Ambrilia Biopharma Inc.
TSX : AMB

Ambrilia Biopharma Inc.

March 31, 2009 16:05 ET

Ambrilia Announces Fiscal 2008 Results

MONTREAL, QUEBEC--(Marketwire - March 31, 2009) - Ambrilia Biopharma Inc. (TSX:AMB) today announced its fiscal 2008 results and provided a review of the recent developments.

2008 HIGHLIGHTS AND RECENT DEVELOPMENTS

- On February 4, 2009, Ambrilia provided an update on its review of strategic alternatives that include the divestment, strategic partnership transactions or licensing of the Company's technologies, and the sale or merger of the Company. The Board of Directors has authorized the Company to broadly solicit proposals from third parties for transactions with the Company which might result in superior value for the shareholders.

- As at December 31, 2008, there was substantial doubt as to the Company's ability to continue as a going concern without having access to additional financial resources.

- On December 30, 2008, a Request for Arbitration was submitted to the International Chamber of Commerce (ICC) to resolve disputes, controversies and claims related to a November 14, 2003 Confidentiality Agreement and an October 12, 2006 exclusive license agreement between Ambrilia and Merck & Co, Inc. and Merck Sharpe & Dohme Ltd.

- On December 4, 2008, the Company entered into an exclusive license option agreement with ZBx Corporation granting ZBx the worldwide rights to develop, manufacture and commercialize Ambrilia's PSP94 technology.

- On November 19, 2008, Ambrilia announced that it intends to initiate a plan aiming to significantly reduce its activities in France. This process was completed in February 2009.

- On October 1, 2008, the Company reported positive 24-week extension Phase III ("Study 302") top line results for its proprietary prolonged-release formulation of octreotide C2L.

- On September 29, 2008, Ambrilia announced cost-cutting actions which resulted in a hold on its antiviral R&D activities, a significant reduction in cash consumption and a 33% decrease in headcount.

- On September 16, 2008 Ambrilia announced that it has succeeded in manufacturing a novel 1-month formulation of goserelin intended for the treatment of prostate cancer and several gynecological indications.

- On July 21, 2008, the Company announced that it has initiated a clinical development program of its 3-month depot formulation of goserelin, in prostate cancer patients.

- In June 2008 Ambrilia reported that it demonstrated and validated the in vivo proof-of- concept with its NGR-delivery technology applied to a carrier containing a siRNA (small interfering RNA). Data in animal tumor models showed efficient siRNA delivery to the tumor tissue, internalization and suppression of a cancer-promoting gene (oncogene).

- On May 14, 2008, Ambrilia reported positive 24-week Phase III ("Study 301") top-line results for its proprietary prolonged-release formulation of Octreotide ("C2L").

- On May 13, 2008, the U.S. licensing agreement with Covidien Ltd. was terminated and provided a one time payment of US$1.2M to Ambrilia.

PROGRAM UPDATE

Octreotide

Ambrilia reported the completion of a 24 weeks extension of its phase III study ("study 302") of C2L, the Company's long acting 30 mg Octreotide dosage form; the results support the ability of C2L 30 mg administered every six weeks to replace Sandostatin® LAR 30 mg administered every four weeks.

The other phase III study of C2L ("study 303"), which is designed to evaluate the 20 mg and 10 mg dosage forms, is proceeding and involves clinical centers in Europe and in the USA.

The Company depends on its commercial partners to file for marketing authorization and is actively preparing the modules that are necessary for submission in some countries.

Goserelin

Ambrilia announced in July 2008 that it had initiated a clinical program of its 3-month depot formulation of Goserelin in prostate cancer patients.

In parallel, the Company succeeded in developing a 1-month formulation of Goserelin, intended for the treatment of prostate cancer and several gynaecological indications.

Non-core programs

In December 2008, the Company entered into a 9-month exclusive license option agreement with ZBx Corporation granting ZBx the worldwide rights to develop, manufacture and commercialize PSP94 technology. At any time during this evaluation period ZBx is entitled to exercise its option upon which Ambrilia would be eligible to receive up to a total of US$ 3.62 million with the achievement of development and commercialization milestones, plus royalties on sales as well as a percentage share from any sublicenses. ZBx will cover all costs associated with the evaluation period and future costs associated with the further development, manufacturing and commercialization.

Divestment discussions continue to also monetize the following oncology assets:

PCK3145, Ambrilia's non-toxic therapeutic peptide for the treatment of advanced metastatic prostate cancer. The mechanism of action suggests that PCK3145 exhibits both anti-metastatic and anti-angiogenic properties. In April 2007, Ambrilia reported the results of a Phase I/II study performed at Memorial Sloan-Kettering Cancer Centre in New York in which PCK3145 showed a favorable safety profile and clinically relevant benefits primarily in terms of disease stabilization were observed in several patients.

