5801178 - 590789 - BELLUS HEALTH INC. - 3-14-2008 - 000-50393 - EXHIBIT 99.3 - 5801178-378851-472117.pdf

Oct 17, 2019 | Publisher: Global Documents | Category: News & Politics |   | Views: 2 | Likes: 1

   Exhibit 99.3  Management’s Discussion and Analysis of Operations of the Company    MANAGEMENT’S DISCUSSION AND ANALYSIS This Management’s Discussion and Analysis provides Management’s perspectives on Neurochem Inc. and its subsidiaries (Neurochem or the Company) and their performance. It also discusses the material variations in the audited consolidated statements of operations, financial position and cash flows of Neurochem for the years ended December 31, 2007, 2006 and 2005. This  discussion and analysis should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2007, which have been prepared in  accordance with Canadian generally accepted accounting principles (GAAP). Additional information relating to the Company, including its Annual Report and Annual Information Form, is available on SEDAR at www.sedar.com or on EDGAR at www.sec.gov. Also available on SEDAR and EDGAR are the Company’s reconciliation to United States (US) GAAP and the additional  disclosures required for the presentation of the financial statements in accordance with US GAAP and Securities and Exchange Commission rules and regulations. This document contains forward-looking statements, which are qualified by reference to, and should be read together with the “Forward-Looking Statements” cautionary notice, which can be found at the end of this Management’s Discussion and Analysis. As previously reported, effective July 1, 2007, the Company adopted the US dollar as its functional  and reporting currency, as a significant portion of its revenue, expenses, assets, liabilities and financing are denominated in US dollars. All currency figures reported in the consolidated financial statements and in this document, including comparative figures, are reported in US dollars, unless otherwise specified. This discussion and analysis was performed by management with information available as of March 13, 2008.  Description of Neurochem Neurochem is a global health company focused on the research, development and commercialization of products to provide innovative health solutions to address critical unmet medical needs. In November 2007, the Company announced important initiatives following key events that took  place over the past year. The Company announced the termination of the tramiprosate (ALZHEMED™; homotaurine) pharmaceutical drug development program, including the early  termination of its European Phase III clinical trial, and the advancement of its next generation prodrug of tramiprosate (ALZHEMED™) into preclinical development for the treatment of  Alzheimer’s disease (AD). Also, the Company announced its decision to take steps to commercialize homotaurine as a branded nutraceutical, potentially starting as early as 2008. Furthermore, Neurochem announced that it intends to continue to advance eprodisate programs for Amyloid A (AA) amyloidosis, as well as for Type II Diabetes as well as certain features of metabolic  syndrome. These decisions are discussed further in the following paragraphs. 1    The current status of the Company’s principal product candidates is as follows: Eprodisate (KIACTA™) is the Company’s oral investigational product candidate for the treatment of AA amyloidosis, a potentially fatal disease which is often associated with kidney dysfunction. The Company was seeking marketing approval of eprodisate (KIACTA™) for the treatment of AA  amyloidosis. In December 2007, the Company received an acknowledgement from the United States Food and Drug Administration (FDA) that Neurochem’s response to the approvable letter received in July 2007 for the New Drug Application (NDA) for eprodisate (KIACTA TM ) for the treatment of AA amyloidosis is a complete, Class 2 response. In this second approvable letter  (July 2007), the FDA indicated that an additional efficacy trial will be necessary before the FDA  could approve the investigational product candidate. The approvable letter also states that additional submissions, filed by Neurochem as part of its response to this approvable letter, may address issues raised in this letter. The FDA had indicated that additional submissions could persuade the agency to eliminate the requirement for an additional trial. The FDA also asked for additional information, including further pharmacokinetic studies, and again acknowledged that a QT clinical study should be submitted as part of a Phase IV (post-approval) commitment. Neurochem had also submitted for marketing approval of eprodisate (KIACTA™) for the treatment  of AA amyloidosis in the European Union and Switzerland. In December 2007, the Committee for  Medicinal Products for Human Use (CHMP), the scientific committee of the European Medicines Agency (EMEA), issued a negative opinion recommending refusal of the marketing authorization application (MAA) for eprodisate (KIACTA TM ) for the treatment of AA amyloidosis in the European Union and concluded that another study would be needed to demonstrate eprodisate (KIACTA TM )’s effectiveness. The Company requested a re-examination of the opinion by CHMP. As provided by the European regulations, the Company requested that the CHMP consult a Scientific Advisory Group in connection with the re-examination. Eprodisate (KIACTA™) has been granted  Orphan Drug Designation in the US and received Orphan Medicinal Product designation in Europe, which normally provide for market exclusivity of seven years and ten years, respectively, once the drug is approved. Eprodisate (KIACTA™) has also received Orphan Drug Designation in  Switzerland. On March 13, 2008, the Company announced its decision to pursue the drug  development program for eprodisate (KIACTA™) for the treatment of AA amyloidosis. The  Company is taking steps to initiate a second Phase III clinical trial and will enter into discussions with the FDA and with the EMEA to reach agreement on the terms for an approval of eprodisate (KIACTA™) for the treatment of AA amyloidosis. As part of its decision, the Company announced  that it is withdrawing its current