For immediate release: March 18, 2004
VANCOUVER - Inex Pharmaceuticals Corporation ("INEX"; TSX: IEX) reported today its 2003 audited operating results. Highlights for the year included the commencement of a filing of a New Drug Application (NDA) seeking marketing approval from the US Food and Drug Administration (FDA) for its lead anticancer product Onco TCS. The Company completed filing the NDA on March 15, 2004 and announced on January 20, 2004 that it had entered into a strategic partnership with Enzon Pharmaceuticals Inc. (“Enzon”; NASDAQ: ENZN) to develop and commercialize Onco TCS in North America.
David Main, INEX’s President and Chief Executive Officer, said the Company has requested Priority Review status for the NDA that, if granted, would mean that a decision from the FDA would be expected in the second half of 2004.
“The completion of the NDA filing and potential approval of Onco TCS is critical to our overall corporate strategy of evolving into a fully integrated pharmaceutical company,” said Main, “We have demonstrated the ability to take drugs from research through development and now to the approval stage for our lead product. With approval, our next step will be to assist Enzon with a successful launch and build a co-promotion sales force to work alongside them.”
The NDA is seeking marketing approval for Onco TCS as a single-agent treatment for patients with relapsed aggressive non-Hodgkin’s lymphoma (NHL) previously treated with at least two combination chemotherapy regimens. NHL is the fifth-leading cause of cancer deaths in the United States and the sixth-leading cause of cancer deaths in Canada.
In June 2003, INEX announced that complete data from 119 patients treated in the Company’s pivotal phase II/III clinical trial confirmed the potential of Onco TCS as a single-agent treatment for relapsed aggressive NHL. Based on these results, INEX began filing a “rolling” NDA to seek marketing approval from the FDA. The first two sections of the NDA were submitted September 30, 2003 and December 2, 2003 respectively, and the third and final portion was submitted on March 15, 2004.
The marketing partnership with Enzon was signed after months of negotiations with several pharmaceutical companies.
Under the terms of the partnership agreement:
-Enzon receives the exclusive North American commercialization rights for Onco TCS for all indications.
-INEX retains commercialization rights outside North America.
-INEX received a US$12 million up-front payment.
-INEX will receive up to a US$20 million payment upon Onco TCS receiving approval from the FDA.
-INEX could qualify to receive additional development milestones and sales based bonus payments of US$43.75 million, including US$10 million upon annual sales first reaching US$125 million, and US$15 million upon annual sales first reaching US$250 million.
-INEX will receive a percent of commercial sales of Onco TCS and this percentage will increase as sales reach specific thresholds.
-Although Enzon will record all sales in North America, INEX has the option of complementing Enzon’s sales efforts by co-promoting Onco TCS through the formation of a North American sales and medical science liaison force – the cost of which would be shared by both companies.
-Enzon and INEX will share equally the future development costs to obtain and maintain marketing approvals for Onco TCS in North America.
-Enzon will pay all sales and marketing costs and certain other post-approval clinical development costs typically associated with commercialization activities.
-INEX retains manufacturing rights and will initially manufacture and supply the drug and be reimbursed by Enzon.
A significant component of the partnership is that it provides INEX with a cost-effective approach to building its own sales force in North America that would complement Enzon’s sales team.
2003 Achievements
In addition to the filing of the NDA and the negotiation of the partnership with Enzon, other progress in 2003 included:
-Presentation at the Annual Meeting of the American Society of Hematology (ASH) in San Diego, CA, December 6 and 7, 2003 of results from three phase II trials evaluating Onco TCS. Trial results indicate Onco TCS reduces the size of tumors in lymphoma patients with advanced disease and works effectively with other drugs.
-Reacquisition of Onco TCS from former joint venture partner Elan Corporation, plc.
-Continuation of the development of INX-0076 (formerly Topotecan TCS) by partner GlaxoSmithKline (“GSK”, NYSE: GSK).
-Selection of INX-0125 (formerly Vinorelbine TCS) as the third anticancer drug to be developed in the targeted chemotherapy platform. INX-0125 is comprised of INEX’s proprietary liposomal technology and the off-patent anticancer drug vinorelbine.
-Completion of a Cdn $27.3 million equity financing.
