Ondine Biomedical Inc.
TSX : OBP
AIM : OBP

Ondine Biomedical Inc.

November 11, 2010 08:00 ET

Ondine Announces Third Quarter 2010 Financial Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 11, 2010) - Ondine Biomedical Inc. (TSX:OBP)(AIM:OBP) (formerly Ondine Biopharma Corporation, the "Company" or "Ondine") a medical device company developing photodisinfection based products, announced its financial results for the third quarter ended September 30, 2010.

"Despite continued challenging economic conditions, Ondine experienced continued growth and partner interest across all our business sectors during the third quarter of 2010," stated Carolyn Cross, Chairman and CEO. "We initiated sales of our convenient, cordless handheld laser and our Advanced Treatment Kit to Ondine's dental business partner, Periowave Dental Technologies, Inc. Initial response from clinicians using the system has been highly favorable. Shortly after Ondine formed Sinuwave Technologies Corporation to develop a photodisinfection treatment for chronic, debilitating sinus infections, we were proud to have received immediate and significant interest in this application of photodisinfection through the sale of a majority interest in Sinuwave Technologies Corporation to a private equity group. In addition to the initial payment received on closing of this sale, Ondine is entitled to receive significant additional consulting fee revenue in connection with the development of the Sinuwave product, milestone payments, and manufacturing revenues and royalties on future sales of the product. This successful transaction demonstrates Ondine's evolved business model: completion of the initial research and development of photodisinfection products destined to fulfill critically-unmet medical needs, followed by rapid partnership in order to accelerate the development of multiple photodisinfection product opportunities."

FINANCIAL RESULTS

For the three months ended September 30, 2010 ("Third Quarter 2010") the Company recorded a loss of $0.32 million, or $0.00 per common share, compared with a loss of $1.58 million, or $0.02 per common share, for the three months ended September 30, 2009 ("Third Quarter 2009"). Revenue, net of cost of sales, for Third Quarter 2010 was $0.34 million, including gross margin of $0.01 million (12.9%) on Periowave™ product sales of $0.10 million compared to revenue, net of cost of sales, for Third Quarter 2009 of $0.17 million, including gross margin of $0.01 million (41.2%) on Periowave™ product sales of $0.03 million.

For the nine months ended September 30, 2010 ("Nine Months 2010"), the Company recorded a loss of $2.57 million or $0.02 per common share compared with a loss of $3.37 million or $0.04 per common share during the nine months ended September 30, 2009 ("Nine Months 2009"). Revenue, net of cost of sales, for the Nine Months 2010 was $0.83 million, including gross margin of $0.11 million (41.6%) on Periowave™ product sales of $0.26 million compared to revenue, net of cost of sales, for the Nine Months 2009 of $0.56 million, including gross margin of $0.35 million (63.9%) on Periowave™ product sales of $0.54 million.

RECENT DEVELOPMENTS

In September 2010, Ondine sold a majority interest in its then wholly owned subsidiary, Sinuwave Technologies Corporation ("STC"), for US$660,000 ($678,414) to a private equity investor group (the "STC Sale"). STC is developing the Sinuwave™ product, a photodisinfection treatment for the chronic sinusitis market. Immediately subsequent to the STC Sale, the private equity investor group completed an initial financing in STC for US$550,000. As a result of the sale, the initial financing transaction and certain related transactions, Ondine retains a 19.6% equity interest in STC. The private equity investor group has also committed to provide STC with additional financing totaling US$1.1 million in 2 tranches and would have the right to invest a further US$1.1 million in Sinuwave on exercise of share purchase warrants. Ondine and STC have entered into a memorandum of understanding, pursuant to which Ondine will i) receive monthly consulting revenue for management and research and development services in support of the development of Sinuwave™ product; ii) have the right and obligation to manufacture products for STC for the chronic sinusitis application on a cost plus basis; and iii) be entitled to milestone payments totaling US$250,000 based on the achievement of certain development milestones. Ondine is also entitled to receive royalties on STC sales of Sinuwave™ product pursuant to the terms of an intellectual property license agreement.

