AVNC Advancis Pharmaceutical (MM)

Company's Amoxicillin PULSYS NDA Filing Expected in December; Commercial Launch of Keflex 750mg Capsules Underway GERMANTOWN, Md., Nov. 1 /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 September 30, 2006. Advancis reported third quarter 2006 net Keflex product sales of $2.4 million, compared to $0.3 million in the second quarter of 2006 and $1.2 million in the third quarter of 2005. For the first nine months of 2006, revenue from product sales was $3.6 million, compared to product sales of $3.2 million in the first nine 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 $6.2 million and $12.0 million for the three months and nine months ended September 30, 2005, respectively. Advancis reported research and development (R&D) expenses in the third quarter of $5.7 million, down from second quarter 2006 R&D expenses of $6.8 million and third quarter 2005 R&D expenses of $10.0 million. Total expenses for the third quarter of 2006 were $12.2 million, compared to $11.2 million in the second quarter of 2006 and $13.6 million in the third quarter of 2005. Total expenses in the first nine months of 2006 decreased to $33.2 million, from $42.5 million in the first nine months of 2005. Net loss was $9.9 million for the third quarter, compared to a net loss of $10.7 million in the second quarter of 2006 and a net loss of $5.9 million in the third quarter of 2005. Net loss per share applicable to common stockholders during the third quarter of 2006 was ($0.33), compared to a net loss per share of ($0.35) in the prior quarter, and a net loss per share of ($0.20) in the comparable quarter of last year. For the first nine months of 2006, net loss was $28.2 million, or ($0.93) per share, compared to a net loss of $26.6 million, or ($1.00) per share, in the first nine months of 2005. "We were very pleased to receive positive results from our Amoxicillin PULSYS Phase III clinical trial during the third quarter," stated Edward M. Rudnic, Ph.D., president and CEO of Advancis. "We believe the coming months will be pivotal for Advancis, as we near completion of our NDA filing by the end of the 2006, manage the commercialization of our Keflex 750 capsules, and move toward a potential approval and launch of Amoxicillin PULSYS next year. We look forward to successfully executing upon these milestones and communicating our progress over the course of the next year." OPERATIONAL HIGHLIGHTS Amoxicillin PULSYS -- Successful Phase III Results, NDA Filing Update During the quarter, Advancis announced that its Amoxicillin PULSYS Phase III clinical trial for the treatment of adults and adolescents with acute pharyngitis and/or tonsillitis due to Group A streptococcal infections (commonly referred to as strep throat) achieved its desired endpoints. Advancis' clinical trial, designed to support product approval for Amoxicillin PULSYS, included 620 patients in a double-blind, double-dummy, non-inferiority Phase III trial and was conducted in 50 investigator sites across the U.S. and Canada. The Company compared its Amoxicillin PULSYS tablet for the treatment of pharyngitis/tonsillitis due to S. pyogenes (Group A streptococcus) delivered in a once-daily, 775 milligram tablet for a period of 10 days to 250 milligrams of penicillin dosed four times daily, for a total of one gram per day, for 10 days. The trial demonstrated statistical non-inferiority of Amoxicillin PULSYS therapy versus the penicillin comparator therapy for the trial's primary endpoints of bacterial eradication rates for two distinct patient populations. The trial also demonstrated Amoxicillin PULSYS reached 85 percent bacterial eradication for the "per-protocol" group of patients, in accordance with U.S. Food and Drug Administration (FDA) guidance for product approval as first-line pharyngitis therapy. During the third quarter, Advancis received correspondence from the FDA's Division of Anti-Infectives Drug Products, confirming that the regulatory strategy and proposed format for the Company's NDA (New Drug Application) filing for its Amoxicillin PULSYS product was acceptable. Advancis believes data from its recently concluded Amoxicillin PULSYS Phase III trial, along with existing academic literature data and analysis from the Company's prior Amoxicillin PULSYS studies, should provide the necessary clinical data required to support a NDA filing for product approval. Advancis expects to file a 505(b)(2) NDA with the FDA for the product candidate in December 2006, and, if approved, to launch the product around year-end 2007. Keflex(R) Capsules (Cephalexin, USP) -- Launch Update During the quarter, Advancis commenced the commercialization of its new 750mg strength of Keflex capsules through a targeted and dedicated national contract sales force of 75 sales representatives and eight Advancis district sales managers. Advancis contract sales representatives began directly promoting Keflex 750mg capsules to targeted physicians as well as providing patient starter samples in late July 2006. The Company began shipping Keflex 750mg in bottles of 50 capsules to retail pharmacies nationwide in July for initial inventory stocking, and now believes that it has Keflex 750mg stocked in a total of approximately 25,000 U.S. pharmacies. Although still early in the launch of Keflex 750mg, Advancis believes the product is being well-received in the market and intends to evaluate its progress over the coming months before providing 2007 Keflex sales guidance or additional market share forecasts. Advancis believes 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. Advancis Corporate Name Infringement