-Commencement of four research collaborations for its targeted immunotherapy platform.
-Expansion of the Board of Directors to nine with the addition of Gary Frashier and James Hudson. John Swift, a long-standing director, retired from the board.
INEX’s milestones for 2004 include:
Onco TCS regulatory review
INEX expects to receive a decision from the FDA in the second half of 2004 on the approvability of Onco TCS as a treatment for relapsed NHL. An approval would enable INEX and Enzon to begin marketing Onco TCS at the end of 2004 or early 2005.
Onco TCS in other indications
The Company will continue phase II trials evaluating Onco TCS in several cancers. Results of a trial evaluating Onco TCS as part of combination first-line therapy to treat aggressive NHL will be released at the annual meeting of the American Society of Clinical Oncology in June 2004. INEX and Enzon intend to develop Onco TCS for use as a single-agent drug and in combination therapy for several cancers now currently treated with vincristine.
INX-0076 (liposomal topotecan) human clinical trials
The phase I clinical trial for INX-0076 was expected to begin during the third quarter of 2004; however, GSK has informed INEX that this current timeline will not be met. GSK remains committed to the project and starting the clinical development of INX-0076 as soon as possible. INEX will provide an update on the timing of the start of the phase I trial as soon as more information is available.
INX-0125 (liposomal vinorelbine) IND application
INEX plans to complete pre-clinical studies in the second half of 2004 and file an Investigational New Drug Application (IND) by the end of 2004 asking for regulatory approval to begin human clinical trials. The phase I clinical trial would commence in 2005. If successful in clinical trials, INEX would likely take this product through to commercialization in North America without a partner.
Targeted immunotherapy development
The Company expects results from its four research collaborations will determine its partnering and development strategy for this platform of drug candidates.
FINANCIAL RESULTS
For the fiscal year ended December 31, 2003, INEX recorded a net loss of $44.2 million ($1.32 per common share). This net loss in 2003 was in line with management’s expectations and compares with a net loss of $45.2 million ($1.45 per common share) for the fiscal year ended December 31, 2002. The decrease in the net loss in 2003 as compared to 2002 is primarily the result of a $5.5 million decrease in research and development expenditures, principally related to Onco TCS. This decrease in expenditures was partially offset by a $4.4 million decrease in revenues in 2003 as compared to 2002.
Cash and short-term investments at December 31, 2003 were $50.8 million, compared with $60.1 million at the end of 2002. INEX believes that the current funds on hand, anticipated funding from corporate partners and government grants, and expected interest income, should be sufficient to finance its operations and capital needs for in excess of two years. INEX’s funding needs may, however, vary depending upon a number of factors as more fully outlined in the Company’s Annual Report to Shareholders. Before factoring the potential US$20 million payment due from Enzon upon approval of Onco TCS by the FDA, INEX currently expects to have an average net cash burn for 2004 of approximately $1.8 million per month.
Revenue from research and development collaborations, licensing fees and milestone payments was $3.5 million for 2003 as compared to $8 million for 2002. Research and development collaborations revenue declined $4.4 million in 2003 as compared to 2002 due to the fact that no revenue was recorded in 2003 from Elan as compared to $4.4 million in 2002 in relation to Elan’s then on-going share of development expenses for INEX’s lead product, Onco TCS. Licensing fees and milestone revenue remained the same in 2003 at $3.5 million as compared to $3.6 million in 2002, mainly as a result of $2.9 million in milestone payments received from GSK in 2003 as compared to $3.1 million in 2002. The Company also continued amortizing the $1.6 million up-front license fee received from GSK in 2001 initially recorded as deferred revenue. The amount of deferred revenue amortized into income was $0.5 million in each of 2003 and 2002.
INEX anticipates significant research and development collaborations revenue in 2004, currently estimated at approximately $7 million, from its commercialization agreement with Enzon as they fund their share of the ongoing development costs for Onco TCS. Excluding a potential US$20 million payment due from Enzon upon approval of Onco TCS by the FDA, INEX anticipates receiving significant licensing fees and milestone payments in 2004 from Enzon and GSK that are currently estimated at approximately $16 million. Of this amount, the Company estimates that $6 million will be recorded as revenue over 2004 and the balance of approximately $10 million, related to the Enzon license fee, will be deferred and recorded as revenue in the five-year period subsequent to 2004.
