Transition Therapeutics Announces Fiscal 2008 Year End Financial Results



    TORONTO, Sept. 15 /CNW/ - Transition Therapeutics Inc. ("Transition" or
the "Company") (TSX: TTH, NASDAQ:  TTHI) a product-focused biopharmaceutical
company developing therapeutics for disease indications with large markets,
today announced its financial results for the year ended June 30, 2008.

    
    Selected Highlights
    -------------------
    During fiscal 2008 and up to the date of this press release, the Company
achieved the following significant milestones:

    ELND005 (AZD-103) - Alzheimer's Disease:
    ----------------------------------------
    -   On January 22, 2008, the Company received a US$5,000,000 milestone
        payment from Elan. The milestone payment was triggered by the
        initiation of a Phase II clinical study of Alzheimer's disease drug
        candidate, ELND005 (AZD-103) on December 21, 2007;
    -   On December 21, 2007, Elan and Transition Dose First Patient in Phase
        II Clinical Study of ELND005 (AZD-103) in Alzheimer's Disease. The
        study is a randomized, double-blind, placebo-controlled, dose-
        ranging, safety and efficacy study in approximately 340 patients with
        mild to moderate Alzheimer's disease. Approximately 65 sites in North
        America are expected to participate in the program. The study will
        evaluate both cognitive and functional endpoints and each patient's
        participation is planned to last approximately 18 months;
    -   On October 26, 2007, the Company Received the Remaining US$7,500,000
        Upfront Payment from Elan. The receipt of US$7,500,000 represents the
        second half of the US$15 million upfront payment under the Company's
        global collaboration agreement with Elan;
    -   On August 30, 2007, the Company Announced Completion of Multiple
        Phase I Clinical Studies with Alzheimer's Disease Drug Candidate
        ELND005 (AZD-103). ELND005 (AZD-103) was safe and well-tolerated at
        all doses and dosing regimens examined. There were no severe or
        serious adverse events observed. ELND005 (AZD-103) was also shown to
        be orally bio-available, cross the blood-brain barrier and achieve
        levels in the human brain and cerebral spinal fluid ("CSF") that were
        shown to be effective in animal models of Alzheimer's disease.

    TT-223 - Diabetes:
    ------------------
    -   On September 12, 2008, Transition announced that the first patient
        has been dosed in a Phase II clinical study of gastrin analogue, TT-
        223, in patients with type 2 diabetes. The study is a randomized,
        double-blind, placebo-controlled, dose-ranging study to evaluate the
        safety, tolerability and efficacy of daily TT-223 treatments for 12
        weeks with a 6-month follow-up. Approximately 80 patients with type 2
        diabetes are expected to be enrolled in the study and will receive a
        daily treatment of TT-223 in addition to their current regimen of
        oral glucose lowering agents (metformin and/or thiazolidinediones).
    -   On March 13, 2008, Eli Lilly and Company ("Lilly") and Transition
        announced that the two companies had entered into a licensing and
        collaboration agreement granting Lilly exclusive worldwide rights to
        develop and commercialize Transition's gastrin based therapies,
        including the lead compound TT-223, which is currently in early Phase
        II testing. Under the terms of the agreement, Transition received a
        US$7 million upfront payment on April 17, 2008, and may also receive
        up to US$130 million in potential development and sales milestones,
        as well as royalties on sales of gastrin based therapies if any
        product is successfully commercialized.;
    -   On November 5, 2007, the Company Announced an Update on the Clinical
        Development and Partnership activities for the Company's diabetes
        program. Following negotiations, Novo Nordisk and Transition were not
        able to come to agreement for an exclusive license to the Company's
        diabetes programs. Accordingly, Transition sent notice to Novo
        Nordisk terminating the agreement between the companies, returning to
        Transition all rights held by Novo Nordisk, relating to E1-I.N.T.(TM)