Case During the quarter, Advancis announced that the United States District Court for the District of Delaware issued an Opinion and Order ruling that the Advancis corporate name is infringing the sanofi-aventis trademark. In December 2003, Aventis and Aventis Pharmaceuticals, Inc., now part of sanofi- aventis, brought an action against Advancis, alleging, in essence, that the Advancis corporate name is infringing the plaintiff's trademark and seeking injunctive relief. A trial was held in May 2005, and the Court issued its decision on September 26, 2006, ruling in favor of sanofi-aventis. No monetary damages were associated with the decision, and the Company does not believe there will be a significant financial impact involved from complying with the Court's decision. The Court's decision deferred an injunction and instead asked the two parties to jointly submit a proposed Order to the Court. On October 27, 2006, Advancis jointly submitted a proposed Permanent Injunction and Order with sanofi-aventis, pursuant to the Court's request. Per the proposed Order, Advancis agreed to surrender its trademark registrations for the "Advancis" name and, by June 30, 2007, to cease using the name in connection with its future business. Advancis believes the joint Order allows for a sufficient period of time to select a new corporate name and to effect an orderly transition to its new corporate identity without significant hardship or financial impact to the Company. Advancis has begun the process to select its new corporate name and expects to reach a conclusion by early 2007. FINANCIAL DETAILS * Total revenue, resulting entirely from net Keflex product sales, was $2.4 million in the third quarter of 2006, compared to revenue of $0.3 million in the prior quarter. Third quarter 2006 Keflex revenue included approximately $1.7 million for products that were delivered to customers as Keflex 750mg initial inventory stocking. The Company generally recognizes revenue upon delivery of the product to a customer, typically a wholesaler. However, the Company deferred the recognition of revenue of approximately $0.3 million in the quarter due to certain incentives provided during the launch period. Higher sequential Keflex product sales compared to the prior quarter were mainly due to the orders for initial stocking as well as subsequent sales of the Company's recently launched 750mg strength in the third quarter. Total revenue for the third quarter of 2005 was $7.4 million, 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. Net Keflex sales totaled $3.6 million in the first nine months of 2006, up from $3.2 million in the first nine months of 2005. * Operating expenses. Third 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 $5.7 million, down from $6.8 million in the previous quarter and $10.0 million in the third quarter of 2005. Decreased sequential R&D expenses compared to the second quarter of 2006 primarily were due to a decrease in third quarter clinical trial expenses, as the Company concluded its Phase III trial for Amoxicillin PULSYS. Decreased year-over-year R&D expenses resulted mainly from a reduced number of ongoing clinical trials in third quarter 2006 versus third quarter 2005. Selling, general and administrative (SG&A) expenses totaled $6.1 million in the third quarter of 2006, up from $4.5 million in the second quarter of 2006 and $3.5 million in the third quarter of 2005. Increased SG&A expenses in the third quarter were primarily due to selling and marketing costs of approximately $3.3 million, in association with the launch of the Company's new Keflex 750mg product. Keflex launch costs were $1.7 million in the second quarter of 2006, and no such marketing costs were incurred in the third quarter of 2005. Stock-based compensation recorded in the third quarter 2006 was a total of $1.1 million, of which, $0.6 million was recorded in R&D expense and $0.5 million was recorded in SG&A expense. In the second quarter 2006 and third quarter 2005, total stock-based compensation expense was $0.9 million and ($0.2) million, respectively. * Net loss for the third quarter of 2006 was $9.9 million. This compares to a net loss of $10.7 million in the second quarter of 2006, and $5.9 million in the third quarter of 2005. Higher net loss in the third quarter of 2006 versus the prior year 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 third quarter of 2006 was ($0.33), compared to a loss per common share of ($0.35) in the prior quarter and ($0.20) in the third quarter of 2005. Per share figures were computed on the basis of an average of 30.3 million shares outstanding in the third quarter of 2006, 30.3 million shares outstanding in the second quarter of 2006, and 29.6 million shares outstanding in the third quarter of 2005. * Cash and marketable securities decreased by $8.3 million during the third quarter. Changes were composed of $9.9 million of operating losses and $0.5 million of loan payments; offset by $2.1 million of non-cash depreciation, amortization, and stock-based compensation. * The Balance Sheet at the end of the third quarter of 2006 reflected $12.6 million of unrestricted cash, cash equivalents and marketable securities, compared to $20.9 million as of June 30, 2006, and $29.4 million as of December 31, 2005. FINANCIAL GUIDANCE Advancis' financial guidance is unchanged from recently updated forecasts. Total revenue for 2006 is expected to be approximately $7 million to $10 million, resulting from sales of all Keflex products. Net loss for the year is expected to be between $37 million and $40 million, or approximately $1.21 to $1.31 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 $4 million to $6 million. As previously stated, given suitable market conditions and favorable financing terms, the Company may consider raising additional capital during 2006 or 2007. CONFERENCE CALL The Company has scheduled a conference call for today, Wednesday, November 1, 2006 at 10:30 AM ET. During the call, Dr. Edward Rudnic, president and CEO, and Robert Low, vice president, finance and 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 November 1, 2006 beginning at 12:30 PM ET and will be accessible until Wednesday, November 8, 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 9742528. 