INEX anticipates significant research and development collaborations revenue in 2004, currently estimated at approximately $7 million, from its commercialization agreement with Enzon as they fund their share of the ongoing development costs for Onco TCS. Excluding a potential US$20 million payment due from Enzon upon approval of Onco TCS by the FDA, INEX anticipates receiving significant licensing fees and milestone payments in 2004 from Enzon and GSK that are currently estimated at approximately $16 million. Of this amount, the Company estimates that $6 million will be recorded as revenue over 2004 and the balance of approximately $10 million, related to the Enzon license fee, will be deferred and recorded as revenue in the five-year period subsequent to 2004.
Research and development expenses decreased to $30.7 million for the year ended December 31, 2003 from $36.3 million in the same period in 2002. The decrease of $5.5 million is mainly the result of a decline in spending on the pivotal phase II/III trial for Onco TCS and other preclinical pharmacokinetic and toxicology studies as these studies were mostly completed in 2002. The decrease was also partly due to a decline in spending on INX-0076 (liposomal topotecan) in 2003 as compared to 2002 as the development of this product has been substantially transitioned to GSK. The overall decrease in research and development expenses in 2003 was partially offset by an increase in spending and research and development salary expenses related to pre-commercial manufacturing activities and preparing the NDA filing for Onco TCS. The overall decrease in research and development expenses was also partially offset by an increase in spending on INX-0125 (liposomal vinorelbine) as further preclinical and toxicology studies were initiated in 2003 in preparation for filing an IND by the end of 2004.
INEX expects to continue incurring substantial research and development expenditures in the future due to the continuation and expansion of research and development programs for Onco TCS and other product candidates, and related pre-commercialization activities for Onco TCS. INEX currently estimates that research and development expenses in 2004 will decrease slightly as compared to 2003, before considering the expected increase in research and collaborations revenue from Enzon as noted above. During 2004 INEX also expects to record on its balance sheet an investment in product inventory buildup for Onco TCS in anticipation of the receipt of FDA approval and commercial launch of the product.
General and administrative expenses decreased to $8.8 million for the year ended December 31, 2003 as compared to $9.4 million in the same period in 2002. The overall decrease is mainly due to a decrease in staff recruiting expenses, training and corporate travel expenses in 2003 as compared to 2002. The overall decrease was partially offset by an increase in personnel costs and additional infrastructure for increased staffing levels to support the development of INEX’s product candidates. INEX expects that in 2004 there will be a slight increase in general and administrative expenses to support the Company’s ongoing operations.
The research and development expenses and general and administrative expenses reflect the adoption in the fourth quarter of 2003 of a policy to expense the full cost of stock based compensation. This non-cash expense amounted to approximately $2.9 million in 2003 and $3 million in the comparable period in 2002. This change in accounting policy has been applied retroactively so all of the comparable numbers including for 2002 have been adjusted to reflect this change. In effect, this accounting treatment shifts the charge for stock options from disclosure in a footnote to the Company’s financial statements to an actual expense recorded as part of the reported net loss.
Under Canadian generally accepted accounting principles expensing stock based compensation is mandatory starting in 2004 but the Company believes it was prudent to reflect this change in its 2003 financial statements so that going forward the readers of its statements had comparative numbers prepared using the same accounting policies. In 2004 INEX expects a non-cash charge for stock-based compensation at approximately the same level as in 2003.
Amortization expense remained the same at $8.9 million for 2003 and 2002. In 2004 INEX has made a US$3.0 million payment to Elan upon signing of the Enzon partnership and expects to make a further payment to Elan of US$2.5 million upon acceptance by the FDA of the NDA filing. With these payments and using a 10 year expected useful life, the Company expects an amortization charge for 2004 of approximately $3.5 million. Similarly to its revenue guidance above, the Company has excluded the NDA approval payment of US$2.5 million that’s potentially due to Elan from its estimated 2004 guidance for amortization expense.
