MethylGene Inc.
TSX : MYG

MethylGene Inc.

March 26, 2010 07:30 ET

MethylGene Announces Non-Dilutive Financing of Up to $8.9 Million and Reports Fourth Quarter and Full Year 2009 Financial Results

MONTREAL, QUEBEC--(Marketwire - March 26, 2010) - MethylGene Inc. (TSX:MYG) today announced that it has entered into an agreement with 1819400 Ontario Inc. and 1815303 Ontario Limited that will provide gross proceeds of up to $8.9 million in non-dilutive capital to MethylGene, $7 million to be received at closing.

As part of the transaction, a corporate reorganization is to be completed under a court-supervised arrangement pursuant to the Companies Act (Québec). Pursuant to the reorganization, it is expected that MethylGene will transfer all its assets and liabilities, including the proceeds of the transaction, to a newly-incorporated company. As part of the transaction, MethylGene shareholders will exchange their MethylGene common shares for an equal number of common shares of the new company which will continue the business of MethylGene ("New MethylGene"). New MethylGene will continue MethylGene's business operations as a public entity listed on the TSX and will retain all rights related to, among others, its intellectual property as before the transaction. Upon completion of the transaction, 1819400 Ontario Inc. and 1815303 Ontario Limited will own 100 percent of the common shares of the original MethylGene entity.

Completion of the transaction is subject to receipt of court and other regulatory approvals and consents. It must also be approved by at least 75% of votes cast by MethylGene shareholders. Based on a number of factors, including a fairness opinion rendered by MethylGene's financial advisor for the transaction, MethylGene's Board of Directors unanimously recommends that MethylGene shareholders approve the transaction.

Additional details regarding the transaction will be provided to MethylGene shareholders in an information circular that will be mailed in April 2010. The information circular will also be available on MethylGene's website (www.methylgene.com) and at www.sedar.com. A special meeting of the shareholders will be held in May 2010, in conjunction with the Company's annual general shareholders' meeting.

Financial Results Reported in Canadian Dollars

The Company also announced financial results for the fourth quarter and full year ended December 31, 2009.

Total revenues of $3.0 million in 2009 declined by $26.5 million versus 2008. Of this decline, $26.1 million was due primarily to the termination of the agreement with Celgene Corporation of which $16.7 million (the equivalent of $0.45 per share) related to license and upfront fees as MethylGene transferred the remaining unearned revenue to the statement of operations and deficit in 2008; and $9.4 million related to collaboration and contract revenues which were offset by savings of $10.8 million relating to lower research and development costs for the mocetinostat (MGCD0103) program.

Total expenditures in 2009 were $26.5 million versus $38.6 million in 2008, representing a decrease of 31.3%, of which net research and development expenses were $21.0 million in 2009 versus $35.7 million in 2008. This decrease in expenditures in 2009 is due to reduced spending for the mocetinostat and MGCD290 clinical programs and the elimination of significant non-funded discovery research in 2009 that began in the fourth quarter of 2008. This reduced spending was partially offset by increased spending due to our focus on the MGCD265 program.

General and administrative expenses in 2009 were $4.7 million compared to $5.5 million in 2008, with the decrease primarily due to lower compensation costs and professional fees. The Company also incurred corporate and other transaction costs of $376,000 in 2009 versus $725,000 in 2008. MethylGene earned $191,000 of interest income versus $1.7 million in 2008 due to lower average investments of cash equivalents and marketable securities and lower average interest rates. A foreign exchange loss of $398,000 was incurred in 2009 versus a gain of $2.0 million in 2008 as the Canadian dollar strengthened against the U.S. dollar in 2009 while the reverse occurred in 2008. The net loss for the year ended December 31, 2009 was $23.6 million or ($0.63) per share compared with a net loss of $8.9 million or ($0.24) per share for the year ended December 31, 2008.

Total revenues for the fourth quarter ended December 31, 2009 were $482,000 compared to $15.2 million for the same period last year primarily due to the termination of the agreement with Celgene. Of this shortfall, $12.2 million related to license and up-front fees that were transferred from unearned revenue to the statement of operations and deficit in the fourth quarter of 2008 and $2.5 million related to research collaborations and contract revenues.

Total expenditures for the fourth quarter ended December 31, 2009 were $5.6 million compared to $8.3 million for the same period in 2008, a decrease of 32.4%, of which net research and development expenditures totaled $4.0 million in the fourth quarter of 2009, down from $8.8 million in the fourth quarter of 2008, reflecting lower expenses for mocetinostat, MGCD290 and non-funded discovery research which were partially offset by higher expenditures for MGCD265.

