Transition Therapeutics Announces Second Quarter Fiscal 2009 Financial Results



    TORONTO, Feb. 11 /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 quarter ended December 31, 2008.

    
    Selected Highlights
    -------------------

    During the second quarter of fiscal 2009 and up to the date of this press
release, the Company achieved the following significant milestones:

    ELND005 (AZD-103) - Alzheimer's Disease:

    -   On October 20, 2008, Elan and Transition announced the achievement of
        the patient enrollment target for a Phase II clinical study of
        ELND005 (AZD-103) in patients with Alzheimer's disease. The study is
        a randomized, double-blind, placebo-controlled, dose-ranging, safety
        and efficacy study in patients with mild to moderate Alzheimer's
        disease. Each patient's planned treatment period is approximately 18
        months;

    TT-223 - Diabetes:

    -   On February 5, 2009, Transition announced the completion of patient
        enrolment for a Phase II clinical study of gastrin analogue, TT-223,
        in patients with type 2 diabetes;

    Corporate Developments:

    -   In January 2009, the Company disposed of 23,272,633 shares of Stem
        Cell Therapeutics Corp. ("Stem Cell") in open market transactions
        over the TSX Venture Exchange which resulted in net proceeds of
        approximately $1.4 million;

    -   On October 3, 2008, the Company received 23,272,633 freely tradable
        common shares of Stem Cell pursuant to the terms of a share purchase
        agreement entered into on October 4, 2004. Under the terms of this
        agreement, the final $1,650,000 milestone payment was due from Stem
        Cell to Transition on September 30, 2008. Stem Cell elected to make
        this payment in the form of Stem Cell common shares from treasury.

    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. The study will
evaluate both cognitive and functional endpoints, and each patient's
participation is planned to last approximately 18 months.
    On October 20, 2008, Elan and Transition announced the patient enrollment
target for the Phase 2 clinical study of ELND005 (AZD-103) in patients with
Alzheimer's disease was achieved.

    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.
    In August 2008, Transition and its collaboration partner Lilly initiated
a Phase II trial evaluating TT-223 in type 2 diabetes patients receiving
metformin and/or thiazolidinediones (TZDs) which completed enrolling patients
in February 2009. Transition and its development partner Lilly are in
discussions regarding the timing and planning of another clinical study with
TT-223 in combination with a GLP1 analogue in type 2 patients.

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

    Results of Operations

    For the three-month period ended December 31, 2008, the Company recorded
a net loss of $4,873,270 ($0.21 per common share) compared to a net loss of
$1,552,208 ($0.07 per common share) for the three-month period ended December
31, 2007.
    For the six-month period ended December 31, 2008, the Company recorded a
net loss of $9,906,066 ($0.43 per common share) compared to a net loss of
$5,651,186 ($0.25 per common share) for the six-month period ended December
31, 2007.
    The increase in net loss of $3,321,062 or 214% for the three-month period
ended December 31, 2008 and $4,254,880 or 75% for the six-month period ended
December 31, 2008 is due to an increase in research and development expenses
primarily resulting from an increase in clinical development costs related to
ELND005 (AZD-103). The increase in net loss for the three and six-month
periods ended December 31, 2008 is also attributed to an increase in general
and administrative expense and decreases in interest income, revenue, and gain
on note receivable. The increase in net loss was partially offset by foreign
exchange gains resulting from the Company's US dollar investments.

    Research and Development

    Research and development expenses increased $2,657,687 from $2,480,123
for the three-month period ended December 31, 2007 to $5,137,810 for the
three-month period ended December 31, 2008. For the six-month period ended
December 31, 2008, research and development expenses increased $3,673,936 to
$8,919,858 from $5,245,922 for the same period in fiscal 2008. For the three
and six-month periods ended December 31, 2008, these increases were primarily
the result of significant increases in clinical development costs due to the
ongoing Phase II ELND005 (AZD-103) trial, preclinical costs associated with
advancing the family of compounds acquired in the NeuroMedix transaction, and
increased drug development costs relating to the Company's newly formed
subsidiary, Transition Therapeutics (USA) Inc.
    During the three-month period ended December 31, 2008, there was an
increase in direct clinical program expenses relating to the Company's TT-223
program. However, for the six-month period ended December 31, 2008 there was
an overall decrease in the program costs resulting from the reimbursement of
costs from Lilly.

    General and Administrative

    During the three-month period ended December 31, 2008, general and
administrative expenses increased $117,525 to $1,623,724 from $1,506,199 for
the same period in fiscal 2008. For the six-month period ended December 31,
2008, general and administrative expenses increased $333,442 to $3,171,822
from $2,838,380 for the same six-month period in fiscal 2008. The increases in
general and administrative expenses for the three and six-month periods ended
December 31, 2008 are due to increased option expenses, salaries and facility
expenses. These increases have been partially offset by decreases in
professional and regulatory costs as the comparative periods contained
increased costs associated with the NASDAQ listing of August, 2007.

