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Quarter Highlights: PREVU(x) LT cleared for sale in Canada and CE-marked in Europe
TORONTO, Nov. 8 /PRNewswire-FirstCall/ -- Predictive medicine company PreMD Inc. (TSX: PMD; Amex: PME) today announced results for the third quarter of fiscal 2006 ended September 30, 2006 (Q3 2006).
Recent Highlights
- Announced that on December 28th PreMD will reacquire the rights to
PREVU(x) from McNeil Consumer Healthcare - transition currently in
process;
- Received clearance from the U.S. Food and Drug Administration (FDA)
for the new cordless color PREVU(x) reader, enhancing the market
appeal of PREVU(x) POC;
- PREVU(x) LT, the lab-processed format of the PREVU(x) technology was
cleared for sale in Canada and Conformite Europeene (CE)-marked in
Europe. PREVU(x) LT has been developed for use within the life
insurance industry and diagnostic laboratories;
- Completed PREPARE study which evaluated PREVU(x) LT within the life
insurance industry. Subsequent to Q3 2006, submitted a 510(k)
application to the FDA.
The consolidated net loss for Q3 2006 was $1,120,000 or $0.05 per share compared with a loss of $1,444,000 or $0.07 per share for the quarter ended September 30, 2005 (Q3 2005), a decrease of $324,000. For the nine months ended September 30, 2006, the net loss was $5,609,000, or $0.26 per share, compared with $4,201,000, or $0.20 per share for the nine months ended September 30, 2005. The year to date increase was primarily due to increased research and development expenses related to the acceleration of clinical trials in the first six months of 2006 and to interest and imputed interest expenses on convertible debentures issued on August 30, 2005. The Company reduced research and development expenses to historical levels in Q3 and expects to maintain this level for the balance of fiscal 2006, and with further reductions expected in 2007 as several additional clinical trials are completed. Cash used to fund operating activities during Q3 2006 amounted to $1,608,000 compared with $1,180,000 in Q3 2005; the increase in cash usage resulting from payment of Q2 accounts payable associated with clinical trials.
Total product related sales to McNeil Consumer Healthcare ("McNeil") were $1,000 for Q3 2006 compared with $40,000 for Q3 2005. McNeil continues to use inventory purchased in 2005 for sales and marketing proposals to potential customers and has purchased only a small quantity of new products in 2006. License revenue was $577,000 for Q3 2006, compared to $80,000 for Q3 2005, reflecting milestone payments earned during the recent quarter.
"This quarter consisted of both challenges and exciting opportunities," said Dr. Brent Norton, President and Chief Executive Officer. "The decision by McNeil Consumer Healthcare to terminate our marketing partnership provides us with an opportunity to more fully realize the potential of the PREVU(x) product line while availing ourselves of the initial value McNeil has built. Transition plans are underway and we are developing our longer term marketing strategy surrounding PREVU(x). In the near term, we are continuing to build on the momentum that has been generated with market segments such as in-store pharmacies and retail health clinics."
Dr. Norton continued, "the clearance of our second skin sterol test in Canada and Europe marks a significant milestone for the company. We have also recently filed for approval of PREVU(x) LT in the U.S. and believe this product, geared toward the life insurance industry, has much potential. Furthermore, due to our existing relationships with life insurers, we are well positioned for the commercial launch of this product."
Shortly after the close of the quarter, PreMD announced legal action surrounding certain intellectual property involving part of PreMD's cancer products, which include ColorectAlert(TM), LungAlert(TM) and a breast cancer test. PreMD is committed to protecting its intellectual property and will defend its position vigorously.
Outlook
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"We are working closely with McNeil and the transfer of information is orderly and cooperative. Key contacts and programs are being turned over to us and we are managing the marketing of PREVU(x) while we evaluate our longer term commercialization plans," said Dr. Norton. "In addition, on the oncology side of our business, we anticipate several near term data events that have the potential to further validate our technology and increase the value of our oncology product line. While we continue to make progress against our objectives, due to the termination by McNeil future anticipated milestone payments will not be forthcoming. Thus, our target date of reaching break-even will shift to 2007."
PreMD's near-term objectives include:
- Obtain U.S. FDA regulatory clearance for use in life insurance
screening for PREVU(x) LT, based on the PREPARE clinical trial;
- Evaluate the opportunity of working with companies such as
Medivon, LLC ("Medivon") to distribute PREVU(x) POC as part of risk
assessment programs to the retail pharmacy market;
- Continue to supply product and support customers and programs
developed by McNeil in Canada, the U.S. and Europe;
- Negotiate partnership agreements with one or more companies to market
PREVU(x) in various market segments;
- File 510(k) with U.S. FDA to obtain broader regulatory claim for
PREVU(x) in the U.S. based on the PASA clinical trial;
- Complete analysis of new LungAlert(TM) data and expand participation
in I-ELCAP to additional sites; and
- Complete pivotal study for the breast cancer test at the University of
Louisville.
