Full Press Release Details
Adherex is continuing our efforts to build a clinical drug development enterprise focused on bringing our drugs to market as rapidly as
possible and developing novel solutions to the significant unmet needs of cancer patients. We have come a long way over the past six months, delivering on a series of objectives and milestones set by our management and Board. With these recent
achievements, I believe we are well positioned for the coming year.
Annual Report covers a six-month fiscal transition period resulting from the change in our fiscal year end to, among other things, align our fiscal year with that of much of our industry. During this period, one notable accomplishment was the
listing of our common shares on the American Stock Exchange, providing the Company with the opportunity to access a much broader investment base. Other accomplishments subsequent to our last report include:
I believe these accomplishments are progress well worth noting.
Of particular importance to the Company is the evidence of anti-tumor activity seen in our Phase I trial. It is unusual in Phase I trials to
see the type of rapid and durable responses that we have seen to date, especially considering that the dose, schedule and tumor types have not yet been optimized and that this was a single-dose study. We had set the bar for
anti-tumor activity very high and, in my view, it is quite remarkable that we have seen this type of activity. ADH-1 has been both generally well tolerated and shown very satisfactory pharmacologic properties, which were the primary
Phase I study objectives. The results from the Phase I trial, which has enrolled over 40 patients and has involved more than 56 treatment cycles, have been very encouraging and lead us to believe that we are on the correct drug development track.
The safety profile of ADH-1 has also provided us with the basis for proceeding with more intensive treatment regimens in our Phase Ib/II and Phase II trials. Now, as quickly as possible, our priority is to determine the optimal dose, schedule and
tumor types for our subsequent studies.
The unusual and encouraging anti-tumor
activity observed in the Phase I trial has prompted us to modify our development plans for ADH-1 and proceed directly into a Phase II program. In this program, we expect to both identify the tumors most appropriate for future Phase III trials and
determine the expected frequency of response for those different tumor types. We anticipate that these Phase II trials will enable a more rapid and less expensive development strategy. Prior to seeing the anti-tumor activity in Phase I we had been
planning to do up to three Phase Ib/II studies. We now believe we will need only two such trials to study the timing, magnitude and effect of ADH-1 on tumor vasculature. Together, the Phase Ib/II and Phase II programs should provide the safety
information and the estimates of the expected range of therapeutic effectiveness that are prerequisites for the design and conduct of the prospective randomized pivotal Phase III trials required for submission of an NDA to the FDA in the United
States or an NDS in Canada.
While we continue to move forward with our
Company-sponsored trials, we also look forward to implementation of the collaboration with the National Cancer Institute (NCI) announced earlier this month. This collaboration
represents a significant advance over our preclinical screening agreement with the NCI. We now look forward to the implementation of a broad clinical
collaboration with the NCI to enhance the development of ADH-1. This collaboration, with one of the world s foremost agencies for cancer research and training, is an important validation of the promising nature of ADH-1. It will provide access
to the NCI s network of scientists conducting NCI-sponsored clinical trials and the opportunity to study a variety of ADH-1 administration schedules and tumor types, particularly in combination with chemotherapeutic and other anti-cancer
therapies. We anticipate that the NCI will pay to conduct the clinical trials while the Company will supply the needed drug and some additional support, such as the measurement of the molecular target by immunohistochemistry. This collaboration
offers a major opportunity to enhance the development of our drug, as well as a potentially sizeable economic impact, through the conduct of many additional clinical trials and imaging studies that the Company would not otherwise have had the
resources to perform. Importantly, working with the NCI will be in addition to, and will not limit, the way that Adherex proceeds with its own drug development programs.