NGR- Directed Delivery platform, Ambrilia's means to specifically deliver a therapeutic drug to tumours. The first proof-of-concept was demonstrated with a cytotoxic agent in both in vitro and in vivo animal models.

Anti-virals

Ambrilia's virology research programs have provisionally been put on hold, while the Company implements its divestment strategy.

Ambrilia's antiviral portfolio further comprises of small molecules and peptides with activity against HIV integrase, HIVentry, HCV polymerase and HCV entry.

In addition Ambrilia also has an early stage program targeting Influenza A.

On December 30, 2008, Ambrilia announced that it has submitted a Request for Arbitration with the International Chamber of Commerce (ICC) to resolve disputes, controversies and claims related to a November 14, 2003 Confidentiality Agreement and an October 12, 2006 Exclusive License Agreement between Ambrilia and Merck & Co., Inc. and Merck Sharpe & Dohme Research Ltd (collectively, "Merck") respectively and certain Ambrilia patent and other rights. Following many attempts at resolution with Merck, Ambrilia came to the conclusion that seeking arbitration was the most efficient way to reach a prompt resolution to the situation.

Acquisitions and Divestitures

The Board of Directors has approved a strategic review to explore all strategic options available to the Company to protect and enhance shareholder value including the divestment, strategic partnership transactions or licensing of the Company's technologies, and the sale or merger of the Company. The Board of Directors has established a committee of independent directors to consider and analyze all possible options. There can be no assurance that the review will result in any specific strategic or financial transactions and no timetable has been set for its completion.

During 2008, the Company increased its ownership in Ambrilia Biopharma France S.A. ("Ambrilia France") to 100% by acquiring an additional 2.82% of the outstanding shares through the exercise of its option under a share exchange agreement on March 1, 2008 and acquiring the remaining 0.07% on November 7, 2008.

RESULTS OF OPERATIONS

As at December 31, 2008, there was substantial doubt as to the Company's ability to continue as a going concern without having access to additional financial resources.

The Company has incurred significant operating losses since its inception and its anticipated level of future net annual expenditures exceeds its cash and cash equivalents as at December 31, 2008. Further, based on the Company's current projections, it is unlikely that it will be in compliance with its debt covenants beginning in the second quarter of 2009. To-date the Company has financed its cash requirements primarily by issuing common shares and debt instruments, by licensing arrangements and through investment tax credits and interest income. It is currently attempting to monetize its non-virology assets through the sale or licensing of these assets. The Company is also seeking other alternatives, including strategic partnership transactions and the sale or merger of the Company. Ambrilia's ability to continue as a going concern is subject to its ability to successfully implement these plans. There can be no assurance that these plans will materialize on a timely basis or on satisfactory terms. If the Company is unable to obtain additional financial resources, management may be required to further curtail the Company's operations.

Quarter ended December 31, 2008 compared with the quarter ended December 31, 2007

The net loss for the fourth quarter of 2008 was $19,715,286 or $0.41 per common share, compared with $6,265,104 or $0.15 per common share for the same quarter last year.

Revenues for the fourth quarter of 2008 amounted to $73,366, compared with $242,979 in the corresponding quarter in 2007. The lower level of revenues in the 2008 period resulted primarily from the decrease in interest income earned as a result of the reduced average levels of cash and lower interest rates compared to the fourth quarter of 2007.

Research and development expenses for the fourth quarter of 2008 amounted to $2,287,946, compared with $2,857,867 in same quarter in 2007. The decrease of $569,921 reflected a decrease in spending on Integrase and lower R&D general expenses following the restructuring which occurred at the end of September 2008. Research and development tax credits were $438,279 in the last quarter of 2008, compared with $249,266 in the corresponding quarter last year. The increase reflects primarily the higher rate of tax credits available in France commencing January 1, 2008.

General and administrative expenses for the fourth quarter of 2008 were $1,540,507, an increase of $25,581 over the total of $1,514,926 incurred in the final quarter of 2007. The increase resulted primarily from a provision for a lawsuit against the Company, partially offset by reduced compensation and other employee-related costs, reflecting the reduced staffing levels.

A write-down of the carrying value of intellectual property of $15,369,258 was recorded in the fourth quarter of 2008. This resulted from a review of the status of the Company's ongoing divesting activities, which indicated that an additional write-down was required to reflect a reduction in the fair value of certain of the Company's intellectual property, determined on a discounted expected cash flow basis.

