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Cortendo Reports Results and Activities for the Fourth Quarter and Full Year 2014Cortendo AB: Highlights - Q4 2014 and Post Period
About Cortendo Cortendo AB is a global biopharmaceutical company focused on developing solutions for orphan/rare diseases, with an initial focus on endocrinology. The lead drug candidate, COR-003, is in Phase 3 development for Cushing's syndrome. Cortendo's wholly-owned subsidiary BioPancreate Inc. is developing an innovative diabetes type 1 and 2 therapy based on genetically modified probiotic lactobacillus bacteria. Cortendo's business model is to independently commercialize orphan endocrinology products in key markets and to partner non-strategic product opportunities, such as BioPancreate's diabetes product, at relevant development stages. OPERATIONAL REVIEW Pipeline development About COR-003 (levoketoconazole) COR-003 is in Phase 3 development for an orphan endocrinology disease, Cushing's syndrome. COR-003 has received orphan drug designation from the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA). The product is an immediate release formulation for oral application of levoketoconazole, a single enantiomer of racemic ketoconazole with more potent cortisol inhibition. During 2014, Cortendo initiated the SONICS trial. Historically, COR-003 has been dosed in 160 subjects during Phase 1 and Phase 2 trials for type 2 diabetes and metabolic syndrome. There are approximately 60,000 patients with Cushing's syndrome in the U.S. and Europe, of which approximately one third may be eligible for pharmaceutical therapy. COR-003 - orphan drug for Cushing's syndrome Cortendo has continued the implementation of the Phase 3 SONICS trial. By the end of February, the company had activated 27 trial sites in ten countries. Cortendo announced in August the first patient enrolled into the study. The company is continuing to make progress on screening and enrolling patients, as more sites are being activated. As of Feb. 28, 2015, ten patients had been dosed with COR-003. Cortendo expects that the last patient visit will occur during the first half of 2017 and that potential regulatory submissions for marketing authorizations may be filed during the second half of 2017. BioPancreate - biological therapeutic for type 1 and 2 diabetes utilizing genetically modified probiotic bacteria About BioPancreate Inc. and its technology and diabetes product BioPancreate Inc. is a wholly-owned U.S. subsidiary of Cortendo AB. It is developing a novel, orally administered biological therapeutic utilizing modified probiotic bacteria. BioPancreate's product candidates for diabetes are genetically modified probiotic bacteria that exist in the human gastrointestinal tract. The BioPancreate drug candidates deliver a human biological peptide directly into the gastrointestinal tract, triggering the transformation of intestinal enteroendocrine cells into glucose-responsive insulin secreting cells. These effects have been demonstrated in various preclinical diabetes models to date, and the data were published in the scientific journal Diabetes in February 2015. The lead compound is currently in preclinical development. BioPancreate Inc.'s next major milestone is to complete the preclinical development phase and file a U.S. investigational new drug (IND) application during the first half of 2016. If accepted, this would allow the company to initiate Phase 1 clinical development for its novel diabetes biologic. On January 28, Cortendo announced that the journal Diabetes published a scientific paper reporting on a pre-clinical study that details the glucose-lowering effect of BP-2001, an orally administered genetically modified probiotic being studied for the treatment of type 1 and type 2 diabetes. The paper entitled, "Engineered Commensal Bacteria Reprogram Intestinal Cells Into Glucose-Responsive Insulin-Secreting Cells for the Treatment of Diabetes", was published online ahead of print in Diabetes, the peer-reviewed scientific journal of the American Diabetes Association. The lead author of the paper is John C. March, PhD, an associate professor in the Department of Biological and Environmental Engineering at Cornell University in Ithaca, New York. Business strategy - focus on late stage development and commercial products Cortendo has decided to focus its management and financial resources on late stage development and commercial products. Cortendo is focusing its business development efforts on finding such assets. The next-generation cortisol inhibitor project has been put on hold and no more investments will be made for the foreseeable future. Key news releases in the fourth quarter 2014 and post period Financing and listing process In December, Cortendo announced that it had completed a financing with HealthCap, the Third Swedish National Pension Fund, Storebrand and Arctic Fund Management for a private placement of 19,315,000 million shares of Cortendo resulting in gross proceeds of approximately SEK 81.5 million, equivalent