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BELLUS Health reports results for third quarter of fiscal 2009

Posted on: Tuesday, 10 November 2009, 17:58 CST

LAVAL, QC, Nov. 10 /PRNewswire-FirstCall/ - BELLUS Health Inc. (TSX: BLU) (the Company) reports financial results for the third quarter and nine-months ended September 30, 2009. The Company reported a reduced net loss, compared to the corresponding period in the previous year, and an increased cash position for the quarter, due largely to Management's efforts to reduce overhead expenses and its cash burn rate, as well as a successful rights offering during the third quarter.

Quarterly Highlights:

The following highlights and financial results should be read in conjunction with the company's financial statements, notes to the financial statements, and Management's Discussion and Analysis for the third quarter and nine-month period ended September 30, 2009. These documents will be available in the coming days on the Company's web site at www.BellusHealth.com, and on SEDAR at www.sedar.com.

All currency figures reported in this press release, including comparative figures, are reported in US dollars, unless otherwise specified.

- For the three-month period ended September 30, 2009, BELLUS Health reported a net loss of $5,840,000 ($0.04 per share), compared to a net loss of $11,175,000 ($0.22 per share) for the corresponding period the previous year. For the nine-month period ended September 30, 2009, the net loss amounted to $2,867,000 ($0.02 per share), compared to a net loss of $36,959,000 ($0.75 per share) for the same period last year. - The decrease in the current periods compared to the same periods the previous year is mainly due to a reduction in research and development activities and related workforce, as well as to other additional measures implemented by the Company to reduce its burn rate. - In addition, results for the nine-month period ended September 30, 2009, include a gain on extinguishment of debt in the amount of $17,020,000 resulting from amendments to the terms of BELLUS Health's 2006 and 2007 convertible notes, following the previously announced refinancing of the Company in April 2009. - Results for the nine-month period ended September 30, 2009, also include a net credit for vacant space in the amount of $2,196,000 in relation to the vacant portion of the Company's premises. - As at September 30, 2009, the Company had available cash and cash equivalents of $17,217,000, compared to $10,595,000 at December 31, 2008. The increase is primarily due the completion of the CDN$9.7 million rights offering in September 2009 and the CDN$20.5 million convertible notes financing in April 2009. - On September 10, 2009, the Company successfully completed a CDN$9,687,233 rights offering and issued a total of 52,363,419 common shares at a price of CDN$0.185 per share (the Subscription Price). Under the rights offering, rights were exercised to subscribe for 9,120,177 common shares at the Subscription Price for proceeds of CDN$1,687,233. At the same time, in accordance with the terms of the stand-by purchase agreements entered into by BELLUS Health with Vitus Investments III Private Limited (Vitus), a corporation whose shares are beneficially owned by Mr. Carlo Bellini, and Victoria Square Ventures Inc. (VSVI), a subsidiary of Power Corporation of Canada, each of Vitus and VSVI subscribed for 21,621,621 common shares of BELLUS Health at the Subscription Price for an aggregate of CDN$8,000,000.

Financial Results:

Gross sales amounted to $76,000 for the current quarter ($272,000 for the nine-month period) compared to $206,000 for the comparative periods the previous year. Net sales amounted to $99,000 for the current quarter (negative $6,000 for the nine-month period) compared to $153,000 for the comparative periods the previous year. These sales represent the sales of VIVIMIND(TM) (also known as tramiprosate and homotaurine), the Company's first natural health brand launched in September 2008, in Canada and globally on the Internet.

Effective July 7, 2009, the Company decided to reduce VIVIMIND(TM)'s suggested retail price and recorded appropriate provisions during the quarter ended June 30, 2009. This decision was supported by changing economic conditions, as well as comments from consumers, healthcare providers and retail customers. This price adjustment will make VIVIMIND(TM) accessible to a broader clientele and ultimately promote the growth of the cognitive natural health market. During the current quarter, the Company adjusted provisions to reflect its best estimate of the impact of the price adjustment.

Research and development expenses, before research tax credits and grants, amounted to $2,156,000 for the current quarter ($8,635,000 for the nine-month period), compared to $5,208,000 for the same period the previous year ($21,111,000 for the nine-month period). The decrease is mainly attributable to a reduction in the research and development activities of tramiprosate (ALZHEMED(TM)) and workforce.

The Company is currently developing NC-503 (eprodisate) for the treatment of Type II diabetes and certain other features of metabolic syndrome. During the second quarter of 2008, a 26-week, double-blind, placebo-controlled Phase II clinical trial in diabetic patients was initiated in Canada and patient recruitment was concluded during the current quarter. The Company expects to release the final results of the Phase II clinical trial in the first quarter of 2010. Results from a validated rat model of diabetes and metabolic syndrome have demonstrated that NC-503 decreases glycemic levels in obese diabetic Zucker rats, when compared to the control group, while preserving 40% more pancreatic islet cells (insulin secreting cells) as compared to the control group, and have shown some protective effect on renal function.