Year ended December 31, 2008 compared with the year ended December 31, 2007

The net loss for the year ended December 31, 2008 amounted to $39,807,031 or $0.83 per common share, compared with a net loss of $25,277,859 or $0.75 per common share for the year ended December 31, 2007.

Revenues for 2008 amounted to $4,154,588, compared with $837,009 in 2007. The higher level of revenues in 2008 resulted primarily from the payment received from Mallinckrodt Inc., a Covidien company, of $1.2 million under the May 13, 2008 termination agreement whereby Mallinckrodt Inc. relinquished all license and marketing rights to C2L octreotide. In addition, an amount of $2.4 million relating to previous milestones received from Mallinckrodt Inc. which had been included in deferred revenue was recognized as license revenue in the current year.

Research and development expenses for 2008 amounted to $10,772,560, compared with $10,250,484 in 2007. The increase of $522,076 or 5% from 2007 reflected primarily an increase of $1.0 million for C2L , Goserelin and antivirals, partially offset by decreased spending on non core oncology technologies of $0.3 million and lower R&D general expenses. Research and development tax credits were $1,294,121 in 2008, compared with $845,632 in 2007. The increase reflects primarily the higher rate of tax credits available in France commencing January 1, 2008.

General and administrative expenses for 2008 were $5,772,494, a decrease of $1,593,132 from the total of $7,365,626 incurred in 2007. The decrease resulted primarily from lower compensation costs of $1.7. Compensation costs in 2007 included additional payments to certain outside directors totaling $0.3 million as compensation for their increased involvement in management activities in the absence of a President & CEO for most of the year.

Business development expenses amounted to $864,833 for 2008, compared to $956,333 for 2007. The decrease of $91,500 was primarily due to lower compensation costs in 2008. These amounts are segregated on the statement of operations for the first time in 2008 and were previously included with research and development and general and administrative expenses.

Amortization expense amounted to $9,523,890 in 2008, compared with $9,047,774 in 2007. The increase reflected primarily the impact of amortization on intellectual property resulting from the acquisition of additional shares of Ambrilia France during 2007 and 2008.

Interest expense on long-term liabilities for 2008 amounted to $953,465, compared with $1,055,932 in 2007. The decrease resulted from the reduced interest on the Biolevier loan as a result of the lower average level of interest rates prevailing in 2008.

Restructuring charges in 2008 amounted to $2,275,330, compared with $208,341 in 2007. The 2008 charges reflected four separate actions. The first was a decision by the Company to streamline its activities, which resulted in the departure of the former Executive Vice-President, Business Development, Licensing and IP in February 2008. This was followed in September 2008 by cost-cutting actions which resulted in a 33% reduction in headcount. In December 2008, the Company announced that it had taken additional cost-cutting actions, resulting in a further decrease in headcount. Also, in November, 2008, the Company announced that it intended to initiate a plan aimed at significantly reducing its activities in France. On February 4, 2009, the Company completed the process resulting in the layoff of all the permanent employees based in France. All related severance costs have been recorded in the current period, except for an additional amount of approximately $398,000 related to the severance costs in France which will be recorded only in the first quarter of 2009 to conform with Canadian reporting requirements.

Write-downs of the carrying value of intellectual property of $19,064,975 were recorded in 2008. These resulted from reviews carried out at both September 30 and December 31, 2008, which indicated that the write-downs were required to reflect a reduction in the fair value of certain of the Company's intellectual property.

As a consequence of the intellectual property arising on the acquisition of Ambrilia France, a future income tax liability of $9,787,526 was recorded during 2006, with additional amounts of $315,275 and $604,356 added in 2008 and 2007 respectively, primarily through the exercise of acquisition warrants to acquire additional shares of Ambrilia France. This future income tax liability is being drawn down over a term of up to the 7-year period during which the intellectual property is being amortized. This resulted in a future income tax recovery of $4,663,037 in 2008, compared with a recovery of $2,271,909 in 2007. The 2007 amount was increased by a foreign exchange gain relating to the future income tax liability of $279,780. As at December 31, 2008, the future income tax liability on the consolidated balance sheet is eliminated, as the tax benefit of the tax losses available in France now more than offsets the future income tax liability that remains following the acquisition of Ambrilia Biopharma France S.A.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents and short-term investments at December 31, 2008 totaled $8,335,164, compared with $25,399,921 at December 31, 2007, a decrease of $17,064,757 in 2008. An amount of $16,616,902 was utilized to finance operating activities including an increase of $1,746,598 in non-cash working capital, resulting primarily from an increase of $2,414,842 in deferred license revenues and a decrease of $1,776,311 in investment tax credits recoverable, partially offset by an increase of $1,464,032 in accounts payable and accrued liabilities and decreases of $814,712 in other long-term assets and $173,046 in accounts receivable. The increase in deferred license revenues resulted from the termination agreement with Mallinckrodt Inc. relating to C2L octreotide discussed above.