to $11 million. On February 11, Cortendo announced that it had completed a financing with leading U.S. institutional specialist healthcare investors RA Capital Management, New Enterprise Associates (NEA) and Broadfin Capital, as well as HealthCap, a leading European venture capital healthcare investor, totaling approximately SEK 221 million or $26.4 million. Thus, the company raised a total of approximately SEK 302 million or $37 million in Q4 2014 and Q1 2015. After the private placements, the total number of shares in the company amounts to 159,080,722. These investments provide Cortendo with more capital and a shareholder base that will improve the prospects for the company's U.S. financing and listing plans, as well as a widened access to resources, which will be important for the advancement of corporate goals and the development of its pipeline. Dr. Ruth Thieroff-Ekerdt - new Chief Medical Officer On November 19, Cortendo announced the appointment of Dr. Ruth Thieroff-Ekerdt as Chief Medical Officer. Dr. Thieroff-Ekerdt brings more than 25 years experience across diverse therapeutic areas and orphan diseases in all aspects of drug discovery, development and regulatory approval. She is overseeing Cortendo's Phase 3 SONICS trial for COR-003 (levoketoconazole) in Cushing's syndrome and all other Cortendo R&D programs. Most recently, Dr. Thieroff-Ekerdt was Chief Medical Officer at Aptalis Pharmaceuticals, which was acquired in February 2014 by Forest Laboratories for $2.9 billion. Dr. Thieroff-Ekerdt received her M.D. as well as a Dr. med degree from the Free University Berlin in Germany. She has pursued additional specialization in pharmacology and toxicology, including training in clinical pharmacology. Nomination committee proposed John H. Johnson as Chairman and Richard Kollender as director of the Board On February 27, Cortendo announced changes to the Company's board of directors proposed by the company's nomination committee. John H. Johnson has been nominated to serve as chairman and Richard Kollender to serve as a director. Both nominations are subject to approval by the Extraordinary General Meeting of Shareholders in Cortendo, scheduled to be held on March 17, 2015. FINANCIAL REVIEW Cortendo's products are in the research and development phase, and Cortendo does not currently have any product-based revenues. The following text references the financial statements of the Group in the reporting currency SEK beginning on page 7. This report has not been audited by the Company's auditors. In addition, a convenience translation of the Group statement of comprehensive income and balance sheet into U.S. dollars has been provided in appendix 1, which is shown on page 18. This translation has not been performed in accordance with IFRS. The company has changed its accounting for issuing costs. Such costs have in this report been deducted from Other capital contribution and do not affect the P&L statement. Consequently the loss for 2013 is now lower than reported in the annual report of 2013, amounting to SEK 5.1 million. The Other capital contribution as of 2012 is SEK 2.4 million lower than presented in the annual report 2013. Results for the fourth quarter and full year 2014 Other operating income reflect grants and amounted to zero for the Q4 and full year 2014, compared to SEK 0.04 million and SEK 1.2 million for the same periods in 2013. Operating expenses for Q4 2014 amounted to SEK 36.1 million and SEK 75.1 million for the full year 2014, compared to SEK 11.1 million and SEK 26.3 for the same periods in 2013. The increase in operating costs reflect the increased R&D and other activities, as well as the build-up of the internal organization. The strong U.S. dollar compared to the reporting currency SEK has also contributed significantly to the development of the operating costs. The U.S. dollar exposure has been hedged to a significant degree, reflected in the financial net. For Q4 2014, R&D costs (which include patent costs) amounted to SEK 16.3 million and SEK 43.3 million for the full year 2014. For Q4 and the full year of 2013, R&D costs amounted to SEK 5.3 million and SEK 16.8 million, respectively. The R&D cost increase compared to the previous year periods is due to the increased activity of the Phase 3 COR-003 SONICS trial, including related activities such as manufacturing of drug product, and higher expenses for BioPancreate due to increased activities related to manufacturing of drug substance and pre-clinical development. It is also due to increases in the number of R&D personnel and the strong U.S. dollar development, as mentioned above. For Q4 2014, G&A costs were SEK 19.8 million and SEK 31.7 million for the full year 2014. G&A costs for the same periods in 2013 constituted SEK 5.9 million and SEK 10.7 million respectively. The increase compared to the previous year is due to increased overall activity including market analysis, communications and investor relations efforts, as well as increased personnel and legal costs. Net financial items for Q4 2014 