Pacgen Biopharmaceuticals Corporation
TSX VENTURE : PGA

Pacgen Biopharmaceuticals Corporation

December 01, 2008 21:00 ET

Pacgen Reports Second Quarter Financial Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 1, 2008) - Pacgen Biopharmaceuticals Corporation ("Pacgen" or the "Company") (TSX VENTURE:PGA) today reported financial results from its second fiscal quarter ended September 30, 2008. Amounts unless specified otherwise, are expressed in Canadian dollars and in accordance with Canadian Generally Accepted Accounting Principles (Canadian GAAP).

Financial Results

The Company recorded a net loss of $642,454 ($0.02 per common share) for the three months ended September 30, 2008 ("Q2 2009"), compared to a net loss of $1,544,854 ($0.05 per common share) for the three months ended September 30, 2007 ("Q2 2008"). On a year-to-date basis, the Company recorded a net loss of $1,949,955 ($0.06 per common share), compared to a net loss of $3,339,510 ($0.11 per common share) for the same period in the preceding fiscal year. The decrease in net loss in each of the periods in Q2 2009 and on a year-to-date basis, as compared to the same periods in the preceding year, was largely due to the reduced operating expenditures following the implementation of its cost control programs.

Pacgen initiated its cost control program, which involved elimination of administrative support positions, reduction of management salaries and focus its development efforts primarily on its lead program, PAC-113, in November 2007. A further reduction in management salaries was implemented in February 2008. Following the completion of its Phase IIb clinical trial of PAC-113 in June 2008, the Company reduced its operational activities in research and development and focused primarily in financing and business development activities. Pacgen is exploring different financing alternatives, including equity financing, debt arrangement, merger and acquisition, research and development collaboration and licensing arrangement, to finance its operations. As part of these efforts, the Company entered into a letter of intent for a business combination with Medigen Biotechnology Corp. ("Medigen"), a biotech company traded over the bulletin board in Taiwan, in October 2008. This proposed business combination remains subject to the negotiation of a definitive agreement between the two parties and certain other conditions.

Research and Development Expenditures

Research and development expenditures were $155,264 for Q2 2009, compared to $912,203 for Q2 2008. On a year-to-date basis, research and development expenses were $1,036,451 as compared to $1,977,423 for the same period in the preceding year.

The decrease of $756,939 in research and development expenditures in Q2 2009, as compared to Q2 2008, was primarily due to a decrease in research and development activities. The Company incurred lower development cost for all of its projects in Q2 2009, as compared to Q2 2008, due to funding constraints. Since implementation of its initial cost control program in November 2007, Pacgen has devoted its research and development efforts primarily on its lead program, PAC-113. Its research and development activities were further reduced after the Company completed the Phase IIb clinical trial of PAC-113 in June 2008.

The decrease of $940,972 in research and development expenditures in the six months ended September 30, 2008 ("YTD 2009"), compared to the same period in the preceding year ("YTD 2008"), was due to the Company's focus on the Phase II clinical development of PAC-113. Research and development expenditures for the PAC-113 program in YTD 2009 were relatively the same as those in YTD 2008; while research and development expenditures for the PAC-G31P program were significantly lower in YTD 2009 as compared to YTD 2008.

The following provides a summary of the research and development expenditures by programs for the comparative three and six months ended September 30, 2008:



For the three months ended For the six months ended
September 30, September 30,
Project 2008 2007 2008 2007
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PAC-113 $ 87,468 $ 543,370 $ 927,618 $ 922,391
PAC-G31P 67,175 352,502 101,618 1,029,889

Other Projects 621 16,331 7,215 25,143
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$ 155,264 $ 912,203 $ 1,036,451 $ 1,977,423
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General and Administration Expenditures

General and administration expenditures for Q2 2009 were $298,815, compared to $550,878 for Q2 2008. On a year-to-date basis, general and administration expenditures were $603,702 as compared to $1,187,208 for YTD 2008. The decreased general and administration expenditures in Q2 2009 and in YTD 2009, as compared to the same periods in the preceding year, were primarily due to the implementation of the cost control programs.

The following provides a summary of the general and administration expenditures for the comparative three and six months ended September 30, 2008:



For the three months ended For the six months ended
September 30, September 30,
Project 2008 2007 2008 2007
--------------------------------------------------------------------------
Salaries and benefits $ 105,619 $ 232,554 $ 211,324 $ 481,027
Consulting and
professional 130,136 69,718 271,857 293,401
Travel and accommodation 18,069 29,122 29,825 72,562
Market research for
product candidate - 99,517 - 99,517
Other general overhead 44,991 119,667 90,696 240,701
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$ 298,815 $ 550,878 $ 603,702 $ 1,187,208
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The decrease in salaries and benefits in each of the periods in Q2 2009 and YTD 2009, compared to the same periods in the preceding year, reflects the result of the Company's precautionary measures to reduce its cash burn. The Company implemented a cost management program which involved elimination of two administrative support positions and 30% reduction in management salaries in November 2007. A further 20% reduction in management salaries was implemented in February 2008. The decrease in each of the other line items, except consulting and professional fees, in Q2 2009 and YTD 2009 was also primarily due to its cost control programs. The decrease of these general and administration expenditures in Q2 2009 was offset by an increase in consulting and professional fees associated with its ongoing merger discussion and business development activities.

