Inflazyme Pharmaceuticals Ltd.
TSX : IZP

Inflazyme Pharmaceuticals Ltd.

August 08, 2005 08:01 ET

Inflazyme Pharmaceuticals Ltd. Agrees Plan with FDA for Future Development of Asthma Product, IPL512,602; Also Announces Financial Results for Quarter Ended June 30, 2005

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 8, 2005) - Inflazyme Pharmaceuticals Ltd. (TSX:IZP) today announced that it has obtained written feedback from the FDA regarding the clinical development of its lead compound, IPL512,602, for the treatment of asthma, including the prospective use of patient reported outcomes such as Quality of Life or Symptom Scores, as primary endpoints for Phase 3 studies. The Company also announced its first quarter financial results for the quarter ended June 30, 2005.

Clinical Plan

In April 2005, Inflazyme stated its intentions to further advance IPL512,602 for the treatment of asthma, targeting the underlying inflammation leading to improved asthma control. In a Phase 2 asthma study completed in the summer of 2004, IPL512,602 demonstrated statistically significant improvements in several of the predefined secondary endpoints that are recognized markers of asthma control including quality of life measures, and decreased need for rescue medication. Inflazyme has been in dialogue with the FDA to understand the acceptability of these endpoints to support efficacy in Phase 3 asthma trials. The Company has now received feedback from the Pulmonary Drug Division of the FDA confirming that the agency would consider the use of quality of life measures and other patient-reported outcomes among the primary endpoints for Phase 3 studies. Quality of life measures used in the initial Phase 2 study are intended to be used in future studies with IPL512,602, and are similar to those employed to support efficacy in pivotal trials with other approved asthma products.

Dr. Kevin Mullane, President and CEO of Inflazyme stated "There has been increasing recognition among asthma physicians that there is not a direct correlation between measures of airflow obstruction, such as FEV1 (forced expiratory volume in one second) and asthma control; with increasing emphasis on the need to control asthma symptoms and improve the quality of life. Consequently, we are very pleased that the FDA recognizes the importance of patient reported outcomes among the endpoints suitable for the development of new asthma products. This supports our clinical strategy for the development of IPL512,602, particularly for disease control and the management of symptoms."

The Company is continuing to advance IPL512,602 towards a Phase 2b clinical study, targeted to begin in Q1'2006. The manufacture of drug product will begin this quarter, and the clinical protocol is being finalized after a feasibility study is completed. In addition, the Company is seeking a development and commercialization partner to continue to progress the compound through clinical trials to market. The Company believes that this agreement with the FDA on the clinical strategy going forward will assist in the partnering efforts and helps refine the clinical program.

Financial Results for the Quarter Ended June 30, 2005

The Company ended the first quarter with $13.5 million in cash and short term investments down from $15.9 million at March 31, 2005. Cash used in operations of $2.3 million was consistent with the Company's guidance in its shareholder letter of April 15, 2005 and was down from the previous quarter's $2.7 million and significantly less than the $5.6 million for the corresponding quarter last year, reflecting the restructuring undertaken last year.

The Company remains on track to have two compounds in Phase II in the first half of 2006 as Helicon Therapeutics Inc., our partner in the development of IPL455,903, continues to progress that compound in learning and memory disorders and the Company continues the preparation (primarily the manufacture of clinical supplies) for a Phase IIb asthma study with IPL512,602. The Company is seeking a strategic partner to support further development of IPL512,602, beginning with the Phase IIb study.

In addition, the Company is seeking to strengthen its financial position through the divestiture of non-core assets but even without this additional funding the Company believes that its working capital position at June 30, 2005 will enable the Company to fund operating expenses and capital requirements into the first quarter of calendar 2007.

Results of Operations

The net loss for the quarter ended June 30, 2005 was $3,063,939 ($0.03 per common share) compared to a net loss of $7,022,774 ($0.07 per common share) in the corresponding quarter in the prior year. The decrease in the loss of $3,958,835 was due to reductions in personnel expenses, laboratory costs and contract research activity.

