TORONTO, Oct. 12 /CNW/ - ARIUS Research Inc. ("ARIUS" or the "Company")
(TSX: ARI), today announced its financial results for the quarter ended
August 31, 2006. All amounts are in Canadian dollars, unless otherwise
indicated.
During the nine-month period ended August 31, 2006, ARIUS strengthened
its financial position, received significant validation of its technology and
expanded its management team by:
<<
- Graduating to the Toronto Stock Exchange ("TSX")
- Completing a $26.2 million (US $22.7 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 a US $2 million convertible bridge loan facility;
- Hiring a Chief Medical Officer and an Interim Chief Financial Officer;
- Receiving notice that U.S. patent No. 7,009,040 has been issued for
ARIUS' lead anti-CD63 antibody, AR7BD-33-11A; and
- Being selected as one of the 2005 TSX Venture 50.
>>
Subsequent to the quarter end, ARIUS hired a Vice President of Research,
Dr. Daniel P. Pereira, to build additional value into ARIUS' pipeline and
intellectual property portfolio and to help facilitate the transition from a
pre-clinical to a clinical stage company.
Graduation to the TSX
On July 24, 2006, ARIUS' common shares (the "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 achievements
in recent months. The move will also allow ARIUS to raise the Company's
profile and access a broader base of investors.
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 payment of which has
been received, 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 $2,000,000 from Xmark Opportunity Fund, L.P. and
affiliated funds ("Xmark"). The loan is convertible at Xmark's option, in
whole or in part, into Common Chares of ARIUS at a price of $0.80 per Common
Share, bears an annual interest rate of 13.25% and is 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.
Each warrant entitles Xmark to purchase one Common Share at a price of $1.00
per share until 24 months from closing.
Pursuant to the Offering of Units, the Company entered into an Investor
Rights Agreement with the lead investors, in which it agreed to certain
restrictive covenants, including the requirement to place funds sufficient to
repay the convertible bridge loan, from the proceeds of the Offering, into a
restricted account, which is governed by a Cash Collateral Agreement. The
funds shall be used to secure the convertible bridge loan for as long as it
remains outstanding. Should the convertible bridge loan be converted into
equity, the Cash Collateral Agreement shall be extinguished and the funds
shall become unrestricted. The balance in the restricted cash account at
August 31, 2006 is $2,247,623 (US $2,033,496).
Financial Strength
The Company believes that it has adequate financial resources for
anticipated expenditures through the end of the 2008 fiscal year and beyond.
As at August 31, 2006, the Company's net working capital position was
$21,969,441 and the Company's cash and cash equivalents were $6,855,865, not
including restricted cash of $2,247,623 and short-term investments of
$14,998,021.
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 is currently assessing Current Good Manufacturing Practices
("cGMP") manufacturers for its lead anti-CD44 MAb and expects to engage a cGMP
manufacturer before the end of calendar 2006. The Company then expects to
perform pre-clinical toxicology studies in the second half of calendar 2007 in
preparation for commencing a Phase I clinical trial 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. 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 nine-month period ended August 31, 2006, the Company recorded a
net loss of $2,820,462 ($0.09 per share) compared to a net loss of $2,198,758
($0.21 per share) for the nine-month period ended August 31, 2005. For the
three-month period ended August 31, 2006, the Company recorded a net loss of
$1,469,728 ($0.03 per share) compared to a net loss of $639,526 ($0.06 per
share) for the three-month period ended August 31, 2005. The higher fiscal
2006 losses are primarily the net result of higher expenditures as the Company
moves towards the clinic, partially offset by higher revenues and interest
income.
For the nine-month period ended August 31, 2006, the Company recorded
revenue of $2,668,010 compared to $31,490 for the nine-month period ended
August 31, 2005. For the three-month period ended August 31, 2006, the Company
recorded revenue of $226,710 compared to $nil for the three-month period ended
August 31, 2005. The increases were 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 collaboration and license agreements with
PDL Biopharma Inc. (formerly Protein Design Labs, Inc.).