Liquidity and Outstanding Share Capital

As at September 30, 2008, the Company had available cash reserves comprised of cash and cash equivalents of $239,573, compared to $1,438,691 at March 31, 2008. The Company had working capital deficiency of $1,135,495 as at September 30, 2008, compared to working capital of $535,149 at March 31, 2008. The Company is currently seeking additional capital to finance its operations. Management is considering all financing alternatives, including equity financing, debt arrangement, merger and acquisition, corporate collaboration and licensing arrangement. Subsequent to the quarter ended September 30, 2008, the Company entered into a letter of intent for a business combination with Medigen. In connection with this transaction, the Company would acquire all of the issued and outstanding shares of Medigen by way of share purchase or through such other transaction structure as may be determined by the mutual agreement of Pacgen and Medigen. It is anticipated that each issued and outstanding share of Medigen would be exchanged for 2.77 common shares of Pacgen issued from treasury. Following the business combination, the current shareholders of Medigen would own majority interest of the combined company. Upon entering into a definitive agreement, Pacgen and Medigen would apply to list the combined company's common shares for trading on a TSX Group exchange. The transaction remains subject to the negotiation of a definitive agreement between Pacgen and Medigen and certain other conditions. There can be no assurance that Pacgen will enter into a definitive agreement with Medigen or that this transaction will be completed as proposed or at all.

Also subsequent to the quarter ended September 30, 2008, the Company secured a settlement arrangement with its major vendor to settle an outstanding account of approximately US$1.2 million. Under the terms of this settlement agreement, the vendor agrees to accept US$650,000 from the Company as full and final settlement for the outstanding account, subject to the condition that the payment of US$650,000 be made by no later than December 24, 2008. There remains high uncertainty associated with the Company's ability to fulfill the repayment condition set out in the settlement arrangement. The Company has not recognized any portion of the potential discount on its books. If the Company is unable to successfully complete the proposed business combination with Medigen or obtain additional capital through other financing alternatives to fulfill its current financial obligations and finance its operations, the Company may be required to curtail or discontinue its operations.

As of October 31, 2008, there were 35,144,693 common shares issued and outstanding, 9,233,141 common share purchase warrants outstanding at a weighted average price of $0.72 per share, 500,000 share purchase options outstanding at an exercise price of $2.25 per share, and 2,613,000 incentive stock options outstanding at a weighted average exercise price of $0.93 per share.

For complete financial results, please refer to our filings at www.sedar.com.



INTERIM CONSOLIDATED BALANCE SHEETS
(a development stage company)
(see notes to unaudited interim financial statements)

(expressed in Canadian dollars)

September 30, March 31,
2008 2008
$ $
--------------------------------------------------------------------------

ASSETS
Current
Cash and cash equivalents 239,573 1,438,691
Amounts receivable 7,364 12,800
Prepaid expenses and other 420,707 469,307
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Total current assets 667,644 1,920,798
Property and equipment 87,109 101,236
Intangible assets 883,716 1,002,203
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Total assets 1,638,469 3,024,237
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--------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 1,796,223 1,378,733
Current portion of deferred leasehold inducement 6,916 6,916
--------------------------------------------------------------------------
1,803,139 1,385,649
Deferred leasehold inducement 6,916 10,375
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Total liabilities 1,810,055 1,396,024
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Shareholders' equity
Share capital
Authorized:
Unlimited number of common shares without par
value
Unlimited number of preferred shares without par
value
Issued and outstanding:
Common shares 13,012,118 13,012,118
Contributed surplus 1,313,932 1,163,776
Deficit (14,497,636) (12,547,681)
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Total shareholders' equity (171,586) 1,628,213
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Total liabilities and shareholders' equity 1,638,469 3,024,237
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INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(expressed in Canadian dollars)

Cumulative
from
Inception
Three Months Ended Six Months Ended to
September 30, September 30, September
2008 2007 2008 2007 30, 2008
$ $ $ $ $
--------------------------------------------------------------------------