Interest income was $1.5 million for the year ended December 31, 2003 as compared to $1.6 million for the year ended December 31, 2002. A decrease in the average cash, cash equivalents and short-term investments held throughout 2003 as compared to the prior year, was offset by higher average interest rates during 2003 resulting in approximately the same interest income.
INEX’s net loss for 2003 included other losses of $0.7 million as compared to other losses of $0.2 million in the comparable period in 2002. The other losses in 2003 are mainly the result of foreign exchange losses on US dollar denominated holdings of cash and short-term investments.
Capital expenditures were $1.2 million including $0.2 million funded by capital leases during the year ended December 31, 2003, as compared to $3.2 million including $0.2 million funded by capital leases in 2002. The decline in capital expenditure levels from 2002 to 2003 was due to the fact that there were no significant capital projects in 2003 whereas in 2002 there were purchases for information technology infrastructure, laboratory equipment additions, and research and development leasehold improvements to support INEX’s expanding operations. The Company anticipates that capital expenditures will be approximately the same in 2004 as compared to 2003.
RISKS AND UNCERTAINTIES
To the extent possible, management implements strategies to reduce or mitigate the risks and uncertainties associated with INEX’s business. Operating risks include (i) INEX’s ability to successfully complete preclinical and clinical development of its products, (ii) INEX’s ability to complete and maintain corporate alliances relating to the development and commercialization of its technology and products and the effectiveness of INEX’s partners in carrying out such development and commercialization including, subject to regulatory approval in the US, Enzon’s ability to successfully launch Onco TCS (iii) decisions, and the timing of decisions, made by health regulatory agencies regarding approval of INEX’s technology and products including the eligibility of Onco TCS for approval by the FDA under its Accelerated Approval legislation, (iv) INEX’s ability to obtain and enforce patent and other intellectual property protection for its technology and products, and in-licensed technology and products, (v) market acceptance of INEX’s technology and products, (vi) the competitive environment and impact of technological change, (vii) the continued availability of capital to finance INEX’s activities, and (viii) INEX’s ability to attract and retain employees to carry out its business plans. Further details on INEX’s operating risks can be found in the Company’s Annual Report to Shareholders.
| Consolidated Balance Sheets (Expressed in Canadian Dollars) | ||||
|
December 31, 2003 |
December 31, 2002 | |||
| Restated (1) | ||||
|
| ||||
| Assets | ||||
| Current Assets | ||||
| Cash and cash equivalents | $46,107,754 |
$32,280,361 | ||
| Short-term investments | 4,732,287 |
27,813,127 | ||
| Accounts receivable | 436,062 |
716,384 | ||
| Government grant receivable | 70,000 | 102,849 | ||
| Prepaid expenses and other assets | 649,511 | 316,785 | ||
|
| ||||
| 51,995,614 |
61,229,506 | |||
| Long-term investment | 2,001,166 |
3,352,333 | ||
| Property and equipment | 5,313,178 | 5,894,323 | ||
| Medical technology | 6,178,225 | 13,303,335 | ||
| Other long-term assets | 296,328 | - | ||
|
| ||||
| $65,784,511 | $83,779,497 | |||
|
| ||||
| Liabilities and Shareholders' Equity | ||||
| Current liabilities | ||||
| Accounts payable and accrued liabilities | $4,835,501 | $6,817,283 | ||
| Current portion of obligations under capital leases | 174,131 | 212,920 | ||
| Current portion of long-term debt | 365,906 | - | ||
| Current portion of deferred revenue | 503,310 |
524,268 | ||
|
| ||||
| 5,878,848 |
7,554,471 | |||
| Obligations under capital leases | 264,911 |