    Drug Discovery Initiatives:
    ---------------------------
    -   On August 18, 2008, the Company announced the acquisition of certain
        assets and the exclusive rights to selected drug discovery projects
        from Forbes Medi-Tech (Research) Inc., a wholly owned subsidiary of
        Forbes Medi-Tech Inc. ("Forbes"). In consideration for the
        acquisition of these assets and intellectual property rights, Forbes
        has received from Transition US$1 million, and will potentially
        receive up to an additional US$6 million in contingent consideration
        dependent on the successful achievement of certain developmental and
        regulatory milestones. These acquired discovery projects and other
        internal projects will be the focus of a small group of research
        scientists which shall operate through a newly formed United States-
        based subsidiary called Transition Therapeutics (USA) Inc.

    Corporate Developments:
    -----------------------
    -   On January 7, 2008 the Company's common shares were approved for
        listing and commenced trading on the NASDAQ Global Market. Prior to
        this change, the Company's common shares were listed on the NASDAQ
        Capital Market since August 20, 2007 under the symbol "TTHI". The
        Company's common shares continue to trade on the Toronto Stock
        Exchange in addition to the NASDAQ;
    -   On October 31, 2007 the Company received the third anniversary
        payment of $650,000 from the sale of its subsidiary, Stem Cell
        Therapeutics ("SCT"). Total payments received to date amount to
        $1,850,000 with the final payment of $1,650,000 due in the first
        quarter of fiscal 2009;
    -   On July 11, 2007 the Company completed a private placement financing
        issuing 1,736,107 common shares at a price of $14.40 per common
        share, raising gross proceeds of approximately $25,000,000 from a
        number of funds managed by Oracle Investment Management Inc., The
        Invus Group LLC, and a large Boston based investment management
        company. The Company incurred total share issuance costs of
        $1,031,433 resulting in net cash proceeds of $23,968,567;
    -   On July 9, 2007 the Company completed a consolidation of its issued
        and outstanding common shares on the basis of one (1) post-
        consolidation common share for every nine (9) pre-consolidation
        common shares. The share consolidation was effected to satisfy the
        NASDAQ listing criteria regarding minimum bid price.
    

    "Transition's pursuit of life-changing therapies continued to gain
momentum during fiscal 2008. Phase II clinical trials of ELND005 (AZD-103) - a
potential disease modifying compound for the treatment of Alzheimer's disease
- are underway, and we have formed a significant new strategic partnership
with Lilly for the development and commercialization of our gastrin-based
therapies for diabetes," said Dr. Tony Cruz, Chairman and CEO of Transition.
"Looking forward, we have promising product candidates, outstanding partners,
and a strong cash position to achieve the next stage of growth for the
Company."

    
    Pipeline Review
    ---------------
    

    ELND005 (AZD-103) for Alzheimer's Disease

    Transition's lead Alzheimer's disease compound ELND005 (AZD-103) is a
disease modifying agent with the potential to both prevent and reduce disease
progression, and improve symptoms such as cognitive function.
    In September 2006, Transition announced a global collaboration with Elan
to develop and commercialize ELND005 (AZD-103). In April 2007, Transition
announced that the FDA granted Fast Track designation to the investigational
drug candidate ELND005 (AZD-103).
    On August 30, 2007, the Company announced the completion of Phase I
clinical studies with ELND005 (AZD-103). Transition and its development
partner Elan have performed multiple Phase I studies evaluating the safety,
tolerability and pharmacokinetic profile of ELND005 (AZD-103) in healthy
volunteers. Approximately 110 subjects have been exposed to ELND005 (AZD-103)
in multiple Phase I studies, including single and multiple ascending dosing;
pharmacokinetic evaluation of levels in the brain; and CSF and plasma studies.
ELND005 (AZD-103) was safe and well-tolerated at all doses and dosing regimens
examined. There were no severe or serious adverse events observed. ELND005
(AZD-103) was also shown to be orally bio-available, cross the blood-brain
barrier and achieve levels in the human brain and CSF that were shown to be
effective in animal models for Alzheimer's disease.
    On December 21, 2007, Elan and Transition announced that the first
patient had been dosed in a Phase II clinical study of ELND005 (AZD-103) in
patents with Alzheimer's disease. The study is a randomized, double-blind,
placebo-controlled, dose-ranging, safety and efficacy study in approximately
340 patients with mild to moderate Alzheimer's disease. Approximately 65 sites
in North America are expected to participate in the program. The study will
evaluate both cognitive and functional endpoints, and each patient's
participation is planned to last approximately 18 months.
    Patient enrolment of this study is on-going and its progress is on
target.