General and administrative expenses of $1.1 million in the fourth quarter of 2009 were lower compared to $1.2 million for the same period last year. Fourth quarter 2009 also included interest income of $23,000 versus $309,000 in 2008 and a currency exchange loss of $129,000 versus a gain of $1.5 million in 2008 with the respective declines relating to the same factors as for the full year. As a result of the above, loss for the fourth quarter ended December 31, 2009 was $5.1 million or ($0.12) per share compared to a net gain of $7.0 million or $0.19 per share for the corresponding period last year.

At December 31, 2009 the Company had cash, cash equivalents and marketable securities totaling $18.1 million compared to $38.6 million at December 31, 2008. The Company believes that based on its current strategy, resources will be sufficient to carry out its current development plans into the fourth quarter of 2010. As a result, the Company has included a going concern uncertainty note in its financial statements for the years ended December 31, 2009 and 2008. If the Company closes the non-dilutive financing announced herein, cash resources are expected to be sufficient to fund the Company into the second quarter of 2011.

Current Objectives for the Next 12 Months

  • Complete the two ongoing MGCD265 Phase I clinical trials (Trials 101 and 102);
  • Complete the ongoing stage 1 portion of the MGCD265 Phase II clinical trial (Trial 103) to determine the maximum tolerated dose of MGCD265 in combination with the two comparator agents (Tarceva® and Taxotere®) in preparation for the stage 2 portion in non-small cell lung cancer (Trial 104);
  • Complete MGCD290 Phase I studies;
  • Enroll refractory and relapsed follicular lymphoma patients in mocetinostat Phase II trial (Trial 008);
  • Report clinical trial data at appropriate scientific venues for MGCD265 and MGCD290; and
  • Continue to seek partnerships, collaborations, strategic relationships and monetize assets to enhance clinical outcomes for the Company's development stage compounds as well as provide additional resources to the Company.

About MethylGene

MethylGene Inc. (TSX: MYG) is a publicly-traded, clinical stage biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics with a focus on cancer. The Company's product candidates include: MGCD265, an oral, multi-targeted kinase inhibitor targeting the Met, VEGF, Ron and Tie-2 receptor tyrosine kinases that is in Phase I and Phase II clinical trials for cancer; MGCD290, a fungal Hos2 inhibitor being developed for use in combination with fluconazole for serious fungal infections that is in Phase I clinical studies which are nearing completion; and mocetinostat (MGCD0103), an oral, isoform-selective HDAC inhibitor for cancer which has been in multiple Phase II clinical trials and is licensed to Taiho Pharmaceutical Co. Ltd in certain Asian countries. A fourth compound discovered using MethylGene's HDAC platform, EVP-0334 - a potential cognition enhancing agent, is in Phase I trials sponsored by EnVivo Pharmaceuticals Inc. MethylGene also has a funded collaboration with Otsuka Pharmaceutical Co. Ltd. for applications in ocular diseases using the Company's proprietary kinase inhibitor chemistry. Please visit our website at www.methylgene.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 of MethylGene, inherently involve numerous risks and uncertainties, known and unknown, many of which are beyond MethylGene's control. These risks and uncertainties could cause future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Such results, performance or achievements include, but are not limited to, the timing and effects of regulatory action; the continuation of collaborations; the results of clinical trials; the timing of enrollment or completion of clinical trials; the success, efficacy or safety of MGCD265, MGCD290 or mocetinostat (MGCD0103); the ability to scale up, formulate and manufacture sufficient GMP, clinical or commercialization quantities of MGCD265, MGCD290 or mocetinostat, and the relative success or the lack of success in developing and gaining regulatory approval and/or market acceptance for any compound or new product including MGCD265, MGCD290 or mocetinostat. Such risks include, but are not limited to, the impact of general economic conditions, economic conditions in the pharmaceutical industry, changes in the regulatory environment in the jurisdictions in which MethylGene does business, stock market volatility, fluctuations in costs, expectations with respect to our intellectual property position and our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others, changes in the competitive landscape including changes in the standard of care for the various indications in which MethylGene is involved, and changes to the competitive environment due to consolidation, as well as other risks, which you are urged to read, as described in MethylGene's Annual Information Form for the fiscal year ending December 31, 2008, under the heading 'risk factors and all other documents filed by the Company that can be found at www.sedar.com. Consequently, actual future results may differ materially from the anticipated results expressed in the forward-looking statements. The reader should not place undue reliance on the forward-looking statements included in this presentation. These statements speak only as an update on the date they are made and MethylGene is under no obligation to revise such statements as a result of any event, circumstance or otherwise except in accordance with law.

Summary financial statements follow.

