GPC Biotech Reports Financial Results for Second Quarter and First Six Months of 2007
MARTINSRIED/MUNICH, Germany and PRINCETON, N.J., Aug. 8 -- GPC Biotech AG today reported financial results for the second quarter and first six months ended June 30, 2007.
First six months of 2007 compared to first six months of 2006
Revenues decreased 35% to euro 7.2 million for the six months ended June 30, 2007, compared to euro 11.0 million for the same period in 2006. The decrease in revenues is mainly due to lower development funding received under the co-development and license agreement with Pharmion for satraplatin in Europe and certain other territories, as well as the expiration of various research collaboration arrangements with ALTANA Pharma. Research and development (R&D) expenses decreased 2% to euro 28.6 million for the first six months of 2007 compared to euro 29.1 million for the same period in 2006. In the first six months of 2007, general and administrative (G&A) expenses increased 129% to euro 23.4 million compared to euro 10.2 million for the first six months of 2006. The increase in G&A expenses is primarily due to the formation of a sales and marketing organization for the U.S., as well as legal expenses related to litigation. The Company also reported restructuring charges of euro 0.9 million in the second quarter of 2007 primarily for employee severance and termination costs related to the closing of its Massachusetts facility. Those charges are included in R&D and G&A expenses. Net loss for the first six months of 2007 increased 52% to euro (42.8) million compared to euro (28.1) million for the first six months of 2006. Basic and diluted loss per share was euro (1.20) for the first six months of 2007 compared to euro (0.87) for the same period in 2006.
Quarter over quarter results: second quarter 2007 compared to first quarter 2007
Revenues for the second quarter of 2007 were euro 3.4 million compared to euro 3.8 million for the previous quarter. R&D expenses increased 19% to euro 15.5 million for the second quarter of 2007, compared to euro 13.0 million in the first quarter of 2007. G&A expenses for the second quarter of 2007 increased 13% to euro 12.4 million compared to euro 11.0 million for the previous quarter. The Company's net loss increased 23% to euro (23.7) million in the second quarter of 2007, compared to euro (19.2) million for the previous quarter. Basic and diluted loss per share was euro (0.66) for the second quarter of 2007 compared to euro (0.54) for the previous quarter.
Comparison to previous year: second quarter 2007 compared to second quarter 2006
Revenues for the three months ended June 30, 2007 decreased 39% to euro 3.4 million compared to euro 5.6 million for the same period in 2006. R&D expenses increased 7% for the second quarter of 2007 to euro 15.5 million compared to euro 14.5 million for the same period in 2006. G&A expenses for the second quarter of 2007 increased 114% to euro 12.4 million compared to euro 5.8 million for the same quarter in 2006. Net loss for the second quarter of 2007 increased 56% to euro (23.7) million compared to euro (15.2) million for the second quarter of 2006. Basic and diluted loss per share was euro (0.66) for the second quarter of 2007 compared to euro (0.46) for the same period in 2006.
As of June 30, 2007, cash, cash equivalents, marketable securities and short-term investments totaled euro 93.1 million (December 31, 2006: euro 97.1 million), including euro 1.5 million in restricted cash. Net cash burn for the first six months of 2007 was euro 42.0 million with net cash burn of euro 19.4 million in the first quarter and euro 22.6 million in the second quarter of 2007. Net cash burn is derived by adding net cash used in operating activities and purchases of property, equipment and licenses. The figures used to calculate net cash burn are contained in the Company's unaudited consolidated statements of cash flows for the six-month period ended June 30, 2007.
At June 30, 2007, the Company recorded a receivable in the amount of euro 7.4 million related to the signing of a license agreement with Yakult Honsha Co. Ltd. for satraplatin for Japan. This payment was received in July 2007.
In July 2007, the Company's partner Pharmion announced the acceptance for review by the European Medicines Agency (EMEA) of the Marketing Authorization Application (MAA) for satraplatin in combination with prednisone for the treatment of metastatic hormone-refractory prostate cancer patients whose prior chemotherapy has failed. As a result of this acceptance, GPC Biotech will receive a milestone payment of approximately euro 6.0 million ($8 million) from Pharmion. Also as a result of the acceptance for review of the MAA, GPC Biotech will pay to Spectrum Pharmaceuticals a total of approximately euro 2.4 million ($3.2 million), representing a direct milestone payment plus Spectrum's share of the $8 million milestone payment from Pharmion.