PREVU(x) Commercialization Update
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Although the agreement with McNeil will terminate on December 28, 2006, they continue to advance initiatives in targeted segments of the risk assessment market as well as the life insurance industry:
- McNeil showcased the new handheld cordless PREVU(x) POC reader to
cardiologists and other medical professionals at the World Congress of
Cardiology 2006, an event organized by the European Society of
Cardiology and the World Heart Federation, held in Barcelona, Spain in
September.
- The initial pilot programs with Costco in Florida are being extended
to additional stores in the fourth quarter.
- McNeil has a sales broker contract with Medivon, LLC ("Medivon"), a
Florida-based healthcare company that provides heart disease risk
assessment programs and PreMD is evaluating the opportunity of working
directly with Medivon to market screening programs in retail
pharmacies in the U.S.
- In the life insurance market, PreMD and McNeil presented PREVU(x) LT
at the Association of Home Office Underwriters (AHOU) Conference in
Las Vegas and management of PreMD is working on a business model to
market PREVU(x) directly to the insurance industry.
Financial Review
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During Q3 2006, the Company focused on completing some key clinical trials, including the PASA trial to support additional claims for PREVU(x) Point of Care (POC) Skin Sterol Test, and the PREPARE trial for use of PREVU(x) LT in the life insurance industry. As a result, research and development expenditures for Q3 2006 decreased by $20,000 to $841,000 from $861,000 in Q3 2005. The variance for the quarter reflects:
- an increase of $96,000 in spending on clinical trials for skin
cholesterol, particularly related to the PREPARE and PASA trials, as
well as the trials for the lung, colorectal and breast cancer
technologies;
- a decrease of $20,000 in legal fees on intellectual property; and
- a decrease of $95,000 in subcontract research due to the completion of
the development of the second-generation spectrometer.
Total research and development expenditures for the nine months ended September 30, 2006 and 2005 amounted to $3,826,000 and $2,309,000, respectively. As a result of the completion of enrolment in the above-noted trials, clinical trial costs are expected to continue to diminish for the balance of 2006 and into 2007.
General and administration expenses amounted to $499,000 for Q3 2006 compared with $590,000 in Q3 2005, a decrease of $91,000. For the nine months ended September 30, 2006, general and administration expenses amounted to $1,765,000 compared to $2,125,000 in 2005, a decrease of $360,000.
Interest on convertible debentures amounted to $172,000 in Q3 2006 compared with $55,000 in Q3 2005. Based on the debenture issue date of August 30, 2005, the Q3 2005 expense only reflected one month's expense. For the nine months ended September 30, 2006, interest amounted to $510,000 compared with $55,000 for the corresponding period in 2005. The debentures bear interest at an annual rate of 7%, payable quarterly in either cash or common shares. The interest expenses for Q2 and Q3 2006 were paid in common shares, of which 31,065 and 1,450 respectively were issued during Q3 2006 and 60,598 were issued subsequent to the quarter, on October 5, 2006.
Imputed interest for the three and nine months ended September 30, 2006 amounted to $204,000 and $609,000, respectively, compared with $63,000 for the corresponding periods in 2005. As mentioned above, the Q3 2005 expense only reflects one month's expense. This is a non-cash expense and represents the fair value of the warrants and equity conversion features of the debentures, amortized over the life of the debentures.
Amortization expenses for equipment and acquired technology for Q3 2006 amounted to $45,000 compared with $54,000 for Q3 2005. For the nine months ended September 30, 2006 and 2005, amortization amounted to $135,000 and $160,000, respectively. Purchases of capital assets amounted to $23,000 during 2006 compared with $117,000 in 2005.
Amortization of deferred financing fees related to the convertible debentures amounted to $33,000 in Q3 2006 ($98,000 for the nine months ended September 30, 2006) compared with $13,000 in Q3 2005. The financing fees are being amortized over the life of the convertible debentures.
The loss on foreign exchange for the three months ended September 30, 2006 amounted to $5,000 compared with a gain of $22,000 for the corresponding period in 2005. Included in the loss for Q3 2006 is $8,000 resulting from the effects of foreign exchange on the convertible debentures which are repayable in U.S. dollars. It is partially offset during the quarter by a gain on the revaluation of investments held in U.S. dollars, amounting to $3,000. For the nine months ended September 30, 2006 and 2005, the gain on foreign exchange amounted to $211,000 and $35,000, respectively.
