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February 22, 2005
Neurochem reports results for fourth quarter of fiscal 2004.
Neurochem will host a conference call Tuesday, Feb. 22, at 4:30 P.M. ET.
- Neurochem Inc. (NASDAQ: NRMX; TSX: NRM) and subsidiaries ("the Company") today announced consolidated
results for the fourth quarter and fiscal year ended Dec. 31, 2004. The Company reported a net loss for the quarter of
$15,388,000 ($0.51 per share), compared to $9,986,000 ($0.34 per share) for the same period last year. For the full
fiscal year, the net loss amounted to $52,399,000 ($1.74 per share), compared to $25,852,000 ($1.04 per share) for the
same period last year. The increase year to year is due in large part to important advances in the Company's drug
development program. These included accelerated patient recruitment for the North American Phase III clinical trial
for 3-amino-1-propanesulfonic acid (3APS; Alzhemed™) in the treatment of Alzheimer's Disease (AD) and the
advancement and completion of the Phase II/III clinical trial for 1,3-propanedisulfonate (1,3PDS; Fibrillex™) for
the treatment of Amyloid A (AA) Amyloidosis.
At the end of the quarter, the Company reported cash, cash equivalents and marketable securities of $29,173,000 as
well as a non-refundable amount receivable from the collaboration agreement previously announced with Centocor, Inc. of
$7,418,000 compared to $44,219,000 and NIL respectively on Sept. 30, 2004. At December 31, 2004, the total amounts
receivable from Centocor were $14,640,000, of which $7,222,000 (for which a letter of credit is being issued) is
potentially refundable based in part on the results of Company's Phase II/III clinical trial for Fibrillex™.
Following the close of the fiscal year, Neurochem received notice that Picchio Pharma Inc., a joint venture company
established between Dr. Francesco Bellini and Power Technology Investment Corporation, a subsidiary of Power Corporation
of Canada, has committed to exercise all of the 2,800,000 warrants due to expire on July 25, 2005, to purchase
common shares for a total subscription of $8,764,000.
The Company is also reporting additional positive interim data on cognitive function in patients with mild1-to-moderate2
Alzheimer's Disease (AD). The results relate to patients who have completed both the three-month randomized Phase II
clinical trial and an additional 25 months of treatment in the open-label Phase II extension study with the
investigational product candidate, Alzhemed™. The data is based on cognitive function as measured by the
ADAS-cog3 test. The mild-to-moderate AD patients (n=9)4 showed an average ADAS-cog score of +6.6
points, as opposed to +13.9 points on average in comparable historical controls5 with AD patients. The mild AD
patients (n= 5) responded the best and showed a change from baseline in their average ADAS-cog score of -0.2 points.
This result compares favourably with a score of +11.7 points on average in comparable historical controls. The moderate
AD patients (n=4) showed a change from baseline in their average ADAS-cog of +15.0 points, compared to +16.6 points
on average in comparable historical controls.
Similar to previously announced data by the Company, the mild AD patients after 28 months on study medication remained
stable or improved as measured by well validated cognitive tests.
"During 2004, we continued to maintain our strong positive momentum," said Francesco Bellini, Neurochem's
Chairman, President and CEO. "This was reflected in significant milestones achieved with regard to the clinical
development of key products - and in the continued evolution of Neurochem as a dynamic and innovative biopharmaceutical company.
We are extremely pleased with the recently signed collaboration and distribution agreement for Fibrillex™ with the
Johnson & Johnson wholly-owned subsidiary, Centocor. Longer term, we look forward to continued progress as we
hope to roll out our first product to the global marketplace and begin generating our first significant revenues,"
Dr. Bellini concluded.
Conference Call
Neurochem will host a conference call Tuesday, Feb. 22, at 4:30 P.M. ET. The telephone number to access the conference
call is 1-877-461-2814 or 1-416-695-5261. A replay of the call will be available until March 1, 2005. The telephone
number to access the replay of the call is 1-866-518-1010. Please mention that you are calling for the Dr. Bellini or
the Neurochem conference replay.
Financial Results Highlights
The following information should be read in conjunction with the selected consolidated financial information
contained herein. During 2003, the Company changed its fiscal year-end to December 31 from June 30. The comparative
figures presented are for the three-month period and year ended December 31, 2003. All dollar figures are Canadian
dollars, unless specified otherwise.
Results of operations
For the three-month period ended December 31, 2004, net loss amounted to $15,388,000 ($0.51 per share), compared to
$9,986,000 ($0.34 per share) for the same period last year. For the year ended December 31, 2004, net loss amounted to
$52,399,000 ($1.74 per share), compared to $25,852,000 ($1.04 per share) for the same period last year.
