Inflazyme Pharmaceuticals Ltd.
TSX : IZP

Inflazyme Pharmaceuticals Ltd.

June 29, 2005 16:11 ET

Inflazyme Pharmaceuticals Ltd. Announces Financial Results for the Quarter and Year Ended March 31, 2005

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - June 29, 2005) - Inflazyme Pharmaceuticals Ltd. (TSX:IZP) -

Dear Shareholder:

I am pleased to provide you with an update on Inflazyme since my last communication with you on April 15, 2005. In my shareholder letter to you at that time I set out our goals and plans for the future. I would like to share with you the good progress we are making.

Progress with our LSAID™ - IPL512,602

You may recall in April, I announced that we were re-defining our clinical strategy with IPL512,602 for the treatment of persistent asthma and that we are communicating with the FDA about our plans to start a new trial with the product. Over the last two months we have developed an information package which includes the results from the Phase IIa study and a protocol outline for the proposed upcoming Phase IIb clinical study. We have submitted this to the FDA and will be meeting with them to discuss the design of the next trial with IPL512,602.

We expect IPL512,602 to advance into a Phase IIb clinical study by early next year and we are actively seeking a strategic partner to continue the further development and commercialization of IPL512,602.

The results of the Phase IIa study with IPL512,602 in mild to moderate, steroid-free patients demonstrated that the product was safe and well tolerated during the 12 week study. The efficacy results from this trial showed no effect on FEV1 (which is a measure of lung function assessed by the volume of air exhaled in the first second after deep inhalation). However, improvements were observed in other pre-defined endpoints which are important measures of asthma control such as morning peak expiratory flow, which is another measure of lung function, use of rescue medication, Asthma Quality of Life (AQLQ) scores and bronchial hyperresponsiveness, commonly referred to as "airway twitchiness", an important surrogate for inflammation. We are encouraged by the evidence for potential benefit with IPL512,602 and plan to evaluate the product further in patients that have persistent asthma.

Progress with our PDE4 inhibitor - IPL455,903

On May 10, 2005, we announced the encouraging results of the first Phase I clinical studies with IPL455,903 (also known as HT-0712). The study was conducted by our partner Helicon Therapeutics, Inc. of Farmingdale, New York, who is developing the compound for the treatment of learning and memory disorders.

A total of 50 healthy volunteers aged between 18-81 years were tested with placebo or active drug in single, ascending doses. The drug was shown to be safe and well tolerated at all doses tested, with no serious adverse events and it demonstrated acceptable pharmacokinetic properties. In particular, there was no evidence of nausea or vomiting (also referred to as emesis), a side effect which has been frequently observed with other PDE4 inhibitors in clinical development, even after a single dose of the drug has been administered. This effect has hampered the successful development of this class of drug.

Helicon is currently continuing the Phase I program with a double blind, placebo controlled, multi-dose study of IPL455,903 in healthy volunteers. These studies will expand on the single dose studies by investigating further the safety, tolerability and pharmacokinetic properties of the compound. Helicon is on track to complete these studies by the Fall of this year and we have been advised by them that IPL455,903 is expected to advance into Phase IIa clinical studies early next year for the treatment of learning and memory disorders.

Research Programs

As well as concluding our pre-clinical efforts on Mirococept® and Prodaptin™ (described below), our research team is working to advance a compound from our LSAID™ IPL12 series into pre-clinical development for other respiratory diseases. In addition, they are working to identify a new PDE4 inhibitor for respiratory and inflammatory indications based on our active, non-emetic pharmacophore from the IPL455,903 series. The objective is to identify compounds which demonstrate certain advantages over other PDE4 inhibitors currently in development by competitor pharmaceutical and biotechnology companies.

Mirococept® and Prodaptin™

As we indicated in our shareholder letter in April, we plan to divest the protein therapeutics technology, namely the Complement inhibitors and Prodaptin™, in an effort to unlock the potential of these assets. We have completed all our pre-clinical studies with Mirococept® and we have determined that prevention of delayed graft function in renal transplantation and shock associated with trauma represent the most suitable opportunities for other pharmaceutical companies to advance this product into clinical studies. Prodaptin™ is a broadly enabling drug targeting technology that has application to many drug classes which may be of interest to both pharmaceutical and biotechnology companies. We are actively seeking strategic partners to develop and advance the Complement and Prodaptin™ technologies.

