Vasogen Inc. - Vasogen Announces Second Quarter 2004 Results

Vasogen Announces Second Quarter 2004 Results

Toronto, Ontario - July 14, 2004

Vasogen Inc. (NASDAQ:VSGN; TSX:VAS) today reported the results of operations for the second quarter of 2004. Comparative figures relate to the three and six-month periods ending May 31, 2004, and to the three and six-month periods ending May 31, 2003. All dollar amounts referenced herein are in Canadian dollars, unless otherwise stated.

Cash, cash equivalents, and marketable securities held to maturity totalled $105.7 million, at May 31, 2004, compared with $60.1 million at year-end. The increase is a result of the net proceeds received from the financing that was completed March 4, 2004 less cash used in operations during the first half of the year. The financing completed during the quarter was a public share offering for gross proceeds of $76.9 million (US$57.7 million), resulting from the issuance of approximately 9.8 million common shares at a price of $7.92 (US$5.90) per share.

The loss for the second quarter of 2004 was $14.1 million, or $0.20 per share, compared to a loss of $7.3 million, or $0.14 per share, in the second quarter of 2003. For the six months ended May 31, 2004 the loss was $26.2 million, or $0.39 per share, compared to a loss of $12.8 million, or $0.25 per share, for the comparable period in 2003. The increased loss resulted mainly from higher costs associated with the advancement of our clinical programs and the corporate costs associated with supporting these activities.

Research and development expenditures totalled $12.5 million in the second quarter of 2004, compared to $5.0 million in the second quarter of 2003. For the six months ended May 31, 2004 these expenditures were $22.3 million, compared to $8.4 million, for the comparable period in 2003. The increase in research and development spending results primarily from expanded clinical trial activity, including the ramping up of clinical sites participating in our phase III ACCLAIM trial in chronic heart failure and from ongoing patient recruitment into both our ACCLAIM trial and our phase III SIMPADICO trial in peripheral arterial disease.

General and administration expenditures totalled $3.9 million for the second quarter of 2004, compared to $2.5 million for the second quarter of 2003. For the six months ended May 31, 2004 these expenditures were $7.1 million, compared to $4.6 million, for the comparable period in 2003. The majority of the increase in general and administration expenditures resulted from infrastructure and other support costs, which have increased to support our advancing clinical programs, and for corporate, marketing, regulatory, and business development activities associated with planning for the commercialization of our products.

Our functional currency is the Canadian dollar. The funds raised in the financings that we completed in 2003 and 2004 were primarily in U.S. dollars and we are holding U.S. dollars in anticipation of the significant U.S. dollar research and development expenses that we expect to incur in connection with executing our phase III clinical trials. Although fluctuations in the U.S./Canadian exchange rate can be significant from an accounting perspective, it does not affect our ability to pay U.S. dollar denominated research and development expenditures. Due to the strengthening of the U.S. dollar relative to the Canadian dollar during the three and six months ending May 31, 2004, our statement of operations includes a foreign exchange gain of $2.0 million and $2.6 million, respectively. For the three and six months ended May 31, 2004, investment income was comparable to that for the same period in 2003.

An expanded Management's Discussion and Analysis for the quarter is accessible on Vasogen's Web site at www.vasogen.com.

Highlights

The results from the phase II trial of Celacade™ (immune modulation therapy) in patients with advanced chronic heart failure have been accepted for publication in the Journal of the American College of Cardiology. As previously reported, the key finding from the phase II trial of Celacade™ was a significant reduction in the risk of death and all-cause hospitalization for advanced heart failure patients receiving Celacade™ compared to those receiving placebo. These results formed the basis for our ongoing ACCLAIM trial, which is designed to support regulatory approval and marketing in North America and Europe. The manuscript to be published was authored by Guillermo Torre-Amione, MD, PhD, Medical Director of the Heart Transplant Service at Baylor College of Medicine; François Sestier, MD, Faculty of Medicine at the University of Montreal; Branislav Radovancevic, MD, Associate Director, Cardiovascular Surgery and Transplant Research, Texas Heart Institute; and James Young, MD, Chairman, Division of Medicine at The Cleveland Clinic Foundation.
We continue to make excellent progress with our pivotal phase III trials of Celacade™. Our 2,000-patient phase III ACCLAIM trial is further investigating the impact of Celacade™ on reducing the risk of mortality and morbidity in advanced chronic heart failure patients. ACCLAIM is designed to support regulatory approval and marketing of Celacade™ for the treatment of advanced heart failure in North America and Europe. With the recent granting of the CE Mark regulatory approval in Europe for Celacade™ for the treatment of chronic heart failure, we are now including select European opinion leaders as we launch the final sites in our 160-site ACCLAIM trial infrastructure. The inclusion of leading cardiac centers from Europe in the ACCLAIM trial is a fundamental step in preparing the second largest market in the world for Celacade™. ACCLAIM is expected to complete patient enrolment by the end of Q1, 2005. Chronic heart failure is a devastating condition that affects over 10 million people in North America and Europe. In the U.S. alone, heart failure costs the healthcare system over $19 billion annually and is associated with 300,000 deaths each year.
Our 500-patient phase III SIMPADICO trial, which is further investigating the impact of Celacade™ on reducing the debilitating symptoms associated with peripheral arterial disease (PAD), is designed to support regulatory approval and marketing of Celacade™ for the treatment of symptomatic PAD in North America and Europe. SIMPADICO is expected to complete patient enrolment by year-end. PAD is a progressive cardiovascular condition that affects seven million individuals in the U.S. alone, with related healthcare costs exceeding $10 billion annually.
We continued to make significant progress in the development of our new class of phospholipid-based drugs, which are designed to interact with antigen presenting cells to modulate cytokines that initiate and control inflammation. Our drug development program is ongoing at international centers of excellence for neuroscience and is focused on investigating the therapeutic potential of our VP series of drugs and identifying lead indications for clinical development. VP025, the lead product candidate from this new class of drugs, is being developed for the treatment of certain chronic neuroinflammatory disorders.