Research tax credits and grants amounted to $160,000 for the current quarter ($617,000 for the nine-month period), compared to $264,000 for the corresponding period the previous year ($1,128,000 for the nine-month period). Research tax credits represent refundable tax credits earned under the Quebec Scientific Research and Experimental Development Program for expenditures incurred in Quebec. The decrease is attributable to lower research and development expenses incurred in Quebec during the current periods.

General and administrative expenses totaled $1,382,000 for the current quarter ($5,739,000 for the nine-month period), compared to $3,200,000 for the same quarter the previous year ($9,149,000 for the nine-month period). Expenses for the current three-month period are presented net of an amount of $1,245,000 in relation to amortization of the deferred gain on sale of property ($2,825,000 for the nine-month period), compared to $335,000 for the corresponding period the previous year ($1,004,000 for the nine-month period). The decrease is due to a reduction in the workforce during the first quarter ended March 31, 2009, as well as other additional measures implemented by the Company to reduce its burn rate.

Marketing and selling expenses amounted to $845,000 for the current quarter ($3,283,000 for the nine-month period) compared to $1,424,000 for the same quarter of the previous year ($3,459,000 for the nine-month period) and represent expenses incurred in relation to the commercialization of the Company's natural health brand, VIVIMIND(TM). The decrease is due to a reduction in marketing activities during the current periods, compared to the same periods the previous year, during which the product was launched.

Stock-based compensation amounted to $762,000 for the current quarter ($1,938,000 for the nine-month period), compared to $439,000 for the corresponding quarter the previous year ($2,298,000 for the nine-month period). The increase in the three-month period compared to the same period in the previous year is mainly due to additional grants of deferred share units in the current period. The decrease in the nine-month period is mainly due to adjustments in relation to forfeitures of stock options, which occurred as a result of reductions in the workforce.

Net credit for vacant space amounted to $2,196,000 and is in relation to the vacancy of a portion of the Company's premises following the reduction in the Company's research activities and associated workforce.

Interest income amounted to $29,000 for the current quarter ($72,000 for the nine-month period) compared to $145,000 for the same quarter the previous year ($856,000 for the nine-month period). The decrease is mainly attributable to lower average cash balances and lower interest rates during the current periods, compared to the same periods the previous year.

Accretion expense amounted to $1,312,000 for the current quarter ($3,663,000 for the nine-month period), compared to $1,243,000 for the same quarter the previous year ($3,675,000 for the nine-month period). Accretion expense represents the imputed interest under GAAP on the 2006, 2007 and 2009 Convertible notes. The Company accretes the carrying values of the convertible notes to their face value through a charge to earnings over their expected lives. As of September 30, 2009, $13,000,000 of the Amended 2006 Notes, $500,000 of the Amended 2007 Notes and CDN$21,115,000 of the 2009 Notes remained outstanding.

Gain on extinguishment of debt amounted to $17,020,000 and resulted from amendments to the terms of the 2006 and 2007 Notes that took place at the time of a refinancing of the Company in April 2009.

Change in the fair value of New Asset-Backed Commercial Paper (ABCP) Notes increased by $317,000 for the current quarter (increase of $500,000 for the nine-month period) compared to nil for the same quarter the previous year (decrease of $375,000 for the nine-month period). This represents net changes during the periods on the valuation of New ABCP Notes held by the Company.

Foreign exchange loss amounted to $15,000 for the current quarter (loss of $318,000 for the nine-month period), compared to a loss of $216,000 for the same quarter the previous year (gain of $644,000 for the nine-month period). Foreign exchange gains or losses arise on the movement in foreign exchange rates in relation to the Company's net monetary assets denominated in currencies other than US dollars, the Company's functional and reporting currency, such net monetary assets consisting primarily of assets and liabilities denominated in Canadian dollars. Foreign exchange gains for the comparative nine-month period include $924,000 of gain recognized on the reclassification of the refundable amount ($6,000,000) due to Centocor, Inc., from deferred revenue (non-monetary liability) to accrued liability (monetary liability) following the recovery by the Company of ownership rights in and control of eprodisate (KIACTA(TM)).

Other income amounted to $293,000 for the current quarter ($1,053,000 for the nine-month period), compared to $276,000 for the same quarter the previous year ($810,000 for the nine-month period). Other income consists of non-operating revenue, such as sub-lease revenue and other items. The increase in the nine-month period is attributable to a gain realized during the first quarter of 2009 on the settlement of a dispute with a supplier.

