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NEWS ReleaseWex Reports Financial Results for Third Quarter EndedDecember 31, 2004Date: February 14, 2005 Toronto Stock Exchange
Trading Symbol: WXI E-mail: wex@wexpharma.com
Vancouver, February 14, 2005 - Wex Pharmaceuticals Inc. ("WEX" or the "Company") today reported interim financial results for the three and nine month periods ended December 31, 2004. The unaudited interim consolidated financial statements presented here have been prepared in accordance with Canadian generally accepted accounting principles for interim financial information ("Canadian GAAP"). All figures herein are denoted in Canadian dollars unless otherwise specified. The information contained herein should be read in conjunction with the unaudited interim consolidated financial statements and related notes for the three and nine month periods ended December 31, 2003, and the audited consolidated financial statements, notes and Management Discussion and Analysis for our fiscal year ended March 31, 2004. Additional information relating to Wex Pharmaceuticals Inc., including the Company's Annual Information Form, is available on SEDAR at www.sedar.com. Corporate Profile Wex Pharmaceuticals Inc. is dedicated to the discovery and commercialization of new analgesic agents for the treatment of moderate to severe pain; symptom relief associated with addiction withdrawal and local and regional anesthesia. On October 25, 2004 WEX changed its name from International Wex Technologies Inc. to Wex Pharmaceuticals Inc.; a name which the Company believes better describes its business operations. The Company's stock symbol on the TSX remains unchanged as WXI. Wex Pharmaceuticals Inc. is developing the natural compound tetrodotoxin or TTX as an analgesic. The Company believes there is a large unmet medical need for an effective pain medication capable of combining rapid and lasting analgesic effects without the morphine-like side effects which are characteristic of current therapeutics used for the management of moderate to severe pain. The Company is currently testing TTX in refractory cancer pain which represents the initial clinical trials. The Company's goal is to advance TTX through clinical trials, for the treatment of moderate to severe pain, in North American and international markets. Through a joint global development plan, WEX, in collaboration with its European strategic partner (Laboratorios Dr Esteve S.A.) will share resources and expertise for the rapid development and subsequent commercialization of TTX in the major European markets. The Company maintains a significant research and development presence in China where all of the Company's product research is performed. The Company's business strategy is to derive proprietary therapeutics from naturally occurring toxins and develop these for worldwide markets. In addition, the Company generates revenue through the production and distribution of a generic line of pharmaceutical products in China. The Company continues to remain focused on its clinical trails and continued research and development of natural occurring pain analgesics. During this quarter the Company initiated and completed enrollment of a Phase IIa clinical trial of Tetrodin™ in Canada. This study was designed to evaluate the safety and efficacy in decreasing the severity of withdrawal symptoms in opiate-dependent subjects who were receiving metha don e in a treatment program. The results of this trial are expected in the spring of 2005. The Company has an ongoing Phase IIb/III clinical trial of Tectin™ in Canada. This study is one of the largest Canadian clinical trials to evaluate the efficacy and safety of a drug for the treatment of medically refractory cancer pain. In addition, the Company has a Phase II clinical trial underway in China to evaluate inadequately controlled cancer pain. At December 31, 2004, the Company had approximately $23.6 million in cash and short term investments and had 104 employees and shareholders' equity of $25.5 million. Critical Accounting Policies The Company's critical accounting policies are disclosed in the "Management's Discussion and Analysis" section and in the annual consolidated financial statements contained in the 2004 annual report. The Company issued convertible debentures totaling $6.8 million on June 15, 2004 . In accordance with Section 3860 of the CICA handbook, the convertible debenture has been recorded on the balance sheet as debt of $4.3 million and equity of $2.3 million (see Note 9 to the financial statements).
Deferred leasehold inducements represent a tenant improvement allowance that is being amortized on a straight-line basis over the initial term of the lease of 10 years as a reduction of lease expense.
