BELLUS Health moves forward on nutraceutical and pharmaceutical fronts - Reports Results for First Half of 2008



    LAVAL, QC, Aug. 5 /CNW Telbec/ - BELLUS Health Inc. (NASDAQ:   BLUS;
TSX: BLU) announced meaningful progress in both its nutraceutical and
pharmaceutical programs and reported results for the second quarter ended
June 30, 2008. The Company reported a net loss of $12,706,000 ($0.26 per
share) for the second quarter, compared to $30,484,000 ($0.75 per share) for
the same period the previous year. For the first half, the net loss amounted
to $25,608,000 ($0.52 per share) compared to $51,500,000 ($1.30 per share) for
the first half of 2007. The net loss for the periods ended June 30, 2007
included a non-cash accretion expense under Canadian GAAP of $10,430,000
relating to the $40 million 5% senior subordinated convertible notes issued in
May 2007. The decrease in the net loss is also due to a reduction in research
and development expenses, before research tax credits and grants, which
amounted to $7,123,000 this quarter and $15,903,000 for the first six months,
compared to $14,741,000 for the second quarter the previous year and
$31,569,000 for the first half of 2007. During the first six months of the
year, the Company also ramped up its expenditures in marketing and pre-launch
activities associated with VIVIMIND(TM) for the protection of memory function
and with the creation in 2008 of its wholly owned subsidiary OVOS Natural
Health Inc.
    As at June 30, 2008, the Company had available cash, cash equivalents and
marketable securities of $29,118,000, compared to $58,672,000 at December 31,
2007. BELLUS Health expects to further reduce its burn rate during the
remainder of fiscal 2008.
    "I am pleased to see the progress BELLUS Health is making in both its
nutraceutical and pharmaceutical programs," said Dr. Francesco Bellini,
Chairman, President and CEO of BELLUS Health. "OVOS Natural Health, our
nutraceutical subsidiary, is on track to launch VIVIMIND(TM) in Canada and on
the Internet during the third quarter of 2008. The launch will be supported by
synergistic advertising and public relations campaigns targeting major
broadcast, print and web electronic media. With respect to our pharmaceutical
activities, we are proceeding as planned for our second Phase III clinical
trial with KIACTA(TM) and our Phase II clinical trial with NC-503 for the
treatment of Type II diabetes and certain features of metabolic syndrome.
BELLUS Health has succeeded in the past six months establishing advanced and
strong programs for its commercial, development and research activities and
has significantly reduced its burn rate. Building on these accomplishments,
the Company is entering a new and exciting phase in its development which will
also include for the management to secure a solid financial base," he
concluded.