EXPENSES
Research and
development 155,264 912,203 1,036,451 1,977,423 7,366,881
General and
administration 298,815 550,878 603,702 1,187,208 5,630,670
Stock-based
compensation 91,346 71,418 150,156 157,823 1,077,329
Amortization 66,307 68,569 132,614 136,679 666,117
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611,732 1,603,068 1,922,923 3,459,133 14,740,997
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OTHER
Interest and
other income 12,225 26,579 25,196 70,786 250,002
Foreign exchange
gain (losses) (42,947) 1,436 (52,228) 3,638 (235,552)
Loss on
disposal
of property
and equipment - - - - (9,089)
--------------------------------------------------------------------------
(30,722) 28,015 (27,032) 74,424 5,361
--------------------------------------------------------------------------

Loss before
income taxes (642,454) (1,575,053) (1,949,955) (3,384,709) (14,735,636)
Future income
tax recovery - 30,199 - 45,199 238,000
--------------------------------------------------------------------------
Net loss and
comprehensive
loss for the
period (642,454) (1,544,854) (1,949,955) (3,339,510) (14,497,636)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Basic and
diluted loss
per common
share (0.02) (0.05) (0.06) (0.11)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Weighted
average
number of
common shares
outstanding 35,144,693 30,521,960 35,144,693 30,521,960
--------------------------------------------------------------------------
--------------------------------------------------------------------------


INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(expressed in Canadian dollars)

Cumulative
from
Inception
Three Months Ended Six Months Ended to
September 30, September 30, September
2008 2007 2008 2007 30, 2008
$ $ $ $ $
--------------------------------------------------------------------------

OPERATING
ACTIVITIES
Loss for the
period (642,454) (1,544,854) (1,949,955) (3,339,510) (14,497,636)
Add items not
affecting cash:
Amortization 66,307 68,569 132,614 136,679 666,117
Deferred
leasehold
improvement (1,729) - (3,458) - (4,611)
Future income
tax recovery - (30,199) - (45,199) (238,000)
Loss on disposal
of property and
equipment - - - - 9,089
Stock-based
compensation 91,346 71,418 150,156 157,823 1,077,329
Unrealized
foreign exchange
loss - - - - 87,936
Write-off of
research
supplies - - - - 17,819
Write-off of
withholding tax
receivable - - - - 5,548
--------------------------------------------------------------------------
(486,530) (1,435,066) (1,670,643) (3,090,207) (12,876,409)
Changes in
non-cash working
capital items
relating to
operations:
Amounts
receivable 2,307 (11,443) 5,435 1,180 136,130
Prepaid expenses
and other (2,000) 103,273 48,600 251,266 (526,462)
Accounts payable
and accrued
liabilities 135,452 471,569 417,490 (350,915) 1,770,230
--------------------------------------------------------------------------
Cash used in
operating
activities (350,771) (871,667) (1,199,118) (3,188,676) (11,496,511)
--------------------------------------------------------------------------

INVESTING
ACTIVITIES
Acquisition of
IL Therapeutics
Inc. - - - - 1,237,089
Proceeds from
disposal of
property and
equipment - - - - 5,775
Purchase of
property and
equipment - (12,564) - (19,486) (179,202)
Purchase of
intangible
assets - - - - (59,743)
Leasehold
inducement - - - - 18,444
--------------------------------------------------------------------------
Cash provided by
(used in)
investing
activities - (12,564) - (19,486) 1,022,363
--------------------------------------------------------------------------

FINANCING
ACTIVITIES
Issuance of share
capital, net of
share issuance
cost - - - - 10,018,885
Deferred
financing costs - (14,118) - (14,118) -
Advance from
related party - - - - 694,836
--------------------------------------------------------------------------
Cash provided by
financing
activities - (14,118) - (14,118) 10,713,721
--------------------------------------------------------------------------

Increase
(decrease) in
cash and cash
equivalents (350,771) (898,349) (1,199,118) (3,222,280) 239,573
Cash and cash
equivalents,
beginning of
period 590,344 3,063,435 1,438,691 5,387,366 -
--------------------------------------------------------------------------
Cash and cash
equivalents,
end of period 239,573 2,165,086 239,573 2,165,086 239,573
--------------------------------------------------------------------------
-------------------------------------------------------------------------


INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)

(expressed in Canadian dollars)

Contri-
buted
Common Shares Surplus Deficit Total
-------------------------------------------------------
Amount
Number $ $ $ $
--------------------------------------------------------------------------

Balance, March 31,
2007 30,521,960 12,286,556 795,480 (6,572,969) 6,509,067
Stock-based
compensation - - 86,405 - 86,405
Net loss for the
period - - - (1,794,656) (1,794,656)
--------------------------------------------------------------------------

Balance, June 30,
2007 30,521,960 12,286,556 881,885 (8,367,625) 4,800,816
Stock-based
compensation - - 71,418 - 71,418
Net loss for the
period - - - (1,544,854) (1,544,854)
--------------------------------------------------------------------------

