TORONTO, Jan. 26 /CNW/ - ARIUS Research Inc. ("ARIUS" or the "Company") (TSX: ARI), today announced its financial results for the year ended November 30, 2006. All amounts are in Canadian dollars, unless otherwise indicated.
During the year ended November 30, 2006, ARIUS significantly improved its financial position, received validation of its technology and strengthened its management team by:
- Completing a $26.2 million private placement;
- Licensing a lead antibody program to Genentech, Inc. ("Genentech")
(NYSE: DNA) for an upfront licensing fee, milestone payments based on
progress through clinical development and royalties on net sales;
- Signing a three-year collaboration to look for novel cancer
treatments with Takeda Pharmaceutical Company Limited ("Takeda")
(Tokyo Stock Exchange: 4502), for an upfront technology access fee of
US $2.0 million, research support payments and milestone payments
based on progress through clinical development plus royalties on net
sales for any licensed product;
- Securing, and later repaying, a convertible bridge loan facility in
the amount of US $2.0 million;
- Strengthening the management group through the addition of a Chief
Financial Officer, Chief Medical Officer and a Vice President of
Research;
- Receiving notice from the United States Patent and Trademark Office
of one patent grant and six Notices of Allowance during 2006 covering
the antibody programs for drug candidates to CD63, CD44, CD59, and
MCSP targets;
- Receiving notification from PDL BioPharma that a new cohort of
antibodies have been designated as Lead Candidates and the
Collaboration Agreement has been extended to work on these products.
- Being selected as one of the top 10 Canadian Life Sciences Companies;
and
- Graduating to the Toronto Stock Exchange ("TSX").
SIGNIFICANT ACHIEVEMENTS DURING FISCAL 2006
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Private Placement
On February 28, 2006 and March 3, 2006, under the terms of an agency agreement (the "Agency Agreement"), the Company completed a private placement of units (the "Offering"). Under the Offering, the Company agreed to issue units (the "Units") at a price of $0.80 per Unit. Each Unit consisted of one Common Share and one Common Share purchase warrant (the "Purchase Warrant"). Each Purchase Warrant entitles the holder thereof to purchase one Common Share at a price of $1.00 per share until February 28, 2011.
Under the Agency Agreement, the Company issued 32,729,401 Units, for total gross proceeds of $26,183,521 and net cash proceeds of $23,685,661. In relation to the Offering, the Company paid the agents a cash commission of 7% of the gross proceeds, excluding receipts from U.S. retail direct subscribers, and granted the agents, in aggregate, 2,121,808 non-transferable broker warrants (the "Broker Warrants") which expire at the end of business on February 28, 2008. Each Broker Warrant entitles the holder thereof to purchase one Unit at a price of $0.80 per Unit. The private placement was approved by the written consent of the majority of the disinterested holders of the Common Shares.
Licensing Agreement
Effective March 21, 2006, the Company licensed rights to one of the Company's novel anti-cancer antibody programs to Genentech. Under the terms of the agreement, the Company has received an upfront licensing fee, and may receive milestone payments based on progress through clinical development, as well as royalties on net sales. In addition, Genentech will assume all future costs for the development of the licensed technology.
Multi-Product Collaboration
On March 31, 2006, the Company and Takeda entered into a three-year, multi-product collaboration using the Company's FunctionFIRST(TM) Platform to discover novel treatments for human disease.
Under the terms of the agreement, the Company has received an upfront technology access fee of US $2.0 million, consisting of US $1.0 million in cash and equity, respectively. The Company is also entitled to research funding over 3 years, the first two payments of which were received by year end; milestone payments based on progress through clinical development plus royalties on net sales for any licensed product. Takeda will assume the responsibility and costs of development and commercialization while the Company will have an option to co-develop any product.
On April 19, 2006, pursuant to the terms of the collaboration agreement, the Company completed a private placement with Takeda in which the Company issued 614,737 Common Shares at a price of $1.90 per share for total gross proceeds of $1,168,000 (US $1.0 million) and net proceeds of $1,122,467.