    OVOS Natural Health Readying for VIVIMIND(TM) Launch

    OVOS Natural Health's first product, VIVIMIND(TM), being marketed for
memory protection, is on target for its Canadian and Internet launch in the
third quarter of 2008. The Company will use a specialized external sales force
to sell and distribute VIVIMIND(TM) through traditional retail and natural
health food channels. To date, OVOS Natural Health already has a commitment
from over 2,000 retail points of sale in Canada, comprised of major retailers
across the country. The Company expects to grow the number to more than 3,000
retail points of sale by year-end.
    The launch of VIVIMIND(TM) will be coordinated with the help of a global
Advisory Board chaired by Dr. Oscar L. Lopez, Department of Neurology,
University of Pittsburgh, U.S., and of a Canadian Advisory Board chaired by
Mr. Jean-Yves Dionne, a Canadian pharmacist, scientific advisor and consultant
to companies in the nutraceutical sector. The combined collective knowledge of
these experts in the field of neurology, basic science, pharmacy, nutrition
and naturopathy will serve to guide OVOS Natural Health as it builds and
expands its operations. After launching in Canada and on the Internet, OVOS
Natural Health is taking steps to launch VIVIMIND(TM) in the United States in
2009 while investigating other geographic regions.
    Geared primarily to consumers most inclined to self-care,VIVIMIND(TM)
will reach out to the fastest growing sector of the population. As a brand
backed by strong science-based evidence, VIVIMIND(TM) will be in a position to
transform the natural health product industry. Based on 15 years of
significant scientific research, including clinical testing with over 2,000
individuals worldwide and patent protection until 2019, VIVIMIND(TM) is
expected to be a breakthrough in the nutraceutical industry.
    "In a major groundbreaking clinical study performed in Canada and the
United States using brain scans (MRI), VIVIMIND(TM) has provided a
statistically significant reduction of 68% in the loss of brain volume in the
hippocampus, a part of the brain structure that is associated with memory and
learning, when compared to the untreated group," said Mr. Gary Schmid,
President and Chief Executive Officer of OVOS Natural Health. "The matching
individuals taking VIVIMIND(TM) also performed better on tests of memory and
thinking compared with individuals taking a placebo. The results will be
submitted for publication in a peer-reviewed journal at an appropriate time,"
he added.
    VIVIMIND(TM) is a synthetic form of homotaurine, a naturally occurring
amino acid which exists in certain seaweed. The active compound in
VIVIMIND(TM) is chemically and biologically identical to the natural compound.
    "OVOS Natural Health's strategy is to drive VIVIMIND(TM) to worldwide
success while demonstrating leadership in an under-served sector - the mind,"
said Mr. Schmid. "The Canadian launch, orchestrated in record time, will
enable the Company to leverage its success in other territories. To that end,
OVOS Natural Health is setting up an office in Salt Lake City, an important
American market for natural health products. Mr. James W. Stitley, who has an
extensive background with some of the most recognizable consumer packaged
goods companies, will serve as General Manager. Mr. Stitley will join
OVOS Natural Health after nearly 10 years with Schiff (Weider) Nutrition
International. As our company grows and expands into the global market, our
commitment is to maintain the same level of quality, consistency,
responsibility and trustworthiness in every brand we make. OVOS Natural Health
is now in a position to begin the commercialization of brands made with
quality ingredients under Good Manufacturing Practice standards that will
deliver self-care, evidence-based health solutions," Mr. Schmid concluded.

    Pharmaceutical Programs Proceeding Well

    Following BELLUS Health's decision in March 2008 to initiate a second
Phase III clinical trial for eprodisate (KIACTA(TM)), the Company is expecting
to begin the trial in the fourth quarter of 2008. It will be an international,
double-blind, randomized, placebo-controlled and parallel design study of
approximately 190 patients to be followed for a period of 24 months. The
clinical endpoint will be similar to that of the first trial with a focus on
renal function and a target p-value of 0.05. The first trial had provided
statistically significant results on the primary endpoint with a p-value of
0.025(1).
    This investigational product candidate is being developed for the
treatment of a rare but devastating disease, Amyloid A (AA) amyloidosis, which
attacks the kidney function and often leads to death.

    (1)Cox analysis; New England Journal of Medicine 2007; 356(23): 2349.

    Diabetes - An Enormous Medical Need

    Work is proceeding on NC-503, our product candidate for the treatment of
Type II diabetes and certain features of metabolic syndrome. Results from
animal studies using a rat model of diabetes and metabolic syndrome have shown
that NC-503 protects the kidney and decreases the glycemic levels with
important metabolic improvement in triglyceridemia and cholesterolemia in
obese diabetic Zucker rats, when compared to the control group. Treatment with
NC-503 correlated with the preservation of 40% more pancreatic islet cells
secreting insulin than in the control group.
    This program has now advanced into a Phase II clinical trial in diabetic
patients in Canada. The study is a 26-week, double-blind, placebo-controlled,
randomized study. Interim results are expected in late 2008 or early 2009.
    The recent announcement by BELLUS Health of the acquisition of
Innodia Inc. should provide additional resources and complementary expertise
to BELLUS Health to advance its work on this product candidate. Innodia's drug
discovery efforts were focused primarily on amino acid-based therapies for the
treatment of obesity and diabetes and related conditions.

    Consolidated Financial Results Highlights

    BELLUS Health Inc., formerly known as Neurochem Inc., (BELLUS Health or
the Company) is a global health company focused on the development and
commercialization of products to provide innovative health solutions to
address critical unmet medical needs.
    The shareholders of Neurochem Inc. approved the change of its name to
"BELLUS Health Inc." at the annual and special shareholders' meeting on
April 15, 2008. The new stock ticker symbols of the Company are BLUS (NASDAQ)
and BLU (TSX).
    The Management's Discussion and Analysis (MD&A) provides a review of the
Company's operations, performance and financial position for the three- and
six-month periods ended June 30, 2008, compared with the three- and six-month
periods ended June 30, 2007. It should be read in conjunction with the
Company's unaudited consolidated financial statements for the periods ended
June 30, 2008, as well as 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). For
discussion regarding related-party transactions, contractual obligations,
disclosure controls and procedures, internal control over financial reporting,
critical accounting policies and estimates, recent accounting pronouncements,
and risks and uncertainties, refer to the Annual Report and the Annual
Information Form for the year ended December 31, 2007, as well as registration
statements and other public filings, which are available on SEDAR at
www.sedar.com or on EDGAR at www.sec.gov. 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 MD&A. This MD&A was prepared by Management
with information available as at August 4, 2008.
    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 this document, including
comparative figures, are reported in US dollars, unless otherwise specified.