marketing applications for eprodisate (KIACTA™) in the United  States, the European Union and Switzerland. In December 2004, the Company concluded a collaboration and distribution agreement with  Centocor, Inc. (Centocor) for eprodisate (KIACTA™) for the prevention and treatment of AA  amyloidosis. Under this agreement, Neurochem granted to Centocor, a wholly-owned subsidiary of Johnson & Johnson, Inc., worldwide exclusive distribution rights for eprodisate (KIACTA™), with  the exception of Canada, Switzerland, China, Japan, Taiwan and South Korea, for which the distribution rights remain with Neurochem. The agreement includes up-front, regulatory and sales- based 2                Disease indication    Product candidate    Stage of development     AA amyloidosis    eprodisate (KIACTA TM )    Clinical development                Type II Diabetes as well as    NC-503    Phase II clinical trial certain features of metabolic syndrome                            Alzheimer’s Disease    prodrug    Pre-clinical development    milestone payments valued up to $54 million, as well as tiered distribution fees which will be based  upon net annual sales of eprodisate (KIACTA™) in the applicable territories over the life of the  agreement. Neurochem will be responsible for the product approval activities in the US and in Europe, as well as for global manufacturing activities. Centocor will manage the marketing and sales of eprodisate (KIACTA™) in the applicable territories. KIACTA™ is a trademark of Johnson  & Johnson Corporation. NC-503 (eprodisate) is being developed for the treatment of Type II Diabetes as well as certain  features of metabolic syndrome. A Phase II clinical trial in diabetic patients was launched in Canada in February 2008. NC-503 has shown beneficial effects in preclinical in vivo models. Preliminary results have shown that NC-503 protects the kidney function in obese diabetic rats. As well, NC-503 has shown an impact on metabolic changes associated with Diabetes and obesity, including a significant decrease of triglyceride levels and cholesterol, a significant decrease of glycemia and an increase in insulin plasma levels. The decision to terminate the tramiprosate (ALZHEMED™) pharmaceutical drug development  program early was taken in November 2007. Tramiprosate (ALZHEMED™) was the Company’s investigational product candidate for the treatment of AD. In November 2007, the Company  announced the early termination of the European Phase III clinical trial for the treatment of AD. This decision was taken in light of the information gathered from the North American Phase III clinical trial and from the Special Advisory Board established to assist Neurochem in reviewing and analyzing the data from the North American Phase III clinical trial. Neurochem was faced with the decision of completing the European Phase III clinical trial and/or initiating another Phase III study to support the approval of tramiprosate (ALZHEMED TM ) by regulatory agencies and/or investing in the development of a next generation compound related to the original product candidate. Neurochem took the decision to leverage the numerous years of accumulated knowledge and the experience it has gained in developing tramiprosate (ALZHEMED TM ) for AD, and to prioritize and accelerate the development of its next generation prodrug candidate of tramiprosate into preclinical development for the treatment of AD. Tramiprosate (ALZHEMED™) completed its 18- month North American Phase III clinical trial during the first quarter of 2007. Despite some descriptive data showing numerical differences in favor of tramiprosate (ALZHEMED™), the North  American Phase III clinical trial did not demonstrate a statistically significant difference in favor of the product candidate with respect to the primary endpoints over 18 months of treatment. Due to  significant interference from confounding factors and between-site variations that complicated the statistical analyses beyond expectations, it was not possible to demonstrate a statistically significant treatment effect of tramiprosate (ALZHEMED™). However, a difference observed in  hippocampal volume did approach statistical significance utilizing an adjusted model aiming to address confounding factors. All patients who completed the North American Phase III clinical trial were eligible to receive tramiprosate (ALZHEMED™) in a 12-month open-label extension of the North American Phase III study. In light of some encouraging results from preliminary post-hoc analysis of the data from the North American Phase III trial which suggest an effect of homotaurine on cognition and memory and given that homotaurine occurs naturally in certain algae, Neurochem is taking steps to commercialize homotaurine as a branded nutraceutical product, potentially as early as mid-2008, through the creation of subsidiaries. A large number of physicians and families have requested access to the compound. The Company’s goal is to provide innovative health solutions to address critical unmet medical needs. 3    The Company also has ongoing research programs that are focused on the development of next generation compounds for AD and diabetes. The Company has an indirect equity investment in Innodia Inc. (Innodia), a private company engaged in developing novel drugs for the treatment of Type II Diabetes and underlying diseases. As at December 31, 2007, Neurochem’s indirect equity investment represented approximately 23% of equity ownership, based on the issued and outstanding shares of Innodia. A subsidiary of Picchio Pharma Inc. (Picchio Pharma) is the principal shareholder of the Company with an ownership of approximately 23% as at December 31, 2007, based on the issued and  outstanding shares of the Company as of that date. Picchio Pharma Inc. is a joint venture healthcare investment company established between FMRC Family Trust, a trust of which Dr. Francesco Bellini is a beneficiary, and Power Technology Investment Corporation, a subsidiary  of Power Corporation of Canada. In January 2007, the litigation with Immtech Pharmaceuticals, Inc. (formerly known as Immtech  International, Inc. (Immtech)) came to a conclusion when Immtech, the University of North