    Amortization

    Amortization for the three-month period ended December 31, 2008,
increased $27,262 to $691,168 as compared to $663,906 for the three-month
period ended December 31, 2007. For the six-month period ended December 31,
2008, amortization increased $159,173 to $1,482,397 as compared to $1,323,224
for the same period in fiscal 2008.
    The three-month period increase in amortization expense is primarily due
to the amortization expense relating to the compounds, technology and patents
acquired from Forbes during the first quarter of fiscal 2009. The six-month
period increase in amortization expense is due to increased amortization
expense relating to the workforce acquired from Protana due to a workforce
reduction, the full-quarter impact of amortizing the additional consideration
paid to acquire the ENI technology in December, 2007 and the amortization
expense resulting from the assets acquired from Forbes.

    Interest Income, net

    Interest income for the three-month period ended December 31, 2008 was
$346,505 as compared to $692,552 for the same period in fiscal 2008, resulting
in a decrease of $346,047. For the six-month period ended December 31, 2008,
interest income was $760,129 as compared to $1,289,031 for the same period in
fiscal 2007, resulting in a decrease of $528,902. The decreases in interest
income resulted from decreased cash balances due to cash disbursements as well
as decreases in effective interest rates.

    
    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
    (Unaudited)

                                                   December 31,      June 30,
                                                          2008          2008
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                       19,183,981    22,952,865
    Held-to-maturity investments                    36,616,029    40,710,765
    Available-for-sale investments                     930,905             -
    SCT receivable                                           -     1,650,000
    Due from Eli Lilly and Company                   1,128,219       472,220
    GST receivable                                     392,050       278,784
    Investment tax credits receivable                  889,922       693,057
    Prepaid expenses and deposits                    1,256,879       974,426
    -------------------------------------------------------------------------
    Total current assets                            60,397,985    67,732,117
    Capital assets, net                                855,573       958,689
    Intangible assets                               25,847,604    26,185,155
    -------------------------------------------------------------------------
                                                    87,101,162    94,875,961
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities         2,317,737     1,576,190
    Due to Elan Pharma International Limited         2,522,310     1,795,242
    -------------------------------------------------------------------------
    Total current liabilities                        4,840,047     3,371,432
    Deferred revenue                                27,736,750    27,736,750
    Leasehold inducement                                74,308        80,024
    -------------------------------------------------------------------------
    Total liabilities                               32,651,105    31,188,206
    -------------------------------------------------------------------------

    Shareholders' equity
    Common shares                                  160,471,098   160,262,540
    Contributed surplus                              4,501,050     4,492,251
    Stock options                                    4,263,841     3,093,735
    Accumulated other comprehensive loss              (719,095)            -
    Deficit                                       (114,066,837) (104,160,771)
    -------------------------------------------------------------------------
    Total shareholders' equity                      54,450,057    63,687,755
    -------------------------------------------------------------------------
                                                    87,101,162    94,875,961
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF LOSS
    (Unaudited)

                            Six-month    Six-month  Three-month  Three-month
                               period       period       period       period
                                ended        ended        ended        ended
                          December 31, December 31, December 31, December 31,
                                 2008         2007         2008         2007
                                    $            $            $            $
    -------------------------------------------------------------------------
    REVENUES
    Licensing fees                  -    1,596,722            -    1,563,911
    -------------------------------------------------------------------------
                                    -    1,596,722            -    1,563,911
    -------------------------------------------------------------------------
    EXPENSES
    Research and
     development            8,919,858    5,245,922    5,137,810    2,480,123
    General and
     administrative         3,171,822    2,838,380    1,623,724    1,506,199
    Amortization            1,482,397    1,323,224      691,168      663,906
    Foreign exchange
     gain                  (2,918,176)    (220,587)  (2,232,927)    (191,557)
    Loss on disposal of
     capital assets            10,294            -            -            -
    -------------------------------------------------------------------------
                           10,666,195    9,186,939    5,219,775    4,458,671
    -------------------------------------------------------------------------
    Loss before the
     following:           (10,666,195)  (7,590,217)  (5,219,775)  (2,894,760)
    Interest income from
     held-to-maturity
     investments              760,129    1,289,031      346,505      692,552
    Gain on note
     receivable                     -      650,000            -      650,000
    -------------------------------------------------------------------------
    Net loss for the
     period                (9,906,066)  (5,651,186)  (4,873,270)  (1,552,208)
    -------------------------------------------------------------------------

    Basic and diluted
     net loss per common
     share                      (0.43)       (0.25)       (0.21)       (0.07)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

    For the six-month period ended December 31, 2008 and year ended
    June 30, 2008
    (Unaudited)