In addition, during the quarter ended June 30, 2004 the Company recorded a write-down of $2,335,797 of its acquired intangible assets resulting from the termination of the GH9001 clinical development program which was partially offset by a gain of $1,090,354 related to the early termination of a facilities lease.

Research and development expenses

Research and development expenses for the first quarter ended June 30, 2005 were $1,202,493 versus $2,927,095 during the quarter ended June 30, 2004. The decrease was due to the reduction in personnel expenses through headcount reductions and the resultant reduction in laboratory activity. Contract research activity was also lower during the first quarter compared to the corresponding quarter last year.

In addition, partially offsetting the above decreased costs incurred during the first quarter was the recognition of $63,099 in stock-based compensation. Stock-based compensation of $28,390 was recorded during the first quarter of the prior year.

General and administration expenses

General and administration expenses for the quarter ended June 30, 2005 were $1,111,910 compared to $1,904,725 for the corresponding quarter of the prior year, a decrease of $792,815. The decrease was due to reduced facilities costs and lower personnel expenses offset by higher professional fees.

Also, during the quarter ended June 30, 2005 general and administration related stock-based compensation was $62,732. Stock based compensation of $29,275 was recorded in the corresponding quarter of the prior year.

Amortization expenses

The Company recorded $852,513 in amortization expense during the quarter ended June 30, 2005 compared to $1,014,103 during the corresponding quarter of the prior year. The amortization amount has decreased due to write-downs in the acquired intangible asset balances taken during fiscal 2005.

During May 2004, the Company recorded an impairment in the acquired intangible assets balance of $2,335,797 relating to the termination of the GH9001 clinical development program. On March 31, 2005 the carrying value of the acquired in-process research and development related to the technology acquired on the acquisition of Adprotech Ltd. in 2004 was written down by $6,010,282 to reflect the estimated fair value of the assets.

Liquidity and Capital Resources

At June 30, 2005 the Company's cash, cash equivalents and short-term investments totalled $13,518,418 compared to $15,860,738 at March 31, 2005. Working capital at June 30, 2005 was $12,882,462 compared to $15,057,698 at March 31, 2005. The decrease in working capital reflects use of capital resources in the on-going operations of the business.

Cash and cash equivalents were $13,306,845 at June 30, 2005 compared to $15,650,334 at March 31, 2005 a decrease of $2,343,489. The decrease in cash and cash equivalents resulted from cash used in financing activities of $24,894, cash used to fund operating activities of $2,267,526 and cash used in investing activities of $51,070.

The Company believes that its working capital position at June 30, 2005 will enable the Company to fund operating expenses and capital requirements into the first quarter of calendar 2007.

Conference call

Inflazyme will host a conference call to discuss this announcement on Monday August 8, 2005 at 9:00 am PDT/12:00 pm EDT. To access the call, please dial (416) 695-9753 or 1-800-766-6630. Audio replay of the conference call will be available until September 8, 2005 by calling (416) 695-5275 or 1-888-509-0081.

About Inflazyme

Inflazyme is a Vancouver based biopharmaceutical company focused on developing new therapies for the treatment of respiratory diseases, inflammation and other related diseases in areas of unmet medical needs. Further information on the Company may be obtained from its website at www.inflazyme.com.

Statements in this news release other than historical information are forward-looking statements subject to risks and uncertainties. Actual results could differ materially depending on factors such as the availability of resources, the timing and effects of regulatory actions, the strength of competition, the outcome of litigation and the effectiveness of patent protection. Additional information regarding risks and uncertainties is set forth in the current Annual Information Form for Inflazyme on file with the Canadian Securities Commissions.