    Results of operations

    For the three-month period ended June 30, 2008, the net loss amounted to
$12,706,000 ($0.26 per share), compared to $30,484,000 ($0.75 per share) for
the corresponding period the previous year. For the six-month period ended
June 30, 2008, the net loss amounted to $25,608,000 ($0.52 per share),
compared to $51,500,000 ($1.30 per share) for the same period last year. The
net loss for the periods ended June 30, 2007 included a non-cash accretion
expense under Canadian GAAP of $10,430,000 relating to the $40 million
5% senior subordinated convertible notes issued in May 2007.
    Revenue from collaboration agreement amounted to nil for the current
quarter ($205,000 for the six-month period), compared to $312,000 for the same
period the previous year ($685,000 for the six-month period). This revenue was
earned under the agreement with Centocor, Inc. (Centocor) in respect of
eprodisate (KIACTA(TM)), an oral investigational product candidate for the
treatment of Amyloid A (AA) amyloidosis. During the first quarter of 2008, the
Company announced its decision to continue the drug development program for
eprodisate (KIACTA(TM)) and that it will initiate a second Phase III clinical
trial for eprodisate (KIACTA(TM)) in close cooperation with the US Food and
Drug Administration (FDA) and the European Medicines Agency (EMEA). The trial
is expected to begin in the fourth quarter of 2008, with approximately
190 patients to be followed for a period of 24 months. As part of the
decision, the Company withdrew its marketing applications for eprodisate
(KIACTA(TM)) in the US, the European Union and Switzerland. On April 15, 2008,
the Company announced that it had regained full ownership rights and control
of eprodisate (KIACTA(TM)) from Centocor. During the current quarter, the
refundable portion ($6,000,000) of the upfront payment received from Centocor
in 2005 was refunded to Centocor.
    Reimbursable costs revenue amounted to $47,000 for the current quarter
($69,000 for the six-month period), compared to $131,000 for the same period
the previous year ($259,000 for the six-month period), and consisted of costs
reimbursable by Centocor in respect of eprodisate (KIACTA(TM))-related
activities. The Company earned no margin on these reimbursable costs. As the
Company regained full ownership of this program from Centocor, these costs
will no longer be reimbursable from Centocor in the future.
    Research and development expenses, before research tax credits and
grants, amounted to $7,123,000 for the current quarter ($15,903,000 for the
six-month period), compared to $14,741,000 for the same period the previous
year ($31,569,000 for the six-month period). The decrease in the current
periods compared to the same periods the previous year is mainly attributable
to a reduction in expenses incurred in relation to the development of
tramiprosate (ALZHEMED(TM); homotaurine) for the treatment of Alzheimer's
disease (AD), following the Company's decision in November 2007 to terminate
the tramiprosate (ALZHEMED(TM)) pharmaceutical drug development program.
Leveraging the many years of accumulated knowledge and the experience it has
gained in developing tramiprosate (ALZHEMED(TM)) for the treatment of AD,
BELLUS Health is in the process of prioritizing and accelerating the
development of a prodrug of tramiprosate (ALZHEMED(TM)), a new chemical entity
(NCE), for the treatment of AD. A prodrug is a pharmaceutical substance which
is administered in an inactive form and, once absorbed into the body, is
metabolized in vivo into its active form (in this case, tramiprosate).
    The Company is also developing NC-503 (eprodisate) for the treatment of
Type II diabetes and certain features of metabolic syndrome. A Phase II
clinical trial in diabetic patients was launched in Canada and patient
randomization commenced during the current quarter. The study is a 26-week,
double-blind, placebo-controlled, randomized study. Interim results are
anticipated in late 2008 or early 2009. Results from animal studies using a
rat model of diabetes and metabolic syndrome have shown that NC-503 decreases
the glycemic levels in obese diabetic Zucker rats, when compared to the
control group, preserves 40% more pancreatic islet cells secreting insulin
than in the control group, and protects kidney function.
    The launch activities of VIVIMIND(TM) are in progress and the Company
anticipates that the product will be launched in the third quarter of 2008.
VIVIMIND(TM) is a patented, science-based natural health product shown to
protect memory function and is based on the naturally occurring ingredient,
homotaurine, found in certain seaweed. It is the direct result of over
15 years of significant scientific research, including clinical testing in
over 2,000 individuals. Post-hoc analysis of the North American Phase III
clinical trial of homotaurine (VIVIMIND(TM)) involving 1,052 AD patients