Refundable scientific investment tax credits ("ITCs") accrued for Q3 2006 amounted to $45,000 versus $70,000 for Q3 2005. The difference arose from the relative timing of eligible expenditures. For the nine months ended September 30, 2006 and 2005, the ITC revenue amounted to $175,000 and $168,000, respectively.
Interest income amounted to $56,000 for Q3 2006 compared with $36,000 for Q3 2005 as a result of higher cash balances resulting from the proceeds of the convertible debentures. For the nine months ended September 30, 2006 and 2005, interest income amounted to $213,000 and $87,000, respectively.
As at September 30, 2006, PreMD had cash, cash equivalents and short-term investments totaling $4,287,000 ($8,679,000 as at December 31, 2005). The Company invests its funds in short-term financial instruments and marketable securities. Cash used to fund operating activities during Q3 2006 amounted to $1,608,000 compared with $1,180,000 in Q3 2005, the increase resulting from the reduction in accounts payable from Q2 2006.
To date, the Company has financed its activities through product sales, license revenues, the issuance of shares and convertible debentures and the recovery of ITCs. Management believes that clinical trial expenses will be reduced dramatically for the balance of 2006 and for 2007 and that, based on historic cash expenditures and the current expectation of further revenues from product sales, its existing cash resources together with the ITC receivable of $375,000 will be sufficient to meet its current operating and capital requirements. As a result of the pending termination of the agreement with McNeil, the Company is currently developing a new business plan for the distribution of the PREVU(x) Skin Sterol Tests.
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Conference Call and Webcast
PreMD will hold a conference call and webcast tomorrow, November 9, 2006,
at 9:00 a.m. ET. To access the conference call, please dial
1-800-732-1073. A live audio webcast will be available at
http://www.premdinc.com/, and will be subsequently archived for three months. To
access the replay via telephone, which will be available until
November 16, 2006, please dial 416-640-1917 or 1-877-289-8525 and enter
the passcode 21209075 followed by the number sign.
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About PreMD
PreMD Inc. is a world leader in predictive medicine, dedicated to developing rapid, non-invasive tests for the early detection of life-threatening diseases. PreMD's cardiovascular products are branded as PREVU(x) Skin Sterol Test. The company's cancer tests include ColorectAlert(TM), LungAlert(TM) and a breast cancer test. PreMD's head office is located in Toronto, and its research and product development facility is at McMaster University in Hamilton, Ontario. For further information, please visit http://www.premdinc.com/.
This press release contains forward-looking statements. These statements involve known and unknown risks and uncertainties, which could cause the Company's actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, among others, the successful development or marketing of the Company's products, the competitiveness of the Company's products if successfully commercialized, the lack of operating profit and availability of funds and resources to pursue R&D projects, the successful and timely completion of clinical studies, product liability, reliance on third-party manufacturers, the ability of the Company to take advantage of business opportunities, uncertainties related to the regulatory process, and general changes in economic conditions.
In addition, while the Company routinely obtains patents for its products and technology, the protection offered by the Company's patents and patent applications may be challenged, invalidated or circumvented by our competitors and there can be no guarantee of our ability to obtain or maintain patent protection for our products or product candidates.
Investors should consult the Company's quarterly and annual filings with the Canadian and U.S. securities commissions for additional information on risks and uncertainties relating to the forward-looking statements. Investors are cautioned not to rely on these forward-looking statements. PreMD is providing this information as of the date of this press release and does not undertake any obligation to update any forward-looking statements contained in this press release as a result of new information, future events or otherwise.
(x)Trademark
PreMD Inc.