Inflazyme Pharmaceuticals
Consolidated Balance Sheets
(Unaudited)

June 30 March 31
2005 2005
-------------- -------------
Assets

Current assets
Cash and cash equivalents $ 13,306,845 $ 15,650,334
Short-term investments 211,573 210,404
Interest receivable 19,758 18,451
Other receivables 84,949 132,988
Prepaid expenses 293,001 346,260
Tax credits recoverable 808,764 1,597,429
-------------- -------------
14,724,889 17,955,866

Property and equipment 2,486,369 2,701,098
Other assets 1,991,777 1,990,828
Acquired intangible assets 7,326,699 7,885,373

-------------- -------------
$ 26,529,735 $ 30,533,165
-------------- -------------
-------------- -------------


Liabilities

Current liabilities
Accounts payable and accrued
liabilities $ 1,814,366 $ 2,845,213
Current portion of long-term
debt 28,061 52,955
-------------- -------------
1,842,427 2,898,168

Deferred licensing revenue 297,020 306,601
-------------- -------------
2,139,446 3,204,768
-------------- -------------
Shareholders' equity

Capital stock
Issued
Preference shares - 21,957,676
Common shares 138,910,033 116,952,357
------------ ------------
138,910,033 138,910,033
Contributed surplus 1,507,571 1,381,739
Deficit (116,027,314) (112,963,375)
-------------- -------------
24,390,290 27,328,397

-------------- -------------
$ 26,529,736 $ 30,533,165
-------------- -------------
-------------- -------------

On behalf of the board

Kevin Mullane (signed) Graham Wilson (signed)
President and CEO Director
Director


Inflazyme Pharmaceuticals Ltd.
Consolidated Statements of Operations and Deficit
(Unaudited)

For the Three Months Ended
----------------------------------
June 30, 2005 June 30, 2004
----------------------------------

Revenues
Interest $ 93,396 $ 166,987
Licensing revenue 9,581 9,581
----------------------------------
102,977 176,568
----------------------------------
Expenses

Research and development 1,202,493 2,927,095
General and administration 1,111,910 1,904,725
Amortization 852,513 1,014,103
Write-down of acquired
intangible assets - 2,335,797
Write-downs and loss on
disposal - 107,976
(Gain) / Loss on lease
termination - (1,090,354)
----------------------------------

Total expenses 3,166,916 7,199,342

----------------------------------
Loss for the period (3,063,939) (7,022,774)

Deficit, beginning of period (112,963,375) (84,855,701)
----------------------------------

Deficit, end of period $ (116,027,314) $ (91,878,475)
----------------------------------
----------------------------------

Basic and diluted loss per
common share (0.03) (0.07)
----------------------------------
----------------------------------

Weighted average number of
common shares outstanding 106,676,361 103,427,446
----------------------------------
----------------------------------


Inflazyme Pharmaceuticals Ltd.
Consolidated Statements of Cash Flows
(Unaudited)

For the Three Months Ended
----------------------------------
June 30, 2005 June 30, 2004
----------------------------------

Cash flows from operating
activities
Loss for the period $ (3,063,939) $ (7,022,774)
Items not affecting cash:
Amortization 852,513 1,014,103
Write-downs and loss on
disposal - 107,976
Write-down of acquired
intangible assets - 2,335,797
Deferred licensing revenue (9,581) (9,580)
Gain on reversal of lease
liability - (1,090,354)
Change in lease liability - (54,519)
Stock-based compensation 125,832 57,665
----------------------------------
(2,095,175) (4,661,686)

Changes in non-cash working
capital (172,351) (921,528)
----------------------------------
(2,267,526) (5,583,214)

Cash flows from financing
activities
Repayment of long-term debt (24,894) (144,562)
----------------------------------
(24,894) (144,562)
----------------------------------

Cash flows from investing
activities
Short-term investments 1,169 452,498
Cash from the acquisition of
Adprotech - 7,345,991
Acquisition costs - Adprotech - (582,258)
Other assets (46,408) (67,330)
Purchase of property and
equipment (5,831) (82,592)
----------------------------------
(51,070) 7,066,309

----------------------------------
Increase (decrease) in cash
and cash equivalents (2,343,489) 1,338,533

Cash and cash equivalents,
beginning of period 15,650,334 27,375,085
----------------------------------
Cash and cash equivalents,
end of period $ 13,306,845 $ 28,713,618
----------------------------------
----------------------------------

Supplemental disclosure of
cash flow information
Interest paid 9,159 10,263
Interest received 93,396 166,987
Issuance of common shares on
conversion of Series 1,
Class A preference
shares 21,957,676 -
Issuance of common shares on
the acquisition of Adprotech
Limited net assets - 19,533,445



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