Carolina at Chapel Hill (UNC), and Georgia State University Research Foundation, Inc. filed with the Federal District Court for the Southern District of New York, U.S.A. a Notice of Voluntary Dismissal. The plaintiffs voluntarily dismissed their complaint against Neurochem in the Federal District Court without any payment, license, business agreement, concession or compromise by Neurochem. In June 2006, the International Chamber of Commerce Court of Arbitration (ICC) issued its Final  Award (the Final Award) in the arbitration dispute involving Neurochem and Immtech. The dispute concerned an agreement entered into between Immtech and Neurochem in April 2002 (the  Agreement) under which Neurochem had the right to apply its proprietary anti-amyloid technology to test certain compounds to be provided by Immtech. The ICC denied the majority of Immtech’s claims after an evidentiary hearing before the tribunal convened in accordance with the rules of the ICC (the Tribunal) held in September 2005. In the Final Award, the Tribunal held that Neurochem  did not misappropriate any of Immtech’s compounds, information or trade secrets and that Immtech was not entitled to any interest in, or ownership or assignment of, Neurochem’s patent applications. The Tribunal found that Neurochem had breached certain sections of the Agreement, and Immtech was awarded $35,000 in damages, plus interest thereon for a disputed progress payment under the Agreement. Immtech was awarded only a portion of the ICC’s administrative charges and arbitral fees and costs incurred by the Tribunal which had been previously advanced by Immtech, as well as a portion of Immtech’s arbitration-related legal fees. Those charges, fees and costs amounted to approximately $1.8 million. Neurochem has made the payments required by the Final  Award. The Tribunal issued an Addendum to the Final Award dated September 21, 2006, in which  it denied Immtech’s July 10, 2006, request to make a further determination with respect to  ownership of the Neurochem inventions and pending patent applications, leaving its earlier ruling intact. The Company has significant tax losses that may be used to reduce future taxable income. See note 16 of the Consolidated Financial Statements for more details. As at December 31, 2007, Neurochem’s workforce comprised 170 employees. During the year ended December 31, 2006 and the first quarter of 2007, the Company increased its workforce in  anticipation of commercialization and completion of clinical programs. During the second quarter of 2007, the workforce was reduced due to delays encountered in the product candidate development programs. 4    Selected Financial information (In thousands of US dollars, except per share data) 5                                        Years ended December 31       2007    2006    2005       (audited)    (audited)    (audited)       $    $    $ Revenues:                               Collaboration agreement      1,119       2,106       2,793  Reimbursable costs      396       712       872                      1,515       2,818       3,665                                               Expenses:                               Research and development (R&D)      55,732       51,688       41,676  Research tax credits and grants      (2,161)     (1,899)     (3,626) Other R&D charges      —      1,127       —                      53,571       50,916       38,050                                   General and administrative      10,581       11,522       18,333  Arbitral award      —      1,835       —  Reimbursable costs      396       712       872  Stock-based compensation      4,275       3,569       3,958  Depreciation, amortization and patent cost write-off      1,698       1,556       2,632                      70,521       70,110       63,845              Loss before undernoted items     (69,006)    (67,292)    (60,180)                                              Interest income      3,341       2,077       1,718  Interest and bank charges      (202)     (133)     (381) Accretion expense     (15,751)     (550)     —  Change in fair value embedded derivatives      (870)     —      —  Change in fair value of third-party asset-backed commercial paper      (1,184)     —      —  Foreign exchange gain (loss)      1,130       (280)     154  Other income      1,274       1,348       772  Share of loss in a company subject to significant influence      (327)     (2,440)     (2,578) Non-controlling interest      109       801       768                     (12,480)     823       453              Net loss     (81,486)    (66,469)    (59,727)             Net loss per share: Basic and diluted      (1.85)     (1.72)     (1.70)                Selected Financial information (continued ) (In thousands of US dollars, except per share data) RESULTS OF OPERATIONS Year ended December 31, 2007 compared to the year ended December 31, 2006  Revenue from collaboration agreement amounted to $1,119,000 for the year ended December 31, 2007, compared to $2,106,000 for the previous year. Revenue recognized is in  respect of the non-refundable upfront payment received from Centocor in respect of eprodisate (KIACTA™), which is being amortized over the estimated period through to the anticipated  regulatory approval date of the investigational product candidate. The estimated period is subject to change based on additional information that the Company may receive periodically. The other portion of the upfront payment received from Centocor ($6,000,000) has been classified as deferred revenue and is not being amortized as earned revenue given that it is potentially refundable. In the event that the Company receives an approval letter issued by the FDA, the amount would no longer be refundable and would be amortized as earned revenue. As previously discussed, the Company anticipates a decision by the FDA regarding eprodisate (KIACTA™) in  April 2008. The decrease in revenue from collaboration agreement is mainly attributable to a  change in the estimated period over which the non-refundable upfront payment received from Centocor in respect of eprodisate (KIACTA™) is being amortized.  