Conclusion

I am encouraged by the progress we have made in the last two months and that the Company is on track to meet its goal of two Phase II compounds in clinical trials by early 2006. In addition, we are looking at all opportunities to divest non-core assets so as to apply more resources to our more promising areas and to further strengthen our financial position. I am also pleased to announce that this month I was appointed to the Board of Directors of Inflazyme.

I have every confidence in my team and our Board of Directors and together we are fully committed to building value for our shareholders and conducting the best science so that our products can eventually reach the market and treat patients that suffer from asthma and other diseases.

I personally thank you for your continuing belief in and support of Inflazyme.

Results of operations for the quarter ended March 31, 2005

The net loss for the quarter ended March 31, 2005 was $10,511,477 ($0.10 per common share) compared to a net loss of $3,999,525 ($0.05 per common share) for the quarter ended March 31, 2004. The increase in the loss of $6,511,952 during the quarter was due to the write-down of acquired intangible assets acquired on the acquisition of Adprotech Limited ("Adprotech"), higher amortization expenses resulting from the amortization of intangible assets acquired during the Adprotech acquisition, one time severance charges recorded with respect to the departure of the Company's former President and CEO and a final lease termination payment related to laboratory and office space located in Toronto, Ontario. These increased costs were offset by decreases in expenses relating to contract research activity, research and development activity, as well as decreased personnel costs.

Revenue

Interest revenue for the quarter-ended March 31, 2005 was $110,970 compared to $182,980 for the quarter-ended March 31, 2004. The decrease of $72,010 was primarily due to lower investment balances.

Research and development

During the quarter ended March 31, 2005 research and development expenses were $1,130,996 compared to $2,455,115 for the same period during the prior year, a decrease of $1,324,119. The decrease is a result of reduced contract research and development activities during Q4 2005, as well as reduced laboratory activities and personnel costs as compared to the corresponding period last year.

General and administration

General and administration expenses for the quarter ended March 31, 2005 were $1,018,006 compared to $1,126,081 for the corresponding period in the prior year. The $108,075 decrease is primarily related to lower personnel costs as compared to the same quarter in the prior year. These reductions were somewhat offset by greater compliance and business development activity.

Cash used in operating activities for the quarter ended March 31, 2005 was $2,733,677.

Results of operations for the year ended March 31, 2005

The net loss for the year ended March 31, 2005 was $28,107,675 ($0.27 per common share) compared to a net loss of $16,034,235 ($0.20 per common share) in the prior year. The increase in the loss of $12,073,440 for the year was primarily due to the write-down of acquired intangibles, restructuring expenses and higher amortization expenses incurred for the current year, compared to the twelve months ended March 31, 2004.

The Company recorded $8,346,079 in write-downs to acquired intangible assets for the year ended March 31, 2005. The write-downs resulted from the termination of the GH9001 clinical development program ($2,335,797) and a recognition of impairment of the identifiable intangible assets acquired in the Adprotech transaction ($6,010,282).

The Company recorded $1,358,488 restructuring expense for the year ended March 31, 2005 for severance and other employee separation expenses during the year.

Revenue

Interest revenue for the year ended March 31, 2005 was $557,908 compared to $665,144 for the prior year. The decrease of $107,236 for the year was primarily due to lower investment balances. The Company also recognized $102,538 of licensing revenue related to partnerships with Helicon and Spire Biomedical.

Research and development

Research and development expenses for fiscal 2005 were $9,041,933 and were consistent with the research and development expense recorded in the prior year of $9,043,181. A number of offsetting factors explain this result. The acquisition of Adprotech in April 2004 added to the expenses of maintaining the Company's intellectual property position, contracted research relating to Adprotech's on-going clinical programs, as well as to the personnel costs of the business. These increases were offset by decreased laboratory activity and decreased personnel costs after the July 27, 2004 restructuring of the Company's operations.

In addition, partially offsetting the above increased costs incurred during fiscal 2005 was the recognition of $169,842 in stock-based compensation. Stock-based compensation of $231,580 was recorded in the prior year.

General and administration

General and administration expenses for the year ended March 31, 2005 were $5,312,724 compared to $5,515,156 for the prior year. The decrease of $202,432 for the year ended March 31, 2005 was due to reduced personnel expenses offset by higher professional fees and compliance related costs.