Effective October 14, 2010, the Company consolidated all of its issued and outstanding common shares on the basis of fifteen (15) "old" common shares for one (1) "new" common share (the "Share Consolidation"). Fractional shares remaining after giving effect to the consolidation have been cancelled, such that shareholdings of each shareholder have been rounded down to the nearest whole number of post-consolidation shares. Outstanding stock options and warrants were similarly adjusted by the consolidation ratio. Unless otherwise indicated, the share and per share amounts stated in this news release are the pre-consolidation amounts.

The Company is pleased to report during the quarter ended September 30, 2010 it shipped the initial commercial order of its latest products to its business partner, Periowave Dental Technologies, Inc. ("PDT Inc"). These products, which are for the dental market, consist of a convenient cordless handheld laser ("HHL") and a reformulated photosensitizer with advanced handling properties.

In November 2010, the Company announced its Bothell, Washington based subsidiary, Ondine Research Laboratories, Inc. ("ORL") has been awarded a grant in the amount of US$244,479 under the Qualifying Therapeutic Discovery Project (QTDP) tax credit program. ORL was awarded funding to support continuing research and development for the MRSAid™ product for non-antibiotic nasal decolonization of Staphylococcus aureus and methicillin-resistant Staphylococcus aureus ("MRSA"). The QTDP program was created to support innovative medical research by small life sciences companies and to assist in the development of novel cost-saving therapies as part of the Patient Protection and Affordable Care Act of 2010. Cash grants were awarded based on a competitive application process after evaluation by the National Institutes of Health and the Internal Revenue Service.

Financial Review

The $0.80 million decrease in loss for the Nine Months 2010, when compared to the Nine Months 2009, was primarily due to i) an increase of $0.48 million in consulting revenue; ii) a decrease of $0.45 million in marketing and sales ("M&S") expenses; and iii) a $0.63 million loss on sale and write-down of investment that occurred during the Nine Months 2009, while no comparable transaction occurred during the Nine Months 2010. These decreases in loss were partially offset by i) an increase of $0.35 million in research and development ("R&D") expenses; ii) the decrease of $0.24 million in gross margin described above; and iii) a decrease of $0.10 million in gain on sale of assets. The Company recognized a $0.58 million gain on sale of assets during Nine Months 2010 in connection with the STC Sale on September 13, 2010, compared with a gain of $0.68 million for Nine Months 2009 recognized in connection with the sale of the Company's dental business to PDT Inc that occurred on June 5, 2009 (the "Dental Sale").

The $1.26 million decrease in loss for Third Quarter 2010, when compared to Third Quarter 2009, was primarily due to i) an increase of $0.15 million in consulting revenue; ii) a $0.58 million gain on sale of assets, in connection with the STC Sale, while there was no comparable transaction for Third Quarter 2009; and iii) Third Quarter 2009 including a $0.63 million loss on sale and write-down of investment, while there was no comparable transaction for Third Quarter 2010.

Sales during the Nine Months 2010 consisted of Periowave™ product, primarily laser base stations and cordless hand held lasers, sold to PDT under a manufacturing and supply agreement entered into in June of 2009 as part of the Dental Sale. During the Nine Months 2009 the Company's sales consisted of Periowave™ product, primarily treatment kits, sold to three distributors in Canada and to a distributor in the United Kingdom. The margins obtained on the sales in the Nine Months 2010 were lower than the margins obtained on the Company's sales during the Nine Months 2009 reflecting the Company's new position as supplier to PDT Inc. The gross margin percentage for the Nine Months 2010 reflects the sale in the first quarter of 2010 of laser base stations that had previously been written off by the Company and accordingly there was no cost of sales in connection with the sale of that product. The gross margin percentage that will be earned on the Company's future sales under the manufacturing agreement with PDT Inc referred to above will be lower than the gross margin percentage realized during the Nine Months 2010.

