MethylGene Inc.
TSX : MYG

MethylGene Inc.

August 11, 2005 07:00 ET

MethylGene Announces Second Quarter 2005 Results

MONTREAL, QUEBEC--(CCNMatthews - Aug. 11, 2005) - MethylGene Inc. (TSX:MYG) a biopharmaceutical company, today announced operational and financial results for the second quarter ended June 30th, 2005.



Second Quarter Progress and Highlights:

- Disclosed interim and preliminary data for MGCD0103 (a non
hydroxamate, isotypic selective, oral, histone deacetylase (HDAC)
inhibitor) during the meeting of the American Society of Clinical
Oncology (ASCO). Preliminary results of two Phase I monotherapy
trials demonstrated the safety, tolerability, pharmacokinetic and
pharmacodynamic properties of MGCD0103 in patients with advanced
solid tumours.

- Disclosed interim and preliminary results during ASCO on the
initial six patients enrolled in a Phase II clinical trial for MG98
(a demethylating agent) in combination with interferon alpha, in
renal cell cancer. Two schedules are being evaluated and one
partial response has been noted from these initial patients.

- Developed two biomarker assays for histone deacetylase that measure
the pharmacodynamic effect of MGCD0103 in patients. Using these
assays, the majority of patients showed increases in histone
acetylation and/or decreased total cellular HDAC activity in
response to treatment with MGCD0103. These assays are expected to
provide MethylGene with additional insights into the relationship
between pharmacokinetics and pharmacodynamics in humans for
MGCD0103 and help guide its continuing clinical development.

- Unveiled the multitargeted kinase inhibitor program and announced
that several key anti-angiogenic kinase targets (all three VEGF
receptors and c-met) can be inhibited by the Company's lead
molecules.

- Appointed Dr. Robert Martell, M.D., Ph.D., as Vice President and
Chief Medical Officer to guide MethylGene's clinical programs.

- Granted two patents by the United States Patent and Trademark
Office: one for the HDAC program and one in the beta-lactamase
program.

- Recognized revenue of $2.1 million from partnerships with Taiho
Pharmaceutical, Merck & Co., Inc., and EnVivo Pharmaceuticals.

- Continued progress on the identification of next generation HDAC
inhibitors in cancer and other indications such as anti-fungals,
inflammation, diabetes and neurodegenerative diseases.

- Consolidated operations into one facility which should enhance the
Company's productivity and efficiency.


"During this quarter, MethylGene continued to advance its two oncology product candidates through multiple clinical trials," said Mr. Donald F. Corcoran, President and CEO of MethylGene. "We are encouraged by the preliminary safety, pharmacokinetic and pharmacodynamic effects we reported on during the quarter, in particular for MGCD0103, where preliminary data continue to differentiate the favourable aspects of our compound versus other HDAC inhibitors in the clinic."


Financial Results

Total revenues for the second quarter ended June 30th were $2.1 million compared with $3.3 million for the second quarter of 2004. These revenues consist of contract revenues and license fees stemming from our partnerships with Taiho, Merck & Co., and EnVivo Pharmaceuticals. Total expenditures were $5.7 million up from $4.5 million in the second quarter of 2004. Gross research and development and general administration costs were $4.6 million and $1.3 million in the second quarter of 2005 compared to $4.1 million and $1.2 million in the second quarter of 2004, respectively. Operations were also consolidated into one building which should provide enhanced operational efficiency and productivity. Currently, the Company is seeking to sublease the shared facility and this has resulted in a non-cash lease abandonment charge of $442,000, which is based on management's best estimate as to when it can expect to conclude a sublease agreement. Finally, we closed the quarter with $32.8 million in cash, cash equivalents and short-term investments and the Company believes that its current resources will be sufficient to carry out its research and development activities into early 2007.

Upcoming Progress and Milestones:



- Initiate the second monotherapy, dose escalating, Phase I trial for
MGCD0103 in haematological tumours during the third quarter of 2005
upon receiving final site approval from the Institutional Review
Board (IRB).

- Commence the initial MGCD0103 Phase I/II trial in combination with
another antitumour agent in a specific tumour type during late
September/October 2005.

- Evaluate and commence additional tumour types and combination
clinical trials for MGCD0103.

