AVNC Advancis Pharmaceutical (MM)

Company's Amoxicillin PULSYS Phase III Trial Results Expected Shortly; Commercial Launch of New Keflex 750mg Capsules Underway GERMANTOWN, Md., Aug. 2 /PRNewswire-FirstCall/ -- Advancis Pharmaceutical Corporation (NASDAQ:AVNC), a pharmaceutical company focused on developing and commercializing novel anti-infective products, today announced financial and operational results for the quarter ended June 30, 2006. Advancis reported second quarter 2006 net Keflex product sales of $0.3 million, compared to $0.9 million in the first quarter of 2006 and $1.0 million in the second quarter of 2005. For the first six months of 2006, revenue from product sales was $1.2 million, compared to product sales of $2.0 million in the first six months of 2005. In addition to product sales of Keflex, in the prior year Advancis recognized contract revenue and reimbursed development costs under the Company's prior collaborative agreements of $2.2 million and $5.8 million for the three months and six months ended June 30, 2005, respectively. Advancis reported research and development (R&D) expenses in the second quarter of $6.8 million, down from first quarter 2006 R&D expenses of $7.2 million and second quarter 2005 R&D expenses of $10.2 million. Total expenses for the second quarter of 2006 were $11.2 million, compared to $9.7 million in the first quarter of 2006 and $12.8 million in the second quarter of 2005. Total expenses in the first half of 2006 decreased to $21.0 million, from $28.9 million in the first half of 2005. Net loss was $10.7 million for the second quarter, compared to a net loss of $7.6 million in the first quarter of 2006 and a net loss of $9.3 million in the second quarter of 2005. Net loss per share applicable to common stockholders during the second quarter of 2006 was ($0.35), compared to a net loss per share of ($0.25) in the prior quarter, and a net loss per share of ($0.34) in the comparable quarter of last year. For the first six months of 2006, net loss decreased to $18.3 million, or ($0.61) per share, down from a net loss of $20.7 million, or ($0.82) per share, in the first six months of 2005. "With the launch of our new Keflex 750 capsules last month, we hope to demonstrate the commercial potential for our branded products in the sizeable generic antibiotic market," stated Edward M. Rudnic, Ph.D., president and CEO of Advancis. "We are very close to receiving top-line results from our adult Amoxicillin PULSYS Phase III trial. Assuming a successful outcome of the clinical trial and subsequent regulatory approval, we believe our Keflex franchise and future Amoxicillin PULSYS products could both represent opportunities for unique versions of the number one and number three most- prescribed oral antibiotics in the U.S." OPERATIONAL HIGHLIGHTS Keflex(R) Capsules (Cephalexin, USP) -- New Products Launch Advancis reported net Keflex product sales of $0.3 million in the second quarter of 2006, compared to $0.9 million in the first quarter of 2006 and $1.0 million in the second quarter of 2005. Net Keflex sales totaled $1.2 million in the first half of 2006, down from $2.0 million in the first half of 2005. On May 15, 2006, Advancis announced that it received U.S. Food and Drug Administration (FDA) approval of the Company's supplemental New Drug Application (NDA) for two new Keflex strengths -- 333mg capsules and 750mg capsules. Following FDA approval, the Company commenced its commercialization initiatives focused solely on the Keflex 750mg capsules through a targeted and dedicated national contract sales force of 75 sales representatives and eight Advancis district sales managers. Advancis and its contract sales organization, Innovex, the commercialization division of Quintiles Transnational Corp., completed extensive sales representative training in July 2006. The Company has shipped Keflex 750mg capsules to pharmacies nationwide, and representatives began promoting the product on July 17, 2006. The new Keflex 750mg strength provides healthcare professionals a more convenient way to deliver a total daily dose of 1500mg per day, by providing them an option to prescribe just two daily doses of the 750mg capsules. Keflex is approved for adult dosages ranging from one to four grams per day in divided doses; however, the majority of prescriptions are currently written for cephalexin 500mg three times daily -- totaling 1500mg per day. Cephalexin is the third most prescribed oral antibiotic in the United States, with more than 25 million prescriptions written annually