Neoprobe Reports 3Q Results

Nov 05, 2009 (Close-Up Media via COMTEX) -- NEOP | Quote | Chart | News | PowerRating -- Neoprobe Corp., a diversified developer of oncology surgical and diagnostic products, announced consolidated results for the third quarter of 2009 and for the nine-month period ended September 30.

In a release on November 2, the Company noted that its revenues for the third quarter of 2009 were $2.6 million compared to $1.7 million for the third quarter of 2008. Year-to-date revenues for the nine-month period ended September 30, were $7.1 million compared to $5.6 million for the same period of 2008. Neoprobe's third quarter 2009 operating expenses were $2.0 million compared to $2.4 million for the third quarter of 2008. Operating expenses for the nine-month period ended September 30, were $6.1 million compared to $5.3 million for the same period of 2008. Neoprobe's loss from operations for the third quarter of 2009 was $324,000 compared to $1.4 million for the third quarter of 2008. Neoprobe's loss from operations for the nine-month period ended September 30, was $1.4 million compared to $1.8 million for the same period of 2008.

For the third quarter of 2009, Neoprobe reported a net loss attributable to common stockholders of $25.1 million, or $0.34 per share, compared to a net loss attributable to common stockholders of $1.9 million, or $0.03 per share, for the third quarter of 2008. For the nine months ended September 30, Neoprobe reported a net loss attributable to common stockholders of $39.5 million, or $0.56 per share, compared to a net loss attributable to common stockholders of $3.9 million, or $0.06 per share, for the same period in 2008. As discussed more fully below, the third quarter and year-to-date 2009 net losses attributable to common stockholders included significant non-cash losses due to mark-to-market adjustments related to derivative accounting treatment required for certain financial instruments on the Company's balance sheet and to the extinguishment accounting related to the modification of certain terms of the Company's convertible debt, preferred stock and related warrants.

Brent Larson, Neoprobe's Vice President, Finance and CFO, said, "Gamma detection device revenue increased 26 percent on a year-to-date basis to $7.1 million for the nine months ended September 30, compared to $5.6 million for the comparable prior year period. The increases were due to increased unit prices we receive from our distributors on certain parts of our gamma detection device product line coupled with revenue related to the product innovations we have introduced over the last two years. Gross margins from our device sales on a year-to-date basis have increased to 67 percent for the first three quarters of 2009 compared to 62 percent for the same period in the prior year. Margins improved from the prior year due primarily to the increased revenue share that the Company receives from our marketing partner offset by decreases in end customer sales prices in the European Union."

David Bupp, Neoprobe's President and CEO, said, "Our operating expenses during the first nine months of 2009 increased as a direct result of increases in clinical trial and regulatory activities related to our Lymphoseek initiative including completion of a pivotal Phase 3 trial. The completed study evaluated 129 procedure compliant patients who had a total of 214 vital blue dye positive lymph nodes confirmed. Of the confirmed vital blue dye positive lymph nodes, 205 nodes contained Lymphoseek for an overall concordance rate of 96 percent, which exceeded the primary study end-point. None of the lymph nodes that contained the vital blue dye but did not contain Lymphoseek were found by pathology to contain tumor cells. In addition to the lymph nodes that contained the vital blue dye, another 85 lymph nodes were identified and evaluated that only contained Lymphoseek. Of these Lymphoseek-only positive nodes, 19 percent were found by pathology to contain tumor. No drug-related adverse events were reported that were attributed to Lymphoseek."

"We are excited by the positive audited data of the Phase 3 clinical trial for Lymphoseek in patients with breast cancer and melanoma," Bupp continued. "We continue to report positive milestone achievements as we move closer to the ultimate goal of filing a new drug application for Lymphoseek. In addition, we have initiated biologic development activities to support a second advanced stage clinical program with RIGScan CR. We are preparing a 'Special Protocol Assessment' (SPA) submission to support a product development program. The SPA submission will be designed to support near-term diagnostic and intermediate-term patient management clinical end-points."