Collaboration agreement revenue amounted to $132,000 for the year ended December 31, 2004, and consists of revenue
earned under the agreement with Centocor, Inc. in respect of Fibrillex™. Revenue recognized in 2004 represents the
amortization of the non-refundable upfront payment due from Centocor, Inc. for the period from signing of the agreement
December 21, 2004, over the remaining estimated period to obtaining the regulatory approvals of the product.
Research and development expenses, before research tax credits and grants, amounted to $10,807,000 for the current
quarter, compared to $4,821,000 for the same period last year. The increase is mainly due to expenses incurred in
relation to the Alzhemed™ Phase III clinical trials, which began in the second quarter of 2004. For the year
ended December 31, 2004, research and development expenses amounted to $31,152,000, compared to $17,993,000 for the
same period last year. The increase is mainly due to expenses incurred in relation to the Alzhemed™ Phase III
clinical trials and the Fibrillex™ Phase II/III clinical trials as well as the hiring of additional employees
primarily in the clinical development group. For the year ended December 31, 2004, research and development expenses
were incurred to support the Fibrillex™ Phase II/III clinical trials and the open-label extension study, the
Alzhemed™ Phase III clinical trials and the on-going Phase II open-label extension study, as well as on-going
drug discovery programs.
Research tax credits amounted to $541,000 this quarter, compared to $599,000 for the comparable quarter last year. For
the year ended December 31, 2004, research tax credits amounted to $1,463,000, compared to $1,901,000 for the same
period last year. Research tax credits represent refundable tax credits earned under the Quebec Scientific Research
and Experimental Development program. The decrease for the year ended December 31, 2004, compared to 2003 is primarily
attributable to the fact that during 2003, prior years' credit claims were resolved and recorded during that year.
Research grants amounted to $9,000 this quarter, compared to $107,000 for the same quarter last year. The decrease is
attributable to the fact that for the quarter ended December 31, 2003, research grants included grants received from
the FDA for the development of Fibrillex™, which ended in September 2004. For the year ended December 31,
2004, these grants amounted to $336,000, compared to $953,000 for the same period last year. Research grants for the year
ended December 31, 2004, consist primarily of those grants received from the FDA for the development of Fibrillex™
and from the Natural Sciences and Engineering Research Council (NSERC). The decrease for the year ended December 31,
2004, compared to 2003 is primarily due to the fact that during the year ended December 31, 2003, research grants also
included contributions under the Technology Partnerships Canada (TPC) Program received by the Company for the
development of Alzhemed™.
General and administrative expenses for the quarter totaled $4,451,000, compared to $4,436,000 for the same quarter last
year. For the year ended December 31, 2004, these expenses amounted to $17,953,000, compared to $12,169,000 for the
same period last year. The increase for the year ended December 31, 2004, compared to 2003 is attributable to the
expansion of the corporate infrastructure in order to support growth and the increase in overall activity levels at the
Company. More specifically, the increase is due to the hiring of additional senior management team members, as well
as operating costs related to the facilities acquired during the second quarter of 2004, higher legal fees incurred
in relation to the Immtech litigation and other corporate matters, higher Directors' and Officers' insurance costs
resulting from the Company's US financing and NASDAQ listing, and increased awareness, educational and medical
conference activities related to AA Amyloidosis, Fibrillex™'s target indication, as well as Alzheimer's Disease,
Alzhemed™'s target indication.
Stock-based compensation amounted to $709,000 for the quarter ended December 31, 2004, and $4,038,000 for the year
ended December 31, 2004. Effective January 1, 2004, the Company adopted the recommendations of the Canadian Institute
of Chartered Accountants ("CICA") issued Handbook Section 3870, Stock-based Compensation and Other Stock-based
Payments. The new recommendations require entities to account for employee stock options using the fair value-based
method, whereby compensation cost is measured at fair value at the date of grant and is expensed over the award's
vesting period. The Company implemented the transitional alternative to retroactively apply the fair value-based method
to all employee stock options granted on or after July 1, 2002, without restatement of prior periods. As a result, an
amount of $2,162,000 was recorded as an adjustment to the opening deficit and additional paid-in capital on January 1,
2004.