representing a retail market size of approximately $500 million. Cephalexin is the number- one most prescribed oral cephalosporin antibiotic and is also the number-one recommended oral antibiotic therapy for uncomplicated skin and skin structure infections. Amoxicillin PULSYS Phase III Trial -- Enrollment Complete, Results Expected Mid-August Advancis' Phase III clinical trial, designed to support product approval for Amoxicillin PULSYS for the treatment of adolescents and adults with acute pharyngitis and/or tonsillitis due to Group A streptococcal infections, completed enrollment with 620 patients on May 31, 2006. The Company's pivotal study was designed as a 600-patient double-blind, double-dummy, non- inferiority Phase III trial and was conducted in 50 investigator sites across the U.S. and Canada. Advancis expects to receive and publicly report top-line results from the trial within the coming weeks. The Company anticipates announcing the statistical outcome of the trial's primary endpoints -- non-inferiority of bacterial eradication rates for patient populations under the once-daily Amoxicillin PULSYS therapy versus the four-times-a-day penicillin comparator therapy. Based on its prior meetings with the FDA, Advancis believes a positive Amoxicillin PULSYS Phase III trial, along with existing academic literature data and analysis from the Company's prior Amoxicillin PULSYS studies, would provide the necessary clinical data required to support a NDA filing for product approval. If the trial is successful, Advancis expects to file a 505(b)(2) NDA with the FDA for the product candidate by year-end 2006 or early 2007. $12 Million Credit Facility Completed On June 30, 2006, Advancis closed a $12 million secured credit facility with Merrill Lynch Capital, consisting of an $8 million term loan and a $4 million revolving loan facility. The term loan was drawn in its entirety at closing, and matures in three years. The revolving loan facility, which has not yet been drawn, matures 45 months from the closing date, and credit available under this facility will be limited to a percentage of the Company's accounts receivable. Advancis expects to use the proceeds from the credit facility for working capital and plans to repay the facility with cash flow from operations. FINANCIAL DETAILS * Total revenue, resulting entirely from net Keflex product sales, was $0.3 million in the second quarter of 2006, compared to revenue of $0.9 million in the prior quarter. Lower sequential Keflex product sales in the quarter were mainly due to a reduction in wholesaler orders for the Company's existing 250mg and 500mg strengths in the second quarter. Total revenue was $3.2 million for the second quarter of 2005, consisting of both Keflex product sales and revenue recognized under the Company's prior collaboration for Amoxicillin PULSYS. No similar collaboration revenue was recognized in 2006. * Operating expenses. Second quarter research and development expenses, primarily consisting of salaries, stock-based compensation, and related expenses for personnel and the costs of the Company's clinical trials and research initiatives, were $6.8 million, down from $7.2 million in the previous quarter and $10.2 million in the second quarter of 2005. Decreased sequential R&D expenses in the second quarter of 2006 primarily were due to a decrease in second quarter clinical trial expenses. Decreased year-over-year R&D expenses resulted mainly from a reduced number of ongoing clinical trials in second quarter 2006 versus second quarter 2005. Selling, general and administrative (SG&A) expenses totaled $4.5 million in the second quarter of 2006, up from $2.5 million in the first quarter of 2006 and $2.4 million in the second quarter of 2005. Increased SG&A expenses in the quarter were primarily due to Keflex 750mg launch costs of approximately $1.7 million, as the Company hired district sales managers, increased marketing expenditures, and incurred contract sales costs in support of the launch of its new Keflex 750mg product. Stock-based compensation recorded in the second quarter 2006 was a total of $0.9 million, of which, $0.4 million was recorded in R&D expense and $0.5 million was recorded in SG&A expense. In the first quarter 2006 and second quarter 2005, total stock-based compensation expense was $0.9 million and $0.3 million, respectively. * Net loss for the second quarter of 2006 was $10.7 million. This compares to a net loss of $7.6 million in the first quarter of 2006, and $9.3 million in the second quarter of 2005. Higher net loss