Reimbursable costs revenue amounted to $396,000 for the year ended December 31, 2007,  compared to $712,000 for the previous year, and consists of costs reimbursable by Centocor in respect of eprodisate (KIACTA™)-related activities. The Company earns no margin on these reimbursable costs. Research and development expenses , before research tax credits and grants, amounted to $55,732,000 for the year ended December 31, 2007, compared to $51,688,000 for the previous  year. The increase is due to expenses incurred in relation to the development of tramiprosate (ALZHEMED™), primarily in respect of the Phase III clinical trial in Europe and the North American  open-label extension of the Phase III study, as well as the conduct of a QT cardiac status Phase I study. For the year ended December 31, 2007, research and development expenses also included  costs incurred to support the North American Phase III clinical trial for tramiprosate (ALZHEMED™), the open-label extension of the eprodisate (KIACTA™) Phase II/III study, as well  as drug discovery programs. The Company expects research and development expenses to decrease in the near future as clinical development activities will be reduced primarily due to the termination of the tramiprosate (ALZHEMED™) clinical program.  Research tax credits and grants amounted to $2,161,000 for the year ended December 31, 2007,  compared to $1,899,000 for the previous year. Research tax credits represent refundable tax credits earned under the Quebec Scientific Research and Experimental Development Program for 6                                       December 31,   December 31,   December 31,      2007   2006   2005      (audited)   (audited)   (audited)      $   $   $ Total assets     78,431       71,402       83,150               Total long-term financial liabilities     36,700       34,285        178                  expenditures incurred in Quebec. The increase is due to higher eligible expenditures in the current year and the realization of tax credits from prior years that met the criteria for recognition in the current year. Other research and development charges amounted to nil for the year ended December 31, 2007,  compared to $1,127,000 for the previous year. In 2006, the Quebec taxation authorities confirmed their position in the application of the tax credit program that denied tax credits on research and development taxable benefits relating to stock options for 2005 and prior years. Accordingly, management determined at that time that the criteria for recognition of these credits were no longer met and recorded a provision for these research tax credits. General and administrative expenses totalled $10,581,000 for the year ended December 31,  2007, compared to $11,522,000 for the previous year. These costs are incurred to support the overall activities of the Company. The decrease is mainly due to a reduction in management bonuses, and in performance-based fees due to Picchio International Inc. Arbitral award amounted to nil for the year ended December 31, 2007, compared to $1,835,000 for  the previous year. This expense related to the dispute with Immtech, as described previously. Reimbursable costs amounted to $396,000 for the year ended December 31, 2007, compared to  $712,000 for the previous year, and consist of costs incurred on behalf of Centocor in respect of eprodisate (KIACTA™)-related activities and reimbursable by Centocor. Stock-based compensation amounted to $4,275,000 for the year ended December 31, 2007,  compared to $3,569,000 for the previous year. This expense relates to stock options and stock- based incentives, whereby compensation cost in relation to stock options is measured at fair value at the date of grant and is expensed over the award’s vesting period. The increase is due to new stock options granted during the past year. Depreciation, amortization and patent cost write-off amounted to $1,698,000 for the year ended December 31, 2007, compared to $1,556,000 for the previous year. The increase in 2007 is  attributable to patent cost of $239,000 written off during the year, for which no future benefit was expected to be realized. Interest income amounted to $3,341,000 for the year ended December 31, 2007, compared to  $2,077,000 for the previous year. The increase is mainly attributable to higher average cash balances during the current year, compared to the previous year. Accretion expense amounted to $15,751,000 for the year ended December 31, 2007, compared  to $550,000 for the previous year. Accretion expense represents the imputed interest under GAAP on the $42,085,000 aggregate principal amount of 6% convertible senior notes issued in November 2006, as well as on the $40,000,000 6% senior convertible notes (Senior Notes) and  $40,000,000 5% senior subordinated convertible notes (Junior Notes) issued in May 2007. The  Company accretes the carrying values of the convertible notes to their face value through a charge to earnings over their expected lives of 60 months, 54 months and 1 month, respectively. Of the  total accretion expense recorded in the year ended December 31, 2007, $10,430,000 relates to  accretion expense on the Junior Notes, which were fully converted during the second quarter of 2007. Please refer to the Liquidity and Capital Resources section for more details on the convertible notes. 7    Change in fair value of embedded derivatives amounted to a loss of $870,000 for the year ended December 31, 2007 and represents the variation in the fair value of the embedded derivatives  included in the aggregate $80,000,000 Senior and Junior Notes issued in May 2007.  