showed a positive impact on cognitive function and anatomically it helped to
reduce the volume loss of an important area of the brain responsible for
memory. VIVIMIND(TM) will be commercialized by OVOS Natural Health Inc., a
wholly owned subsidiary of BELLUS Health, created to launch evidence-based
branded natural health products and to become a global industry leader in
natural health products. Overall, BELLUS Health's strategy aims to provide
revenue generation in the short- to medium-term through sale of natural health
products and mid- to long-term development of a pipeline in pharmaceuticals.
    Research tax credits and grants amounted to $467,000 this quarter
($864,000 for the six-month period), compared to $494,000 for the
corresponding period the previous year ($1,000,000 for the six-month period).
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 attributable to lower research and
development expenses incurred in Quebec during the current periods which are
eligible for refundable tax credits.
    General and administrative expenses totaled $4,247,000 for the current
quarter ($7,561,000 for the six-month period), compared to $3,165,000 for the
same quarter the previous year ($6,625,000 for the six-month period). The
increase is attributable to expenses incurred in relation to VIVIMIND(TM)
pre-launch activities.
    Reimbursable costs amounted to $47,000 for the current quarter ($69,000
for the six-month period), compared to $131,000 for the same period the
previous year ($259,000 for the six-month period), and consisted of costs
incurred on behalf of Centocor in respect of eprodisate (KIACTA(TM))-related
activities and reimbursable by Centocor. As the Company regained full
ownership of this program from Centocor, these costs will no longer be
reimbursable from Centocor in the future.
    Stock-based compensation amounted to $824,000 for the current quarter
($1,859,000 for the six-month period), compared to $933,000 for the
corresponding quarter the previous year ($1,856,000 for the six-month period).
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
decrease in the current quarter is mainly due to lower fair value of new stock
options granted during the current periods.
    Interest income amounted to $213,000 for the current quarter ($711,000
for the six-month period), compared to $951,000 for the same quarter the
previous year ($1,564,000 for the six-month period). The decrease is mainly
attributable to lower average cash balances and lower interest rates during
the current periods, compared to the same periods in the previous year.
    Accretion expense amounted to $1,225,000 for the current quarter
($2,432,000 for the six-month period), compared to $12,115,000 for the same
quarter the previous year ($13,116,000 for the six-month period). 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 (2006 Notes), 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 life of 60 months, 54 months and 1 month, respectively. The
decrease is mainly due to accretion expenses of $10,430,000 recorded during
the second quarter of 2007 on the Junior Notes, which were fully converted
during that quarter. As of June 30, 2008, $42,085,000 of the 2006 Notes
remains outstanding as well as $4,500,000 of the Senior Notes. Refer to the
Liquidity and Capital Resources section for more details on the convertible
notes.
    Change in fair value of embedded derivatives amounted to a gain of
$58,000 for the current quarter (gain of $100,000 for the six-month period)
compared to a loss of $1,870,000 for the same quarter the previous year (loss
of $1,870,000 for the six-month period) and represents the variation in the
fair value of the embedded derivatives, including the embedded derivative
related to the $80,000,000 aggregate principal amount of Senior and Junior
Notes issued in May 2007.
    Write-down of third party asset-backed commercial paper amounted to nil
for the current quarter ($375,000 for the six-month period) 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 $106,000 for the current quarter (gain
of $860,000 for the six-month period), compared to a gain of $511,000 for the
same quarter the previous year (gain of $619,000 for the six-month period).
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 for the current
six-month period include $924,000 of gain recognized on the reclassification,
during the first quarter of 2008, from deferred revenue (non-monetary
liability) to accrued liability (monetary liability) of the refundable amount
($6,000,000) due to Centocor, following the recovery by the Company of
ownership rights and control of eprodisate (KIACTA(TM)).
    Other income amounted to $256,000 for the current quarter ($534,000 for
the six-month period), compared to $475,000 for the same quarter the previous
year ($717,000 for the six-month period). Other income consists of
non-operating revenue, primarily sub-lease revenue.