in the second quarter of 2006 was mainly attributable to reduced revenue and increased expenses resulting from the Company's activities supporting the launch of its new Keflex 750mg capsules. * Net loss per share applicable to common stockholders for the second quarter of 2006 was ($0.35), compared to a loss per common share of ($0.25) in the prior quarter and ($0.34) in the second quarter of 2005. Per share figures were computed on the basis of an average of 30.3 million shares outstanding in the second quarter of 2006, 30.0 million shares outstanding in the first quarter of 2006, and 27.5 million shares outstanding in the second quarter of 2005. * Cash and marketable securities decreased by $1.1 million during the second quarter. Changes were composed of $10.9 million of operating losses and $1.4 million of loan payments; offset by $7.8 million of net proceeds from the term loan, $0.7 million of freed-up restricted cash, $1.9 million of non-cash depreciation, amortization, and stock-based compensation, and $0.8 million of working capital changes and other items. * The Balance Sheet at the end of the second quarter of 2006 reflected $20.9 million of unrestricted cash, cash equivalents and marketable securities, compared to $22.0 million as of March 31, 2006, and $29.4 million as of December 31, 2005. FINANCIAL GUIDANCE Advancis' financial guidance is unchanged from recently updated forecasts including the effect of the Company's new Keflex 750mg product and credit facility. Total revenue for 2006 is expected to be approximately $16 million to $17 million, resulting from sales of all Keflex products. Net loss for the year is expected to be between $32 million and $37 million, or approximately $1.05 to $1.25 per diluted common share. Non-cash charges for 2006, consisting primarily of stock-based compensation expenses and depreciation and amortization, are expected to be approximately $7 million. These forecasts include an estimated $3 million non-cash impact from expensing of stock options under SFAS 123R. Cash, cash equivalents, and marketable securities at the end of 2006 are expected to be approximately $12 million to $13 million. Assuming favorable market acceptance of the new Keflex 750mg product and the Company's current expected level of R&D spending, Advancis anticipates that its current funds, together with expected Keflex product sales, will be sufficient to support its currently planned operations through 2007 and into 2008. CONFERENCE CALL The Company has scheduled a conference call for today, Wednesday, August 2, 2006 at 10:30 AM ET. During the call, Dr. Edward Rudnic, president and CEO, and Robert Low, vice president, finance and acting CFO, will discuss quarterly results and other corporate activities. Investors can call 1-800-813-8504 (domestic) and 1-706-643-7752 (international) prior to the 10:30 AM start time and ask for the Advancis Pharmaceutical conference call hosted by Dr. Rudnic. A replay of the call will be available on August 2, 2006 beginning at 12:30 PM ET and will be accessible until Wednesday, August 9, 2006 at 5:00 PM ET. The replay call-in number is 1-800-642-1687 for domestic callers and 1-706-645-9291 for international callers. The access number is 3476789. The conference call will also be broadcast simultaneously on the Company's website, http://www.advancispharm.com/. Investors should click on the Investor Relations tab and are advised to go to the website at least 15 minutes early to register, download, and install any necessary audio software. The call will also be archived on the Advancis website. About Advancis Pharmaceutical Corporation: Advancis Pharmaceutical Corporation (NASDAQ:AVNC) is a pharmaceutical company focused on the development and commercialization of anti-infective drug products that fulfill substantial unmet medical needs in the treatment of infectious disease. The Company is developing a portfolio of anti-infective drugs based on its novel biological finding that bacteria exposed to antibiotics in front-loaded staccato bursts, or "pulses," are killed more efficiently and effectively than those under standard treatment regimens. Based on this finding, Advancis has developed a proprietary, once-a-day pulsatile delivery technology called PULSYS(TM). By examining the resistance patterns of bacteria and applying its delivery technologies, Advancis has the potential to redefine infectious disease therapy and significantly improve drug efficacy, shorten length of therapy, and reduce drug resistance versus currently available antibacterial products. For