The decrease in personnel expenses resulted largely from restructuring efforts during the year. In addition to a lower headcount, no bonuses were paid during the year ended March 31, 2005. Also, during the year ended March 31, 2005 G&A stock-based compensation was $113,557. Stock based compensation of $720,634 was recorded in the prior year.

Professional fees and compliance fees increased during the year due to increased activity with respect to strategic initiatives, such as acquisitions and restructuring, as well as increased compliance requirements such as the costs of complying with Multilateral Instrument 52-109 (Certification of Disclosure in Issuers' Annual and Interim Filings) for March 31, 2005.

Amortization

Amortization expense for the year ended March 31, 2005 was $4,623,377 compared to $2,214,272 in the prior year. The increase of $2,409,105 was related to the amortization of equipment and intangible assets acquired as part of the acquisition of Adprotech.

Liquidity and Capital Resources

At March 31, 2005 the Company's cash, cash equivalents and short-term investments totaled $15,860,738 compared to $27,827,583 at March 31, 2004. Working capital at March 31, 2005 was $15,057,698 compared to $26,538,779 at March 31, 2004. The decrease in working capital reflects use of capital resources in the on-going operations of the business, offset by the cash proceeds injected as a result of the Adprotech acquisition.

Cash and cash equivalents were $15,650,334 at March 31, 2005 compared to $27,375,085 at March 31, 2004 a decrease of $11,724,751. The decrease in cash and cash equivalents resulted from cash used in financing activities of $408,478 and cash used to fund operating activities of $17,698,462 offset by cash provided by investing activities of $6,382,189.

Cash flows provided by investing activities primarily related to cash resulting from the acquisition of Adprotech of $7,345,992, offset by costs associated with the acquisition of Adprotech of $582,258.

The Company believes that its working capital position at March 31, 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 Thursday, June 30, 2005 at 9:00 a.m. PDT/12:00 p.m. EDT. To access the call, please dial (416) 695-6120 or 1-888-789-0150. Audio replay of the conference call will be available until July 30, 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 Ltd.
Consolidated Balance Sheets
(Unaudited)

March 31 March 31
2005 2004
-------------- --------------
Assets

Current assets
Cash and cash equivalents $ 15,650,334 $ 27,375,085
Short-term investments 210,404 452,498
Interest receivable 18,451 38,882
Other receivables 132,988 243,566
Prepaid expenses 346,260 402,623
Tax credits recoverable 1,597,429 794,675
-------------- --------------
17,955,866 29,307,329

Deferred acquisition costs - 301,527
Property and equipment 2,701,098 3,487,071
Other assets 1,990,828 1,758,908
Acquired intangible assets 7,885,373 4,864,218

-------------- --------------
$ 30,533,165 $ 39,719,053
-------------- --------------
-------------- --------------

Liabilities

Current liabilities
Accounts payable and
accrued liabilities $ 2,845,213 $ 2,039,558
Current portion of lease liability - 320,514
Current portion of long-term debt 52,955 408,478
-------------- --------------
2,898,168 2,768,550

Lease liability - 933,396
Long-term debt - 52,955
Deferred licensing revenue 306,601 344,925
-------------- --------------
3,204,768 4,099,826
-------------- --------------

Shareholders' equity

Capital stock
Issued
Preference shares 21,957,676 21,957,676
Common shares 116,952,357 97,418,912
-------------- --------------
138,910,033 119,376,588
Contributed surplus 1,381,739 1,098,340
Deficit (112,963,375) (84,855,701)
-------------- --------------
27,328,397 35,619,227

-------------- --------------
$ 30,533,165 $ 39,719,053
-------------- --------------
-------------- --------------

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 For the
Three Months Ended Twelve Months Ended
-------------------------- --------------------------
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
-------------------------- --------------------------

Revenues
Interest $ 110,970 $ 182,980 $ 557,908 $ 665,144
Licensing
revenue 9,581 9,581 102,538 73,230
-------------------------- --------------------------
120,551 192,561 660,446 738,374
-------------------------- --------------------------
Expenses