Convertible Bridge Loan
On December 14, 2005, ARIUS completed a convertible bridge loan facility in the amount of US $2.0 million from Xmark Opportunity Fund, L.P. and affiliated funds ("Xmark"). The loan was convertible at Xmark's option, in whole or in part, into Common Shares at a price of $0.80 per Common Share, bore an annual interest rate of 13.25% and was repayable no later than 24 months from closing. In relation to the loan, ARIUS paid an upfront structuring fee and issued, to Xmark, 2,224,125 Common Share purchase warrants. On November 30, 2006, the convertible bridge loan was repaid and the expiry date of the warrants was extended to December 31, 2008.
Strengthening Management Team
During the year ended November 30, 2006, ARIUS filled three key positions. In May ARIUS announced that it had hired Dr. Daniel Rubinstein, M.D. as chief Medical Officer. Dr. Rubinstein is a American Board of Clinical Oncology certified clinical oncologist who served as a Medical Officer in the U.S. Food and Drug Administration (FDA), and as an Attending Physician at the Boston University Medical Center. Dr. Rubinstein practices as a Staff Physician at the National Cancer Institute, NIH in Bethesda, Maryland in addition to his role as Chief Medical Officer under a consulting contract to ARIUS. In November 2006, ARIUS hired Warren Whitehead as Chief Financial Officer. Mr. Whitehead brings to ARIUS both a wealth of capital markets experience and an extensive knowledge of the biotechnology sector. To build new value into ARIUS' pipeline and intellectual property portfolio and to help facilitate the transition from a pre-clinical to a clinical company, ARIUS has hired a Vice President of Research, Dr. Daniel Pereira. Dr. Pereira brings extensive research experience in discovery, characterization and development of anti-cancer antibodies.
Graduation to the TSX
On July 24, 2006, ARIUS' Common Shares began trading on the TSX. Graduation to the TSX represents the achievement of a key milestone in ARIUS' corporate strategy and reflects the Company's recent achievements.
Financial Strength
As at November 30, 2006, the Company's cash and cash equivalents were $4,077,065, short-term investments were $16,135,490 and the net working capital position was $20,263,807. The Company believes that it has adequate financial resources for anticipated expenditures through the end of the 2008 fiscal year and beyond.
PRODUCT DEVELOPMENT
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Advancement to the Clinic
All of the Company's research and development expenditures to date have been devoted to the discovery and pre-clinical development of monoclonal antibodies. ARIUS intends to continue to dedicate resources to refining and building additional capabilities into the FunctionFIRST(TM) platform and the discovery of new antibodies, but its primary focus will be to advance ARIUS-originated antibodies into clinical development. ARIUS has committed to having three programs advance to clinical development including one targeting CD44.
CD44 Program
The Company engaged a manufacturer to begin process development and manufacturing for its lead anti-CD44 monoclonal antibody ("MAb") under Current Good Manufacturing Practices ("cGMP"). The Company expects to perform pre-clinical toxicology studies in the second half of calendar 2007 in preparation for filing a Phase I investigational new drug ("IND") application in the first half of 2008.
Additional Programs
The Company is currently humanizing and developing antibody expression cell lines for additional MAbs targeting separate antigens. The Company expects to complete this work in the second half of calendar 2007 after which it will engage cGMP manufacturers for these products. Currently, ARIUS has antibody programs targeting the MCSP antigen, CD59, Trop-2, CD63, and 37LRP in addition to several other undisclosed programs.
FINANCIAL REVIEW
----------------
For the year ended November 30, 2006, the Company recorded a net loss of $6,444,189 ($0.18 per share) compared to a net loss of $2,914,456 ($0.28 per share) for the year ended November 30, 2005. This increase in net loss is primarily the result of higher research and development and general administrative expenses, higher interest expenses and the loss on extinguishment of debt relating to the repayment of the convertible bridge loan, partially offset by higher revenue and interest income.
For the year ended November 30, 2006, the Company recorded revenue of $2,847,761 compared to $248,936 for the year ended November 30, 2005. This increase was the result of the upfront payments from the Genentech licensing agreement as well as financial contributions from the National Research Council's Industrial Research Assistance Program and the recognition of unearned revenue from a collaboration agreement with PDL Biopharma Inc.