                         Number of         Share   Contributed         Stock
                            Shares       Capital       Surplus       Options
    -------------------------------------------------------------------------
                               No.             $             $             $
    Balance, July 1,
     2007               21,230,741   133,988,318     4,487,752     1,538,396
    -------------------------------------------------------------------------
    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
     cancelled              45,736       414,679         4,499      (166,534)
    Stock-based
     compensation
     expense                     -             -             -     1,721,873
    Net loss and
     comprehensive loss
     for the year                -             -             -             -
    -------------------------------------------------------------------------
    Balance, June 30,
     2008               23,186,707   160,262,540     4,492,251     3,093,735
    -------------------------------------------------------------------------
    Net loss for the
     six-month period
     ended December 31,
     2008                        -             -             -             -
    Unrealized loss on
     available-for-sale
     investments                 -             -             -             -
    -------------------------------------------------------------------------
    Total Other
     Comprehensive
     income (loss)      23,186,707   160,262,540     4,492,251     3,093,735
    Stock options
     exercised, expired
     or cancelled           28,453       208,558         8,799       (91,806)
    Stock-based
     compensation
     expense                     -             -             -     1,261,912
    -------------------------------------------------------------------------
    Balance, December
     31, 2008           23,215,160   160,471,098     4,501,050     4,263,841
    -------------------------------------------------------------------------


                                                         Total
                                     Accumulated       Deficit
                                           Other     and Other         Total
                                   Comprehensive Comprehensive Shareholders'
                           Deficit          Loss          Loss        Equity
    -------------------------------------------------------------------------
                                 $             $             $             $
    Balance, July 1,
     2007              (89,691,569)            -   (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     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
     cancelled                   -             -             -       252,644
    Stock-based
     compensation
     expense                     -             -             -     1,721,873
    Net loss and
     comprehensive loss
     for the year      (16,119,202)            -   (16,119,202)  (16,119,202)
    -------------------------------------------------------------------------
    Balance, June 30,
     2008             (104,160,771)            -  (104,160,771)   63,687,755
    -------------------------------------------------------------------------
    Net loss for the
     six-month period
     ended December 31,
     2008               (9,906,066)            -    (9,906,066)   (9,906,066)
    Unrealized loss on
     available-for-sale
     investments                 -      (719,095)     (719,095)     (719,095)
    -------------------------------------------------------------------------
    Total Other
     Comprehensive
     income (loss)    (114,066,837)     (719,095) (114,785,932)   53,062,594
    Stock options
     exercised, expired
     or cancelled                -             -             -       125,551
    Stock-based
     compensation
     expense                     -             -             -     1,261,912
    -------------------------------------------------------------------------
    Balance, December
     31, 2008         (114,066,837)     (719,095) (114,785,932)   54,450,057
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited)

                            Six-month    Six-month  Three-month  Three-month
                               period       period       period       period
                                ended        ended        ended        ended
                          December 31, December 31, December 31, December 31,
                                 2008         2007         2008         2007
                                    $            $            $            $
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net loss for the
     period                (9,906,066)  (5,651,186)  (4,873,270)  (1,552,208)
    Add (deduct) items not
     involving cash:
    Amortization of:
      capital assets           98,623      119,133       49,770       59,928
      intangible assets     1,468,831    1,293,084      683,937      648,473
      leasehold inducement     (5,716)      (5,716)      (2,858)      (2,858)
    Stock-based
     compensation expense   1,261,912      684,170      618,364      359,380
    Gain of company
     transferred under
     contractual
     arrangement                    -     (650,000)           -     (650,000)
    Loss on disposal of
     capital assets            10,294            -            -            -
    Unrealized foreign
     exchange (gain)
     loss                  (1,815,088)      26,150   (1,714,414)      12,968
    Accrued interest on
     held-to-maturity
     investments             (277,634)    (664,566)    (248,810)    (460,232)
    Net change in
     operating assets
     and liabilities          220,032    4,308,794    1,235,990    5,882,782
    -------------------------------------------------------------------------
    Cash provided by
     (used in) operating
     activities            (8,944,812)    (540,137)  (4,251,291)   4,298,233
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Maturity of short-term
     investments          164,334,463  202,906,278   46,750,925   41,670,570
    Purchase of short-term
     investments         (158,990,674)(214,446,806) (50,844,858) (53,916,928)
    Purchase of capital
     assets                   (53,962)     (10,157)     (10,645)      (6,910)
    Purchase of intangible
     assets                (1,131,280)           -            -            -
    Proceeds on disposal
     of capital assets         48,161            -            -            -
    Cash received from
     company transferred
     under contractual
     arrangement                    -      650,000            -      650,000
    -------------------------------------------------------------------------
    Cash provided by (used
     in) investing
     activities             4,206,708  (10,900,685)  (4,104,578) (11,603,268)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Proceeds from issuance
     of common shares, net    125,551   24,046,496            -        8,050
    -------------------------------------------------------------------------
    Cash provided by
     financing activities     125,551   24,046,496            -        8,050
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Impact of foreign
     exchange on cash and
     cash equivalents         843,669      (13,885)     654,344         (673)
    -------------------------------------------------------------------------

    Net increase (decrease)
     in cash and cash
     equivalents during
     the period            (3,768,884)  12,591,789   (7,701,525)  (7,297,658)
    Cash and cash
     equivalents, beginning
     of period             22,952,865    1,377,387   26,885,506   21,266,834
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end of
     period                19,183,981   13,969,176   19,183,981   13,969,176
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    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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