Transition Therapeutics Announces Second Quarter Fiscal 2009 Financial Results

TORONTO, Feb. 11, 2009 (Canada NewsWire via COMTEX) -- TTHI | Quote | Chart | News | PowerRating -- 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.

SOURCE: Transition Therapeutics Inc.

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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