BELLUS HEALTH reports results for first quarter of fiscal 2008
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.
Change in Functional and Reporting Currency
Effective July 1, 2007, the Company adopted the US dollar as its
functional and reporting currency, as a significant portion of its revenues,
expenses, assets, liabilities and financing are denominated in US dollars.
Prior to that date, the Company's operations were measured in Canadian dollars
and the consolidated financial statements were expressed in Canadian dollars.
The Company followed the recommendations of the Emerging Issues Committee
(EIC) of the Canadian Institute of Chartered Accountants (CICA), set out in
EIC-130, "Translation method when the reporting currency differs from the
measurement currency or there is a change in the reporting currency". In
accordance with EIC-130, assets and liabilities as of June 30, 2007 were
translated in US dollars using the exchange rate in effect on that date;
revenues, expenses and cash flows were translated at the average rate in
effect during the six-month period ended June 30, 2007 and equity transactions
were translated at historical rates. Financial statements presented after June
30, 2007, are measured and presented in US dollars. For comparative purposes,
the historical financial statements for the period ended March 31, 2007, have
been restated into US dollars using the current rate method. Under this
method, assets and liabilities are translated at the closing rate in effect at
the end of these periods, revenues, expenses and cash flows are translated at
the average rates in effect during these periods and equity transactions are
translated at historical rates. Any exchange differences resulting from the
translation are included in accumulated other comprehensive income presented
in shareholders' equity.
Forward-looking Statements
Certain statements included in this Management's Discussion and Analysis
may constitute "forward-looking statements" within the meaning of the U.S.
Private Securities Litigation Reform Act of 1995 and Canadian securities
legislation and regulations, and are subject to important risks, uncertainties
and assumptions. This forward-looking information includes amongst others,
information with respect to the Company's objectives and the strategies to
achieve these objectives, as well as information with respect to the Company's
beliefs, plans, expectations, anticipations, estimates and intentions.
Forward-looking statements generally can be identified by the use of
conditional or forward-looking terminology such as "may", "will", "expect",
"intend", "estimate", "anticipate", "plan", "foresee", "believe" or "continue"
or the negatives of these terms or variations of them or similar terminology.
Refer to the Company's filings with the Canadian securities regulatory
authorities and the U.S. Securities and Exchange Commission, , for a
discussion of the various factors that may affect the Company's future
results. Such risks include but are not limited to: the impact of general
economic conditions, general conditions in the pharmaceutical and/or
nutraceutical industry, changes in the regulatory environment in the
jurisdictions in which the BELLUS Health group does business, stock market
volatility, fluctuations in costs, and changes to the competitive environment
due to consolidation, that actual results may vary once the final and
quality-controlled verification of data and analyses has been completed. The
results or events predicted in forward-looking information may differ
materially from actual results or events. The Company believes that
expectations represented by forward-looking statements are reasonable, yet
there can be no assurance that such expectations will prove to be correct.
Unless otherwise stated, the forward-looking statements contained in this
report are made as of the date of this report, and the Company does not
undertake any obligation to update publicly or to revise any of the included
forward-looking statements, whether as a result of new information, future
events or otherwise, unless required by applicable legislation or regulation.
The forward-looking statements contained in this report are expressly
qualified by this cautionary statement.
BELLUS Health Inc.
Consolidated Financial Information (1)
(in thousands of US dollars, except per share data)
Three-month period ended
March 31
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Consolidated Statements of Operations 2008 2007
-------------------------------------------------------------------------
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(unaudited) (unaudited)
Revenues:
Collaboration agreement $205 $373
Reimbursable costs 22 128
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227 501
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Expenses :
Research and development 8,780 16,828
Research tax credits and grants (397) (506)
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8,383 16,322
General and administrative 3,314 3,460
Reimbursable costs 22 128
Stock-based compensation 1,035 923
Depreciation, amortization and patent cost
write-off 336 347
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13,090 21,180
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Loss before undernoted items (12,863) (20,679)
Interest income 498 613
Interest and bank charges (29) (81)
Accretion expense (1,207) (1,001)
Change in fair value of embedded derivatives 42 -
Write-down of third party asset-backed
commercial paper (375) -
Foreign exchange gain 754 108
Other income 278 242
Share of loss in a company subject to
significant influence - (327)
Non-controlling interest - 109
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Net loss ($12,902) ($21,016)
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Net loss per share:
Basic and diluted ($0.26) ($0.54)
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Weighted average number of common
shares outstanding 48,987,980 38,904,808
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At At
March 31 December 31
Consolidated Balance Sheets 2008 2007
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(unaudited) (audited)
Cash, cash equivalents and marketable
securities $43,448 $58,672
Other current assets 4,161 3,933
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Total current assets 47,609 62,605
Capital assets and patents 9,967 9,996
Other long-term assets 5,586 5,830
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Total assets $63,162 $78,431
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Current liabilities $17,706 $21,240
Long-term deferred gain and liabilities 52,732 52,602
Non-controlling interest 680 680
Shareholders' (deficiency) equity (7,956) 3,909
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Total liabilities and shareholders'
(deficiency) equity $63,162 $78,431
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(1) Condensed from the Company's unaudited consolidated financial
statements.
About BELLUS Health
BELLUS Health is a global health company focused on the development and
commercialization of products to provide innovative health solutions to
address critical unmet medical needs.
To Contact BELLUS Health
For additional information on BELLUS Health and its drug development
programs, please call the Canada and United States toll-free number
1 877 680-4500 or visit the Web Site at www.bellushealth.com.
Certain statements contained in this news release, other than statements
of fact that are independently verifiable at the date hereof, may constitute
forward-looking statements. Such statements, based as they are on the current
expectations of management, inherently involve numerous risks and
uncertainties, known and unknown, many of which are beyond BELLUS Health
Inc.'s (formerly known as Neurochem Inc.) control. Such risks include but are
not limited to: the impact of general economic conditions, general conditions
in the pharmaceutical and/or nutraceutical industry, changes in the regulatory
environment in the jurisdictions in which the BELLUS Health group does
business, stock market volatility, fluctuations in costs, and changes to the
competitive environment due to consolidation, that actual results may vary
once the final and quality-controlled verification of data and analyses has
been completed, as well as other risks disclosed in public filings of BELLUS
Health Inc. Consequently, actual future results may differ materially from the
anticipated results expressed in the forward-looking statements. The reader
should not place undue reliance, if any, on any forward-looking statements
included in this news release. These statements speak only as of the date made
and BELLUS Health Inc. is under no obligation and disavows any intention to
update or revise such statements as a result of any event, circumstances or
otherwise, unless required by applicable legislation or regulation. Please see
the Annual Information Form of BELLUS Health Inc. for further risk factors
that might affect the BELLUS Health group and its business
For further information: Lise Hébert, Ph.D., Vice President, Corporate Communications, (450) 680-4572, lhebert@bellushealth.com
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