Preclinical findings demonstrating the ability of VP025 to reduce perinatal hypoxic-ischemic brain injury were presented by Dr. Charles Palmer, Professor of Pediatrics, Penn State College of Medicine, at the Annual Meeting of the Pediatric Academic Societies in San Francisco. Perinatal hypoxic-ischemic brain injury is accompanied by an inflammatory response that contributes to brain degeneration (atrophy). The administration of VP025 resulted in significantly less brain injury compared to saline-treated controls - providing additional evidence of the ability of VP025 to address the inflammatory component of a serious neurological condition, with potential relevance to stroke.
Data from a second formulation from our VP series of drugs (VP015), was published in the Journal of Neuroimmunology (151: 12-23, 2004). The preclinical data demonstrate the ability of VP015 to mediate inflammatory activity across the blood brain barrier and to significantly reduce markers of inflammation in the brain, supporting the therapeutic potential for the VP drug formulations to address a number of serious neurological disorders.
Preclinical research demonstrating the ability of VP025 to reverse a measure of the memory and learning impairment associated with aging was presented by Professor Marina Lynch, PhD, Department of Physiology, Trinity College, Dublin, Ireland at the Fourth Federation of European Neuroscience Societies Forum in Lisbon, Portugal. We believe that the ability to actually improve an established loss of memory and learning would be a major breakthrough in the treatment of a number of debilitating diseases associated with aging, including Alzheimer's disease and Parkinson's disease.

Additional research regarding Celacade™ and our VP series of drugs is expected to be presented at various conferences during 2004 including: the Heart Failure Society of America Scientific Meeting in September and the American Neurological Association Annual Meeting in October, both in Toronto; Neuroscience 2004 (Society for Neuroscience's Annual Meeting) in San Diego in October; and at other conferences.
During the quarter, we completed an offering of 8,500,000 common shares. Needham & Company, Inc. and RBC Capital Markets were lead managers for the offering, with A.G. Edwards & Sons, Inc. acting as a co-manager. The underwriters also purchased an additional 1,275,000 common shares pursuant to the exercise of their over allotment option in full for a total purchase of 9,775,000 common shares. Including proceeds from the exercise of the over allotment option, the gross proceeds from the offering realized by the Company were approximately US$57.7 million.
On May 24, 2004 Vasogen was added to the NASDAQ Biotechnology Index.

As previously announced, a conference call will be conducted on July 14, 2004 at 4:30 p.m. Eastern Time. The conference call may be accessed by calling 416-695-5259 or 1-888-789-0089 ten minutes prior to the call. An audio web cast of the event will also be available at www.vasogen.com. A re-broadcast of the conference call may be accessed by calling 416-641-2132, pin code 7107, and will also be available at www.vasogen.com.

About Vasogen
Vasogen is a leader in the research and commercial development of immune modulation therapies targeting the chronic inflammation underlying cardiovascular disorders. Vasogen's lead product, Celacade™ (immune modulation therapy) is currently in phase III clinical trials for the treatment of chronic heart failure and peripheral arterial disease. Celacade™ is designed to target chronic inflammation by activating the immune system's physiological anti-inflammatory response to apoptotic cells. Celacade™ up-regulates the expression of cell surface molecules that interact with specific receptors on antigen presenting cells (APCs) to modulate the production of cytokines - potent chemical messengers that initiate and control inflammation. Vasogen is also developing a new class of phospholipid-based drugs, which includes VP025, designed to interact with APCs to regulate cytokine levels and control inflammation.

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This press release and the upcoming conference call contain forward-looking statements that involve risks and uncertainties, which may cause actual results to differ materially from the statements made. For this purpose, any statements that are contained herein that are not statements of historical fact may be deemed to be forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing, the words "believes," "anticipates," "plans," "intends," "will," "should," "expects," "projects," and similar expressions are intended to identify forward-looking statements. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause actual results, future circumstances, or events to differ materially from those projected in the forward-looking statements. These risks include, but are not limited to, those associated with the success of research and development programs, the regulatory approval process, competition, securing and maintaining corporate alliances, market acceptance of the Company's products, the availability of government and insurance reimbursements for the Company's products, the strength of intellectual property, financing capability, the potential dilutive effects of any financing, reliance on subcontractors and key personnel and other risks detailed from time-to-time in the Company's public disclosure documents or other filings with the Canadian and U.S. securities commissions or other securities regulatory bodies. The forward-looking statements are made as of the date hereof, and the Company disclaims any intention and has no obligation or responsibility, except as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.