    Liquidity and capital resources

    As at June 30, 2008, the Company had available cash, cash equivalents and
marketable securities of $29,118,000, compared to $58,672,000 at December 31,
2007. The decrease is primarily due to funds used in operating activities. The
Company also has short-term bank indebtedness of $5,975,000 relating to the
refund to Centocor. As previously discussed, during the second quarter of
2008, the Company refunded the refundable portion of the upfront payment
received from Centocor in 2005. Since this obligation was secured by
Asset-Backed Commercial Paper (ABCP), the market for which is currently being
restructured as discussed later in this section, the Company entered into a
credit facility, with the chartered bank that sold the Company the ABCP, in
order to finance the repayment. Under the terms of the facility, bank
indebtedness cannot exceed $6,000,000 and is secured by ABCP having a
principal value of $6,000,000. Bank indebtedness bears interest at the bank's
prime rate minus 1%. This bank indebtedness is expected to be refinanced by
long-term bank facilities upon the successful restructuring of the ABCP
discussed below.
    On November 9, 2006, the Company issued $42,085,000 aggregate principal
amount of 6% convertible senior notes (the 2006 Notes) due in 2026. The 2006
Notes are convertible into common shares based on an initial conversion rate
of 50.7181 shares per $1,000 principal amount of 2006 Notes ($19.72 per
share). The 2006 Notes are convertible, at the option of the holder under
certain conditions. On October 15, 2009, the conversion rate of the 2006 Notes
will be adjusted to an amount equal to a fraction whose numerator is $1,000
and whose denominator is the average of the closing sale prices of the common
shares during the 20 trading days immediately preceding, and including, the
third business day immediately preceding October 15, 2009. However, no such
adjustment will be made if the adjustment will reduce the conversion rate. On
and after November 15, 2009, the conversion rate will be readjusted back to
the conversion rate that was in effect prior to October 15, 2009. On or after
November 15, 2011, the Company may redeem the 2006 Notes, in whole or in part,
at a redemption price in cash equal to 100% of the principal amount of the
2006 Notes, plus any accrued and unpaid interest. On November 15, 2011,
November 15, 2016 and November 15, 2021, the 2006 Note holders may require the
Company to purchase all or a portion of their 2006 Notes at a purchase price
in cash equal to 100% of the principal amount of the 2006 Notes to be
purchased, plus any accrued and unpaid interest. The Company, at its
discretion, may elect to settle the principal amount owing upon redemption or
conversion in cash, shares or a combination thereof. As at June 30, 2008, the
totality of the 2006 Notes remains outstanding. For additional information,
refer to the Annual report and Annual Information Form for the year ended
December 31, 2007, as well as other publicly filed documents.
    On May 2, 2007, the Company issued $80,000,000 aggregate principal amount
of convertible notes, 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. Net proceeds from the offering were $74,279,000 and,
as of June 30, 2008, $4,720,000 had yet to be spent. As at June 30, 2008, the
use of proceeds has conformed, in all material respects, with the expectations
set forth in the prospectus filed publicly.
    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. The ELOC facility was amended in February 2008
and the term was extended to February 2010. Under the amended ELOC facility,
the maximum amount of each drawdown is limited to the lower of $6,000,000 or
12.5% of the volume-weighted price calculation of the common shares at the
time of drawdown. The common shares will be issued at a discount of 4.0% to
market price if the volume-weighted average price (VWAP) per share is $6 or
higher and 7.0% if the VWAP per share is lower than $6 at the time of
drawdown. A placement fee equal to 2.4% of gross proceeds will be payable to
the placement agent. The ELOC shall 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 $15,000,000 under
the ELOC. As at June 30, 2008, the Company has not drawn any funds under the
ELOC. As at June 30, 2008, $4,100,000 of funds were potentially eligible for
drawdown.
    As at June 30, 2008, the Company held $6,638,000 in principal value of
third party ABCP. These investments were due to mature in August 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.
There are currently no market quotations available for these ABCP. On
April 25, 2008, the restructuring plan announced by the Pan-Canadian Investors
Committee (the Committee) in December 2007 was approved by the ABCP holders
and should result in the conversion of the ABCP into longer term financial
instruments. The ratification of the restructuring plan by the Ontario
Superior Court of Justice is currently under appeal. As at June 30, 2008, the
Company estimated the fair value of these ABCP at approximately $5,060,000. An
amount of $4,491,000 is shown in Investment in ABCP and is no longer presented