Whereas much of the Company s focus has been on the development of ADH-1, we have only scratched the surface of our deep cadherin-based
intellectual property portfolio. N-cadherin, which ADH-1 targets, is but one of more than 100 members of the cadherin superfamily for which we have broad intellectual property rights. Targeting these molecules may have useful application across
cancer indications as well as non-cancer disease types. Beyond ADH-1, we currently have ongoing preclinical programs for antagonists to two others cadherin molecules known as VE- and OB-cadherin. Like N-cadherin, VE-cadherin is important in the
structural integrity of certain tumor blood vessels. VE-cadherin antagonists may therefore prove to be complementary with ADH-1. OB-cadherin is a molecule considered to be important in certain mechanisms of tumor spread or metastases. OB-cadherin
antagonists may therefore prove to be useful in reducing or slowing down the metastatic spread of tumors. We also have a preclinical program directed to the development of a small molecule version of ADH-1 and we hope to have one or more of these
programs into clinical trials in 2006. And this is only the beginning; the opportunities presented by our cadherin platform appear to be truly endless.
We also have our specialty pharmaceutical program. I am disappointed that STS is taking so long to get into definitive clinical trials as the Children s Oncology
Group is still in the process of finalizing the trial protocol. After the cooperative group completes this process, that protocol will require review by the NCI and the FDA. Protecting the hearing of children receiving platinum-based chemotherapy is
both an important market and a clear unmet clinical need. This is a niche market, however, and the total profitability to the Company is highly dependent upon properly balancing costs with potential revenues. If we had to finance all of the STS
trial related costs, it would quickly make this compound less attractive; the cooperative group mechanism is thus a very important element in STS development. Although we are fortunate that the trial will be conducted largely at the expense of the
cooperative group, with Adherex anticipating providing only drug and some administrative support, we do not control the group s processes and the associated timelines. While we will continue to work towards completion, I am most disappointed
that the many children who may have benefited from this therapy are not getting that chance due to these delays.
Throughout this coming year, we will be very active in the clinic. While we have a lot of work to do to fully recognize this Company s potential, our investors can
rest assured that we will continue to appropriately develop our drugs with a view towards building shareholder value and bringing important new medicines to patients and their physicians. Many thanks for your continued support.
William Peters, MD, PhD, MBA
Adherex Technologies Inc.
Management s Discussion & Analysis
For the six month period ended
Management s Discussion and Analysis
of Financial Condition and Consolidated Results of Operations
The following discussion and analysis should be read in conjunction with our December 31, 2004 audited consolidated financial statements and the related notes, which are
prepared in accordance with Canadian generally accepted accounting principles ( GAAP ). All references to years, unless otherwise noted, refer to our twelve-month fiscal year, which prior to July 1, 2004, ended on June 30. For
example, a reference to 2004 or fiscal year 2004 means the twelve month period that ended on June 30, 2004. Unless otherwise indicated, all amounts are in Canadian dollars.
This report contains forward-looking statements regarding our financial condition and the
results of operations that are based upon our consolidated financial statements. We operate in a highly competitive environment that involves significant risks and uncertainties, some of which are outside of our control. We are subject to risks
associated with the biopharmaceutical industry, including risks inherent in research, preclinical testing, manufacture of drug substance to support clinical studies, toxicology studies, commencement, completion and results of our clinical studies,
uncertainty of regulatory agencies with respect to our drug candidates, enforcement and protection of our intellectual property, the ability to raise additional capital, potential competitors, the ability to attract collaborative partners,
dependence on key personnel, and the ability to successfully market our drug candidates. Our actual results could differ materially from those expressed or implied in these forward-looking statements.
The words and logos that follow are trademarks of the Company and may be registered in
Canada, the United States and certain other jurisdictions: ADHEREX ; EXHERIN . Any
other product names referred to herein are the property of their respective owners.
We have not received any revenues to date and do not
expect to have significant revenues until we either are able to sell our product candidates after obtaining applicable regulatory approvals or we establish collaborations that provide us with funding, such as licensing fees, milestone payments,
royalties, upfront payments or otherwise. As of December 31, 2004, our deficit accumulated during development stage was $46.2 million.
Our operating expenses will depend on many factors, including the progress of our drug development efforts and the potential commercialization of our product candidates.