The Company also provided updated guidance for the remainder of 2007:
- Revenues for the full year 2007 expected to be in the range of euro 17
to 19 million.
- Immediate cost-cutting measures have been implemented that are expected
to result in approximately euro 10 million in savings through the end of
2007. Additional guidance on expenses is not being provided at this
time as the Company continues to evaluate various options.
- Year-end 2007 cash, cash equivalents and available-for-sale securities
position expected to be approximately euro 60 million.
"Despite the recent setback, we remain in a solid financial position and believe we have sufficient cash under current expectations to carry us through to a potential regulatory submission based on the overall survival analysis," said Mirko Scherer, Ph.D., Senior Vice President and Chief Financial Officer. "With our recent cost-cutting measures alone and anticipated revenues and expenses for the rest of the year, we expect to end 2007 with approximately euro 60 million in cash and equivalents."
"While we have been very disappointed by recent events that led to our withdrawal of the satraplatin NDA, we must move forward," said Bernd R. Seizinger, M.D., Ph.D., Chief Executive Officer. "We are first focused on overall survival results from the satraplatin SPARC trial. Based on that outcome, we plan to work closely with the FDA with the goal of submitting an NDA to the agency as quickly as possible."
Conference call scheduled
As previously announced, the Company has scheduled a conference call to which participants may listen via live webcast, accessible through the GPC Biotech Web site at www.gpc-biotech.com or via telephone. A replay will be available via the Web site following the live event. The call, which will be conducted in English, will be held on August 08, 2007 at 14:00 CET/8:00 AM ET. The dial-in numbers for the call are as follows:
European participants: 0049-(0)69-5007-1305 or 0044-(0)20-7806-1950
U.S. participants: 1-718-354-1385
About GPC Biotech
GPC Biotech AG is a publicly traded biopharmaceutical company focused on discovering, developing and commercializing new anticancer drugs. GPC Biotech's lead product candidate satraplatin is currently in a Phase 3 registrational trial in second-line hormone-refractory prostate cancer. Satraplatin was in-licensed from Spectrum Pharmaceuticals, Inc. GPC Biotech is also developing a monoclonal antibody with a novel mechanism-of-action against a variety of lymphoid tumors, currently in Phase 1 clinical development, and has ongoing drug development and discovery programs that leverage its expertise in kinase inhibitors. GPC Biotech AG is headquartered in Martinsried/Munich (Germany) and has a wholly owned U.S. subsidiary headquartered in Princeton, New Jersey. For additional information, please visit GPC Biotech's Web site at www.gpc-biotech.com.
This press release contains forward-looking statements, which express the current beliefs and expectations of the management of GPC Biotech AG. Such statements are based on current expectations and are subject to risks and uncertainties, many of which are beyond our control, that could cause future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Actual results could differ materially depending on a number of factors, and we caution investors not to place undue reliance on the forward- looking statements contained in this press release. In particular, there can be no guarantee that the results from the final analysis of overall survival data from the SPARC trial will be available when anticipated or sufficient to support regulatory approval in the United States or elsewhere. In addition, there can be no guarantee that additional information relating to the safety, efficacy or tolerability of satraplatin will not be obtained upon further analysis of data from the SPARC trial or analysis of additional data from other ongoing clinical trials for satraplatin. Furthermore, we cannot guarantee that satraplatin will be approved for marketing in a timely manner, if at all, by regulatory authorities nor that, if marketed, satraplatin will be a successful commercial product. We direct you to GPC Biotech's Annual Report on Form 20-F for the fiscal year ended December 31, 2006 and other reports filed with the U.S. Securities and Exchange Commission for additional details on the important factors that may affect the future results, performance and achievements of GPC Biotech. Forward-looking statements speak only as of the date on which they are made and GPC Biotech undertakes no obligation to update these forward-looking statements, even if new information becomes available in the future.
Satraplatin has not yet been approved by the FDA in the U.S., the EMEA in Europe or any other regulatory authority and no conclusions can or should be drawn regarding its safety or effectiveness. Only the relevant regulatory authorities can determine whether satraplatin is safe and effective for the use(s) being investigated.
