results for the third quarter ended September 30, 2008. For the three-month period ended September 30, 2008, the net loss amounted to $11,095,000 ($0.22 per share), compared to $13,889,000 ($0.29 per share) for the corresponding period the previous year. For the nine-month period ended September 30, 2008, the net loss amounted to $36,703,000 ($0.74 per share), compared to $65,389,000 ($1.54 per share) for the same period last year.
The net loss for the current third quarter included net sales of $153,000 which represents one month of sales of VIVIMIND(TM), the Company's first natural health brand launched in Canada and on the Internet on September 2, 2008. The net loss for the nine-month period ended September 30, 2007, included a non-cash accretion expense under Canadian GAAP of $10,430,000 relating to the $40 million 5% senior subordinated convertible notes issued in May 2007.
Research and development expenses, before research tax credits and grants, amounted to $5,208,000 for the current quarter ($21,111,000 for the nine-month period), compared to $11,964,000 for the same period the previous year ($43,533,000 for the nine-month period). The decrease in the current periods compared to the same periods 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, following the Company's decision in November 2007 to terminate the tramiprosate (ALZHEMED(TM)) pharmaceutical drug development program.
As at September 30, 2008, the Company had available cash, cash equivalents and marketable securities of $20,595,000, compared to $58,672,000 at December 31, 2007. The decrease is primarily due to funds used in operating activities.
Eprodisate (KIACTA(TM)) for the treatment of Amyloid A (AA) amyloidosis
With respect to eprodisate (KIACTA(TM)), the Company submitted a proposed protocol for the second Phase III clinical trial for consideration by the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMEA). EMEA has agreed with the study design including the new primary endpoint focusing on renal events and excluding death. In addition both the FDA and the EMEA have recognized that this second clinical trial will be confirmatory; hence a p-value of less than 0.05, rather than the p-value of less than 0.01 for the previous Phase II/III trial, should be sufficient to gain approval of eprodisate (KIACTA(TM)) for the treatment of AA Amyloidosis,. A follow-up meeting with the FDA to finalize the study details should take place in the very near future.
Consolidated Financial Results Highlights
BELLUS Health Inc., formerly known as Neurochem Inc., (BELLUS Health or the Company) is a global health company focused on the development and commercialization of products to provide innovative health solutions to address critical unmet needs.
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 of the Company are BLUS (NASDAQ) and BLU (TSX).
The Management's Discussion and Analysis (MD&A) provides a review of the Company's operations, performance and financial position for the three- and nine-month periods ended September 30, 2008, compared with the three- and nine-month periods ended September 30, 2007. It should be read in conjunction with the Company's unaudited consolidated financial statements for the periods ended September 30, 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. All currency figures reported in this document, including comparative figures, are reported in US dollars, unless otherwise specified. This MD&A was prepared by Management with information available as at November 10, 2008.
Results of operations
For the three-month period ended September 30, 2008, the net loss amounted to $11,095,000 ($0.22 per share), compared to $13,889,000 ($0.29 per share) for the corresponding period the previous year. For the nine-month period ended September 30, 2008, the net loss amounted to $36,703,000 ($0.74 per share), compared to $65,389,000 ($1.54 per share) for the same period last year. The net loss for nine-month period ended September 30, 2007, included a non-cash accretion expense under Canadian GAAP of $10,430,000 relating to the $40 million 5% senior subordinated convertible notes issued in May 2007.
Net sales amounted to $153,000 for the current quarter and nine-month period and represent the initial sales of VIVIMIND(TM), the Company's first natural health brand launched in Canada and on the Internet on September 2, 2008. VIVIMIND(TM), to protect memory function, is based on the naturally occurring ingredient, homotaurine, found in certain seaweed. Targeted at healthy baby boomers, this patented natural health brand is expected to address a largely underserved self-care market by providing a scientific, evidence-based health solution. VIVIMIND(TM) is the direct result of over 15 years of significant scientific research, including clinical testing in over 2,000 individuals. Post-hoc analysis of the North American Phase III clinical trial of homotaurine (VIVIMIND(TM)) involving 1,052 Alzheimer's disease (AD) patients showed a positive impact on cognitive function and anatomically it helped to reduce the volume loss of an important area of the brain responsible for memory. VIVIMIND(TM) is commercialized by OVOS Natural Health Inc., a wholly owned subsidiary of BELLUS Health. The Company's strategy includes revenue generation in the short-to-medium-term through the sale of natural health products and in the medium-to-long-term through development of a pipeline of pharmaceutical products.