Research and development ( R&D ) expenses, which include expenses associated with clinical development activities, manufacturing of drug substance, employee compensation, research contracts, toxicology studies and internal and
outsourced laboratory activities, will be dependent on the results of our drug development efforts. General and administration ( G&A ) expenses will include expenses associated with headcount and facilities, recruitment of staff,
insurance and other administrative matters associated with our facilities in the Research Triangle Park, NC ( RTP ) in support of our drug development programs. The amortization of acquired intellectual property rights relates to the
intellectual property acquired through our acquisition of Oxiquant, Inc. ( Oxiquant ) in November 2002. Settlement of Cadherin Biomedical Inc. ( CBI ) litigation expense refers to our acquisition of CBI to reacquire the
non-cancer intellectual property rights to the cadherin technology and to settle the lawsuit between CBI and Adherex.
We are a biopharmaceutical company with a focus on cancer therapeutics. We currently have four product candidates in the clinical stage of development:
We also have several preclinical product candidates targeted to enter clinical development
over the next several years. Our drug discovery and development efforts are supported by 39 issued United States ( U.S. ) patents and more than 80 pending patents worldwide that we either own or have exclusively licensed.
Management may in some cases be able to control the timing of expenses by accelerating or
decelerating preclinical and clinical activities. Accordingly, we believe that period-to-period comparisons are not necessarily meaningful and should not be relied upon as a measure of future financial performance. Our actual results may differ
materially from the expectations of investors and market analysts. In such an event, the prevailing market price of our common stock may be materially adversely affected.
Critical Accounting Estimates
The preparation of financial statements in conformity with Canadian and U.S. GAAP requires management to make estimates that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. These estimates are based on assumptions and judgments that may
be affected by commercial, economic and other factors. Actual results could differ from those estimates.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different
estimates reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. We believe that the assumptions, judgments and estimates involved
in our accounting for acquired intellectual property rights could potentially have a material impact on our consolidated financial statements. The following description of critical accounting policies, judgments and estimates should be read in
conjunction with our December 31, 2004 consolidated financial statements.
Acquired Intellectual Property Rights
At December 31, 2004,
our acquired intellectual property rights had a net book value of $24.6 million and relate to the intellectual property acquired in the acquisition of Oxiquant in November 2002. The intellectual property is currently being developed for therapies in
the oncology field including, but not limited to, an otoprotectant for children undergoing platinum-based chemotherapy (STS), a bone marrow protectant for patients undergoing certain chemotherapy (NAC), and methods to alter a cancer s
resistance to certain chemotherapy (Mesna).
The intellectual property was recorded as an asset, as required under Canadian GAAP, and is being amortized on a
straight-line basis over their estimated useful lives of ten years. We adopted the provisions of CICA 3063 Impairment of Long-Lived Assets and test the recoverability of long-lived assets whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. We record an impairment loss in the period when it is determined that the carrying amount of the assets may not be recoverable. The impairment loss is calculated as the amount by which the
carrying amount of the assets exceeds the discounted cash flows from the asset. Changes in any of these management assumptions could have a material impact on the impairment of the assets.
Under U.S. GAAP, management has determined that the intellectual property is in-process
research and development ( IPRD ), a concept which is not applicable under Canadian GAAP. IPRD is not capitalized under U.S. GAAP, but rather expensed at the time of acquisition. Consequently, the entire cost of the IPRD of $31.2 million
associated with the Oxiquant acquisition is reflected as a reconciling item in the December 31, 2004 consolidated financial statements, footnote 19, U.S. Accounting Principles, which reconciles Canadian GAAP to U.S. GAAP.
Change in Accounting Policy
Effective January 1, 2002, the Company adopted the recommendations of the Canadian Institute
of Chartered Accountants (CICA) set out in Section 3870 Stock-Based Compensation and Other Stock-Based Payments ( CICA 3870 ). Until January 1, 2004, this standard only required the expensing of the fair value of non-employee
options, with note disclosure of the fair value and effect of employee and director options on the financial statements. For fiscal years beginning after January 1, 2004, the fair value of all options granted must be expensed in the Statement of
Operations. Upon adopting this new standard, the Company elected to retroactively adjust retained earnings without restatement. On July 1, 2004, the Company increased the deficit by $2.1 million and increased contributed surplus by the same amount.
Financial Statement Presentation
The consolidated financial statements reflect the operations of Adherex Technologies Inc.
and all of its subsidiaries ( Adherex or the Company ). Upon consolidation, all significant intercompany accounts and transactions are eliminated.