Financing activities generated cash flow of $295 in 2008 and $22,030,409 during 2007, when a total of $22,796,800 was generated from two equity issues, after cash expenses of $1,739,327. Also, an Ambrilia France loan of $766,391 was repaid in 2007.

Investing activities utilized $448,150 of cash, excluding amounts relating to short-term investments. An amount of $215,133 was utilized for the purchase of intellectual property and $157,217 for net additions to property, plant and equipment. An amount of $75,800 was utilized to acquire the remaining outstanding shares of Ambrilia France S.A.

The semi-annual interest expense on the $3,500,000 of convertible debentures issued in June 2005 is payable either in cash or common shares, at the option of the Company. To June 2008, the Company had elected to pay the interest in shares. However, the maximum number of common shares issuable for this purpose is limited to a number approved by the Toronto Stock Exchange, and consequently interest subsequent to the June 2008 amount must be paid in cash.

Interest on the Biolevier loan balance of $8,927,466 is at prime rate plus 3% and subsequent to November 19, 2006, is payable in cash. The loan is reported on the balance sheet at December 31, 2008 net of related expenses at $8,322,914 and is being accreted to the full amount due of $8,927,466 over the remaining term of the loan.

During 2008, general and administrative, business development and net research and development expenses amounted to $16.1 million, for an average of $1.3 million per month. During the second half of 2008, the Company announced a series of cost-cutting actions resulting in reduction in cash consumption and a decrease in headcount to preserve its cash into 2009. The Company is also reviewing strategic alternatives that include the divestment, strategic partnership transactions or licensing of the Company's technologies, and the sale or merger of the Company. There can be no assurance that the review will result in any specific strategic or financial transactions and no timetable has been set for its completion. Depending upon the success of this review, the Company may not have sufficient cash to support its activities for the next 12 months and consequently may also require additional financial resources, which could be difficult to obtain in the short-term due to the ongoing crisis in financial markets. The Company may have to undertake further reductions in its operations.

OUTSTANDING SHARE DATA

The number of common shares outstanding as of March 25, 2009 is 48,580,612, unchanged from December 31, 2008. The number of stock options outstanding at March 25, 2009 is 1,525,391, a decrease of 68,045 from December 31, 2008 due to expired options. In addition, 15,877,037 warrants are outstanding on March 25, 2009, unchanged from December 31, 2008.



Ambrilia Biopharma Inc.

CONSOLIDATED BALANCE SHEETS

As at December 31

2008 2007
$ $
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ASSETS
Current assets
Cash and cash equivalents 8,335,164 10,795,297
Short-term investments - 14,604,624
Accounts receivable 238,846 411,892
Investment tax credits recoverable 2,418,663 642,352
Prepaid expenses 182,973 175,738
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11,175,646 26,629,903
Property, plant and equipment 1,751,157 2,133,196
Intellectual property 22,648,796 48,657,580
Other long-term assets 400,000 1,214,712
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35,975,599 78,635,391
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 5,207,076 3,743,044
Deferred license revenues 1,113,116 3,527,958
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6,320,192 7,271,002
Minority interest - 1
Biolevier loan facility 8,322,914 8,205,038
Future income tax liability - 4,347,762
Convertible debentures 2,922,527 2,568,034
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17,565,633 22,391,837
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Shareholders' equity
Share capital 139,508,548 137,951,135
Warrants 8,610,715 8,610,715
Contributed surplus 8,918,574 8,502,544
Equity component of convertible debentures 1,920,914 1,920,914
Deficit (140,548,785) (100,741,754)
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18,409,966 56,243,554
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35,975,599 78,635,391
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Ambrilia Biopharma Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS,
COMPREHENSIVE LOSS AND DEFICIT

Years ended December 31

2008 2007
$ $
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REVENUES
License revenue 3,592,543 35,628
Interest and other income 562,045 801,381
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4,154,588 837,009
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EXPENSES
Research and development 10,772,560 10,250,484
Research and development tax credits (1,294,121) (845,632)
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Net research and development 9,478,439 9,404,852