MethylGene Inc.        
Incorporated under the Quebec Companies Act        
         
BALANCE SHEETS  
   
As at December 31,        
[In thousands of Canadian dollars]        
         
  2009   2008  
  $   $  
      [Restated]  
ASSETS        
Current        
Cash and cash equivalents 14,210   5,947  
Marketable securities 3,863   32,659  
Research and development tax credits receivable 992   1,473  
Unbilled revenue 328   4,243  
Interest receivable 17   326  
Other current assets 1,033   1,226  
Total current assets 20,443   45,874  
Security deposits 385   325  
Property, plant and equipment 1,173   2,131  
  22,001   48,330  
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current        
Accounts payable and accrued liabilities 5,811   9,192  
Current portion of unearned revenue 584   549  
Current portion of lease abandonment cost 196   192  
Total current liabilities 6,591   9,933  
Unearned revenue 2,529   2,859  
Lease abandonment cost 380   399  
Total liabilities 9,500   13,191  
         
Shareholders' equity        
Capital stock 119,189   118,095  
Contributed surplus 9,014   8,855  
Deficit (115,712 ) (92,122 )
Accumulated other comprehensive income 10   311  
Total shareholders' equity 12,501   35,139  
  22,001   48,330  
         
         
         
STATEMENTS OF OPERATIONS AND DEFICIT  
         
For the years ended December 31,        
[In thousands of Canadian dollars,        
except for share and per share amounts]        
         
  2009   2008  
  $   $  
      [Restated]  
REVENUES        
Research collaborations and contract revenues 2,457   12,188  
License and up-front fees 563   17,307  
  3,020   29,495  
         
EXPENSES        
Research and development 22,119   37,236  
Government assistance (1,162 ) (1,503 )
Net research and development 20,957   35,733  
General and administrative 4,735   5,536  
Interest income (191 ) (1,653 )
Amortization and write-off of property, plant and equipment 17   68  
Gain on disposal of property, plant and equipment (20 )  
Lease abandonment cost 183   80  
Corporate and other transaction costs 376   725  
Bank charges and interest 21   16  
Foreign exchange loss (gain) 398   (1,952 )
  26,476   38,553  
Loss before income tax (23,456 ) (9,058 )
Future income tax (expense) recovery (134 ) 139  
Net loss for the year (23,590 ) (8,919 )
         
Deficit, beginning of year, as previously reported (90,175 ) (81,196 )
Change in accounting policy (1,947 ) (2,007 )
Deficit, beginning of year, as adjusted (92,122 ) (83,203 )
Deficit, end of year (115,712 ) (92,122 )
         
Basic and diluted loss per share (0.63 ) (0.24 )
Weighted average number of common shares 37,492,143   36,682,398  
         
         
         
STATEMENTS OF COMPREHENSIVE LOSS  
   
For the years ended December 31,        
[In thousands of Canadian dollars]        
         
  2009   2008  
  $   $  
      [Restated]  
         
Net loss for the year (23,590 ) (8,919 )
         
Other comprehensive income (loss)        
Change in unrealized gains on cash equivalents and marketable securities, net of income tax expense of $86 [2008 – $312] 138   699  
Reclassification to net loss of realized gains on cash equivalents and marketable securities, net of income tax recovery of $220 [2008 – $173] (439 ) (292 )
  (301 ) 407  
Comprehensive loss for the year (23,891 ) (8,512 )
         
         
         
STATEMENTS OF CASH FLOWS  
         
For the years ended December 31,        
[In thousands of Canadian dollars]        
         
  2009   2008  
  $   $  
      [Restated]  
         
OPERATING ACTIVITIES        
Net loss for the year (23,590 ) (8,919 )
Items not affecting cash        
  Amortization of property, plant and equipment 996   1,170  
  Lease abandonment cost 183   80  
  Write-off of property, plant and equipment 2   51  
  Gain on disposal of property, plant and equipment (20 )  
  Stock-based compensation expense 165   410  
  Future income tax expense (recovery) 134   (139 )
  (22,130 ) (7,347 )
Net change in non-cash working capital balances related to operations 1,259   (3,364 )
Change in long-term portion of unearned revenue (549 ) (11,699 )
Cash flows related to operating activities (21,420 ) (22,410 )
         
INVESTING ACTIVITIES        
Acquisitions of property, plant and equipment (49 ) (263 )
Purchases of marketable securities (27,873 ) (87,352 )
Proceeds from maturities of marketable securities 56,112   112,858  
Proceeds from disposal of property, plant and equipment 29    
Cash flows related to investing activities 28,219   25,243  
         
FINANCING ACTIVITIES        
Issuance of common shares 1,583    
Share issue costs (233 )  
Cash flows related to financing activities 1,350    
         
Foreign exchange gain (loss) on cash equivalents held in foreign currency 114   (94 )
         
Increase in cash and cash equivalents 8,263   2,739  
Cash and cash equivalents, beginning of year 5,947   3,208  
Cash and cash equivalents, end of year 14,210   5,947  
         
Cash and cash equivalents consist of:        
Cash 1,760   2,535  
Cash equivalents 12,450   3,412  
  14,210   5,947  

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