263,804 | ||
| Long-term debt | 781,096 | - | ||
| Deferred lease inducements | 440,699 |
551,590 | ||
| Deferred revenue | - |
503,310 | ||
| Deferred dilution gain | 2,162,428 |
3,513,595 | ||
|
| ||||
|
9,527,982 |
12,386,770 | |||
| Shareholders’ equity | ||||
| Share capital | ||||
| December 31, 2003 - 38,409,633 |
179,097,330 |
152,617,301 | ||
| December 31, 2002 - 32,974,762 |
| |||
| Additional paid-in capital |
13,684,109 |
11,110,970 | ||
| Exchangeable and development notes |
48,243,515 |
45,446,478 | ||
| Deficit |
(184,768,425) |
(137,782,022) | ||
|
| ||||
| |
56,256,529 |
71,392,727 | ||
|
| ||||
|
$65,784,511 |
$83,779,497 | |||
|
| ||||
| Consolidated Statements of Operations and Deficit (Expressed in Canadian Dollars) | ||||
|
Three Months Ended
|
Twelve Months Ended | |||
|
December 31, 2003 |
December 31, 2002 (Restated)(1) |
December 31, 2003 |
December 31, 2002 (Restated)(1) | |
|
(unaudited) |
(unaudited) |
|||
|
| ||||
|
Revenue |
||||
| Research and development collaborations |
$0 |
$0 |
$0 |
$4,401,891 |
| Licensing fees and milestone payments |
240,282
|
909,817 |
3,542,904 |
3,583,217 |
|
| ||||
|
240,282
|
909,817 |
3,542,904 |
7,985,108 | |
|
| ||||
| Expenses | ||||
| Research and development |
8,307,465 |
11,755,723 |
30,741,073 |
36,275,814 |
| General and administrative |
2,419,576
|
2,674,689 |
8,798,307
|
9,419,017 |
| Amortization |
2,205,473 |
2,285,885 |
8,931,162 |
8,903,463 |
|
| ||||
|
12,932,514 |
16,716,297 |
48,470,542 |
54,598,294 | |
|
| ||||
|
Loss before other earnings (expenses) |
(12,692,232) |
(15,806,480) |
(44,927,638) |
(46,613,186) |
| Interest income |
368,671 |
422,874 |
1,478,824 |
1,607,274 |
| Other earnings (losses) |
(31,568) |
67,232 |
(740,552) |
(154,847) |
| Dilution gain from Protiva Biotherapeutics Inc. |
113,052 |
301,893 |
1,351,167 |
1,735,233 |
| Equity in loss of Protiva Biotherapeutics Inc. |
(113,052) |
(301,893) |
(1,351,167) |
(1,735,233) |
|
| ||||
| Loss for the period |
(12,355,129) |
(15,316,374) |
(44,189,366) |
(45,160,759) |
| Deficit, beginning of period |
(171,726,666) |
(121,671,182) |
(137,782,022) |
(89,993,719) |
| Interest on exchangeable and development notes |
(686,630) |
(794,466) |
(2,797,037) |
(2,627,544) |
|
| ||||
| Deficit, end of period |
($184,768,425) |
($137,782,022) |
($184,768,425) |
($137,782,022) |
|
| ||||
| Loss per common share |
$(0.34) |
$(0.49) |
$(1.32) |
$(1.45) |
| Weighted average number of common shares |
38,402,615 |
32,906,752 |
35,625,564 |
32,894,269 |
| Consolidated Statements of Cash Flows (Expressed in Canadian Dollars) | ||||
|
Three Months Ended |
Twelve Months Ended | |||
|
December 31, 2003 |
December 31, 2002 (Restated) (1) |
December 31, 2003 |
December 31, 2002 (Restated) (1) | |
|
(unaudited) |
(unaudited) |
|||
|
| ||||
| Cash provided by (used in) Operations | ||||
| Loss for the period |
($12,355,129) |
($15,316,374) |
($44,189,366) |
($45,160,759) |
| Items not involving cash: |
||||
| Amortization of property and equipment |
424,197 |
504,607 |
1,806,052 |
1,778,354 |
| Amortization of medical technology |
1,781,277 |
1,781,277 |
7,125,110 |
7,125,109 |
| Amortization of deferred lease inducements |
(27,723) |
(27,723) |
(110,891) |
(110,890) |
| Dilution gain from Protiva Biotherapeutics Inc. |
(113,052) |
(301,893) |
(1,351,167) |
(1,735,233) |
| Equity in loss of Protiva Biotherapeutics Inc. |
113,052 |
301,893 |
1,351,167 |
1,735,233 |
| Stock-based compensation expense |
1,218,686 |
1,060,917 |
2,944,183 |
3,009,485 |
| Losses on short-term investments |
- |
- |
- |
309,178 |
| Net change in non- cash working capital |
1,539,051 |
2,216,858 |
(2,541,334) |
4,465,252 |
|
| ||||
|
(7,419,641) |
(9,780,438) |
(34,966,246 ) |
(28,584,271) | |
|
| ||||
|
Investments | ||||
| Acquisition of property and equipment |
(581,809) |
(540,683) |
(1,021,501) |
(3,071,107) |
| Sale (purchase) of short-term investments, net |