GPC Biotech AG
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of GPC Biotech AG (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"), applicable to interim financial reporting, specifically Accounting Principles Board Opinion No. 28 "Interim Financial Reporting". These unaudited condensed consolidated financial statements do not include all information and disclosures required for a complete set of financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month and six-month periods ended June 30, 2007, are not necessarily indicative of results to be expected for the full year ending December 31, 2007. The balance sheet at December 31, 2006 has been derived from the audited consolidated financial statements at that date, but does not include all of the information required by U.S. GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2006.
2. New Accounting Pronouncements
As of January 1, 2007, GPC Biotech adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" (FIN 48). The Company has certain deferred tax assets as a result of several years of losses from operations. Management determined that it was not probable that sufficient future taxable income would be available to realize those deferred tax assets. Therefore, management recognized a full valuation allowance for those deferred tax assets.
The Company's policy is to accrue interest and penalties on the tax obligations and classify them as current or noncurrent depending on when the amount is anticipated to be paid. Currently, the Company does not take any other tax positions nor has any interest or penalties.
On June 14, 2007, the Financial Accounting Standards Board ("FASB") ratified EITF 07-3, "Accounting for Non-Refundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities". EITF 07-3 requires that all non-refundable advance payments for R&D activities that will be used in future periods be capitalized until used. In addition, the deferred research and development costs need to be assessed for recoverability. EITF 07-3 is applicable for fiscal years beginning after December 15, 2007 and is to be applied prospectively without the option of early application. The Company will evaluate the impact, if any, of EITF 07-3 on its financial statements.
3. Related Party Disclosures
ALTANA Pharma AG ("ALTANA Pharma") is no longer a related party to the Company because the board membership of Dr. Bernd Seizinger at ALTANA Pharma ended December 31, 2006. Therefore, transactions consummated with ALTANA Pharma from and after January 1, 2007, are no longer classified as transactions with a related party.
4. Commitments and Contingencies
Contingent Commitments and Contingent Losses
From time to time, the Company may be party to certain legal proceedings and claims which arise during the ordinary course of business. The Company also has other contingencies relating to potential milestone payments. Legal proceedings and contingent commitments are subject to various uncertainties and the outcomes are difficult to predict. GPC Biotech may incur significant expense in defending these or future legal proceedings and in fulfilling these contingencies, however, in the opinion of management, the ultimate outcome of these matters will not have material adverse effects on the Company's financial position, results of operations or cash flows. In accordance with SFAS No. 5, "Accounting for Contingencies", the Company makes a provision for a liability when it is both probable that a liability has been incurred at the date of the financial statements and when the amount of the loss is reasonably estimable. With respect to a number of the items listed below, management has determined that a loss is not probable or the amount of the loss is not reasonably estimable, or both.
On December 12, 2006, the Company was notified by Spectrum Pharmaceuticals Inc. ("Spectrum"), that Spectrum had initiated an arbitration proceeding with the American Arbitration Association ("AAA") in the United States to resolve a dispute between the companies under the co-development and license agreement for satraplatin. In the course of the arbitration proceedings, Spectrum has made several claims of breach of contract, including (1) an assertion that it is entitled to a payment from GPC Biotech of approximately euro 9.0 million relating to payments received by GPC Biotech under the co-development and license agreement between GPC Biotech and Pharmion GmbH entered on December 19, 2005, (2) a claim that GPC Biotech has not used commercially reasonable efforts to obtain regulatory approval and to promote the distribution of satraplatin in Japan, and (3) a claim that GPC Biotech has not negotiated with Spectrum in good faith regarding the co-promotion of satraplatin in the United States. Spectrum is also seeking a declaration that GPC Biotech's alleged breaches of contract provide a basis for termination of the co-development and license agreement. The Company believes that Spectrum's claims have no merit and is therefore contesting such claims vigorously. Management assessed the prospect of an unfavorable outcome of this arbitration as less than probable. The hearing was completed on July 13, 2007 and closing arguments are scheduled for the end of August 2007. The Company cannot predict when the arbitration panel will issue its ruling on the dispute.
Fees which the Company pays to its external legal advisors and for other services associated with this arbitration process are expensed in the period when such legal and other services are rendered.