General and administrative 5,772,494 7,365,626
Business development 864,833 956,333
Patent expenditures 112,220 112,489
Amortization of intellectual property 8,957,447 8,413,643
Amortization of property, plant and
equipment 566,443 634,131
Accretion of long-term liabilities 472,369 416,580
Interest on long-term liabilities 953,465 1,055,932
Restructuring charges) 2,275,330 208,341
Write-down of carrying value of intellectual
property 19,064,975 -
Financial charges 26,556 58,846
Foreign exchange losses 80,085 39,784
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48,624,656 28,666,557
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Loss before income taxes (44,470,068) (27,829,548)

Future income tax recovery 4,663,037 2,271,909
Foreign exchange gain on future income
tax liability - 279,780
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(4,663,037) (2,551,689)
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Net loss and comprehensive loss for the year (39,807,031) (25,277,859)
Deficit, beginning of year (100,741,754) (75,463,895)
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Deficit, end of year (140,548,785) (100,741,754)
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Basic and diluted loss per share (0.83) (0.75)
Weighted average number of common shares
outstanding 48,197,420 33,637,211
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Ambrilia Biopharma Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31

2008 2007
$ $
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OPERATING ACTIVITIES
Net loss for the year (39,807,031) (25,277,859)
Items not affecting cash
Amortization of property, plant and
equipment 566,443 634,131
Amortization of intellectual property 8,957,447 8,413,643
Write-down of carrying value of intellectual
property 19,064,975 -
Loss on disposal of property, plant and
equipment - 944
Accretion of long-term liabilities 472,369 416,581
Future income tax recovery and related
exchange gain (4,663,037) (2,551,689)
Interest paid by issue of common shares 122,500 245,000
Unrealized foreign exchange loss (gain) on
loan payable - (2,450)
Services paid by issuance of stock options 416,030 588,993
Compensation paid by issuance of common
shares - 100,000
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(14,870,304) (17,432,706)
Net change in non-cash balances relating to
operations (1,746,598) (352,910)
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Cash flows related to operating activities (16,616,902) (17,785,616)
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INVESTING ACTIVITIES
Acquisition of business (75,800) -
Acquisition of intellectual property (215,133) (275,895)
Acquisition of property, plant and equipment (159,485) (929,532)
Proceeds from disposal of property, plant
and equipment 2,268 951
Maturities of short-term investments 25,310,287 28,531,855
Purchase of short-term investments (10,705,663) (23,932,729)
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Cash flows related to investing activities 14,156,474 3,394,650
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FINANCING ACTIVITIES
Issuance of units - 18,675,000
Unit issue costs - (1,539,074)
Issuance of common shares 295 5,861,127
Share issue costs - (200,253)
Repayment of loan payable - (766,391)
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Cash flows related to financing activities 295 22,030,409
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Net increase (decrease) in cash and cash
equivalents (2,460,133) 7,639,443
Cash and cash equivalents, beginning of year 10,795,297 3,155,854
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Cash and cash equivalents, end of year 8,335,164 10,795,297
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AMBRILIA'S FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that reflect the Company's current expectation regarding future events. There is a risk that expectations and forward looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on these forward-looking statements as they involve risks and uncertainties, which could make actual results differ materially from those projected herein and depend on a number of factors including, but not limited to, the outcome of the arbitration with Merck, changing market conditions, successful and timely completion of clinical studies, uncertainties related to the regulatory approval process, establishment of corporate alliances and other risks detailed from time to time in the Company's filings. We refer you to the Risk Factors section of the Company's annual information form which contains a more exhaustive analysis of the risks and uncertainties that are generally connected to the business of the Company. Such statements are also based on various assumptions, including the successful and timely completion of clinical studies on Ambrilia's products demonstrating efficacy and safety for human use, their successful commercialization within the forecasted timelines and the attainment of the forecasted milestone payments and other revenues. While Ambrilia anticipates that subsequent events and developments may cause Ambrilia's views to change, Ambrilia specifically disclaims any obligation to update these forward looking statements, unless obligated to do so by applicable securities laws.

ABOUT AMBRILIA BIOPHARMA

Ambrilia Biopharma Inc. (TSX:AMB) is a biotechnology company focused on the discovery and development of novel treatments for viral diseases and cancer. The Company's strategy aims to capitalize on its broad portfolio and original expertise in virology. Ambrilia's product portfolio is comprised of oncology and antiviral assets, including two new formulations of existing peptides for cancer treatment, a therapeutic peptide for prostate cancer, a targeted delivery technology for cancer, an HIV protease inhibitor program (exclusive worldwide rights granted to Merck & Co., Inc.) as well as HIV integrase and entry inhibitors, Hepatitis C virus inhibitors and anti-Influenza A compounds. Ambrilia's head office, research and development and manufacturing facilities are located in Montreal.

For more information, please visit the Company's web site: www.ambrilia.com

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