    TT-223 for Diabetes

    Pre-clinical data in diabetes animal models demonstrate the efficacy of
gastrin analogues alone, or in combination with GLP-1 analogues or epidermal
growth factor analogues. In humans, Transition's Phase IIa clinical trial data
showed that a 4-week therapy with TT-223 in combination with EGF (combination
of gastrin analogue and epidermal growth factor analogue) in type 2 diabetes
patients resulted in sustained reductions in blood glucose control parameters,
including haemoglobinA1C, for 6 months post-treatment. Pre-clinical and
clinical data suggests gastrin plays an important role in beta cell
differentiation and function, capable of providing sustained glucose control
in type 2 diabetes.
    On March 13, 2008, Lilly and the Company entered into a licensing and
collaboration agreement granting Lilly exclusive worldwide rights to develop
and commercialize Transition's gastrin based therapies, including the lead
compound TT-223, which is currently in early Phase II testing. Under the terms
of the agreement, Transition has received a US$7 million upfront payment, and
may also receive up to US$130 million in potential development and sales
milestones, as well as royalties on sales of gastrin based therapies if any
product is successfully commercialized.
    Transition and Lilly are both funding the Phase II clinical trial with
lead compound TT-223 in type 2 diabetes. Upon completion of this trial, Lilly
will be responsible for further development activities and the
commercialization of all gastrin based therapeutic products worldwide.
    To support the Phase II clinical development program for TT-223,
Transition has performed two Phase I studies to expand the dose ranges for
TT-223. The first study, a single ascending dose study of TT-223 in healthy
volunteers and the second study, a multiple ascending dose study of TT-223
have both been completed.
    Transition and its collaboration partner Lilly have initiated a Phase II
trial evaluating TT-223 in type 2 diabetes patients receiving metformin and/or
thiazolidinediones (TZDs). The companies are also in discussions regarding the
timing and planning of another Phase II study with TT-223 in combination with
a GLP1 analogue in type 2 patients.

    
    Sustaining Financial Strength
    -----------------------------
    

    During the year ended June 30, 2008, the Company strengthened its cash
position by completing another private placement, issuing 1,736,107 common
shares resulting in net cash proceeds of $23,968,567. The Company's cash and
cash equivalents and short-term investments were $63,663,630 at June 30, 2008.
The Company currently believes that it has adequate financial resources for
anticipated expenditures until the end of fiscal 2010.