During the third quarter of 2009, the Company decided that the blood flow measurement device initiative was no longer strategic to the Company and that it will attempt to divest its Cardiosonix subsidiary. As a result, the Company is accounting for its Cardiosonix subsidiary as a discontinued operation with the assets held for sale. For the third quarter of 2009, the Company reported a loss from discontinued operations of $1.8 million, or $0.03 per share, including an impairment charge of $1.7 million, compared to a loss from discontinued operations of $141,000, or $0.00 per share, for the same quarter of the prior year. For the nine months ended September 30, the Company reported a loss from discontinued operations of $1.9 million, or $0.03 per share, compared to a loss from discontinued operations of $460,000, or $0.01 per share, for the same period in the prior year.

The following are some of the milestones achieved by Neoprobe so far in 2009:

- Completed the 1st Phase 3 clinical trial of Lymphoseek (NEO3-05) and announced that the primary efficacy endpoint was exceeded with no drug-related safety events reported

- Achieved record YTD revenue and gross margin results from our gamma detection device business

- Added a high energy (F18) probe to the gamma detection device product portfolio

- Initiated patient enrollment in a 2nd Phase 3 clinical trial for Lymphoseek (NEO3-06 or the "Sentinel" trial) for patients with head and neck squamous cell carcinoma

- Initiated drug development activities for RIGScan CR to support a Phase 3 study

- Completed a debt restructuring accord with an investor allowing elimination of a majority of the Company's derivative liabilities, resulting in more transparent accounting

"In summary, our gamma detection device business continues to demonstrate positive performance exceeding our own expectations," Bupp continued. "The positive development and business milestones we are achieving continue to underscore the future of Neoprobe's value proposition to our shareholders."

During the third quarter of 2009, Neoprobe recorded a mark-to-market adjustment of $6.3 million related to accounting for certain of its financial instruments as derivative liabilities. Under the applicable accounting rules for financial instruments, embedded features of the Company's notes and preferred stock and the warrants to purchase common stock were considered derivative liabilities because these instruments contained language that provided for the resetting of the instruments' exercise/conversion prices in the event that the Company issues common stock at prices below the exercise/conversion prices of the respective instruments. Treatment of these instruments as derivative liabilities resulted in them being required to be reflected on the Company's balance sheet at their fair values (i.e., marked to market) based on certain assumptions, including the trading price of the Company's common stock. As the share price of the Company's common stock has increased over the past several months, significant mark-to-market adjustments have been recorded as non-cash expense in the Company's statements of operations. Neoprobe's management believes that the inclusion of such mark-to-market adjustments in the Company's financial results does not appropriately communicate the results of the Company's operating performance and development activities to our investors. As a result, Neoprobe's management believes the ability of investors to analyze Neoprobe's business trends and to understand Neoprobe's performance may be better served from reviewing certain operational measures such as revenues, development expenses and income (loss) from operations.

On July 24, Neoprobe agreed with the holder of a majority of the instruments with derivative characteristics, Platinum-Montaur Life Sciences (Montaur), to eliminate the price reset features that had substantially caused the derivative treatment of the instruments thereby permitting the Company to effectively extinguish the majority of its derivative liabilities. During the third quarter of 2009, the Company recorded $5.6 million in mark-to-market adjustments related to the derivatives being extinguished based on the movement in the price of the Company's common stock from June 30 through July 24. This contributed to a net total mark-to-market adjustment of $18.5 million being recorded for the first three quarters of 2009. As a result of the extinguishment treatment associated with the elimination of the price reset features, the Company recorded $16.2 million in non-cash loss on the extinguishment during the third quarter and reclassified approximately $27 million in derivative liabilities to additional paid-in capital. Following the extinguishment treatment, the Company's balance sheet as of September 30, reflects the face value of the $10 million in notes due to Montaur.

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