Change in fair value of third-party asset-backed commercial paper amounted to a loss of $1,184,000 for the year ended December 31, 2007 and represents a provision recorded on the  valuation of asset-backed commercial paper held by the Company. See Liquidity and Capital Resources section for more details. Foreign exchange gain amounted to $1,130,000 for the year ended December 31, 2007,  compared to a loss of $280,000 for the previous year. Foreign exchange gains or losses arise on the movement in foreign exchange rates in relation to the Company’s net monetary assets denominated in currencies other than US dollars, which is its functional and reporting currency, and consists primarily of monetary assets and liabilities denominated in Canadian dollars. Foreign exchange gains recognized during 2007 are mainly attributable to the strengthening of the Canadian dollar compared to the US dollar during the period. Other income amounted to $1,274,000 for the year ended December 31, 2007, compared to  $1,348,000 for the previous year. Other income consists of non-operating revenue, primarily sub- lease revenue. The 2006 income includes an amount of $293,000 in respect of the recovery of prior years’ property taxes. Share of loss in a company subject to significant influence amounted to $327,000 for the year ended December 31, 2007, compared to $2,440,000 for the previous year. Non-controlling interest amounted to $109,000 for the year ended December 31, 2007, compared to $801,000 for  the previous year. These items result from the consolidation of the Company’s interest in a holding company (Innodia Holding) that owns shares of Innodia Inc., for which Neurochem is the primary beneficiary. The share of loss recorded in the current year has reduced the Company’s long-term investment in Innodia Holding to a nominal value. Net loss for the year ended December 31, 2007 amounted to $81,486,000 ($1.85 per share),  compared to $66,469,000 ($1.72 per share) for the previous year. Fourth quarter (unaudited) For the fourth quarter ended December 31, 2007, the Company recorded a net loss of $16,097,000 ($0.33 per share), compared to $17,011,000 ($0.44 per share) for the corresponding period in the previous year. Total revenues for the quarter ended December 31, 2007, amounted to $270,000 compared to  $675,000 for the corresponding period in the previous year. The decrease is mainly attributable to a change in the estimated period over which the non-refundable upfront payment received from Centocor in respect of eprodisate (KIACTA™) is being amortized.  Research and Development expenses , before tax credits and grants, amounted to $12,199,000 for the quarter ended December 31, 2007, compared to $14,142,000 for the corresponding period  in the previous year. The decrease is mainly attributable to a reduction in expenses incurred in relation to the development of tramiprosate (ALZHEMED™), primarily in respect of the North  American Phase III clinical trial. 8    General and administrative expenses totalled $1,397,000 for the quarter ended December 31,  2007, compared to $2,819,000 for the corresponding period in the previous year. These costs are incurred to support the overall activities of the Company. The decrease is mainly attributable to a reduction in management bonuses, and in performance-based fees due to Picchio International Inc. Accretion expense amounted to $1,183,000 for the quarter ended December 31, 2007, compared  to $550,000 for the corresponding period in the previous year. The increase is due to accretion expense recorded on the $40,000,000 6% Senior Notes issued in May 2007.  Change in fair value of third party asset-backed commercial paper amounted to a loss of $1,184,000 for the quarter ended December 31, 2007, and represents a provision recorded on the  valuation of asset-backed commercial paper held by the Company. Refer to the Liquidity and Capital Resources section for more details. Year ended December 31, 2006 compared to the year ended December 31, 2005  Revenue from collaboration agreement amounted to $2,106,000 for the year ended December 31, 2006, compared to $2,793,000 for the previous year. Revenue recognized is in  respect of the non-refundable upfront payment received from Centocor in respect of eprodisate (KIACTA™), which is being amortized over the estimated period through to the anticipated  regulatory approval date of the investigational product candidate. The estimated period is subject to change based on additional information that the Company may receive periodically. The other portion of the upfront payment received from Centocor ($6,000,000) has been classified as deferred revenue and is not being amortized as earned revenue given that it is potentially refundable. In the event that the Company receives an approval letter issued by the FDA, the amount would no longer be refundable and would be amortized as earned revenue. Reimbursable costs revenue amounted to $712,000 for the year ended December 31, 2006,  compared to $872,000 for the previous year and consists of costs reimbursable by Centocor in respect of eprodisate (KIACTA™)-related activities. The Company earns no margin on these reimbursable costs. Research and development expenses , before research tax credits and grants, amounted to $51,688,000 for the year ended December 31, 2006, compared to $41,676,000 for the previous  year. The increase is due to expenses incurred in relation to the development of tramiprosate (ALZHEMED™), primarily in respect of the Phase III clinical trial in Europe and the North American  open-label extension of the Phase III study. For the year ended December 31, 2006, research and  development expenses also included costs incurred to support the North American Phase III clinical trial for tramiprosate (ALZHEMED™), the open-label extension of the eprodisate (KIACTA ™ ) Phase II/III study, as well as drug discovery programs. Research tax credits and grants amounted to $1,899,000 for the year ended December 31, 2006,  compared to $3,626,000 for the previous year. Research tax credits represent refundable tax credits earned under the Quebec Scientific Research and Experimental Development Program for expenditures incurred in Quebec. The decrease is mainly due to additional tax credits of $1,100,000 recorded during 2005, claimed in respect of research and development taxable benefits on stock options for 2005 and prior years. Also, research grants for the year ended December 31, 2005, include the final contribution of $948,000 received by the Company under the  Technology Partnerships Canada Program for the development of tramiprosate (ALZHEMED™).  