    
    Financial Review
    ----------------
    

    For the fiscal year ended June 30, 2008, the Company recorded a net loss
of $16,119,202 ($0.70 per common share) compared to a net loss of $16,961,790
($0.87 per common share) for the fiscal year ended June 30, 2007.
    In fiscal 2008, the Company recorded licensing fees of $1,596,722. In
fiscal 2007, the Company recognized milestone revenue and licensing fees of
$683,894. The increase of $912,828 or 133% is due to the fact that the
licensing agreement with Novo Nordisk was terminated during the second quarter
of fiscal 2008 and all remaining deferred amounts were recognized as licensing
fee revenue during the period.
    During fiscal 2008, under the terms of the licensing and collaboration
agreements, the Company received the second half of the up-front payment in
the amount of $7,284,000 (US$7.5 million), as well as the milestone payment of
$5,015,500 (US$5 million) from Elan for the initiation of the Phase II
clinical trial. In addition, the Company also received a $7,017,000
(US$7 million) upfront payment from Lilly. These payments are recorded as
deferred revenue and will be recognized as income on a systematic basis once
the profitability of the collaboration arrangements can be reasonably
estimated.
    Research and development expenses increased to $12,822,913 for the fiscal
year ended June 30, 2008 from $9,839,170 for the fiscal year ended June 30,
2007. The increase, $2,983,743 or 30%, is primarily due to an increase in
clinical development costs related to ELND005 (AZD-103), salaries and option
expense. The increase was partially offset by decreases in direct clinical
program expenses that related to the Company's TT-223 and the completed I.E.T.
clinical trials and reduced drug discovery expenses.
    General and administrative expenses increased to $5,820,864 for the
fiscal year ended June 30, 2008 from $5,317,524 for the fiscal year ended
June 30, 2007. The increase, $503,340 or 9%, primarily resulted from increased
stock option expense, insurance, salaries, and investor relation costs, which
were partially offset by a decrease in professional fees.
    Amortization for the fiscal year ended June 30, 2008 decreased by
$4,075,516 or 60% to $2,747,743 as compared to $6,823,259 for the fiscal year
ended June 30, 2007. The decrease is primarily due to the Waratah technology
being fully amortized during the third quarter of fiscal 2007. This decrease
was partially offset by the full period impact of the amortization relating to
the NeuroMedix technology acquired during the fourth quarter of fiscal 2007.
    Interest income, net for the fiscal year ended June 30, 2008, was
$2,417,537 as compared to $1,226,099 for the fiscal year ended June 30, 2007.
The increase in interest income, net of $1,191,438 primarily resulted from
increased cash balances due to the July 2007 private placement and the upfront
and milestone payments received from Elan and Lilly.

    
    About Transition
    ----------------
    

    Transition is a biopharmaceutical company, developing novel therapeutics
for disease indications with large markets. Transition's lead products include
ELND005 (AZD-103) for the treatment of Alzheimer's disease and TT-223 for the
treatment of diabetes. Transition has an emerging pipeline of preclinical drug
candidates acquired externally or developed internally using its proprietary
drug discovery engine. Transition's shares are listed on the NASDAQ under the
symbol "TTHI" and the Toronto Stock Exchange under the symbol "TTH". For
additional information about the Company, please visit
www.transitiontherapeutics.com.

    Extracts of the Financial Statements to Follow:

    
    CONSOLIDATED BALANCE SHEETS

    As at June 30
    (in Canadian dollars)

                                                      June 30,       June 30,
                                                         2008           2007
                                                            $              $
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                      22,952,865      1,377,387
    Held-to-maturity investments                   40,710,765     33,414,383
    SCT receivable                                  1,650,000              -
    Due from Eli Lilly and Company                    472,220              -
    Receivables                                       278,784        317,979
    Investment tax credits receivable                 693,057        559,405
    Prepaid expenses and deposits                     974,426        519,937
    -------------------------------------------------------------------------
    Total current assets                           67,732,117     36,189,091
    Capital assets, net                               958,689      1,174,028
    Intangible assets                              26,185,155     26,632,609
    -------------------------------------------------------------------------
                                                   94,875,961     63,995,728
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities        1,576,190      2,866,655
    Due to Elan Pharma International Limited        1,795,242        697,743
    Current portion of deferred revenue                     -        131,244
    -------------------------------------------------------------------------
    Total current liabilities                       3,371,432      3,695,642
    Deferred revenue                               27,736,750      9,885,733
    Leasehold inducement                               80,024         91,456
    -------------------------------------------------------------------------
    Total liabilities                              31,188,206     13,672,831
    -------------------------------------------------------------------------

    Commitments
    Guarantees

    Shareholders' equity
    Common shares                                 160,262,540    133,988,318
    Contributed surplus                             4,492,251      4,487,752
    Stock options                                   3,093,735      1,538,396
    Deficit                                      (104,160,771)   (89,691,569)
    -------------------------------------------------------------------------
    Total shareholders' equity                     63,687,755     50,322,897
    -------------------------------------------------------------------------
                                                   94,875,961     63,995,728
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