as restricted cash since it has ceased to be pledged to a bank as collateral
for the letter of credit issued in favour of Centocor. The difference of
$569,000, relating to the amount pledged under lease agreements, is presented
as part of Restricted Cash. In connection with its fair value estimations, the
Company recorded a write-down of $1,184,000 for the year ended December 31,
2007 and an additional write-down of $375,000 during the quarter ended
March 31, 2008 to recognize impairment losses related to these investments.
During the current quarter, there were no material changes in factors and
assumptions which affected the fair value estimation and no additional
write-down was recorded. The Company estimated the fair value of the ABCP
using a probability weighted discounted cash flow approach, based on its best
estimates of the period over which the assets are going to generate cash flows
ranging from 8 to 28 years based on the proposed restructuring, the coupon
interest rate, the discount rate to apply to the net cash flows anticipated to
be received commensurate with the return on comparably rated notes in
accordance with the risk factors of the different investments and other
qualitative factors. This estimate of the fair value of the ABCP is not
supported by observable market prices or rates, therefore is subject to
uncertainty, including, but not limited to, the successful implementation of
the restructuring plan being considered, the estimated amounts to be
recovered, the yield of the substitute financial instruments and the timing of
future cash flows. The resolution of these uncertainties could be such that
the ultimate fair value of these investments may vary from the Company's
current estimate. Changes in the near term could require changes in the
recognized amount of these assets.
    As at June 30, 2008, the Company's workforce comprised 133 employees
compared to 184 employees as at June 30, 2007. During the current quarter, the
Company reduced its research activities and associated workforce to focus on
its key projects.
    As at July 31, 2008, the Company had 50,033,892 common shares
outstanding, 220,000 common shares issuable to the Chief Executive Officer
upon the achievement of specified performance targets, 4,783,312 options
granted under the stock option plan, 2,884,471 shares currently issuable under
the convertible notes, and 2,250,645 warrants outstanding, for a total of
60,172,320 common shares, on a fully diluted basis.
    To date, the Company has financed its operations primarily through public
offerings of common shares, private placements, issuance of convertible notes,
as well as a sale leaseback transaction, research tax credits, collaboration
and research contracts, interest and other income. The future profitability of
the Company is dependent upon such factors as the success of the clinical
trials, the approval by regulatory authorities of products developed by the
Company, the ability of the Company to successfully market, sell and
distribute products, including its natural health products, and the ability of
the Company to obtain the necessary financing to complete its projects.
    The Company has incurred significant operating losses and negative cash
outflows from operations since inception and has an accumulated deficit of
$343,862,000. As at June 30, 2008, the Company's committed cash obligations
and expected level of expenses for the upcoming twelve months exceed the
committed sources of funds and the Company's cash and cash equivalents on
hand. The Company is actively considering various alternatives with potential
investors and other parties to secure additional financing. No agreements with
potential investors have been reached yet and there can be no assurance that
such agreements will be reached. The ability of the Company to continue as a
going concern is dependent upon raising additional financing through
borrowings, share issuances, receiving funds through collaborative research
contracts or product licensing agreements, and ultimately, from obtaining
regulatory approval in various jurisdictions, to market and sell its product
candidates and achieving future profitable operations. The outcome of these
matters is dependent on a number of items outside of the Company's control. As
a result, there is significant uncertainty as to whether the Company will have
the ability to continue as a going concern beyond the first quarter of 2009.
    The consolidated financial statements have been prepared on a going
concern basis, which assumes the Company will continue its operation for the
foreseeable future and will be able to realize its assets and discharge its
liabilities and commitments in the ordinary course of business. These
financial statements do not include any adjustments to the amounts and
classification for assets and liabilities that may be necessary should the
Company not be successful in its effort to obtain additional financing, to
receive significant funds on signing collaborative research contracts or by
outlicensing its products or making significant product sales.