Marketing Approval of Satraplatin in the U.S. and Europe
Upon receiving marketing approval for satraplatin in the U.S. and/or Europe, the Company is required to make the following payments:
* Under the Company's agreement with a third party, GPC Biotech is
obligated to make milestone payments for each of these approvals in a
total amount of approximately euro 6.7 million.
* The Company has a cash bonus plan to retain the Company's employees in
which the total payout may lead to an increase in personnel expenses of
up to euro 1.8 million.
* The Company issued stock appreciation rights (SARs) to senior
management, the members of the Supervisory Board, and certain employees.
These SARs would entitle the holder to cash payments if the performance
condition has been met.
Acceptance of NDA Filing
On April 16, 2007, the U.S Federal Drug Administration (FDA) accepted the Company's filing of the New Drug Application (NDA) for satraplatin for patients with hormone-refectory prostate cancer (HRPC) whose prior chemotherapy has failed. In connection with this acceptance, the Company was required to pay approximately euro 2.9 million to a third party. This payment was made in May 2007, however, charged to research and development expense in 2006 when the occurrence of this event was deemed probable.
Development and Supply Agreement
GPC Biotech is the owner and licensee of certain technology and patent rights regarding the monoclonal antibody known as 1D09C3. In March 2007, GPC Biotech entered into a development and supply agreement with a biologics supplier under which the biologics supplier agreed to: (1) develop a high- productivity cell line and develop and scale-up a robust manufacturing process and (2) produce quantities of 1D09C3 bulk drug substance for clinical development and commercial supply. Pursuant to the agreement, GPC Biotech is required to make certain payments over a period of 7 (seven) years. These payments will be charged to research and development expenses as services are rendered
The Company is entitled to receive a milestone payment of approximately euro 6.0 million upon the acceptance for filing of the first Marketing Authorization Application (MAA) with the European Medicines Agency (EMEA). On July 25th, 2007, Pharmion GmbH announced the EMEA had accepted for filing the MAA for satraplatin (please refer to Note 10 "Subsequent Events" for further details). The Company is also entitled to receive a net milestone payment of approximately euro 12.3 million upon the approval of the first MAA with EMEA. These contingent gains will be recognized as revenue when the milestones are achieved.
5. Loss per Share
Basic loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using the weighted average number of common and dilutive common equivalent shares from stock options and convertible debt using the treasury stock method. For all periods presented, diluted net loss per share is the same as basic net loss per share, as the inclusion of weighted average shares of common stock issuable upon the exercise of stock options and convertible debt would be antidilutive.
6. Comprehensive Loss
Comprehensive loss was euro 42.8 million and euro 27.7 million for the six months ended June 30, 2007 and 2006, respectively. Comprehensive loss is composed of net loss, unrealized gains and losses on marketable securities and short-term investments and cumulative foreign currency translation adjustments. Accumulated other comprehensive loss at June 30, 2007 and 2006 reflected euro 0.6 million and euro 0.3 million of unrealized gains on marketable securities and short-term investments and euro 2.8 million and euro 2.0 million of cumulative foreign currency translation loss adjustments, respectively.
7. Shareholders' Equity
On January 24, 2007, the Company issued 1,564,587 new ordinary shares at euro 21.50 per share for a total net amount of euro 32.6 million through a private placement. GPC Biotech received the proceeds from the placement after registration of the corresponding capital increase in the German commercial register in February 2007.
At June 30, 2007, members of the Management Board and employees of the Company had subscribed to 219,000 ordinary shares with a total value of euro 1.5 million, which has been included in shareholders' equity. The subscribed shares represent amounts paid for exercises of stock options for which ordinary shares have not been issued at June 30, 2007. The ordinary shares are expected to be registered and issued by September 30, 2007.
During the six months ended June 30, 2007, members of the Management Board and employees of the Company exercised some of their fully vested stock options and convertible bonds, receiving 793,022 new ordinary shares of the Company.
8. Additional Disclosures
Revenues decreased 35% to euro 7.2 million for the first half of 2007, compared to euro 11.0 million for the first half of 2006. The decrease in revenues is mainly due to (1) lower development funding received under the co- development and license agreement with Pharmion for satraplatin in Europe and other certain territories; and (2) the expiration of various research collaboration arrangements with ALTANA Pharma.
