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Vasogen Announces Third Quarter 2005 Results

Toronto, Ontario - October 12, 2005

Vasogen Inc. (NASDAQ:VSGN; TSX:VAS) today reported the results of operations for the third quarter of 2005. Comparative figures relate to the three- and nine-month periods ending August 31, 2005, and to the three- and nine-month periods ending August 31, 2004. All dollar amounts referenced herein are in Canadian dollars, unless otherwise stated.

Cash, cash equivalents, and marketable securities held to maturity totalled $65.1 million, or approximately US$54.8, at August 31, 2005, compared with $73.0 million at year-end. The decrease is a result of cash used in operations during the nine months ended August 31, 2005 exceeding the net proceeds received from the financing that was completed February 2, 2005. Our cash position was supplemented in October by the net proceeds from our US$40 million convertible note financing.

In line with guidance, our cash used in operations for the third quarter was $17.4 million, or approximately US$14.2 million, and for the nine months ended August 31, 2005 was $51.6 million, or approximately US$42 million.

The loss for the third quarter of 2005 was $24.1 million, or $0.30 per share, compared to a loss of $19.6 million, or $0.27 per share, in the third quarter of 2004. For the nine months ended August 31, 2005, the loss was $69.0 million, or $0.87 per share, compared to a loss of $45.8 million, or $0.67 per share, for the comparable period in 2004. The increased loss over the comparable period in 2004 resulted mainly from higher costs associated with the expansion of our phase III clinical programs. The difference between cash used in operations and our accounting loss includes such non-cash items as option grant expense, amortization expense, and accrued expenses related to our phase III clinical trials.

Research and development expenditures totalled $17.2 million in the third quarter of 2005, compared to $13.9 million in the third quarter of 2004. For the nine months ended August 31, 2005, these expenditures were $54.7 million, compared to $36.2 million for the comparable period in 2004. This increase in research and development spending results primarily from expanded clinical trial activity, including the increased number of clinical sites participating in our phase III ACCLAIM trial in chronic heart failure and the significantly higher level of patient enrollment into both our ACCLAIM trial and our phase III SIMPADICO trial in peripheral arterial disease, when compared to the same period in 2004.

General and administration expenditures totalled $5.2 million for the third quarter of 2005, compared to $4.1 million for the third quarter of 2004. For the nine months ended August 31, 2005, these expenditures were $16.6 million, compared to $11.2 million for the comparable period in 2004. 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 2005 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, they do not affect our ability to pay U.S. dollar denominated research and development expenditures. Our statement of operations includes a foreign exchange loss for the three months ended August 31, 2005 and August 31, 2004, as a result of the weakening of the U.S. dollar relative to our reporting currency, the Canadian dollar, during these periods and a foreign exchange gain for the nine months ended August 31, 2005 and August 31, 2004, as a result of the strengthening of the U.S. dollar relative to our reporting currency, the Canadian dollar, during these periods.

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

Highlights

  • At the end of August, we announced that the pivotal phase III SIMPADICO trial, which is designed to further investigate the use of Celacade™ technology to improve intermittent claudication, a debilitating symptom associated with peripheral arterial disease, is being closed out early at 50 centers in North America. The decision to close out the trial was based on a recommendation received from the SIMPADICO Steering Committee. The Steering Committee’s recommendation was based on a recommendation by the trial’s External Safety and Efficacy Monitoring Committee (ESEMC) who cited a potential safety signal and the absence of a sufficiently strong efficacy signal to warrant the continuance of the study. Based on the Steering Committee’s own review, and the findings of an independent expert, the Steering Committee concluded that no safety concern existed. However, given that the ESEMC’s analysis also incorporated efficacy information and all patients had completed the assessments necessary for the analysis of the primary endpoint, the Steering Committee recommended the early close out of the trial. It is important to note that the preliminary and limited efficacy evaluation conducted by the ESEMC was performed on a database that remains in the process of being cleaned and validated and is therefore still subject to change. As a result of this, neither the SIMPADICO Steering Committee nor the Company are in a position to reach any conclusions regarding the outcomes of the study and remain blind to the study data pending full database lock. We expect that the initial results of the SIMPADICO study will be made available in late 2005 following data analysis.
  • In September, during a symposium at the 9th Annual Scientific Meeting of the Heart Failure Society of America, Guillermo Torre-Amione, MD, PhD, Medical Director, The Methodist DeBakey Heart Center, and principal investigator for the U.S. arm of the ACCLAIM trial, reported that the preliminary baseline characteristics of patients enrolled in the pivotal phase III ACCLAIM study were consistent with those of patients in our previous phase II trial and that this bodes well for the ability to demonstrate the effect of Celacade technology on mortality and morbidity in chronic heart failure. As previously reported, our phase II trial demonstrated a significant reduction in the risk of death and hospitalizations for patients who received Celacade versus placebo. Dr. Torre-Amione also reported that the fully enrolled ACCLAIM trial remains on schedule for completion in late 2005, with results to be made available following database lock and data analysis.
  • We successfully completed our phase I clinical trial of VP025, the lead drug candidate from our VP series of drugs. The double-blind, placebo-controlled, phase I dose-escalation trial of VP025 examined the safety and tolerability of three doses of VP025 in 24 healthy volunteers. Multiple administrations of either low, mid, or high doses of VP025 were shown to be safe and well tolerated when compared to placebo and no drug-related serious adverse events were reported. VP025 is being developed to target the chronic inflammation within the central nervous system that is associated with a number of neurological diseases.
  • On October 7, 2005, we announced a private placement of US$40 million of senior convertible notes to several institutional investors. This transaction adds considerable strength to our financial position as we approach the release of results from both our phase III trials and continue with preparations for the commercialization of our Celacade technology. The notes, which were issued through our wholly owned Irish subsidiary, bear an annual interest rate of 6.45%, mature in two years, and may be extended to five years upon the occurrence of certain events. At our sole option and subject to certain conditions, we may repay the principal amount in any combination of cash or common shares, and we may, from time to time elect to accelerate the amortization payments. The notes are convertible at the investors’ option at any time into our common shares at a price of US$3.00. We believe that this financing structure provides us with the greatest flexibility on a going forward basis.

    • As previously announced, a conference call will be conducted on October 12, 2005, at 4:30 p.m. Eastern Time. The conference call may be accessed by calling 416-695-5259 or 1-877-461-2816 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 1-888-330-1960, pin code 6691, and will also be available at www.vasogen.com.

    About Vasogen:
    Vasogen is focused on the research and commercial development of technologies targeting the chronic inflammation underlying cardiovascular and neurological disease. The Company’s lead product, the Celacade™ technology, is currently in two pivotal phase III clinical trials designed to support regulatory approval in North America and commercialization in North America and Europe. The 550-patient pivotal phase III SIMPADICO trial, which is designed to further investigate the use of Celacade technology to improve intermittent claudication, a debilitating symptom associated with peripheral arterial disease, is being closed out at 50 centers in North America and is expected to report initial results in late 2005. The 2,400-patient pivotal phase III ACCLAIM trial, designed to further investigate the use of Celacade technology to reduce the risk of death and hospitalization in patients with advanced chronic heart failure, is fully enrolled and ongoing at 176 clinical centers in North America, Europe, and Israel. Vasogen is also developing a new class of drugs for the treatment of neuro-inflammatory disorders. VP025, which has completed phase I clinical development, is the lead product candidate from this new class of drugs.

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