- Complete enrolment for the Phase I MG98 monotherapy trial in
September 2005.

- Identify the optimal schedule from the first step of the Phase II
MG98 combination trial with interferon alpha in metastatic renal
cell cancer by late 2005 or the first quarter of 2006 as well as
evaluate and consider other tumour types for combination treatment
with MG98 and interferon alpha.

- Identify a clinical candidate for the multitargeted kinase
inhibitor program within the next 6-12 months.

- Advance other research and preclinical programs towards the
identification and selection of additional clinical candidates.

- Continue to enhance and invest in MethylGene's oncology clinical
development group.



About MethylGene

MethylGene is a publicly traded biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics in cancer and infectious disease. Two cancer product candidates are currently in clinical trials: MG98, partnered with MGI Pharma for North America and MGCD0103, partnered with Taiho Pharmaceutical for certain Asian countries..

MG98 has entered a randomized two-step Phase II combination trial with interferon alpha in metastatic renal cell cancer. MGCD0103 is currently in Phase I dose-escalation monotherapy trials against solid tumours and hematological malignancies. MethylGene, in collaboration with Merck, is developing small molecule beta-lactamase inhibitors to overcome antibiotic resistance. MethylGene has a portfolio of preclinical programs for its multitargeted kinase and histone deacetylase (HDAC) inhibitors for both oncology and non-oncology indications, and continues to seek partnering opportunities in these areas. Please visit MethylGene's website at www.methylgene.com.

Except for historical information, this news release may contain forward-looking statements, which reflect the Company's current expectation regarding future events. These forward-looking statements involve risk and uncertainties,(which can be found in the Company's Annual Information Form dated December 31, 2004, and can be found on www.sedar.com) which may cause but are not limited to, changing market conditions, the successful and timely completion of clinical studies, the establishment of corporate alliances, the impact of competitive products and pricing, new product development, uncertainties related to the regulatory approval process and other risks detailed from time to time in the Company's ongoing quarterly and annual reporting.






MethylGene Inc.
Incorporated under the Quebec Companies Act

BALANCE SHEETS

As at Unaudited


June 30, December 31,
2005 2004
$ $
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ASSETS
Current
Cash and cash equivalents 9,858,539 2,046
Short-term investments 22,917,610 41,416,717
Research and development
tax credits receivable 1,350,000 690,000
Technology Partnership
Canada receivable 12,516 125,158
Accounts receivable 408,855 389,338
Other current assets 1,677,586 1,280,937
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Total current assets 36,225,106 43,904,196
Property, plant and equipment 4,691,450 3,710,392
Intangible assets 1,943,154 1,887,109
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42,859,710 49,501,697
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness - 258,388
Accounts payable and
accrued liabilities 2,888,717 2,817,614
Current portion of unearned revenue 543,783 1,722,475
Current portion of
lease abandonment cost 158,310 -
Current portion of obligations
under capital leases 15,720 20,229
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Total current liabilities 3,606,530 4,818,706
Unearned revenue 2,420,444 2,163,832
Lease abandonment cost 283,471 -
Obligations under capital leases 945 6,527
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Total liabilities 6,311,390 6,989,065
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Shareholders' equity
Capital stock 74,370,551 74,354,535
Contributed surplus 5,049,955 4,529,999
Deficit (42,872,186) (36,371,902)
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Total shareholders' equity 36,548,320 42,512,632
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42,859,710 49,501,697
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MethylGene Inc.