9    Other research and development charges amounted to $1,127,000 for the year ended December 31, 2006. In 2006, the Quebec taxation authorities confirmed their position in the  application of the tax credit program that denied tax credits on research and development taxable benefits relating to stock options for 2005 and prior years. Accordingly, management determined at that time that the criteria for recognition of these credits were no longer met and recorded a provision for these research tax credits. General and administrative expenses totalled $11,522,000 for the year ended December 31,  2006, compared to $18,333,000 for the previous year. The decrease is primarily attributable to a reduction in legal fees incurred by the Company regarding the dispute with Immtech. Arbitral award amounted to $1,835,000 for the year ended December 31, 2006 and relates to the  dispute with Immtech, as discussed previously. Reimbursable costs amounted to $712,000 for the year ended December 31, 2006, compared to  $872,000 for the previous year, and consist of costs incurred on behalf of Centocor in respect of eprodisate (KIACTA™)-related activities and reimbursable by Centocor. Stock-based compensation amounted to $3,569,000 for the year ended December 31, 2006,  compared to $3,958,000 for the previous year. This expense relates to stock options and stock- based incentives, whereby compensation cost is measured at fair value at the date of grant and is expensed over the award’s vesting period. The decrease is primarily attributable to expenses of $1,189,000 recorded in 2005 in relation to 140,000 common shares to be issued to the Chairman, President and Chief Executive Officer, pursuant to an agreement signed in December 2004.  Depreciation, amortization and patent cost write-off amounted to $1,556,000 for the year ended December 31, 2006, compared to $2,632,000 for the previous year. The decrease is mainly  attributable to the write-off of patent costs of $704,000 recorded in 2005 in relation to non-core technology patents, responsibility for which reverted to Parteq Research & Development Innovations, the technology transfer office of Queen’s University. The decrease is also attributable to the sale-leaseback transaction entered into by the Company in November 2005 in respect of its  facilities located in Laval, Quebec. As a result of the transaction, the Company had no depreciation expense for the buildings in 2006. In 2005, depreciation expense on the buildings was recorded up to the date of the sale-leaseback transaction. Interest income amounted to $2,077,000 for the year ended December 31, 2006, compared to  $1,718,000 for the previous year. The increase is mainly attributable to higher interest rates and is partially offset by lower average cash balances during the current year, compared to the previous year. Interest and bank charges amounted to $133,000 for the year ended December 31, 2006,  compared to $381,000 for the previous year. The decrease is attributable to the reimbursement in November 2005, in connection with the sale-leaseback transaction, of the long-term debt previously contracted to finance the acquisition of facilities in 2004. Accretion expense amounted to $550,000 for the year ended December 31, 2006, and mainly  represents the imputed interest under GAAP on the $42,085,000 aggregate principal amount of 6% convertible senior notes issued in November 2006. Please refer to the section Liquidity and  Capital Resources for more details on the convertible notes. 10    Foreign exchange loss amounted to $280,000 for the year ended December 31, 2006, compared  to a gain of $154,000 for the previous year. Foreign exchange gains or losses arise on the movement in foreign exchange rates related to the Company’s net monetary assets held in currencies other than the Canadian dollar. Foreign exchange losses recognized during 2006 are mainly attributable to the strengthening of the Canadian dollar compared to the US dollar during the year. Prior to July 1, 2007, the Company’s functional currency was the Canadian dollar. Other income amounted to $1,348,000 for the year ended December 31, 2006, compared to  $772,000 for the previous year. Other income consists of non-operating revenue, primarily sub- lease revenue. The increase is mainly attributable to recovery of prior years’ property taxes in 2006 in the amount of $293,000. Share of loss in a company subject to significant influence amounted to $2,440,000 for the year ended December 31, 2006, compared to $2,578,000 for the previous year. Non-controlling interest amounted to $801,000 for the year ended December 31, 2006, compared to $768,000 for  the previous year. These items result from the consolidation of the Company’s interest in a holding company that owns shares of Innodia, for which Neurochem is the primary beneficiary. Net loss for the year ended December 31, 2006 amounted to $66,469,000 ($1.72 per share),  compared to $59,727,000 ($1.70 per share) for the previous year. Quarterly results (unaudited) ( In thousands of US dollars, except per share data) The increase in quarterly losses year over year, with the exception of the third and fourth quarter of 2007, is primarily due to additional investments in research and development as the Company advances its product candidates through clinical trials. The increase in the 2007 second quarter net loss is also due to accretion expense recorded on the convertible notes issued in November 2006  and May 2007. The decrease in the 2007 third quarter net loss, compared to the corresponding  period the previous year is primarily due to a reduction in research and development expenses. The decrease in the 2007 fourth quarter net loss, compared to the corresponding period the previous year, is primarily due to a reduction in research, development and administrative expenses, offset by lower revenues, higher accretion expense on the convertible notes and a write- down of third party asset-backed commercial paper. 