Interest income amounted to $396,966 for the nine-month period ended
August 31, 2006, compared with $48,299 for the same period in fiscal 2005.
Interest income amounted to $275,529 for the three-month period ended
August 31, 2006, compared with $517 for the same period in fiscal 2005. The
increases primarily resulted from higher average cash balances, due to the
completion of the Offering and the receipt of upfront and research payments
from Genentech and Takeda.
Research and development ("R&D") expenditures, before tax credits and
grants, amounted to $3,380,853 for the nine-month period ended August 31,
2006, compared with $1,813,615 for the same period in fiscal 2005. R&D
expenditures, before tax credits and grants, amounted to $1,345,049 for the
three-month period ended August 31, 2006, compared with $525,744 for the same
period in fiscal 2005. The increase in R&D expenses for the nine-month period
was primarily the result of: 1) the resumption of normal operating activities
following an extended austerity period, which ended in December following the
convertible debt financing; 2) an increase in R&D staffing levels; 3)
activities associated with the completion of the Genentech and Takeda
agreements; and 4) an increase in activities associated with preparing
pre-clinical programs for the clinic. The increase in R&D expenses for the
three-month period was primarily the result of: 1) the resumption of normal
operating activities following an extended austerity period, which ended in
December following the convertible debt financing; 2) an increase in R&D
staffing levels; and 3) an increase in activities associated with preparing
pre-clinical programs for the clinic.
During the nine-month and three-month periods ended August 31, 2006, the
Company accrued OITCs in the amount of $200,000 and $40,044, respectively
compared to $188,852 and $53,036 for the same periods in fiscal 2005. The
increase in the OITCs is the result of higher R&D expenditures.
General and administrative ("G&A") expenses, excluding amortization
expense, amounted to $2,492,256 in the nine-month period ended August 31,
2006, compared with $542,565 during the same period in fiscal 2005. G&A
expenses, excluding amortization expense, amounted to $567,172 in the
three-month period ended August 31, 2006, compared with $131,353 during the
same period in fiscal 2005. The increase in G&A for the nine-month period was
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 interest expenses as a result of the convertible bridge loan;
4) an increase in business development, investor relations and other related
expenses; 5) legal fees associated with the completion of the Genentech and
Takeda agreements; and 6) costs associated with the Company's graduation to
the TSX. The increase in G&A for the three-month period was 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
interest expenses as a result of the convertible bridge loan; 4) an increase
in business development, investor relations and other related expenses; and 5)
costs associated with the Company's graduation to the TSX.
About ARIUS
ARIUS Research Inc. is a biotechnology company dedicated to personalizing
cancer therapy through the discovery and development of novel anticancer
monoclonal antibodies (MAbs). 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)
Interim Balance Sheets
(Unaudited)
------------------------------------------------------------------------
August 31, November 30,
2006 2005
------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 6,855,865 $ 152,967
Short-term investments 14,998,021 -
Receivables 165,556 9,904
Refundable tax credits 400,000 200,000
Prepaid expenses 456,007 61,664
----------------------------------------------------------------------
22,875,449 424,535
Restricted cash 2,247,623 -
Deferred financing costs 74,206 -
Property and equipment, net 1,088,102 585,460
------------------------------------------------------------------------
$ 26,285,380 $ 1,009,995
------------------------------------------------------------------------
------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ - $ 85,000
Accounts payable and accrued
liabilities 651,428 940,690
Bridge loan - 300,000
Current portion of capital
lease obligation 45,631 89,465
Current portion of unearned revenue
and contract advances 208,949 175,752
----------------------------------------------------------------------
906,008 1,590,907
Capital lease obligation 34,689 59,118
Convertible bridge loan 1,484,077 -
Unearned revenue and contract advances 1,705,040 329,637
Shareholders' equity:
Share capital:
Common shares 28,513,028 12,926,275
Warrants 9,563,719 901,285
Compensation warrants 912,377 43,106
Equity component of convertible