STATEMENTS OF OPERATIONS AND DEFICIT


For the periods ended Unaudited




Three-month period Six-month period
ended June 30, ended June 30,
------------------ ----------------
2005 2004 2005 2004
$ $ $ $
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REVENUES
Contract revenues
and license fees 2,056,244 3,284,992 3,929,937 4,723,528
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EXPENSES
Research and
development 4,605,603 4,079,010 8,826,593 8,234,097
Government
assistance (293,675) (430,266) (684,675) (911,066)
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Net research
and development 4,311,928 3,648,744 8,141,918 7,323,031
General and
administrative 1,317,537 1,206,391 2,450,812 2,226,101
Interest income (234,761) (178,018) (472,580) (302,703)
Amortization of
property, plant
and equipment 11,709 13,421 23,007 26,601
Lease abandonment
cost 441,781 - 441,781 -
Bank charges
and interest 4,043 4,931 8,093 18,641
Foreign exchange
gain (118,587) (225,342) (162,810) (376,058)
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5,733,650 4,470,127 10,430,221 8,915,613
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Net loss before
income tax 3,677,406 1,185,135 6,500,284 4,192,085
Income taxes - 68,170 - 68,170
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Net loss for
the period 3,677,406 1,253,305 6,500,284 4,260,255
Deficit, beginning
of period 39,194,780 28,382,640 36,371,902 25,375,690
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Deficit, end
of period 42,872,186 29,635,945 42,872,186 29,635,945
---------------------------------------------------------------------
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Basic and diluted
loss per share (0.17) (0.08) (0.30) (0.26)
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Weighted average
number of
common shares 21,735,810 16,417,248 21,733,660 16,361,927
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MethylGene Inc.


STATEMENTS OF CASH FLOWS


For the periods ended Unaudited


Three-month period Six-month period
ended June 30, ended June 30,
------------------ ----------------
2005 2004 2005 2004
$ $ $ $
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OPERATING ACTIVITIES
Net loss for
the period (3,677,406) (1,253,305) (6,500,284) (4,260,255)
Items not
affecting cash:
Amortization of
property, plant
and equipment 283,522 289,780 555,658 565,068
Amortization of
intangible assets 30,183 28,166 59,658 55,534
Unrealized foreign
exchange (gain)
loss on short-term
investments (101,543) 157,923 10,239 176,482
Write-down of
patents - 157,433 - 157,433
Gain on disposal
of property, plant
and equipment (422) - (422) -
Warrants related
to license fees 1,335 - 2,098 -
Non-cash
compensation
expense 238,231 498,814 466,406 943,868
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(3,226,100) (121,189) (5,406,647) (2,361,870)
Changes in non-cash
working capital
balances relating
to operations (908,634) 1,889,842 (1,907,448) 1,754,391
Changes in
long-term portion
of unearned revenue (129,290) (782,136) 302,709 (1,757,776)
Changes in
long-term portion
of lease abandonment 283,471 - 283,471 -
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Cash flows related
to operating
activities (3,980,553) 986,517 (6,727,915) (2,365,255)
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INVESTING ACTIVITIES
Acquisitions of
property, plant
and equipment,
net of government
assistance (1,153,720) (349,847) (1,537,244) (659,967)
Acquisitions of
intangible assets (33,783) (199,075) (115,703) (211,241)
Purchases of
short-term
investments (10,485,391) (40,648,110) (29,883,601)(63,311,240)
Proceeds from
maturities of
short-term
investments 13,578,157 39,541,393 48,372,469 67,113,900
Proceeds from
disposition of
property, plant
and equipment 950 - 950 -
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Cash flows related
to investing
activities 1,906,213 (1,655,639) 16,836,871 2,931,452
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FINANCING ACTIVITIES
Issuance of
common shares 9,581 21,392,700 16,016 21,392,700
Redemption of
common shares - (28) - (28)
Share issue costs - (2,064,894) - (2,064,894)
Repayment of
obligations under
capital leases (5,082) (4,794) (10,091) (9,519)
Repayment of
long-term debt - (3,290) - (6,581)
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Cash flows related
to financing
activities 4,499 19,319,694 5,925 19,311,678
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Increase in cash,
cash equivalents
and bank
indebtedness (2,069,841) 18,650,572 10,114,881 19,877,875
Cash, cash
equivalents and
bank indebtedness,
beginning of
period 11,928,380 404,445 (256,342) (822,858)
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Cash, cash
equivalents, and
bank indebtedness,
end of period 9,858,539 19,055,017 9,858,539 19,055,017
---------------------------------------------------------------------
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Cash, cash
equivalents,
and bank
indebtedness
consist of:
Cash 521,628 1,216,828 521,628 1,216,828
Cash equivalents 9,336,911 17,838,189 9,336,911 17,838,189
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Supplemental information
Interest paid 204 648 831 11,567
Income tax paid - 68,170 - 68,170
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