In connection with the Dental Sale, the Company and PDT entered into a management services agreement effective from the closing date, June 5, 2009. The consulting revenue received by the Company from PDT Inc under this agreement, together with the consulting revenue earned from PDT Inc in connection with a research and development agreement and the consulting revenue earned under the agreement with STC referred to above, accounts for the increase in consulting revenue for the Nine Months 2010, as compared to the Nine Months 2009. The reduction in M&S expenses resulted from the elimination of substantially all of those expenses subsequent to the closing of the Dental Sale. The bulk of the increase in R&D expenses was due to an increase in consulting and professional fees, primarily in connection with the development of Endowave™, the Company's product for in situ disinfection of endotracheal tubes to prevent ventilator-associated pneumonia (VAP) and an increase in costs incurred in connection with the development of a cordless hand held laser, initially for use in the Periowave™ product. The Endowave™ product was acquired by the Company in December 2009 as part of the acquisition of Advanced Photodynamic Technologies, Inc.

The Company intends to continue to focus its resources on development of a select number of new applications of its platform PDD technology. In addition to the applications referred to above, during the Nine Months 2010 the Company continued to invest in research and development of, among other things, our MRSAid™ product for decolonization of pathogenic bacteria, such as methicillin-resistant Staphylococcus aureus (MRSA) in the anterior nares and in the Periowave™ PMA submission, primarily in connection with a number of FDA audits of certain of the Company's clinical studies. The PMA was submitted by the Company on behalf of PDT to obtain FDA approval for the sale of Periowave™ in the United States for the treatment of periodontitis in adults as an adjunct to standard methods of care. The Company is now also supporting the development of the Sinuwave product under contract with STC.

As at September 30, 2010 the Company had cash and cash equivalents totaling $0.56 million compared with $1.06 million as at December 31, 2009. Accounts payable and accrued liabilities at September 30, 2010 were $1.11 million compared to $1.1 million at December 31, 2009. During the Nine Months 2010, the Company used cash of approximately $2.4 million for operating activities, received total cash proceeds of $0.89 million, net of issuance costs, from a private placement that closed in April 2010 and on the exercise of share purchase warrants by Carolyn Cross, Chairman and CEO, received a loan of $0.5 million from Carolyn Cross, and received $0.66 million from the STC Sale that closed in September 2010.

Based on the Company's current level of activities and its future plans, the Company will need to raise additional capital in the near term to continue with its planned operating activities. Although there has been some improvement in certain sectors of the capital markets, the Company continues to believe that future market conditions may make it more difficult and time consuming than normal for companies at its stage of development to secure additional funding. Assurances can not be given that additional funding will be available on terms that are acceptable to the Company. In the interim, the Company will continue to control its expenses and defer capital outlays in order to extend the period it can operate utilizing its existing cash balances. Should the Company be unable to obtain additional cash in a timely manner, it would have to severely curtail or cease its activities and there can be no assurances that the Company would be able to continue in business.

At September 30, 2010 the Company had 126,796,145 common shares outstanding. As a result of the Share Consolidation, the Company has 8,453,042 common shares outstanding as of the date of this news release.

Additional analysis of the Company's financial results for the three months and nine months ended September 2010 is included in Ondine's management's discussion and analysis of financial condition and results of operations (MDA) for the quarter ended September 30, 2010, which will be available on the Company's website and on www.sedar.com.

About Ondine Biomedical Inc.

Ondine is developing non-antibiotic therapies for the treatment of a broad spectrum of bacterial, fungal and viral infections. The Company is focused on developing leading edge products utilizing its patented light-activated technology, primarily for the Hospital Acquired Infection market. Photodisinfection provides broad-spectrum antimicrobial efficacy without encouraging the formation and spread of antibiotic resistance. The Company is headquartered in Vancouver, British Columbia, Canada, with a research and development laboratory in Bothell, Washington, USA. For additional information, please visit the Company's website at: www.ondinebio.com.