Revenue from collaboration agreement amounted to nil for the current quarter ($205,000 for the nine-month period), compared to $228,000 for the same period the previous year ($913,000 for the nine-month period). 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 first quarter of 2008, the Company announced its decision to continue 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 US Food and Drug Administration (FDA) and the European Medicines Agency (EMEA). The Company expects to file the Investigational New Drug application (IND) in the fourth quarter of 2008, with approximately 190 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 US, 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. During the second quarter of 2008, the refundable portion ($6,000,000) of the upfront payment received from Centocor in 2005 was refunded to Centocor.
Reimbursable costs revenue amounted to nil for the current quarter ($69,000 for the nine-month period), compared to $73,000 for the same period the previous year ($332,000 for the nine-month period), and, which for the current nine-month period and the comparative periods the previous year, consisted of costs reimbursable by Centocor in respect of eprodisate (KIACTA(TM))-related activities. As the Company regained full ownership of this program from Centocor, these costs are no longer reimbursable by Centocor.
Research and development expenses, before research tax credits and grants, amounted to $5,208,000 for the current quarter ($21,111,000 for the nine-month period), compared to $11,964,000 for the same period the previous year ($43,533,000 for the nine-month period). The decrease in the current periods compared to the same periods 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 AD, following the Company's decision in November 2007 to terminate the tramiprosate (ALZHEMED(TM)) pharmaceutical drug development program.
The Company is also developing NC-503 (eprodisate) for the treatment of Type II diabetes and certain other features of metabolic syndrome. A Phase II clinical trial in diabetic patients was initiated in Canada and patient recruitment and randomization commenced during the second quarter of 2008. The study is a randomized 26-week, double-blind, placebo-controlled study. Interim results are anticipated in early 2009. Results from a validated rat model of diabetes and metabolic syndrome have demonstrated that NC-503 decreases glycemic levels in obese diabetic Zucker rats, when compared to the control group, while preserving 40% more pancreatic islet cells (insulin secreting cells) as compared to the control group, and showed some protective effect on renal function.
Research tax credits and grants amounted to $264,000 for the current quarter ($1,128,000 for the nine-month period), compared to $434,000 for the corresponding period the previous year ($1,434,000 for the nine-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 during the current periods which are eligible for refundable tax credits.
General and administrative expenses totaled $2,987,000 for the current quarter ($8,513,000 for the nine-month period), compared to $2,559,000 for the same quarter the previous year ($9,184,000 for the nine-month period). The increase in the quarter is mainly due to expenses incurred in relation to the Company's natural health product activities.
Selling and marketing expenses amounted to $1,424,000 for the current quarter ($3,459,000 for the nine-month period) and represent expenses incurred in relation to the commercialization of the Company's natural health brand, VIVIMIND(TM), which was launched during the current quarter.
Reimbursable costs amounted to nil for the current quarter ($69,000 for the nine-month period), compared to $73,000 for the same period the previous year ($332,000 for the nine-month period), and, which for the current nine-month period and the comparative periods the previous year, consisted of costs incurred on behalf of Centocor in respect of eprodisate (KIACTA(TM))-related activities and reimbursable by Centocor. As the Company regained full ownership of this program from Centocor, these costs are no longer reimbursable by Centocor.
Stock-based compensation amounted to $439,000 for the current quarter ($2,298,000 for the nine-month period), compared to $998,000 for the corresponding quarter the previous year ($2,854,000 for the nine-month period). 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 decrease is mainly due to cancellation of stock options as well as adjustments in relation to forfeitures of stock options during the current quarter.
Interest income amounted to $145,000 for the current quarter ($856,000 for the nine-month period), compared to $1,021,000 for the same quarter the previous year ($2,585,000 for the nine-month period). The decrease is mainly attributable to lower average cash balances and lower interest rates during the current periods, compared to the same periods in the previous year.
Accretion expense amounted to $1,243,000 for the current quarter ($3,675,000 for the nine-month period), compared to $1,452,000 for the same quarter the previous year ($14,568,000 for the nine-month period). 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 (2006 Notes), as well as on the $40,000,000 6% senior convertible notes (Senior Notes) and $40,000,000 5% senior subordinated convertible notes (Junior 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, 54 months and 1 month, respectively. The decrease in the current nine-month period, compared to the same period the previous year is mainly due to accretion expenses of $10,430,000 recorded during the second quarter of 2007 on the Junior Notes, which were fully converted during that quarter. As of September 30, 2008, $42,085,000 of the 2006 Notes remains outstanding as well as $4,500,000 of the Senior Notes. 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 $45,000 for the current quarter (gain of $145,000 for the nine-month period) compared to a gain of $972,000 for the same quarter the previous year (loss of $898,000 for the nine-month period) and represents the variation in the fair value of the embedded derivatives, including the embedded derivative related to the $80,000,000 aggregate principal amount of Senior and Junior Notes issued in May 2007.