11                                                          Net loss per share Quarter    Revenue   Net loss   Basic and diluted       $   $   $ Year ended December 31, 2007                              Fourth       270     (16,097)   (0.33) Third       301     (13,889)   (0.29) Second       443     (30,484)   (0.75) First       501     (21,016)   (0.54)                                Year ended December 31, 2006                              Fourth       675     (17,011)   (0.44) Third       694     (16,509)   (0.43) Second       724     (18,113)   (0.47) First       725     (14,836)   (0.39)    Related party transactions (In thousands of US dollars) In March 2003, Neurochem entered into a management services agreement with Picchio  International Inc. (Picchio International) into which Picchio Pharma Inc. intervened, which has since been amended. Picchio International is wholly-owned by Dr. Francesco Bellini and his spouse. The  management services agreement stipulates that Picchio International provides the services of Dr. Francesco Bellini, as Chief Executive Officer of the Company and services of other members of Picchio International and Picchio Pharma Inc. Under the agreement, Picchio International and Picchio Pharma Inc. provide regular consulting and advisory services, including services related to reviewing existing and potential research and development activities, and potential clinical programs, financing activities, partnering and licensing opportunities, commercialization plans and programs, and advising and assisting in investor relations activities. In consideration of all services rendered under the agreement, Picchio International received in 2007 a monthly fee of approximately CDN$208,000. Pursuant to an amendment in 2003, the agreement also provides for performance-based fees determined at the discretion of the Board of Directors. During the year ended December 31, 2007, the Company paid $848,000 of performance-based fees, which was accrued as at December 31, 2006.  In 2004, the Company entered into an agreement to issue shares with the Chief Executive Officer. Refer to the section Contractual Obligations for details. In April 2005, the Company entered into a lease agreement with a company in which Picchio  Pharma has an equity interest. The lease is for a three-year period ending April 2008, with a gross  rent of approximately CDN$960,000 per year. In connection with the sale-leaseback transaction of November 2005 for its Laval facilities, the Company provided an indemnification to that company  should it be required to vacate its subleased premises by the landlord prior to the expiration of the lease referred to above. During 2007, the lease agreement was extended to April 2011, with a  gross rent of approximately CDN$968,000 per year. Please refer to notes 8, 14(b) and 15(b) of the Consolidated Financial Statements for transactions with Parteq Research and Development Innovations. FINANCIAL CONDITION Liquidity and capital resources As at December 31, 2007, the Company had available cash, cash equivalents and marketable  securities of $58,672,000, compared to $48,758,000 at December 31, 2006. The increase is  primarily due to proceeds received from the issue of convertible notes in May 2007 and is partially  offset by funds used in operating activities. 12                                       Year ended   Year ended   Year ended      December 31,   December 31,   December 31,      2007   2006   2005      $   $   $ Management services expense     2,343       2,164       1,981   Sub-lease revenue     858       846       579      Financing activities Proceeds from the issue of share capital for the year ended December 31, 2007, amounted to  $371,000 and are related to the issue of share capital pursuant to the exercise of stock options. Proceeds from the issue of share capital for the year ended December 31, 2006, amounted to  $8,641,000 and are mainly related to the warrant exercised by Picchio Pharma on February 16,  2006, which was previously issued pursuant to a February 2003 private placement and was  otherwise scheduled to expire on February 18, 2006. Proceeds from the issue of share capital for  the year ended December 31, 2005, amounted to $69,829,000 and are mainly related to the issue of additional share capital and the exercise of a warrant during that year. In March 2005, the  Company completed a public offering of its common shares in the US and in Canada. The Company issued four million common shares at a price of $15.30 per share. Total proceeds from the offering were $61,200,000 and the issue costs totaled $4,107,000. In July 2005, Picchio  Pharma exercised a warrant, issued pursuant to a July 2002 private placement that was otherwise  scheduled to expire on that date, generating total proceeds to the Company of $7,189,000 and resulting in the issuance of 2,800,000 common shares from treasury. Net proceeds from convertible notes amounted to $74,279,000 for the year ended December 31,  2007 and are in respect of the $80,000,000 aggregate principal amount of convertible notes issued in May 2007, consisting of $40,000,000 6% senior convertible notes due in 2027 and $40,000,000 5% senior subordinated convertible notes due in 2012. The 6% senior convertible notes have an initial conversion price equal to the lesser of $12.68 or the 5-day weighted average trading price of the common shares preceding any conversion, subject to adjustments in certain circumstances. The Company will pay interest on the 6% senior convertible notes until maturity on May 2, 2027, subject to earlier repurchase, redemption or conversion. The 5% senior subordinated  convertible notes were subject to mandatory conversion into common shares under certain circumstances. In connection with this transaction, the Company issued warrants to purchase an aggregate of 2,250,645 common shares until May 2, 2012, at an initial purchase price of $12.68  per share, subject to adjustments in certain circumstances. During the year ended December 31,  2007, $35,500,000 of the 6% senior convertible notes were converted into 5,619,321 common shares and the totality of the 5% senior subordinated convertible notes were converted into 4,444,449 common shares. Of the net proceeds from the offering, $34,274,000 has yet to be spent as of December 31, 2007. As at December 31, 2007, the use of proceeds has conformed in all  material respects, with the expectations set forth in the prospectus filed publicly. Net proceeds from convertible notes amounted to $40,306,000 for the year ended December 31, 2006 and are in  respect of the private placement entered into in November 2006 of $42,085,000 aggregate  