Results of Operations - Three Months Ended December 31, 2004 Compared to Three Months Ended December 31, 2003 For the three months ended December 31, 2004, the Company recorded a loss of $4.45 million ($0.13 loss per common share) compared with a loss of $1.95 million ($0.07 loss per common share) in the comparative three months ended December 31, 2003 and a loss of $2.35 million ($0.07 loss per common share) for the prior quarter ended September 30, 2004. The increase in loss for the current quarter compared with the preceding quarter is attributable to a substantial increase in expenses related to clinical trials and increase in costs as they relate to the Company's expansion.
Revenue Revenues generated from the Company's generic product line and license fees were $206 thousand for the period as compared with $190 thousand in the previous year's quarter. Management believes that revenue for the fourth quarter of the current year will remain consistent. Gross Margin The Company's gross margin on generic product sales for the period was 42% as compared with 22% over the previous year's quarter or a 20% increase. Expenditures Research and Development R&D expenses totaled $2.68 million for the three months ended December 31, 2004 compared with $645 thousand for the comparable period last year and $1.03 million for the preceding quarter ending September 30, 2004 . Included in research and development expenses for the three months ended December 31, 2004 is a non-cash stock-based compensation expense of $25 thousand as compared with $nil for the same period in 2003 and $67 thousand for the previous three month period ended September 30, 2004. Excluding the non-cash compensation expense, R&D expenditures increased by approximately 176% over the previous quarter. Approximately 138% of this increase was due directly to expanded clinical trials with the balance due to new staff and research supplies related to the clinical trial activities. General and Administration General and Administrative expenses totaled $1.35 million for the three months ended December 31, 2004 compared with $955 thousand for the comparable period last year. When compared with the previous three months ended September 30, 2004 expenses increased by $132 thousand or 11%. Included in General and Administrative expenses for the third quarter, is a non-cash stock-based compensation expense of $218 thousand as compared with $405 thousand for the same period in 2003. When comparing the three months ended December 31, 2004 with the three months ended September 30, 2004 , there was an increase of 49% or $366 thousand in general and administrative expenses net of non-cash stock-based compensation expense. This increase was due to staff additions including the hiring of a new CFO, higher professional fees as they relate to the transition of auditors, travel and rent increases at the Company's expanded head office. There have been no material changes during the three and nine month periods ended December 31, 2004 to the forward-looking information provided in the "Management's Discussion and Analysis of Financial Condition and Operations" for the fiscal year ended March 31, 2004. Results of Operations - Nine Months Ended December 31, 2004 Compared to Nine Months Ended December 31, 2003 The loss for the nine months ended December 31, 2004 was $9.96 million or a $0.30 loss per common share as compared with $4.02 million or a $0.17 loss per common share for the nine months ended December 31, 2003. The increase in loss for the current quarter compared to the preceding quarter is attributable to the substantial increase of expenses in clinical trials and the increase in payroll costs as they relate to the Company's growth in order to support these clinical trials. All results of operations were in line with management expectations. Revenue Revenues for the first nine months of this fiscal year generated from the Company's generic product line and license fees were $664 thousand for the period as compared with $528 thousand in the previous year's quarter or an increase of $136 thousand. This increase is mainly attributable to the launch of a new generic antibiotic. Management expects additional product launches and continued strength in the Chinese economy to support future growth in generic drug revenues over the coming quarters. The Company is currently in discussions with Esteve to finalize the reporting requirements of the Phase IIa study in relation to the milestone payment of €2 million. Gross Margin The Company's gross margin on generic product sales for the period was 38% as compared with 32% over the previous year's nine month period or a 6% increase. Expenditures