Incorporated under the laws of Canada
CONSOLIDATED BALANCE SHEETS
(In Canadian dollars)
As at September 30, 2006 and December 31, 2005
Unaudited
September 30, December 31,
2006 2005
$ $
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ASSETS
Current
Cash and cash equivalents 68,641 773,199
Short-term investments 4,218,743 7,905,883
Accounts receivable 501,464 881,891
Inventory 34,498 36,306
Prepaid expenses and other receivables 104,164 317,264
Investment tax credits receivable 375,000 200,000
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Total current assets 5,302,510 10,114,543
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Deferred financing fees, net of accumulated
amortization of $140,706 (2005 - $43,059) 380,078 477,725
Capital assets, net of accumulated
amortization of $813,187 (2005 - $721,784) 341,891 410,636
Acquired technology, net of accumulated
amortization of $900,514 (2005 - $856,970) 246,742 290,286
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6,271,221 11,293,190
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LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current
Accounts payable 212,312 291,125
Accrued liabilities 770,171 655,113
Current portion of deferred revenue 2,374,125 311,915
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Total current liabilities 3,356,608 1,258,153
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Convertible debentures (note 3) 5,763,542 5,893,340
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Deferred revenue - 2,297,400
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Total liabilities 9,120,150 9,448,893
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Shareholders' equity (deficiency)
Capital stock (note 5) 25,087,715 24,449,826
Contributed surplus (note 5) 2,233,370 1,840,979
Equity component of convertible
debentures (note 3) 2,279,008 2,393,145
Warrants 1,373,718 1,373,718
Deficit (33,822,740) (28,213,371)
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Total shareholders' equity (deficiency) (2,848,929) 1,844,297
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6,271,221 11,293,190
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PreMD Inc.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(In Canadian dollars)
Unaudited
Three months ended Nine months ended
September 30 September 30
------------------- --------------------
2006 2005 2006 2005
$ $ $ $
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REVENUE
Product sales 1,381 39,902 6,513 384,962
License revenue 576,995 79,698 733,670 234,504
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578,376 119,600 740,183 619,466
Cost of product sales 1,140 57,523 5,523 388,074
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Gross Profit 577,236 62,077 734,660 231,392
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EXPENSES
Research and
development 840,505 861,488 3,826,029 2,309,062
General and
administration 499,098 590,038 1,764,963 2,124,950
Interest on convertible
debentures 172,243 54,921 510,380 54,921
Imputed interest on
convertible
debentures 204,445 62,873 608,577 62,873
Amortization 77,662 64,611 232,594 170,622
Loss (gain) on foreign
exchange 4,505 (21,837) (210,538) (34,884)
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1,798,458 1,612,094 6,732,005 4,687,544
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RECOVERIES AND OTHER INCOME
Investment tax credits 45,000 70,000 175,000 167,923
Interest 56,047 36,076 212,976 87,349
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101,047 106,076 387,976 255,272
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Net loss for the
period (1,120,175) (1,443,941) (5,609,369) (4,200,880)
Deficit, beginning of
period (32,702,565) (25,980,605) (28,213,371) (23,223,666)
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Deficit, end of
period (33,822,740) (27,424,546) (33,822,740) (27,424,546)
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Basic and diluted loss
per share $(0.05) $(0.07) $(0.26) $(0.20)
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Weighted average number
of common shares
outstanding 21,685,656 21,534,414 21,601,763 21,467,882
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PreMD Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Canadian dollars)
Unaudited
Three months ended Nine months ended
September 30 September 30
------------------- --------------------
2006 2005 2006 2005
$ $ $ $
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OPERATING ACTIVITIES
Net loss for the
period (1,120,175) (1,443,941) (5,609,369) (4,200,880)
Add items not
involving cash
Amortization 77,662 66,791 232,594 172,802
Stock compensation
costs included in:
Research and
development expense 27,510 30,821 122,229 119,264
General and
administration
expense 43,881 82,453 287,093 364,480
Imputed interest on
convertible
debentures 204,445 62,873 608,577 62,873
Interest on
convertible debentures
paid in stock 64,815 - 144,517 -
Add (deduct) gain on
foreign exchange 4,505 (21,837) (210,538) (34,884)
Net change in non-cash
working capital
balances related to
operations (note 6) (834,448) 109,414 462,085 (335,325)
Decrease in deferred
revenue (76,598) (66,694) (235,190) (220,144)
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Cash used in
operating
activities (1,608,403) (1,180,120) (4,198,002) (4,071,814)
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INVESTING ACTIVITIES
Short-term
investments 1,582,645 (6,556,846) 3,464,549 (3,911,229)
Purchase of capital
assets (1,743) (951) (22,658) (116,727)
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Cash provided by
(used in) investing
activities 1,580,902 (6,557,797) 3,441,891 (4,027,956)
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FINANCING ACTIVITIES
Issuance of
convertible
debentures - 9,827,616 - 9,827,616
Financing fees - (852,825) - (852,825)
Issuance of capital
stock, net of issue
costs - - - 198,400
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Cash provided by financing
activities - 8,974,791 - 9,173,191
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Effect of exchange rate
changes on cash and
cash equivalents 5,341 (35,510) 51,553 (36,354)
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Net increase (decrease)
in cash and cash
equivalents during
the period (22,160) 1,201,364 (704,558) 1,037,067
Cash and cash equivalents
- Beginning of
period 90,801 75,161 773,199 239,458
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- End of period 68,641 1,276,525 68,641 1,276,525
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Represented by
Cash 68,641 1,276,525 68,641 1,276,525
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68,641 1,276,525 68,641 1,276,525
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DATASOURCE: PreMD Inc.
CONTACT: Ron Hosking, Vice President Finance & CFO, T : (416) 222-3449,