    Years ended June 30
    (in Canadian dollars)

                                                         2008           2007
                                                            $              $
    -------------------------------------------------------------------------
    REVENUES
    Milestone revenue                                       -        552,650
    Licensing fees                                  1,596,722        131,244
    -------------------------------------------------------------------------
                                                    1,596,722        683,894
    -------------------------------------------------------------------------
    EXPENSES
    Research and development                       12,822,913      9,839,170
    General and administrative                      5,820,864      5,317,524
    Amortization                                    2,747,743      6,823,259
    Foreign exchange loss (gain)                     (608,059)         6,875
    Loss on disposal of capital assets and
     assets held for sale                                   -         14,377
    -------------------------------------------------------------------------
                                                   20,783,461     22,001,205
    -------------------------------------------------------------------------
    Loss before the following                     (19,186,739)   (21,317,311)
    Interest income, net                            2,417,537      1,226,099
    Gain on note receivable                           650,000        400,000
    -------------------------------------------------------------------------
    Loss before income taxes                      (16,119,202)   (19,691,212)
    Future income taxes recovery                            -      2,729,422
    -------------------------------------------------------------------------
    Net loss and comprehensive loss for the year  (16,119,202)   (16,961,790)
    -------------------------------------------------------------------------

    Basic and diluted net loss per common share        $(0.70)        $(0.87)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

    For the years ended June 30, 2008 and 2007

    (in Canadian Dollars)


                                     Number of          Share    Contributed
                                        Shares        Capital        Surplus
    -------------------------------------------------------------------------
                                            No.             $              $

    Balance, July 1, 2006           17,494,269     99,563,853      4,469,987
    -------------------------------------------------------------------------
    Adjustment to opening deficit
     for change in accounting
     policy related to research
     inventory                               -              -              -
    Stock options exercised             63,654        601,571              -
    Stock options expired                    -              -         17,765
    Stock-based compensation
     expense                                 -              -              -
    Issued pursuant to private
     placement, net                  2,986,867     23,964,751              -
    Issued on acquisition of
     NeuroMedix Inc., net              685,951      9,858,143              -
    Net loss and comprehensive
     loss for the year                       -              -              -
    -------------------------------------------------------------------------
    Balance, June 30, 2007          21,230,741    133,988,318      4,487,752
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjustment to opening deficit
     for change in accounting
     policy related to financial
     instruments                             -              -              -
    Issued pursuant to private
     placement, net                  1,736,107     23,968,567              -
    Issued as additional
     consideration regarding
     Ellipsis Neurotherapeutics
     Inc.                              174,123      1,890,976              -
    Stock options exercised or
     forfeited                          45,736        414,679          4,499
    Stock-based compensation
     expense                                 -              -              -
    Net loss and comprehensive
     loss for the year                       -              -              -
    -------------------------------------------------------------------------
    Balance, June 30, 2008          23,186,707    160,262,540      4,492,251
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                                       Total
                                         Stock                  Shareholders'
                                       Options        Deficit         Equity
    -------------------------------------------------------------------------
                                             $              $              $

    Balance, July 1, 2006              774,858    (69,504,180)    35,304,518
    -------------------------------------------------------------------------
    Adjustment to opening deficit
     for change in accounting
     policy related to research
     inventory                               -     (3,225,599)    (3,225,599)
    Stock options exercised           (221,177)             -        380,394
    Stock options expired              (17,765)             -              -
    Stock-based compensation
     expense                         1,002,480              -      1,002,480
    Issued pursuant to private
     placement, net                          -              -     23,964,751
    Issued on acquisition of
     NeuroMedix Inc., net                    -              -      9,858,143
    Net loss and comprehensive
     loss for the year                       -    (16,961,790)   (16,961,790)
    -------------------------------------------------------------------------
    Balance, June 30, 2007           1,538,396    (89,691,569)    50,322,897
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjustment to opening deficit
     for change in accounting
     policy related to financial
     instruments                             -      1,650,000      1,650,000
    Issued pursuant to private
     placement, net                          -              -     23,968,567
    Issued as additional
     consideration regarding
     Ellipsis Neurotherapeutics
     Inc.                                    -              -      1,890,976
    Stock options exercised or
     forfeited                        (166,534)             -        252,644
    Stock-based compensation
     expense                         1,721,873              -      1,721,873
    Net loss and comprehensive
     loss for the year                       -    (16,119,202)   (16,119,202)
    -------------------------------------------------------------------------
    Balance, June 30, 2008           3,093,735   (104,160,771)    63,687,755
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS

    Years ended June 30
    (in Canadian dollars)                                2008           2007
                                                            $              $
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net loss for the year                         (16,119,202)   (16,961,790)

    Add (deduct) items not involving cash:
      Amortization of:
        capital assets                                240,787        317,780
        intangible assets                           2,689,296      6,748,787
        leasehold inducement                          (11,432)       (11,432)
      Write-off of research inventory acquired
       from NeuroMedix Inc.                                 -        387,667
      Recovery of future income taxes                       -     (2,729,422)
      Stock-based compensation expense              1,721,873      1,002,480
      Gain on note receivable                        (650,000)      (400,000)
      Loss on disposal of capital assets and
       assets held for sale                                 -         45,073
      Unrealized foreign exchange loss (gain)        (279,282)         8,583
      Accrued interest on held-to-maturity
       investments                                   (696,467)      (423,628)
    Net change in operating assets and
     liabilities                                   16,505,641      6,792,452
    -------------------------------------------------------------------------
    Cash provided by (used in) operating
     activities                                     3,401,214     (5,223,450)
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Maturity of short-term investments            337,988,232    108,694,797
    Purchase of short-term investments           (344,308,865)  (130,361,807)
    Proceeds from disposal of short-term
     investments                                            -         30,738
    Proceeds from assets held for sale                      -        265,401
    Purchase of capital assets                        (25,448)       (49,526)
    Purchase of intangible assets                    (350,866)      (345,425)
    Proceeds on disposal of capital assets                  -         60,754
    Cash received on note receivable                  650,000        400,000
    Cash received on acquisition of NeuroMedix
     Inc.                                                   -        109,730
    NeuroMedix Inc. acquisition costs                       -       (322,842)
    -------------------------------------------------------------------------
    Cash used in investing activities              (6,046,947)   (21,518,180)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Repayment of long term debt                             -       (300,707)
    Proceeds from issuance of common shares, net   24,221,211     24,345,142
    -------------------------------------------------------------------------
    Cash provided by financing activities          24,221,211     24,044,435
    -------------------------------------------------------------------------
    Net increase (decrease) in cash and cash
     equivalents during the year                   21,575,478     (2,697,195)

    Cash and cash equivalents, beginning of year    1,377,387      4,074,582

    Cash and cash equivalents, end of year         22,952,865      1,377,387
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Notice to Readers: Information contained in our press releases should be
considered accurate only as of the date of the release and may be superseded
by more recent information we have disclosed in later press releases, filings
with the OSC, SEC or otherwise. Except for historical information, this press
release may contain forward-looking statements, relating to expectations,
plans or prospects for Transition, including conducting clinical trials. These
statements are based upon the current expectations and beliefs of Transition's
management and are subject to certain risks and uncertainties that could cause
actual results to differ materially from those described in the
forward-looking statements. These risks and uncertainties include factors
beyond Transition's control and the risk factors and other cautionary
statements discussed in Transition's quarterly and annual filings with the
Canadian commissions.





For further information:

For further information: on Transition, visit
www.transitiontherapeutics.com, or contact: Dr. Tony Cruz, Chief Executive
Officer, Transition Therapeutics Inc., Phone: (416) 260-7770, x.223,
tcruz@transitiontherapeutics.com; Elie Farah, President & Chief Financial
Officer, Transition Therapeutics Inc., Phone: (416) 260-7770, x.203,
efarah@transitiontherapeutics.com

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