Research and Development R&D expenses totaled $5.12 million for the nine months ended December 31, 2004 compared with $1.86 million for the comparable period last year and $2.45 million for the previous six months ended September 30, 2004. Included in research and development expenses for the nine months ended December 31, 2004 is a non-cash stock-based compensation expense of $2.07 million as compared to $405 thousand for the same period in 2003. Included in the Company's R&D expenses for the nine months ended December 31, 2004 is a related party amount of $186 thousand. This amount relates to the compensation paid to the Company's Chief Scientific Officer. Currently, the compensation arrangements with this individual are based on a contract which provides for a minimum monthly fee and hourly billings over this base amount. General and Administration General and Administrative expenses totaled $3.97 million for the nine months ended December 31, 2004 when compared with $1.8 million for the comparable period last year. Of this $2.17 million dollars increase, $1.67 million relates to the non cash expense of stock based compensation. Included in the administrative expenses is a related party amount of $95 thousand. Peter Stafford , a director of the Company and a partner with the law firm Fasken Martineau DuMoulin, which acts as corporate counsel to the Company, is based in Fasken's offices in South Africa . The Company's relationship with Fasken Martineau DuMoulin is managed through a partner in the firm's Vancouver office. Mr. Stafford does not provide legal advice nor is he involved in any of the Company's files with Fasken Martineau DuMoulin. Results from other expenses for the three and nine months ended December 31, 2004
Amortization and Depreciation Amortization expenses of $198 thousand were recorded for the three months ended December 31, 2004 as compared with $114 thousand for the same period in the prior year. Amortization expense of $583 thousand was recorded for the nine month period ended December 31, 2004 as compared with $332 thousand for the same period in the prior year. The increase in amortization expenses reflects the change made in the estimate of the remaining useful life of patents and technology licenses from 17 years to 10 years in the fourth quarter of fiscal 2003 and the continued expansion of the Company's capital assets (see Liquidity and Capital Resources). Interest and Sundry Income Interest and Sundry income for the three and nine months ended December 31, 2004 increased to $117 thousand and $296 thousand respectively when compared with $13 thousand and $36 thousand for the same periods one year ago. The increases are as a result of investing the higher cash balances from financing activities as compared to the same periods in the prior year, including the Company's debentures issued in mid-June and the exercise of warrants and options.
Interest expense on the Debentures issued June 15, 2004 was $178 thousand for the three months ended December 31, 2004 and $383 thousand for the nine months ended December 31, 2004 . Interest expense details are described in note 9 of the Consolidated Financial Statements. Foreign Exchange Losses A foreign exchange loss of $286 thousand and $600 thousand were recorded during the three and nine months ended December 31, 2004 respectively as compared with losses of $354 thousand and $403 thousand for the same periods in the prior year. Foreign exchange losses are a result of the translation of the net assets of the Company's foreign subsidiaries which are denominated either in Hong Kong dollars or Chinese RMB. These are partially offset by foreign exchange gains relating to conversion of the US dollar Debenture liability into Canadian dollars. Liquidity and Capital Resources At December 31, 2004, WEX had cash and cash equivalents and short-term investments of approximately $23.6 million as compared to $23.1 million at the end of September, 2004. Cash used in operating activities of $7.10 million during the first nine months ended December 31, 2004 compared to cash used in operations of $2.78 million for the same period one year ago. The current period increase in cash used reflects increased expenditures in research and development and general and administrative expenses. Cash used in investing activities increased to $11.42 million for the first nine months ended December 31, 2004 as compared to $5.49 million for the comparable period in 2003. The increase relates primarily to purchases of short term investments of $9.85 million and purchases for property and equipment and expenditures in regard to intellectual property. Approximately 63% of the capital acquisitions represent the Company's expansion of the research facilities in Nanning including a new pharmacology lab. In addition, a number of new patent applications and intellectual property related expenses were made during the period which were capitalized. Net cash provided by financing activities to December 31, 2004 totaled $13.87 million compared to $15.24 million for the comparable nine month period a year earlier. The primary reason for the decrease was the reduced proceeds received from the exercise of warrants, options and shares over the prior period. The current period includes the proceeds from the issuance of debentures in the amount of $6.82 million as compared to $nil for the same period in 2003. The Company's short term investments are invested in short term interest bearing deposits which are immediately convertible into cash. Approximately 25% of the Company's cash holdings are in US dollars, 1% in Hong Kong Dollars and 4% in Chinese RMB. The remainder is in Canadian funds. Maturity dates for all the instruments are under one year and realizing an average interest rate of approximately 2.6% for the nine month period ended December 31, 2004 as compared to 2.6% for the same period a year earlier. The Company's treasury policy