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 nine-month periods ended September 30, 2006 and September 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 Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Revenues: Product sales $2,369,975 $1,159,986 $3,566,563 $3,190,340 Contract revenue - 3,326,024 - 4,027,778 Reimbursement of development costs - 2,915,303 - 8,010,690 Total revenues 2,369,975 7,401,313 3,566,563 15,228,808 Costs and expenses: Cost of product sales 440,159 87,555 517,765 266,332 Research and development 5,737,047 9,992,697 19,700,263 33,461,337 Selling, general and administrative 6,069,529 3,491,049 13,001,312 8,745,466 Total expenses 12,246,735 13,571,301 33,219,340 42,473,135 Loss from operations (9,876,760) (6,169,988) (29,652,777) (27,244,327) Interest income 221,333 319,484 747,921 755,898 Interest expense (241,735) (29,736) (292,018) (93,246) Other income - - 976,815 - Net loss $(9,897,162) $(5,880,240) $(28,220,059) $(26,581,675) Basic and diluted net loss per share $(0.33) $(0.20) $(0.93) $(1.00) Shares used in calculation of basic and diluted net loss per share 30,302,628 29,630,500 30,209,948 26,657,679 ADVANCIS PHARMACEUTICAL CORPORATION CONDENSED BALANCE SHEETS (Unaudited) September 30, December 31, 2006 2005 ASSETS Current assets: Cash and cash equivalents $7,892,656 $18,116,968 Marketable securities 4,716,385 11,314,090 Restricted cash - 418,244 Accounts receivable, net 2,133,737 756,764 Notes receivable from officer - 121,500 Inventories, net 1,330,067 219,451 Prepaid expenses and other current assets 533,642 797,253 Total current assets 16,606,487 31,744,270 Property and equipment, net 12,404,505 14,450,627 Restricted cash 870,480 1,182,680 Deposits and other assets 1,351,825 884,312 Intangible assets, net 8,666,746 9,535,003 Total assets $39,900,043 $57,796,892 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $2,901,596 $1,686,487 Accrued expenses and advances 7,826,538 7,071,731 Lines of credit and short-term debt 7,644,391 895,204 Deferred product revenue 270,061 - Total current liabilities 18,642,586 9,653,422 Lines of credit - noncurrent portion - 597,208 Note payable 75,000 75,000 Accrued severance - noncurrent portion - 1,235,394 Deferred contract revenue 11,625,000 11,625,000 Deferred rent and credit on lease concession 1,264,560 1,268,857 Total liabilities 31,607,146 24,454,881 Stockholders' equity: Preferred stock - - Common stock 303,050 297,652 Capital in excess of par value 147,303,642 144,766,213 Deferred stock-based compensation - (623,051) Accumulated deficit (139,315,367) (111,095,308) Accumulated other comprehensive loss 1,572 (3,495) Total stockholders' equity 8,292,897 33,342,011 Total liabilities and stockholders' equity $39,900,043 $57,796,892 ADVANCIS PHARMACEUTICAL CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2006 2005 Cash flows from operating activities: Net loss $(28,220,059) $(26,581,675) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,949,486 3,048,707 Stock-based compensation 2,861,585 682,692 Deferred rent and credit on lease concession (4,297) 44,721 Amortization of premium on marketable securities 222,332 286,765 Loss on disposal of fixed assets 23,185 - Recognition of advance payment for potential sale of Keflex (1,000,000) - Changes in: Accounts and notes receivable (1,255,473) (19,061) Inventories (1,110,616) (139,366) Prepaids and other current assets 220,484 659,998 Deposits other than on property and equipment - (147,101) Accounts payable 1,215,109 (2,042,093) Accrued expenses and accrued severance 608,590 2,983,812 Deferred revenue 270,061 2,211,532 Net cash used in operating activities (23,219,613) (19,011,069) Cash flows from investing activities: Advance payment for potential sale of Keflex intangible assets - 1,000,000 Purchase of marketable securities (13,274,560) (10,055,729) Sale and maturities of marketable securities 19,655,000 13,705,000 Purchases of property and equipment (50,653) (1,433,826) Deposits on property and equipment (250,000) (543,843) Proceeds from sale of fixed assets 25,000 - Restricted cash 730,444 6,603 Net cash provided by investing activities 6,835,231 2,678,205 Cash flows from financing activities: Proceeds from issuance of debt, net of issue costs 7,792,976 - Payments on lines of credit (1,913,062) (760,180) Proceeds from private placement of commons stock, net of issue costs - 25,754,389 Proceeds from exercise of common stock options 280,156 23,015 Net cash provided by financing activities 6,160,070 25,017,224 Net (decrease) increase in cash and cash equivalents (10,224,312) 8,684,360 Cash and cash equivalents, beginning of period 18,116,968 10,395,757 Cash and cash equivalents, end of period $7,892,656 $19,080,117 DATASOURCE: Advancis Pharmaceutical Corporation CONTACT: Robert Low, Vice President, Finance & CFO, +1-301-944-6690, , or Bob Bannon, Vice President, 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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