Research and
development 1,130,996 2,455,115 9,041,933 9,043,181
General and
administration 1,018,006 1,126,081 5,312,724 5,515,156
Amortization 1,152,417 610,890 4,623,377 2,214,272
Write-down of
acquired
intangible
assets 6,010,282 - 8,346,079 -
Restructuring
expenses 762,000 - 1,358,488 -
Write-downs and
loss on
disposal 150,826 - 345,374 -
(Gain) /
Loss on
lease
termination 407,500 - (259,854) -
-------------------------- --------------------------

Total expenses 10,632,028 4,192,086 28,768,122 16,772,609

-------------------------- --------------------------
Loss for
the period (10,511,477) (3,999,525) (28,107,675) (16,034,235)

Deficit,
beginning
of period (102,451,898) (80,856,176) (84,855,701) (68,821,466)
-------------------------- --------------------------

Deficit,
end of
period $(112,963,375)$(84,855,701)$(112,963,376)$(84,855,701)
-------------------------- --------------------------
-------------------------- --------------------------

Basic and
diluted
loss per
common share (0.10) (0.05)$ (0.27)$ (0.20)
-------------------------- --------------------------
-------------------------- --------------------------

Weighted
average
number of
common
shares
outstanding 106,215,150 85,140,946 105,554,884 80,486,533
-------------------------- --------------------------
-------------------------- --------------------------


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

For the For the
Three Months Ended Twelve Months Ended
---------------------------------------------------
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
---------------------------------------------------

Cash flows
from
operating
activities
Loss for
the period $(10,511,477)$ (3,999,525)$(28,107,675)$(16,034,235)
Items not
affecting
cash:
Amortization 1,152,417 610,890 4,623,377 2,214,272
Write-downs
and loss
on disposal 150,826 57,940 345,374 109,692
Write-down of
acquired
intangible
assets 6,010,282 - 8,346,079 -
Deferred
licensing
revenue (9,581) (9,580) (38,324) (38,325)
Gain on
reversal
of lease
liability - - (1,090,354) -
Change in
lease
liability - (54,519) (163,556) (163,554)
Stock-based
compensation (15,512) 72,526 283,400 952,214
---------------------------------------------------
(3,223,045) (3,322,268) (15,801,679) (12,959,936)
Changes in
non-cash
working
capital 489,368 (12,575) (1,896,783) (1,362,737)
---------------------------------------------------
(2,733,677) (3,334,843) (17,698,461) (14,322,673)

Cash flows
from
financing
activities
Repayment of
long-term debt (32,773) (557,013) (408,478) (1,165,533)
Common shares
issued for cash - - - 15,230,384
Cost of common
share issuances - - - (1,578,750)
---------------------------------------------------
(32,773) (557,013) (408,478) 12,486,101
---------------------------------------------------

Cash flows
from investing
activities
Short-term
investments (1,184) 20,959,100 242,094 4,547,502
Disposal of
assets held
for sale 379 280,000 4,241 303,880
Cash from
the acquisition
of GlycoDesign - - - 12,852,187
Acquisition costs
- GlycoDesign - - - (1,741,475)
Deferred
acquisition costs - (301,527) - (301,527)
Cash from the
acquisition
of Adprotech - - 7,345,992 -
Acquisition costs
- Adprotech - - (582,258) -
Other assets (133,691) (95,020) (423,476) (367,112)
Purchase of
property
and equipment (28,939) (288,966) (204,404) (403,462)
---------------------------------------------------
(163,435) 20,553,587 6,382,189 14,889,993

---------------------------------------------------
Increase
(decrease)
in cash and
cash
equivalents (2,929,885) 16,661,731 (11,724,751) 13,053,421

Cash and cash
equivalents,
beginning of
period 18,580,219 10,713,356 27,375,085 14,321,664
---------------------------------------------------
Cash and cash
equivalents,
end of period $ 15,650,334 $ 27,375,087 $ 15,650,334 $ 27,375,085
---------------------------------------------------
---------------------------------------------------

Supplemental
disclosure
of cash flow
information
Interest paid 3,387 8,858 23,253 96,187
Interest received 110,970 182,980 557,908 665,144
Issuance of common
shares and grant
of stock options - - - 15,064,740
on the acquisition
of GlycoDesign Inc.
net assets
Issuance of common
shares on the
acquisition of - - 19,533,444 -
Adprotech Limited
net assets



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