principal amount of 6% convertible senior notes due in 2026, with a conversion premium of 20%. The Company will pay interest on the notes until maturity on November 15, 2026, subject to earlier  repurchase, redemption or conversion. Refer to note 10 of the Consolidated Financial Statements for more details. Proceeds from sale-leaseback amounted to $26,411,000 for the year ended December 31, 2005,  and are in respect of the Company’s facilities located in Laval, Quebec. The transaction generated a net gain of CDN$21,358,000. For accounting purposes, the net gain is deferred and amortized over the period of the lease. The Company has leased the facilities for a period of 15 years, with an  option to buy it back at fair market value beginning December 1, 2017. In addition, the Company  has secured two five-year options to extend the lease beyond the original term. Of the proceeds, CDN$9.8 million was used to repay the long-term debt contracted in 2004 to finance the acquisition of the facilities from Shire BioChem. 13    In August 2006, the Company entered into a securities purchase agreement in respect of an equity  line of credit facility (ELOC) with Cityplatz Limited (Cityplatz), that provides the Company up to  $60,000,000 of funds in return for the issuance of common shares at a discount of 3.0% to market price at the time of draw downs over term, less a placement fee equal to 2.4% of gross proceeds payable to the placement agent, Rodman & Renshaw, LLC. The ELOC established by the securities purchase agreement will terminate on February 9, 2009. The ELOC shall also terminate  if (i) the Company’s common shares are de-listed from NASDAQ unless the common shares are listed at such time on another trading market specified in the agreement and such de-listing is in connection with a subsequent listing on another trading market specified in the agreement, (ii) the  Company is subject to a change of control transaction or (iii) the Company suffers a material  adverse effect which cannot be cured prior to the next drawdown notice. The Company may terminate the securities purchase agreement (i) if Cityplatz fails to fund a properly notified  drawdown within five trading days of the end of the applicable settlement period or (ii) after it has  drawn down at least $25,000,000 under the ELOC. Either party may also terminate the securities purchase agreement if the volume-weighted average price of the Company’s common shares is below $5 per share for more than 30 consecutive trading days. Given that the current price per share has been below the minimum price as per the agreement, the agreement may be terminated at any time. As at December 31, 2007, the Company had not drawn any funds under the ELOC.  See subsequent event note for terms of amendment. Investing activities Additions to property and equipment for the year ended December 31, 2007, amounted to  $575,000, compared to $801,000 for the year ended December 31, 2006, and $1,126,000 for the  year ended December 31, 2005. The main additions to property and equipment for these three  years were composed of research equipment. Additions to patents for the year ended December 31, 2007, amounted to $1,180,000, compared to $1,716,000 for the year ended  December 31, 2006, and $939,000 for the year ended December 31, 2005.  Addition to long-term investment amounted to $1,464,000 for the year ended December 31, 2006  and represents the Company’s additional indirect equity investment in Innodia, as described above. Other As at January 31, 2008, the Company had 48,848,095 common shares outstanding, 220,000  common shares issuable to the Chief Executive Officer upon the achievement of specified performance targets, 2,815,233 options granted under the stock option plan, 2,884,471 shares potentially issuable under the convertible notes and 2,250,645 warrants outstanding, for a maximum of 57,018,444 common shares, on a fully diluted basis. The Company invests available cash resources, in a manner consistent with a goal of capital preservation, liquidity and with limited credit risk, in liquid securities with varying terms to maturity not exceeding twelve months, selected with regard to the expected timing of expenditures to be incurred from continuing operations and prevailing interest rates. “Restricted Cash” presented on the Consolidated Balance Sheet is composed of short-term investments pledged to a bank as collateral for two letters of credit; the first in the amount of $6,000,000 was issued in connection with the potentially refundable upfront payment received under the collaboration agreement with Centocor and the second in the amount of CDN$640,000 was granted in favour of a landlord in relation to the lease of a building. As at December 31, 2007,  14    restricted cash is composed of third-party asset-backed commercial paper (ABCP). These investments were due to mature during the third quarter of 2007 but, as a result of a disruption in the credit markets, particularly in the ABCP market, they did not settle on maturity and currently remain outstanding. At the time these investments were acquired, the ABCP were rated R1-high by Dominion Bond Rating Service, which is the highest credit rating for this type of investment. The ABCP are currently subject to a restructuring proposal under a standstill agreement which is expected to result in the conversion of the ABCP into longer-term financial instruments with maturities corresponding to the underlying assets. A Pan-Canadian Investors Committee (the Committee) was established to oversee the orderly restructuring of these instruments during this standstill period. A restructuring plan was announced by the Committee on December 23, 2007,  and is anticipated to be completed by t

About Global Documents

Global Documents provides you with documents from around the globe on a variety of topics for your enjoyment.

Global Documents utilizes edocr for all its document needs due to edocr's wonderful content features. Thousands of professionals and businesses around the globe publish marketing, sales, operations, customer service and financial documents making it easier for prospects and customers to find content.

 

×

Modal Header

Modal body