Forward-Looking Statements:

Certain statements contained in this release containing words like "believe", "intend", "may", "expect" and other similar expressions, are forward-looking statements that involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those projected in the Company's forward-looking statements include the following: market acceptance of our technologies and products; our ability to obtain financing; our financial and technical resources relative to those of our competitors; our ability to keep up with rapid technological change; government regulation of our technologies; our ability to enforce our intellectual property rights and protect our proprietary technologies; the ability to obtain and develop partnership opportunities; the timing of commercial product launches; the ability to achieve key technical milestones in key products and other risk factors identified from time to time in the Company's public filings.

Ondine Biomedical Inc.
(formerly Ondine Biopharma Corporation)
Incorporated under the laws of British Columbia

CONSOLIDATED BALANCE SHEETS

As at (Unaudited - expressed in Canadian dollars)
  September 30, 2010 $ December 31, 2009 $
ASSETS    
Current    
Cash and cash equivalents 559,646 1,055,773
Accounts receivable 116,175 152,929
Inventories 238,209 205,512
Prepaid expenses and deposits 340,731 143,796
Total current assets 1,254,761 1,558,010
Capital assets 458,821 451,094
Intangible assets 443,623 610,012
Investment 20,880
  2,178,085 2,619,116
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current    
Accounts payable and accrued liabilities 1,109,177 1,102,681
Deposit payable 165,680
Income taxes payable 2,255 1,482
Current portion of deferred tenant inducement 6,206 46,437
Loan payable 500,000
Deferred revenue 95,391
Future income tax 28,369 32,576
Total current liabilities 1,811,687 1,278,567
Deferred tenant inducement, net of current portion 139,806 62,711
Total liabilities 1,951,493 1,341,278
Shareholders' equity    
Share capital 55,433,329 54,767,640
Share issue commitment 55,936
Contributed surplus 5,985,032 5,191,921
Deficit (61,247,705) (58,681,723)
Total shareholders' equity 226,592 1,277,838
  2,178,085 2,619,116

Ondine Biomedical Inc.
(formerly Ondine Biopharma Corporation)

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Unaudited - expressed in Canadian dollars)
  Three months ended September 30, Nine months ended September 30,
  2010 $ 2009 $ 2010 $ 2009 $
REVENUE        
Product sales 99,107 32,532 257,815 542,293
Cost of sales 86,273 19,128 150,508 195,620
Gross margin 12,834 13,404 107,307 346,673
Consulting revenue 310,569 159,317 692,618 215,495
Royalty revenue 12,581 28,731
  335,984 172,721 828,656 562,168
EXPENSES        
Research and development 706,333 680,256 2,415,061 2,063,890
General and administration 451,326 448,923 1,422,293 1,425,833
Marketing and sales 3,236 17,548 8,226 454,102
Depreciation and amortization 77,761 60,768 224,375 183,077
  (1,238,656) (1,207,495) (4,069,955) (4,126,902)
Other income/(expense)        
Gain on sale of assets 579,675 579,675 683,388
Gain on settlement of debt 52,123
Loss on sale and write-down of investment (629,618) (629,618)
Interest and miscellaneous income 5,472 13,351 22,082 13,712
Foreign exchange gain/(loss) (3,348) 39,810 23,229 98,889
  581,799 (576,457) 677,109 166,371
Loss before income taxes (320,873) (1,611,231) (2,564,190) (3,398,363)
  Current income tax expense (7,161)
  Future income tax recovery 29,223 5,369 29,223
Loss and comprehensive loss for the period (320,873) (1,582,008) (2,565,982) (3,369,140)
Basic and diluted loss per common share (0.00) (0.02) (0.02) (0.04)
Weighted average number of common shares outstanding 126,796,145 93,225,869 126,387,365 78,068,042