more on Advancis, please visit http://www.advancispharm.com/. About Keflex: Keflex(R) Capsules (Cephalexin, USP) is a first-generation cephalosporin antibiotic shown to be active against strains of both gram-positive and gram- negative aerobes in vitro and in clinical infections. Keflex is indicated for treatment of the following infections: respiratory tract infections, otitis media, skin and skin structure infections, bone infections, and genitourinary tract infections. Keflex is currently available in 250mg capsules, 500mg capsules, 750mg capsules, and powder for oral suspension. Keflex is contraindicated in patients with known allergy to the cephalosporin group of antibiotics. Before therapy with cephalexin is instituted, careful inquiry should be made to determine whether the patient has had previous hypersensitivity reactions to cephalexin, cephalosporins, penicillins, or other drugs. Keflex should be administered with caution in the presence of markedly impaired renal function or a history of gastrointestinal disease, particularly colitis. More information on Keflex and prescribing information are available at http://www.keflex.com/ This announcement contains historical financial information as of and for three-month and six-month periods ended June 30, 2006 and June 30, 2005 that is unaudited, and Advancis assumes no obligation to update this information based on new information or future performance except as may be specifically required by applicable law or regulation. The unaudited annual financial information is subject to audit by independent accountants on an annual basis following the close of each calendar year. This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. These statements are based on Advancis' current expectations and assumptions. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties that would cause actual results to differ materially from those anticipated. The words, "believe," "expect," "intend," "anticipate," and variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward- looking. Statements in this announcement that are forward-looking include, but are not limited to, statements about the Company's product development and commercialization schedule, including, particularly, future plans with respect to its Amoxicillin PULSYS products; any statements regarding expected milestone or expense reimbursement payments; Dr. Rudnic's comments and expectations concerning the Company; the Company's initiatives to develop improved antibiotics; the Company's existing and anticipated collaborative agreements; and any financial forecasts and projections for the full year of 2006 and thereafter included under the Financial Guidance section of this announcement. The actual results realized by Advancis could differ materially from these forward-looking statements, depending in particular upon the risks and uncertainties described in the Company's filings with the Securities and Exchange Commission. These include, without limitation, risks and uncertainties relating to the Company's financial results and the ability of the Company to (1) reach profitability, (2) prove that the preliminary findings for its product candidates are valid, (3) receive required regulatory approvals, (4) successfully conduct clinical trials in a timely manner, (5) establish its competitive position for its products, (6) develop and commercialize products that are superior to existing or newly developed competitor products, (7) develop products without any defects, (8) have sufficient capital resources to fund its operations, (9) protect its intellectual property rights and patents, (10) implement its sales and marketing strategy, (11) successfully attract and retain collaborative partners, (12) successfully commercialize and gain market acceptance for its Keflex products, (13) successfully obtain sufficient manufactured quantities of its drug products at acceptable rates, and (14) retain its senior management and other personnel. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date. Advancis undertakes no obligation to update or revise the information in this announcement, whether as a result of new information, future events or circumstances or otherwise. ADVANCIS PHARMACEUTICAL CORPORATION CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2006 2005 2006 2005 Revenues: Product sales $336,357 $1,030,479 $1,196,588 $2,030,354 Contract revenue - 285,087 - 701,754 Reimbursement of development costs - 1,885,273 - 5,095,387 Total revenue 336,357 3,200,839 1,196,588 7,827,495 Cost and expenses: Cost of product sales 25,021 102,746 77,606 178,777 Research and development 6,762,016 10,228,995 13,963,216 23,468,640 Selling, general and administrative 4,459,196 2,424,855 6,931,783 5,254,417 Total expenses 11,246,233 12,756,596 20,972,605 28,901,834 Loss from operations (10,909,876) (9,555,757) (19,776,017) (21,074,339) Interest income 232,826 274,336 526,588 436,414 Interest expense (25,312) (31,411) (50,283) (63,510) Other income (loss) (23,185) - 976,815 - Net loss $(10,725,547) $(9,312,832) $(18,322,897) $(20,701,435) Basic and diluted net loss per share applicable to common stockholders $(0.35) $(0.34) $(0.61) $(0.82) Shares used in calculation of basic and diluted net loss per share 30,281,280 27,519,395 30,162,840 25,146,631 ADVANCIS PHARMACEUTICAL CORPORATION CONDENSED BALANCE SHEETS (Unaudited) June 30, 2006 December 31, 2005 ASSETS Current assets: Cash and cash equivalents $15,320,713 $18,116,968 Marketable securities 5,573,401 11,314,090 Restricted cash - 418,244 Accounts receivable, net 73,980 756,764 Notes receivable from officer 121,500 121,500 Inventories, net 491,779 219,451 Prepaid expenses and other current assets 922,098 797,253 Total current assets 22,503,471 31,744,270 Property and equipment, net 13,070,815 14,450,627 Restricted cash 870,840 1,182,680 Deposits and other assets 1,341,336 884,312 Intangible assets, net 8,956,165 9,535,003 Total assets $46,742,627 $57,796,892 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $1,404,995 $1,686,487 Accrued expenses and advances 6,958,162 7,071,731 Lines of credit and short-term debt 8,047,093 895,204 Deferred contract revenue - - Total current liabilities 16,410,250 9,653,422 Lines of credit - 597,208 Note payable 75,000 75,000 Accrued severance - noncurrent portion 278,646 1,235,394 Deferred contract revenue 11,625,000 11,625,000 Deferred rent and credit on lease concession 1,272,180 1,268,857 Total liabilities 29,661,076 24,454,881 Stockholders' equity: Preferred stock, undesignated - - Common stock, par value 303,006 297,652 Capital in excess of par value 146,199,765 144,766,213 Deferred stock-based compensation - (623,051) Accumulated deficit (129,418,205) (111,095,308) Accumulated other comprehensive loss (3,015) (3,495) Total stockholders' equity 17,081,551 33,342,011 Total liabilities and stockholders' equity $46,742,627 $57,796,892 ADVANCIS PHARMACEUTICAL CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 2006 2005 Cash flows from operating activities: Net loss $(18,322,897) $(20,701,435) Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,961,118 2,034,447 Stock-based compensation 1,761,118 840,324 Deferred rent and credit on lease concession 3,323 37,890 Amortization of premium on marketable securities 218,548 278,849 Loss on disposal of fixed assets 23,185 - Recognition of advance payment on potential sale of Keflex (1,000,000) - Changes in: Accounts receivable 682,784 (117,150) Inventories (272,328) (219,388) Prepaid expenses and other current assets (124,845) 344,456 Deposits other than on property and equipment - (100,000) Accounts payable (281,492) (1,225,169) Accrued expenses and advances (46,180) 1,780,825 Deferred contract revenue - 3,702,859 Net cash used in operating activities (15,397,666) (13,343,492) Cash flows from investing activities: Purchase of marketable securities (9,632,379) - Sale of marketable securities 15,155,000 8,705,000 Purchases of property and equipment (50,653) (1,373,976) Deposits on property and equipment (250,000) (24,822) Proceeds from sale of fixed assets 25,000 - Restricted cash 730,084 (10,026) Net cash provided by investing activities 5,977,052 7,296,176 Cash flows from financing activities: Proceeds from issuance of long-term debt, net of issue costs 7,792,976 - Payments on lines of credit (1,445,319) (511,122) Proceeds from private placement of common stock, net of issue costs - 25,770,184 Proceeds from exercise of common stock options 276,702 20,705 Net cash provided by financing activities 6,624,359 25,279,767 Net increase (decrease) in cash and cash equivalents (2,796,255) 19,232,451 Cash and cash equivalents, beginning of period 18,116,968 10,395,757 Cash and cash equivalents, end of period $15,320,713 $29,628,208 DATASOURCE: Advancis Pharmaceutical Corporation CONTACT: Robert Low, Vice President, Finance & Acting CFO, +1-301-944-6690, , or Bob Bannon, Senior Director, Investor Relations, +1-301-944-6710, , both of Advancis Pharmaceutical Corporation Web site: http://www.advancispharm.com/ http://www.keflex.com/

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