bridge loan 527,111 -
Contributed surplus 492,198 192,072
Deficit (17,852,867) (15,032,405)
----------------------------------------------------------------------
22,155,566 (969,667)
Guarantees
Commitments
Subsequent event
------------------------------------------------------------------------
$ 26,285,380 $ 1,009,995
------------------------------------------------------------------------
------------------------------------------------------------------------
ARIUS RESEARCH INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Statements of Operations and Deficit
(Unaudited)
----------------------------------------------------------
Nine-month Nine-month
period ended period ended
August 31, August 31,
2006 2005
----------------------------------------------------------
Revenue:
Licensing fees $ 2,592,041 $ 31,490
Research grant payments 75,969 -
--------------------------------------------------------
2,668,010 31,490
Expenses:
Research and development,
net of tax credits 3,180,853 1,624,763
General and administrative 2,704,585 653,784
--------------------------------------------------------
5,885,438 2,278,547
--------------------------------------------------------
Loss before the undernoted (3,217,428) (2,247,057)
Interest income 396,966 48,299
----------------------------------------------------------
Loss for the period (2,820,462) (2,198,758)
Deficit, beginning of period:
As originally presented (15,032,405) (12,020,279)
Impact of change in
accounting for stock-based
compensation - (97,670)
----------------------------------------------------------
As restated (15,032,405) (12,117,949)
----------------------------------------------------------
Deficit, end of period $(17,852,867) $(14,316,707)
----------------------------------------------------------
----------------------------------------------------------
Loss per share - basic
and diluted $ 0.09 $ 0.21
----------------------------------------------------------
----------------------------------------------------------
Weighted average common
shares outstanding 32,828,905 10,260,093
----------------------------------------------------------
----------------------------------------------------------
-------------------------------------------------------------------------
Cumulative
Three-month Three-month since
period ended period ended inception
August 31, August 31, on August 11,
2006 2005 1999
-------------------------------------------------------------------------
Revenue:
Licensing fees $ 208,564 $ - $ 3,033,645
Research grant payments 18,146 - 106,598
-----------------------------------------------------------------------
226,710 - 3,140,243
Expenses:
Research and development,
net of tax credits 1,305,005 472,708 13,719,643
General and administrative 666,962 167,335 8,309,960
-----------------------------------------------------------------------
1,971,967 640,043 22,029,603
-----------------------------------------------------------------------
Loss before the undernoted (1,745,257) (640,043) (18,889,360)
Interest income 275,529 517 1,036,493
-------------------------------------------------------------------------
Loss for the period (1,469,728) (639,526) (17,852,867)
Deficit, beginning of period:
As originally presented (16,383,139) (13,579,509) -
Impact of change in
accounting for stock-based
compensation - (97,670) -
-------------------------------------------------------------------------
As restated (16,383,139) (13,677,179) -
-------------------------------------------------------------------------
Deficit, end of period $(17,852,867) $(14,316,705) $(17,852,867)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss per share - basic
and diluted $ 0.03 $ 0.06
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average common
shares outstanding 44,076,383 10,260,162
-------------------------------------------------------------------------
-------------------------------------------------------------------------
ARIUS RESEARCH INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Statements of Cash Flows
(Unaudited)
-------------------------------------------------------------------------
Nine-month Nine-month
period ended period ended
August 31, August 31,
2006 2005
-------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Loss for the period $ (2,820,462) $ (2,198,758)
Items not involving cash:
Write-off of investment - -
Services received for
common shares - -
Depreciation and
amortization 212,329 111,219
Gain on disposal of
equipment - -
Write-off of leasehold
improvements - -
Non-cash stock-based
compensation 102,460 -
Accretion of convertible
debentures 224,077 -
-----------------------------------------------------------------------
(2,281,596) (2,087,539)