Ondine Biomedical Inc.
(formerly Ondine Biopharma Corporation)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited - expressed in Canadian dollars)
  Number of Common Shares Share Capital $ Share Issue Commitment $ Contributed Surplus $ Deficit $ Total Shareholders' Equity $
Balance, December 31, 2008 61,359,176 51,336,368 4,087,139 (54,086,249) 1,337,258
Common shares issued for cash (net of issue costs) :            
  February 2009 Private Placement 8,620,168 497,671 497,671
Units issued for cash (net of issue costs)            
  June 2009 Private Placement 8,395,275 503,054 347,293 850,347
  December 2009 Private Placement 8,000,000 253,644 144,113 397,757
Common shares issued for acquisition of an investment 14,851,250 1,714,669 27,870 1,742,539
Common shares issued (net of issue costs) for acquisition of APT 8,856,458 438,927 438,927
Common shares issued for research and development agreement 466,130 23,307 23,307
Stock-based compensation 585,506 585,506
Loss and comprehensive loss for the year (4,595,474) (4,595,474)
Balance, December 31, 2009 110,548,457 54,767,640 5,191,921 (58,681,723) 1,277,838
Units issued for cash (net of issue costs)            
  April 2010 Private Placement 13,800,000 504,994 314,797 819,791
Common shares issued for settlement of debt (net of issue costs) 947,688 58,519 58,519
Common shares issued for exercise of warrants 1,500,000 75,000 75,000
Reallocation of contributed surplus as a result of warrant exercise 27,176 (27,176)
Stock-based compensation 505,490 505,490
Share issue commitment 55,936 55,936
Loss and comprehensive loss for the period (2,565,982) (2,565,982)
Balance, September 30, 2010 126,796,145 55,433,329 55,936 5,985,032 (61,247,705) 226,592

Ondine Biomedical Inc.
(formerly Ondine Biopharma Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - expressed in Canadian dollars)
  Three months ended September 30, Nine months ended September 30,
  2010 $ 2009 $ 2010 $ 2009 $
OPERATING ACTIVITIES        
Loss for the period (320,873) (1,582,008) (2,565,982) (3,369,140)
Add (deduct) items not affecting cash:        
  Depreciation and amortization 77,761 60,768 224,375 183,077
  Gain on settlement of debt (52,123)
  Gain on sale of assets (579,675) (579,675) (683,388)
  Loss and write down of investment 629,618 629,618
  Stock-based compensation 178,334 160,820 505,490 452,344
  Deferred leasehold inducement 10,089 (11,843) 36,864 (33,434)
Changes in non-cash working capital items relating to operations:        
  Accounts receivable 51,456 307,491 36,754 309,239
  Inventory 32,762 23,296 (32,697) 15,418
  Prepaid expenses and deposits (78,095) 22,205 (196,935) 137,115
  Accounts payable and accrued liabilities 11,482 (449,348) 117,140 (319,748)
  Deposit payable (24,320) 165,680
  Future income taxes (2,407) (35,464) (4,207) (39,183)
  Income taxes payable (790) (1,686) 773 (18,242)
  Deferred revenue (22,258) (95,391) 127,188
Cash used in operating activities (666,534) (748,963) (2,439,934) (2,609,136)
FINANCING ACTIVITIES        
Issuance of equity securities, net of costs 894,791 1,289,132
Loan proceeds 500,000 400,000
Repayment of loan (400,000)
Cash provided by financing activities 1,394,791 1,289,132
INVESTING ACTIVITIES        
Proceeds from sale of investment 617,925 617,925
Proceeds from sale of assets 664,800 664,800 622,732
Purchase of capital assets (65,362) (115,784)
Cash provided from investing activities 599,438 617,925 549,016 1,240,657
Decrease in cash and cash equivalents during the period (67,096) (131,038) (496,127) (79,347)
Cash and cash equivalents, beginning of period 626,742 1,084,939 1,055,773 1,033,248
Cash and cash equivalents, end of period 559,646 953,901 559,646 953,901

The TSX Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information