is focused on minimizing risk of loss of principal. The Company believes that it has sufficient cash on hand to finance its operations and capital needs until early fiscal 2007. The Company's working capital and capital requirements will however depend significantly upon numerous factors, including the progress of the Company's preclinical and clinical test ing; fluctuating or increasing manufacturing requirements and R&D programs; the timing and cost of obtaining regulatory approvals; the levels of resources the Company devotes to the development of manufacturing, marketing and support capabilities; technological advances; status of competition, the costs of filing, prosecuting and enforcing the Company's patent claims and other intellectual property rights; the ability of the Company to establish and maintain collaborative arrangements with other organizations. Accordingly, the company may seek funding from a combination of sources including product licensing, joint development and new collaborative arrangements and also from the issuance of additional equity and debt financings as well as from other sources. No assurances can be given that additional funding will be available or if available on terms acceptable to the Company. If adequate capital is not available the Company's business can be materially and adversely affected. The risks and uncertainties related to economic and industry factors discussed in the Company's Annual Information Form dated August 12, 2004 remain substantially unchanged. Outstanding Share Data During January 2005 of this year no warrants were exercised. Options in the amount of 4,000 were exercised at $2.08. As at January 31, 2005 the Company had approximately 34.8 million issued and outstanding common shares. In addition, at the same date, the Company had approximately 4.62 million stock options outstanding and 3.90 million warrants outstanding to purchase common shares. See the "Share Capital" note in the unaudited interim financial statements for more detail. As at December 31, 2004, the Company also had US$ 5.1 million aggregate principal amount of convertible debentures which are convertible into 1,414,332 shares. The conversion of the Debentures has not been included in the computation of loss per share nor in the outstanding share data. Contractual Obligations The Company's material contractual obligations as at December 31, 2004 comprised the Company's Debentures, clinical and development agreements and operating lease commitments for office space and office equipment. During this quarter, the Company entered into further contractual obligations for clinical development programs totaling $802 thousand (US$666 thousand), a majority of this work is expected to be completed during the current fiscal year. Also, the Company has entered into agreements with clinical sites across Canada which may require the payment of additional costs depending on patient recruitment of up to $3.5 million. Further details of the Company's contractual obligations are described in the Company's "Management Discussion and Analysis" contained in the Company's 2004 annual report and in Note 10 of the interim financial statements.
Summary of Quarterly Results The following is a summary of the unaudited quarterly results of operations for the previous eight quarters beginning with the quarter ended December 31, 2004.
Calendar Quarter Ending
The Company's quarterly financial results over the past eight quarters were principally affected by the following factors:
See also the discussion under the captions "Revenues" and "Research and Development Expense" and "General and Administrative Expenses" for additional information. The amended 1st and 2nd quarter statements with respect to the updated expense numbers as they relate to the non cash adjustments to the stock based compensation postings have been posted on Sedar. Forward Looking Statements This Management Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which may not be based on historical fact, including without limitation statements containing the words "believe", "may", "plan", "will", "estimate", "anticipates", "intends", "expects" and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, among others, Wex's stage of development, product revenues which are difficult to predict, foreign currency exchange risk, additional capital requirements, risks associated with the completion of clinical trials, the ability to protect its intellectual property and dependence on collaborative partners. These factors should be considered carefully and readers are cautioned not to place undue rel ian ce on such forward-looking statements. The company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments.
For additional information on our products, visit us at www.wexpharma.com or call Don Evans or Gordon Stanley, Corporate Communications, at 604-683-8880 or 1-800-722-7549.
CONSOLIDATED FINANCIAL STATEMENTS WEX PHARMACEUTICALS INC.Incorporated Under the laws of Canada CONSOLIDATED BALANCE SHEETS (Unaudited)
See Sedar for accompanying notes
WEX PHARMACEUTICALS INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT (Unaudited)
See Sedar for accompanying notes
WEX PHARMACEUTICALS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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