Going Concern

As at September 30, 2009, the Company had cash and cash equivalents in the amount of $17,217,000. The Company expects to receive $2.3 million of tax credits in the next months and there are credit facilities in the amount of approximately $1.2 million that are currently available.

As at September 30, 2009, the Company's committed cash obligations and expected level of expenses for the upcoming twelve months may exceed the committed sources of funds and the Company's cash and cash equivalents on hand. The ability of the Company to continue as a going concern is dependent upon raising additional financing through borrowings, share issuances, receiving funds through collaborative research contracts, distribution agreements or product licensing agreements, and ultimately, from obtaining regulatory approval in various jurisdictions to market and sell its product candidates and ultimately achieving future profitable operations. The outcome of these matters is dependent on a number of factors outside of the Company's control. These factors raise significant doubt about the Company's ability to continue as a going concern. Management continues to actively pursue additional financing. The Company is currently involved in ongoing discussions with several parties to secure partnership agreement, collaboration agreement, licensing agreement and/or sale with respect to its businesses, product or product candidates. While the discussions could lead to the signing of binding agreements in the future, there can be no assurance whatsoever that any such transaction will be put in place. As a result, there is material uncertainty as to whether the Company will have the ability to continue as a going concern and thereby realize its assets and discharge its liabilities in the normal course of business.

As announced in the Company's March 31, 2009, press release, the TSX undertook a routine delisting review of BELLUS Health as a result of the Company's having invoked the financial difficulty exemption in connection with the 2009 Notes financing. On October 20, 2009, the Company received confirmation from the TSX that its Listing Committee had determined that the Company satisfies the TSX's continued listing requirements.

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 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.

BELLUS Health Inc. Consolidated Financial Information(1) (in thousands of US dollars, except per share data) Three-month period Nine-month period ended September 30 ended September 30 ------------------------------------------------------------------------- Consolidated Statements of Operations 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Revenues: Gross sales $ 76 $ 206 $ 272 $ 206 Discounts, returns and cooperative promotional incentives 23 (53) (278) (53) ------------------------------------------------------------------------- Net sales 99 153 (6) 153 Collaboration agreement - - - 205 Reimbursable costs - - - 69 ------------------------------------------------------------------------- 99 153 (6) 427 ------------------------------------------------------------------------- Expenses: Research and development 2,156 5,208 8,635 21,111 Research tax credits and grants (160) (264) (617) (1,128) ------------------------------------------------------------------------- 1,996 4,944 8,018 19,983 General and administrative 1,382 3,200 5,739 9,149 Marketing and selling 845 1,424 3,283 3,459 Reimbursable costs - - - 69 Stock-based compensation 762 439 1,938 2,298 Depreciation of equipement 178 219 519 652 Net credit for vacant space - - (2,196) - ------------------------------------------------------------------------- 5,163 10,226 17,301 35,610 ------------------------------------------------------------------------- Loss before undernoted items (5,064) (10,073) (17,307) (35,183) Interest income 29 145 72 856 Interest and bank charges (80) (109) (232) (181) Accretion expense (1,312) (1,243) (3,663) (3,675) Change in fair value of embedded derivatives (8) 45 8 145 Gain on extinguishment of debt - - 17,020 - Change in fair value of New ABCP Notes 317 - 500 (375) Foreign exchange (loss) gain (15) (216) (318) 644 Other income 293 276 1,053 810 ------------------------------------------------------------------------- Net loss and comprehensive loss (5,840) $(11,175) (2,867) $(36,959) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic net loss per share $ (0.04) $ (0.22) $ (0.02) $ (0.75) Diluted net loss per share $ (0.04) $ (0.22) $ (0.16) $ (0.75) ------------------------------------------------------------------------- ------------------------------------------------------------------------- At At September 30 December 31 Consolidated Balance Sheets 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (unaudited) (audited) Cash and cash equivalents $ 17,217 $ 10,595 Other current assets 4,036 3,667 ------------------------------------------------------------------------- Total current assets 21,253 14,262 Equipment 2,661 3,124 Other long-term assets 7,736 9,030 ------------------------------------------------------------------------- Total assets $ 31,650 $ 26,416 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Current liabilities $ 11,785 $ 9,257 Long-term deferred gain and liabilities 33,275 63,211 Shareholders' deficiency (13,410) (46,052) ------------------------------------------------------------------------- Total liabilities and shareholders' deficiency $ 31,650 $ 26,416 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1)Condensed from the Company's unaudited consolidated financial statements.

CONTACT: Michelle Stein, Specialist, Corporate Communications, (450) 680-4573, mstein@bellushealth.com

SOURCE BELLUS HEALTH INC.

Source: PR Newswire

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