Change in non-cash operating
working capital:
Receivables (155,652) -
Refundable tax credits (200,000) 688,066
Prepaid expenses (394,343) (8,112)
Accounts payable and accrued
liabilities and unearned
revenue 1,119,338 (60,107)
-----------------------------------------------------------------------
(1,912,253) (1,467,692)
Financing activities:
Issue of shares, warrants
and units, net of issuance
costs 24,861,718 -
Issuance of convertible
bridge loan, net 2,126,619 -
Restricted cash (2,247,623) -
Redemption of convertible
debentures - -
Exercise of compensation
warrants - 8,581
Draw of bank line of credit - -
Repayment of bank line of
credit (85,000) (461,339)
Bridge loan - -
Repayment of bridge loan (300,000) -
Repayment of capital lease
and equipment financing
obligations (68,263) (61,855)
-----------------------------------------------------------------------
24,287,451 (514,613)
Investing activities:
Purchase of short-term
investments (14,998,021) -
Long-term investment - -
Acquisition of property and
equipment (674,279) (6,347)
Disposal of equipment - -
-----------------------------------------------------------------------
(15,672,300) (6,347)
Increase (decrease) in cash 6,702,898 (1,988,652)
Cash, beginning of period 152,967 1,988,652
-------------------------------------------------------------------------
Cash, end of period $ 6,855,865 $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow
information:
Interest paid $ 161,550 $ 21,082
Interest received 335,666 48,299
Supplemental disclosure of
non-cash financing and
investing activities:
Shares issued for technology - -
Shares issued for services - -
Compensation warrants 912,377 -
Exercise of Class E Warrants 742,997 -
Capital lease obligation - -
Acquisition of laboratory
and office equipment under
capital lease - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cumulative
Three-month Three-month since
period ended period ended inception
August 31, August 31, on August 11,
2006 2005 1999
-------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Loss for the period $ (1,469,728) $ (639,526) $(17,852,867)
Items not involving cash:
Write-off of investment - - 20,000
Services received for
common shares - - 400,024
Depreciation and
amortization 99,790 35,982 885,694
Gain on disposal of
equipment - - (7,986)
Write-off of leasehold
improvements - - 86,349
Non-cash stock-based
compensation 31,456 - 294,532
Accretion of convertible
debentures 120,903 - 257,471
-----------------------------------------------------------------------
(1,217,579) (603,544) (15,916,783)
Change in non-cash operating
working capital:
Receivables (106,246) - (165,556)
Refundable tax credits (40,044) (53,036) (400,000)
Prepaid expenses (249,438) 2,429 (456,007)
Accounts payable and accrued
liabilities and unearned
revenue 285,017 155,195 2,565,417
-----------------------------------------------------------------------
(1,328,290) (498,956) (14,372,929)
Financing activities:
Issue of shares, warrants
and units, net of issuance
costs - - 38,290,384
Issuance of convertible
bridge loan, net - - 2,196,619
Restricted cash (38,540) - (2,247,623)
Redemption of convertible
debentures - - (70,000)
Exercise of compensation
warrants - 8,581 8,581
Draw of bank line of credit - - 655,000
Repayment of bank line of
credit - 108,661 (655,000)
Bridge loan - - 300,000
Repayment of bridge loan - - (300,000)
Repayment of capital lease
and equipment financing
obligations (21,316) (26,784) (238,045)
-----------------------------------------------------------------------
(59,856) 90,458 37,939,916
Investing activities:
Purchase of short-term
investments (14,998,021) - (14,998,021)
Long-term investment - - (20,000)
Acquisition of property and
equipment (523,558) (1,284) (1,702,087)
Disposal of equipment - - 8,986
-----------------------------------------------------------------------
(15,521,579) (1,284) (16,711,122)
Increase (decrease) in cash (16,909,725) (409,782) 6,855,865
Cash, beginning of period 23,765,590 409,782 -
-------------------------------------------------------------------------
Cash, end of period $ 6,855,865 $ - $ 6,855,865
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow
information:
Interest paid $ 148,836 $ 4,437 $ 242,088
Interest received 214,229 517 968,118
Supplemental disclosure of
non-cash financing and
investing activities:
Shares issued for technology - - 2
Shares issued for services - - 400,024
Compensation warrants - - 957,677
Exercise of Class E Warrants 742,997 - 742,997
Capital lease obligation - - 318,365
Acquisition of laboratory
and office equipment under
capital lease - - (318,365)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
Forward-Looking Statement
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