Write-down of third party Asset-Backed Commercial Paper amounted to nil for the current quarter ($375,000 for the nine-month period) and represents an additional 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 loss amounted to $216,000 for the current quarter (gain of $644,000 for the nine-month period), compared to a gain of $565,000 for the same quarter the previous year (gain of $1,184,000 for the nine-month period). 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 gains for the current nine-month period include $924,000 of gain recognized on the reclassification, during the first quarter of 2008, 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 $276,000 for the current quarter ($810,000 for the nine-month period), compared to $270,000 for the same quarter the previous year ($987,000 for the nine-month period). Other income consists of non-operating revenue, primarily sub-lease revenue.
Liquidity and capital resources
As at September 30, 2008, the Company had available cash, cash equivalents and marketable securities of $20,595,000, compared to $58,672,000 at December 31, 2007. The decrease is primarily due to funds used in operating activities. The Company also has short-term bank indebtedness of $8,466,000, including $5,963,000 incurred in relation to the refund to Centocor. As previously discussed, during the second quarter of 2008, the Company refunded the refundable portion of the upfront payment received from Centocor in 2005. Since this obligation was secured by Asset-Backed Commercial Paper (ABCP), the market for which is currently being restructured as discussed later in this section, the Company entered into a credit facility, with the chartered bank that sold the Company the ABCP, in order to finance the repayment. Bank indebtedness bears interest at the bank's prime rate minus 1%. This bank indebtedness is expected to be refinanced by long term bank facilities upon the successful restructuring of the ABCP discussed below.
On July 17, 2008, the Company acquired 100% of the remainder of the outstanding capital stock that it did not already own of Innodia Inc. (Innodia), a private company engaged in developing compounds for the treatment of diabetes, obesity and related metabolic conditions and diseases. Prior to the acquisition, the Company indirectly held 23% of Innodia's capital stock. The Company acquired all of the business of Innodia including the intellectual property assets related to its diabetes and obesity projects and now holds the exclusive rights to BELLUS Health's diabetes platform and all related compounds. The purchase price, in the amount of $1,278,000, was settled by the issuance from treasury of 1,185,797 common shares. Additional consideration consisting of either treasury shares or, at the option of the Company, cash is conditionally payable on the first anniversary of the closing of the transaction, based upon the determination of the value of certain assets at that time.
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.
On November 9, 2006, the Company issued $42,085,000 aggregate principal amount of 6% convertible senior notes (the 2006 Notes) due in 2026. The 2006 Notes are convertible into common shares based on an initial conversion rate of 50.7181 shares per $1,000 principal amount of 2006 Notes ($19.72 per share). The 2006 Notes are convertible, at the option of the holder under certain conditions. On October 15, 2009, the conversion rate of the 2006 Notes will be adjusted to an amount equal to a fraction whose numerator is $1,000 and whose denominator is the average of the closing sale prices of the common shares during the 20 trading days immediately preceding, and including, the third business day immediately preceding October 15, 2009. However, no such adjustment will be made if the adjustment will reduce the conversion rate. On and after November 15, 2009, the conversion rate will be readjusted back to the conversion rate that was in effect prior to October 15, 2009. On or after November 15, 2011, the Company may redeem the 2006 Notes, in whole or in part, at a redemption price in cash equal to 100% of the principal amount of the 2006 Notes, plus any accrued and unpaid interest. On November 15, 2011, 2016 and 2021, the holders of the 2006 Notes may require the Company to purchase all or a portion of their 2006 Notes at a purchase price in cash equal to 100% of the principal amount of the 2006 Notes to be purchased, plus any accrued and unpaid interest. The Company, at its discretion, may elect to settle the principal amount owing upon redemption or conversion in cash, shares or a combination thereof. As at September 30, 2008, the totality of the 2006 Notes remained outstanding. The terms of the 2006 Notes require the continued listing of the Company's shares on a recognized American Stock Exchange; failure to meet this requirement may be an event of default which may result in the convertible notes being immediately due and payable. (see subsequent event). For additional information, refer to the Annual report and Annual Information Form for the year ended December 31, 2007, as well as other publicly filed documents.