Special charges of $1,676,000 were recorded during the year ended December 31, 2004 and are related to the relocation
to facilities acquired from Shire BioChem Inc. in May 2004. These charges include $487,000 of future lease payments
due in connection with the former premises, net of estimated sublease income that could reasonably be obtained. An
adjustment in the amount of $409,000 was recorded in the current quarter to reflect an agreement signed to sublease
the premises. Special charges also include the write-off of certain property and equipment, mainly leasehold improvements
in respect of the prior facilities, in the amount of $1,189,000.
Depreciation and amortization for the current quarter increased to $592,000 from $323,000 for the comparable quarter
last year. For the year ended December 31, 2004, depreciation and amortization amounted to $2,046,000, compared to
$1,287,000 for the corresponding period last year. The increases reflect the depreciation and amortization associated
with the acquisition of additional property and equipment during the year, including the facilities acquired in the
second quarter of 2004, and the increase in patent costs.
Interest and bank charges amounted to $126,000 for the current quarter compared to $24,000 for the comparable quarter
last year. For the year ended December 31, 2004, interest and bank charges amounted to $277,000, compared to $100,000
for the corresponding period last year. The increases are due to interest expense on the $10,500,000 revolving
decreasing term credit entered into by the Company to finance the acquisition of the facilities during the year.
Interest income amounted to $208,000 for the current quarter, compared to $393,000 for the comparable quarter last year.
The decrease is due to lower average cash balances in the current quarter, compared to the same period last year. For
the year ended December 31, 2004, interest income amounted to $1,030,000, compared to $838,000 for the comparable period
last year. The increase results from higher average cash balances in the current year, compared to the same period
last year.
Foreign exchange losses amounted to $401,000 for the current quarter, compared to $1,620,000 for the same quarter
last year. For the year ended December 31, 2004, foreign exchange gains amounted to $1,298,000, compared to foreign
exchange losses of $1,618,000 for the same period last year. Foreign exchange gains recorded in 2004 are primarily
attributable to a gain realized during the year on the conversion of US dollars into Canadian dollars.
Gain on disposal of intellectual property amounted to $3,484,000 in year ended December 31, 2003, and represents the
gain realized on the technology transfer related to the Company's pre-clinical Diabetes program to Innodia Inc.
Other income amounted to $399,000 for the quarter ended December 31, 2004 ($484,000 for the year ended December 31,
2004), compared to $139,000 for the quarter and year ended December 31, 2003. Other income consists of non-operating
revenue, such as leasing revenue and expenses recharged to third parties.
Acquisition of property and equipment
In May 2004, the Company acquired facilities for $10,500,000 and incurred $713,000 of acquisition-related expenses to
relocate its operations. This acquisition enabled the Company to regroup corporate and scientific employees in the same
location, and provided the infrastructure and support required for current and future growth. To finance this capital
expenditure, the Company entered into a revolving decreasing term credit agreement in the amount of $10,500,000. The
credit agreement expires in June 2009.
Litigation
In 2002, Neurochem executed an agreement with Immtech International, Inc. (Immtech) pursuant to which Immtech provided
the Company with certain compounds for testing and granted Neurochem an option to license such compounds (the "CTA").
In August 2003, Immtech filed certain legal proceedings with the Federal District Court for the Southern District of
New York, U.S.A., with respect to the CTA. The parties entered into settlement discussions in September 2003 and, as
settlement did not occur, in January 2004, the Company brought a motion to compel arbitration under the terms of the
CTA. The dispute has now been submitted to an arbitral tribunal convened in accordance with the rules of the
International Court of Arbitration. The Company continues to vigorously defend against the claims brought by Immtech.
The arbitral proceedings are in the early stages and the outcome of this matter, or the likelihood and the amount of
loss, if any, is not determinable. No provision for possible loss has been recorded by the Company in connection with
this matter.
Liquidity and capital resources
As at December 31, 2004, the Company had cash, cash equivalents and marketable securities in the amount of $29,173,000, as
well as a non-refundable amount receivable from the collaboration agreement with Centocor, Inc. of $7,418,000 compared
to $77,594,000 and Nil at December 31, 2003. The decrease is due to funds used for operating and investing activities
(including the acquisition of facilities as previously discussed), net of proceeds received from the revolving decreasing
term credit agreement and the issue of additional share capital pursuant to the exercise of employee stock options.
On February 14, 2005, the Company received notice from a shareholder of a commitment to exercise 2,800,000 warrants
to purchase common shares due to expire on July 25, 2005. Total proceeds to the Company from this exercise will be
$8,764,000.
As at January 31, 2005, the Company had 30,411,272 common shares outstanding, as well as 2,272,931 options outstanding
granted under the stock option plan. In addition, warrants to purchase 4,000,000 common shares of the Company were
outstanding.
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