General and Administrative Expenses
General and administrative (G&A) expenses for the six months ended June 30, 2007 increased 130% to euro 23.4 million compared to euro 10.2 million for the same period in 2006. The increase in G&A expenses is primarily due to the formation of a sales and marketing organization in preparation of the potential product launch of satraplatin as well as legal expenses.
Share-based compensation cost of euro 5.8 million and euro 3.2 million for the six months ended June 30, 2007 and 2006, respectively, was incurred. This increase is the result of additional stock option and convertible bond grants combined with the recognition of certain stock appreciation rights (SARs).
Product Candidate Licensing Activities
On June 25, 2007 the Company entered into a license agreement with Yakult Honsha Co. Ltd. ("Yakult") for satraplatin in Japan. Under the terms of the agreement, Yakult gains exclusive commercialization rights to satraplatin for Japan and will take the lead in developing the drug in Japan. Under the agreement, Yakult was required to make an upfront payment of yen 1.2 billion (euro 7.4 million) to the Company as reimbursement for past satraplatin development expenses. Yakult is also obligated to make additional payments to the Company based on the achievement of certain regulatory filing and approval milestones. In addition, the Company will receive a minimum of 21.1% royalties on net sales of satraplatin in Japan.
At June 30, 2007, GPC Biotech AG had recorded a receivable in the amount of euro 7.4 million and payment was received in July, 2007. Revenue will be deferred and recognized over the period of current product development plan beginning July 2007.
Costs Associated with Exit Activities
On May 3, 2007, the Company announced the consolidation of its drug discovery efforts to one location, resulting in the closing of the facility in Waltham, Massachusetts, USA along with a total workforce reduction of approximately 16%. The Company has accounted for this restructuring in accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activitites" (FAS 146). Under FAS 146, the Company incurred a restructuring charge of euro 0.9 million in the second quarter primarily relating to employee severance and termination costs. Prior to the announcement of the reorganization, the Company had a remaining sublease loss liability relating to the Waltham facility totaling euro 4.0 million which was charged to expense in prior years in accordance with FAS 146. Because this liability was deemed adequate to cover all contract termination costs and professional fees associated with this restructuring, no additional amount was charged to expense in the second quarter. The Company expects to complete the reorganization by December 31, 2007, incurring a total charge of approximately euro 1.0 million in the current year. These charges are included in both Research and Development and General and Administrative expenses at June 30, 2007.
10. Subsequent Events
Acceptance of MAA by EMEA
In July 2007, the EMEA accepted Pharmion's filing of the MAA for satraplatin in combination with prednisone for the treatment of patients with metastatic hormone refractory prostate cancer (HRPC) whose prior chemotherapy has failed. As a result of the MAA acceptance by the EMEA, GPC Biotech will receive a euro 6.0 million milestone payment from Pharmion. Also, under the terms of GPC Biotech's agreement with Spectrum, the acceptance of the MAA by the EMEA will also trigger payments by GPC Biotech to Spectrum in a total amount of approximately euro 2.4 million, representing a direct milestone payment plus Spectrum's portion of the euro 6.0 million milestone payment from Pharmion.
Satraplatin NDA Application
On July 30, 2007, the Company announced that it had withdrawn the satraplatin capsules New Drug Application (NDA) filed for accelerated approval for the treatment of hormone-refractory prostate cancer patients whose prior chemotherapy has failed. The Company based its decision on the vote by the Oncologic Drugs Advisory Committee (ODAC) to the U.S. Food and Drug Administration (FDA) on July 24, 2007 that the FDA should wait for the final survival analysis of the SPARC trial before deciding whether satraplatin is approvable.
On July 27, 2007, the Company announced that it had been sued in the United States District Court for the Southern District of New York, purportedly in a class action lawsuit on behalf of all persons who purchased or acquired securities of GPC Biotech between December 5, 2005 and July 24, 2007 inclusive. The suit also named the Company's CEO and two other senior executives of the Company personally. The complaint, which to date has not been officially served on the Company, alleges that GPC Biotech violated U.S. federal securities laws by making materially false public statements relating to satraplatin, and thereby artificially inflating the price of GPC Biotech securities.
GPC Biotech believes the allegations in the complaint to be without merit and intends to vigorously defend them. Management assessed the prospect of an unfavorable outcome of this suit as less than probable.