Interest income amounted to $726,308 for the year ended November 30, 2006, compared with $51,599 in 2005. This increase primarily resulted from higher average cash balances, due to the completion of the Offering and the receipt of upfront payments from Genentech and Takeda.
Research and development ("R&D") expenditures, before tax credits and grants, amounted to $5,888,029 for the year ended November 30, 2006, compared with $2,462,314 in 2005. The increase is primarily the result of: 1) the resumption of normal operating activities following an extended austerity period, which ended in December 2005, following the convertible debt financing; 2) an increase in R&D staffing levels; 3) an increase in activities associated with preparing pre-clinical programs for the clinic; and 4) costs incurred to expand and strengthen the Company's intellectual property portfolio.
During the year ended November 30, 2006, the Company accrued Ontario Innovation Tax Credits in the amount of $200,000 compared to $200,000 for fiscal 2005.
General and administrative expenses amounted to $2,795,176 for the year ended November 30, 2006, compared with $836,512 in 2005. The increase is primarily the result of: 1) resumption of normal operating activities following an extended austerity period; 2) an increase in staffing levels; 3) an increase in business development, investor relations and other related expenses; 4) legal fees associated with the completion of the Genentech and Takeda agreements; and 5) an increase in stock option remuneration expense related to a stock option grant made during the fourth quarter of fiscal 2006.
Interest expense amounted to $752,910 for the year ended November 30, 2006, compared with $116,165 in 2005. The increase is primarily the result of the interest and accretion recorded on the convertible bridge loan.
On repayment of the convertible bridge loan, the Company recorded a loss on extinguishment of debt of $782,143.
About ARIUS
ARIUS Research Inc. is a biotechnology company dedicated to the discovery and development of novel anticancer monoclonal antibodies (MAbs) focused on destroying cancer cells. Established in 1999, ARIUS has built a proprietary technology platform, FunctionFIRST(TM), that rapidly identifies powerful MAbs targeting a variety of cancer indications. This antibody generation engine has enabled ARIUS to assemble a growing pipeline, which is used for commercial collaborations and in-house development. ARIUS has ongoing partnerships with key biotechnology and drug development companies. The company is listed on the TSX under the symbol "ARI".
Financial Information to follow:
ARIUS RESEARCH INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
November 30, 2006 and 2005
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2006 2005
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Assets
Current assets:
Cash and cash equivalents $ 4,077,065 $ 152,967
Short-term investments 16,135,490 -
Receivables 716,727 9,904
Refundable tax credits 400,000 200,000
Prepaid expenses 340,695 61,664
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21,669,977 424,535
Property and equipment, net 1,539,536 585,460
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$ 23,209,513 $ 1,009,995
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Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ - $ 85,000
Accounts payable and accrued liabilities 1,211,528 931,452
Bridge loan - 300,000
Current portion of capital lease obligation 29,630 89,465
Current portion of unearned revenue and
contract advances 165,012 175,752
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1,406,170 1,581,669
Leasehold inducements 318,261 9,238
Capital lease obligation 27,934 59,118
Unearned revenue and contract advances 2,263,091 329,637
Shareholders' equity (deficiency):
Share capital:
Common shares 28,644,454 12,926,275
Warrants 9,603,644 901,285
Compensation warrants 912,377 43,106
Contributed surplus 1,510,176 192,072
Deficit (21,476,594) (15,032,405)
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19,194,057 (969,667)
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$ 23,209,513 $ 1,009,995
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ARIUS RESEARCH INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS AND DEFICIT
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Period from
incorporation
on August 11,
1999 to
Years ended November 30, November 30,
2006 2005 2006
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Revenue:
Licensing fees $ 2,678,087 $ 218,307 $ 3,119,691
Research grant payments 169,674 30,629 200,303
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2,847,761 248,936 3,319,994
Expenses:
Research and development,
net of tax credits of
$200,000
(2005 - $200,000) 5,688,029 2,262,314 16,792,235
General and administrative 2,795,176 836,512 7,686,522
Interest expense 752,910 116,165 901,523