(2,730,789) |
(2,233,572) |
23,096,569 |
7,716,551 |
|
| ||||
|
(3,312,598) |
(2,774,255) |
22,075,068 |
4,645,444 | |
|
| ||||
| Financing | ||||
| Issuance of common shares pursuant to: |
|
|||
| Public offering, net of issue costs |
(5,823) |
(4,009) |
25,552,822 |
(11,064) |
| Exercise of options |
100,188 |
121,377 |
556,163 |
405,676 |
| Issuance of development note |
- |
(13,627) |
- |
15,264,842 |
| Funds from long-term debt financing, net of security deposit and financing costs |
850,674 |
- |
850,674 |
- |
| Repayment of obligations under capital leases |
(62,004) |
(75,061) |
(241,088) |
(249,467) |
|
| ||||
|
883,035 |
28,680 |
26,718,571 |
15,409,987 | |
|
| ||||
| Increase (decrease) in cash and cash equivalents |
(9,849,204) |
(12,526,013) |
13,827,393 |
(8,528,840) |
| Cash and cash equivalents, beginning of period |
55,956,958 |
44,806,374 |
32,280,361 |
40,809,201 |
|
| ||||
| Cash and cash equivalents, end of period |
$46,107,754 |
$32,280,361 |
$46,107,754 |
$32,280,361 |
|
| ||||
Certain prior year comparative figure have been reclassified to conform to the current year’s presentation.
(1) Change in Accounting Policy -- Stock-based Compensation
The Company adopted the fair value method of accounting for all employee and non-employee stock-based compensation in the fourth quarter of 2003 pursuant to the amended recommendations of the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3870 Stock-based Compensation and Other Stock-based Payments. The Company chose to voluntarily adopt the amended recommendations in 2003 rather than on the required adoption date of January 1, 2004 and has applied the change in accounting on a retroactive basis, with restatement of all prior periods, to all options granted since the establishment of the Company’s Incentive Stock Option Plan in 1993 and Share Incentive Plan in 1996. The Company chose this alternative because it feels that this gives the readers of the financial statements the greatest comparability of the 2003 financial statements to prior periods and to future periods when stock based compensation expense is required to be recorded in the Company’s financial statements. The Company also chose this alternative to be consistent with the stock based compensation accounting requirements in other jurisdictions.
As a result of the retroactive change in accounting policy, the 2002 financial statements have been restated as follows:
| As originally reported | As restated | ||
| Net loss | $(42,182,600) | $(45,160,759) | |
| Loss per share | $(1.36) | $(1.45) | |
| Share capital | $151,252,117 | $152,617,301 | |
| Additional paid-in capital | $31,326 | $11,110,970 | |
| Deficit | $(125,337,194) | $(137,782,022) | |
INEX is a Canadian biopharmaceutical company developing and commercializing proprietary drugs and drug delivery systems to improve the treatment of cancer.
There are forward-looking statements contained herein that are not based on historical fact, including without limitation statements containing the words “believes,” “may,” “plans,” “will,” “estimate,” “continue,” “anticipates,” “intends,” “expects,” and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, among others, INEX’s stage of development, lack of product revenues, additional capital requirements, risks associated with the completion of clinical trials and obtaining regulatory approval to market INEX’s products, the ability to protect its intellectual property and dependence on collaborative partners. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments.
INEX investor contact:
Ian Mortimer
Senior Director, Investor Relations
Inex Pharmaceuticals Corporation
Tel: 604.419.3200
Email: info@inexpharm.com
Website: www.inexpharm.com
INEX media contact:
Miriam Zitner
James Hoggan & Associates Inc.
Tel: 604.739.7500
Email: mzitner@hoggan.com
INEX’s common shares are traded on the Toronto Stock Exchange under the trading symbol “IEX”.