    Subsequent event

    On July 17, 2008, the Company acquired 100% of the remainder of the
outstanding capital stock of Innodia Inc. (Innodia), a private company engaged
in developing compounds for the treatment of diabetes, obesity and related
metabolic conditions and diseases. Prior to the acquisition, the Company
indirectly held 23% of Innodia's capital stock. The Company acquired all of
the business of Innodia including the intellectual property assets related to
its diabetes and obesity projects. The Company now holds the exclusive rights
to BELLUS Health's diabetes platform and all related compounds. The purchase
price, in the amount of approximately CDN$1,300,000 was settled by the
issuance from treasury of 1,185,797 common shares. Additional consideration
consisting of either treasury shares or, at the option of the Company, cash is
conditionally payable on the first anniversary of the closing of the
transaction, based upon the determination of the value of certain assets at
that time.

    Change in functional and reporting currency

    Effective July 1, 2007, the Company adopted the US dollar as its
functional and reporting currency, as a significant portion of its revenues,
expenses, assets, liabilities and financing are denominated in US dollars.
Prior to that date, the Company's operations were measured in Canadian dollars
and the consolidated financial statements were expressed in Canadian dollars.
The Company followed the recommendations of the Emerging Issues Committee
(EIC) of the Canadian Institute of Chartered Accountants (CICA), set out in
EIC-130, "Translation method when the reporting currency differs from the
measurement currency or there is a change in the reporting currency". In
accordance with EIC-130, assets and liabilities as of June 30, 2007 were
translated in US dollars using the exchange rate in effect on that date;
revenues, expenses and cash flows were translated at the average rate in
effect during the six-month period ended June 30, 2007 and equity transactions
were translated at historical rates. Any exchange differences resulting from
the translation were included in accumulated other comprehensive income
presented in shareholders' equity. Financial statements presented after
June 30, 2007, are measured and presented in US dollars.

    Forward-looking statements

    Certain statements included in this Management's Discussion and Analysis
may constitute "forward-looking statements" within the meaning of the US
Private Securities Litigation Reform Act of 1995 and Canadian securities
legislation and regulations, and are subject to important risks, uncertainties
and assumptions. This forward-looking information includes amongst others,
information with respect to the Company's objectives and the strategies to
achieve these objectives, as well as information with respect to the Company's
beliefs, plans, expectations, anticipations, estimates and intentions.
Forward-looking statements generally can be identified by the use of
conditional or forward-looking terminology such as "may", "will", "expect",
"intend", "estimate", "anticipate", "plan", "foresee", "believe" or "continue"
or the negatives of these terms or variations of them or similar terminology.
Refer to the Company's filings with the Canadian securities regulatory
authorities and the US Securities and Exchange Commission, for a discussion of
the various factors that may affect the Company's future results. Such risks
include but are not limited to: the impact of general economic conditions,
general conditions in the pharmaceutical and/or natural health products
industries, changes in the regulatory environment in the jurisdictions in
which the BELLUS Health Group does business, stock market volatility,
fluctuations in costs, and changes to the competitive environment due to
consolidation, that actual results may vary once the final and
quality-controlled verification of data and analyses has been completed. The
results or events predicted in forward-looking information may differ
materially from actual results or events. The Company believes that
expectations represented by forward-looking statements are reasonable, yet
there can be no assurance that such expectations will prove to be correct.
Unless otherwise stated, the forward-looking statements contained in this
report are made as of the date of this report, and the Company does not
undertake any obligation to update publicly or to revise any of the included
forward-looking statements, whether as a result of new information, future
events or otherwise, unless required by applicable legislation or regulation.
The forward-looking statements contained in this report are expressly
qualified by this cautionary statement.