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9,236,115 3,214,991 25,380,280
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Loss before the undernoted (6,388,354) (2,966,055) (22,060,286)
Interest income 726,308 51,599 1,365,835
Loss on extinguishment of debt (782,143) - (782,143)
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Loss for the period (6,444,189) (2,914,456) (21,476,594)
Deficit, beginning of period:
As originally presented (15,032,405) (12,020,279) -
Impact of change in
accounting for stock-based
compensation - (97,670) -
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As restated (15,032,405) (12,117,949) -
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Deficit, end of period $(21,476,594) $(15,032,405) $(21,476,594)
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Loss per share - basic and
diluted $ (0.18) $ (0.28)
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Weighted average common shares
outstanding 35,751,822 10,262,435
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ARIUS RESEARCH INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
Period from
incorporation
on August 11,
1999 to
Years ended November 30, November 30,
2006 2005 2006
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Cash provided by (used in):
Operating activities:
Loss for the period $ (6,444,189) $ (2,914,456) $(21,476,594)
Items not involving cash:
Amortization of:
Property and equipment 215,793 146,904 889,158
Deferred costs 55,055 - 55,055
Leasehold inducements (5,852) (1,805) (14,667)
Loss/(Gain) on disposal of
equipment 31,518 (7,986) 23,532
Write-off of leasehold
improvements - - 86,349
Leasehold inducement 71,095 - 89,148
Non-cash stock-based
compensation 593,327 94,402 785,399
Accretion of convertible
debentures 396,511 - 429,905
Loss on extinguishment of
debt 782,143 - 782,143
Services received for
common shares - - 400,024
Write-off of investment - - 20,000
Interest expense paid in
common shares 140,032 - 140,032
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(4,164,567) (2,682,941) (17,790,516)
Change in non-cash operating
working capital items 1,016,936 1,110,880 2,182,209
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(3,147,631) (1,572,061) (15,608,307)
Financing activities:
Issue of shares, warrants
and units, net of issuance
costs 24,853,112 - 38,281,778
Issuance of convertible
bridge loan, net 2,126,619 - 2,196,619
Repayment of convertible
bridge loan, including
costs (2,338,886) - (2,408,886)
Exercise of compensation
warrants - 8,581 8,581
Draw of bank line of credit - 85,000 655,000
Repayment of bank line of
credit (85,000) (570,000) (655,000)
Bridge loan - 300,000 300,000
Repayment of bridge loan (300,000) 300,000 (300,000)
Repayment of capital lease
and equipment financing
obligations (91,019) (89,842) (260,801)
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24,164,826 (266,261) 37,817,291
Investing activities:
Purchase of short-term
investments (16,135,490) - (16,135,490)
Leasehold inducements 243,780 - 243,780
Long-term investment - - (20,000)
Acquisition of property and
equipment (1,201,387) (6,349) (2,229,195)
Disposal of equipment - 8,986 8,986
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(17,093,097) 2,637 (18,131,919)
Increase (decrease) in cash 3,924,098 (1,835,685) 4,077,065
Cash, beginning of period 152,967 1,988,652 -
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Cash, end of period $ 4,077,065 $ 152,967 $ 4,077,065
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Forward-Looking Statements
Certain statements in this news release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which involve known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Forward-looking statements in this release include, but are not limited to, ARIUS successfully advancing its new product programs as well as licensing opportunities. These statements are only predictions and actual events or results may differ materially. Factors that could cause such actual events or results expressed or implied by such forward-looking statements to differ materially from any future results expressed or implied by such statements include, but are not limited to: early stage of development; technology and product development; dependence on and management of current and future corporate collaborations; future capital needs; uncertainty of additional funding; no assurance of market acceptance; dependence on proprietary technology and uncertainty of patent protection; intense competition; manufacturing and market uncertainties; and government regulation. These and other factors are described in detail in ARIUS' Annual Report, forthcoming news releases and other filings with Canadian securities regulatory authorities available at www.sedar.com. Forward-looking statements are based on our current expectations and ARIUS is not obligated to update such information to reflect later events or developments.
%SEDAR: 00013708E