Balance, September
30, 2007 30,521,960 12,286,556 953,303 (9,912,479) 3,327,380
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Contri-
buted
Common Shares Surplus Deficit Total
-------------------------------------------------------
Amount
Number $ $ $ $
--------------------------------------------------------------------------

Balance, March 31,
2008 35,144,693 13,012,118 1,163,776 (12,547,681) 1,628,213
Stock-based
compensation - - 58,810 - 58,810
Net loss for the
period - - - (1,307,501) (1,307,501)
--------------------------------------------------------------------------

Balance, June 30,
2008 35,144,693 13,012,118 1,222,586 (13,855,182) 379,522
Stock-based
compensation - - 91,346 - 91,346
Net loss for the
period - - - (642,454) (642,454)
--------------------------------------------------------------------------

Balance, September
30, 2008 35,144,693 13,012,118 1,313,932 (14,497,636) (171,586)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


About Pacgen

Pacgen is a life sciences company focused on the development of therapeutics for the treatment of infectious and inflammatory diseases. Pacgen's current development efforts are focused on PAC-113, an anti-fungal for the treatment of oral candidiasis and PAC-G31P, a novel peptide therapeutic designed to treat inflammatory diseases characterized by non-beneficial neutrophil.

PAC-113 is a 12 amino-acid antimicrobial peptide derived from a naturally occurring histatin protein found in saliva. This peptide alters the permeability of fungal cell membranes causing cell death. In June 2008, Pacgen announced positive results from its Phase IIb clinical trial demonstrating that PAC-113 is effective in the treatment of oral candidiasis and compares favourably to the efficacy demonstrated by Nystatin, a current standard of care. PAC-G31P is a small recombinant protein that is a synthetic analogue of the human cytokine called Interleukin-8 which is the key chemokine involved in neutrophil recruitment. PAC-G31P is currently being investigated in preclinical studies for its potential to treat inflammatory diseases characterized by non-beneficial neutrophil. For additional information, please visit www.pacgenbiopharm.com.

Pacgen announced on October 24, 2008 that it has entered into a letter of intent for a business combination with Medigen Biotechnology Corp., a biotech company traded over the bulletin board in Taiwan.

Forward looking Statements

Certain statements included in this press release may be considered forward-looking. Statements relating to, among other things, anticipated financial performance, business prospects, strategies, regulatory developments, market acceptance and future commitments constitute forward-looking statements. All forward-looking statements are based on Pacgen's current beliefs and expectations as well as assumptions relating to the successful completion of its clinical trials and pre-clinical studies, the time and process required to obtain regulatory approval for commercialization of its product, the ability of Pacgen to raise additional capital in future on favourable terms, the impact of competitive products and pricing in the market, new product development, and the successful and timely completion of corporate collaborations or licensing arrangements for its research programs. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, level of activity, performance or achievements to be materially different from those implied by such statements, and therefore these statements should not be read as guarantees of future performance or results. Such factors include, among others, our stage of development, lack of product revenues, additional capital requirements, risk associated with completion of clinical trials and obtaining regulatory approval, dependence on collaborative partners, and our ability to protect our intellectual property.

Risks specific to the proposed business combination with Medigen Biotechnology Corp. ("Medigen") include:

- failure to sign a definitive agreement regarding the potential combination of Pacgen and Medigen;

- failure to receive required transaction approvals from Pacgen's and Medigen's shareholders;

- failure to receive necessary stock exchange listing approvals and/or necessary approvals of the Canadian regulatory authorities;

- the ability of Pacgen and Medigen to satisfy all of the closing conditions to complete the transaction;

- risks associated with the development of PAC-113 and PAC-G31P as treatments of infectious and inflammatory diseases;

- market acceptance of Medigen's technologies and products assuming the successful completion of the transaction;

- Medigen's (and, assuming the approval of the arrangement, the combined company's) ability to obtain financing in the future, financial and technical resources relative to those of its competitors, ability to enforce its intellectual property rights and protect its proprietary technologies; and

- other risk factors identified from time to time in Pacgen's (and, assuming the approval of the arrangement, the combined company's) securities regulatory filings.

Wherever possible, words such as "anticipate", "believe", "expect", "may", "could", "will", "potential", "intend", "estimate", "should", "plan", "predict", "project" or the negative or other variations of such expressions reflect Pacgen's current beliefs and assumptions and are based on the information currently available to Pacgen. Certain risks and uncertainties, including those risk factors identified by Pacgen in its annual information form dated July 31, 2008, may cause our actual results, level of activity, performance or achievements to differ materially from those implied by forward looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made only as of the date of this press release. Pacgen disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For all forward-looking statements, Pacgen claims the safe harbour for forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995.

No regulatory authority has approved or disapproved the content of this release. The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

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