    
    BELLUS Health Inc.
    Consolidated Financial Information(1)
    (in thousands of US dollars, except per share data)

                                  Three-month period        Six-month period
                                         ended                   ended
                                        June 30                 June 30
    -------------------------------------------------------------------------
    Consolidated Statements
     of Operations                  2008        2007        2008        2007
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                              (unaudited) (unaudited) (unaudited) (unaudited)
    Revenues:
      Collaboration agreement        $ -        $312        $205        $685
      Reimbursable costs              47         131          69         259
    -------------------------------------------------------------------------
                                      47         443         274         944
    -------------------------------------------------------------------------

    Expenses :
      Research and development     7,123      14,741      15,903      31,569
      Research tax credits
       and grants                   (467)       (494)       (864)     (1,000)
    -------------------------------------------------------------------------
                                   6,656      14,247      15,039      30,569
      General and administrative   4,247       3,165       7,561       6,625
      Reimbursable costs              47         131          69         259
      Stock-based compensation       824         933       1,859       1,856
      Depreciation, amortization
       and patent cost write-off     344         360         680         707
    -------------------------------------------------------------------------
                                  12,118      18,836      25,208      40,016
    -------------------------------------------------------------------------
      Loss before undernoted
       items                     (12,071)    (18,393)    (24,934)    (39,072)

      Interest income                213         951         711       1,564
      Interest and bank charges      (43)        (43)        (72)       (124)
      Accretion expense           (1,225)    (12,115)     (2,432)    (13,116)
      Change in fair value
       of embedded derivatives        58      (1,870)        100      (1,870)
      Write-down of third
       party asset-backed
       commercial paper                -           -        (375)          -
      Foreign exchange gain          106         511         860         619
      Other income                   256         475         534         717
      Share of loss in a
       company subject to
       significant influence           -           -           -        (327)
      Non-controlling interest         -           -           -         109
    -------------------------------------------------------------------------
      Net loss                  ($12,706)   ($30,484)   ($25,608)   ($51,500)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Net loss per share:
        Basic and diluted         ($0.26)     ($0.75)     ($0.52)     ($1.30)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number
     of common shares
     outstanding              48,988,095  40,596,251  48,988,037  39,750,174
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                              At          At
                                                         June 30 December 31
    Consolidated Balance Sheets                             2008        2007
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                      (unaudited)   (audited)

      Cash, cash equivalents and marketable securities   $29,118     $58,672
      Other current assets                                 4,890       3,933
    -------------------------------------------------------------------------
      Total current assets                                34,008      62,605
      Capital assets and patents                           9,864       9,996
      Other long-term assets                               5,582       5,830
    -------------------------------------------------------------------------
      Total assets                                       $49,454     $78,431
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      Current liabilities                                $15,589     $21,240
      Long-term deferred gain and liabilities             53,023      52,602
      Non-controlling interest                               680         680
      Shareholders' (deficiency) equity                  (19,838)      3,909
    -------------------------------------------------------------------------

    Total liabilities and shareholders'
     (deficiency) equity                                 $49,454     $78,431
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1)Condensed from the Company's unaudited consolidated financial
       statements.
    

    About BELLUS Health

    BELLUS Health is a global health company focused on the development and
commercialization of products to provide innovative health solutions to
address critical unmet medical needs.

    To Contact BELLUS Health

    For additional information on BELLUS Health and its drug development
programs, please call the Canada and United States toll-free number
1 877 680-4500 or visit the Web Site at www.bellushealth.com.

    Certain statements contained in this news release, other than statements
of fact that are independently verifiable at the date hereof, may constitute
forward-looking statements. Such statements, based as they are on the current
expectations of management, inherently involve numerous risks and
uncertainties, known and unknown, many of which are beyond BELLUS Health
Inc.'s (formerly known as Neurochem Inc.) control. Such risks include but are
not limited to: the impact of general economic conditions, general conditions
in the pharmaceutical and/or nutraceutical industry, changes in the regulatory
environment in the jurisdictions in which the BELLUS Health Group does
business, stock market volatility, fluctuations in costs, and changes to the
competitive environment due to consolidation, that actual results may vary
once the final and quality-controlled verification of data and analyses has
been completed, as well as other risks disclosed in public filings of BELLUS
Health Inc. Consequently, actual future results may differ materially from the
anticipated results expressed in the forward-looking statements. The reader
should not place undue reliance, if any, on any forward-looking statements
included in this news release. These statements speak only as of the date made
and BELLUS Health Inc. is under no obligation and disavows any intention to
update or revise such statements as a result of any event, circumstances or
otherwise, unless required by applicable legislation or regulation. Please see
the Annual Information Form of BELLUS Health Inc. for further risk factors
that might affect the BELLUS Health Group and its business.




For further information:

For further information: Lise Hébert, Ph.D., Vice President, Corporate
Communications, (450) 680-4572, lhebert@bellushealth.com


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