were SEK 4.6 million, compared to SEK 1.1 million for Q4 2013. Net financial items for the full year 2014 were SEK 13.4 million, compared to SEK -1.7 million for full year 2013. Interest on liquid assets, and in particular positive currency effects from the strength in the U.S. dollar, on U.S. dollar deposits and the forward contracts held by the company for the purpose of hedging U.S. dollar based costs, led to the positive financial net. The net loss was SEK 29.0 million for the Q4 2014 and SEK 59.1 million for the full year 2014, compared to SEK 9.7 million and SEK 27.7 million for the same periods in 2013. Earnings per share were SEK -0.30 for the Q4 2014 and SEK -0.58 for the full year 2014, compared to SEK -0.11 and SEK -0.42 for the same periods in 2013. Cash flow Cash flow from operations was SEK -21.4 million for the Q4 2014 and SEK -50.7 million for the full year 2014, compared to SEK -5.6 million and SEK -24.8 million for the same periods in 2013. Cash position and balance sheet At 31 December 2014, cash and cash equivalents amounted to SEK 122.1 million ($ 15.6 million) compared to SEK 97.1 million at 31 December 2013. By the end of the year, Cortendo had outstanding USD-based hedging contracts covering NOK 14.0 million (SEK 14.7 million), and in addition held cash in U.S. dollars corresponding to SEK 28.2 million). Equity stood at SEK 153.3 million at 31 December 2014, up from SEK 127.7 million at the end of 2013, reflecting the share issue in Q4 2014 as well as the negative cash flow from operations. Total liabilities amounted to SEK 18.4 million at 31 December 2014, compared to SEK 6.3 million at the same time last year, primarily reflecting an increase in accounts payable. Shareholder information Cortendo AB is currently listed on the NOTC-A-list (OTC) in Norway and has more than 500 shareholders mainly from Norway, Sweden and the U.S. The total number of shares outstanding per 31 December 2014 was 106,708,863 with a total number of outstanding share options of 10,736,000. Strike prices vary from SEK 1.00-11.33 per share, with an average of SEK 5.74 per share. Financial calendar Cortendo plans to present its Q1 financial results according the following schedule: Q1 2015: 27 May 2015 Risk and uncertainty The development of pharmaceuticals carries significant risk. Failure may occur at any stage during development and commercialization due to safety or clinical efficacy issues. Delays may occur due to requirements from regulatory authorities, difficulties in recruiting patients into clinical trials due to physician or patient preferences or competing products, not anticipated by the company. There is no assurance that Cortendo will receive marketing and regulatory approvals necessary to commercialize or produce COR-003 (levoketoconazole) or other products. Regulatory approvals may be denied, delayed, limited or revoked. The commercial success of COR-003 (levoketoconazole), if approved in a territory, cannot be predicted with certainty. In addition, Cortendo may face the risk of interrupted supply of COR-003 for clinical or commercial use from the subcontractors Cortendo has contracted. About Cortendo Cortendo AB is a global biopharmaceutical company incorporated in Sweden and based in the United States. The Company's strategic focus is to be the global leader in commercializing innovative medicines for orphan endocrine disorders. Cortendo is leading the way in the field of cortisol inhibition through the investigational drug, COR-003 (levoketoconazole) currently being studied in the Phase 3 global SONICS trial for the treatment of Cushing's syndrome. The company's intent is to independently commercialize its orphan/endocrine assets in key global markets, and partner non-strategic product opportunities, such as diabetes, at relevant development stages. Cortendo's lead drug candidate, is being evaluated in a global Phase 3 trial for treatment of Cushing's syndrome. COR-003 (levoketoconazole) has received orphan designation from both the European Medicines Agency (EMA) and the U.S. Food and Drug Administration (FDA). Cortendo Forward-looking Statements This press release contains forward-looking statements concerning Cortendo that involve a number of risks and uncertainties. All statements other than statements of historical facts included in this press release, including, without limitation, statements regarding the Company's future financial position, strategy, anticipated investments, costs and results, plans, projects to enhance efficiency, outcomes of products development, future capital expenditures, liquidity requirements and objectives of management for future operations, may be deemed to be forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements or industry results to be materially different from those contemplated, projected, forecasted, estimated or budgeted, whether expressed or implied, by these forward-looking statements. Given these risks and uncertainties, investors should not place any undue reliance on forward-looking statements as a prediction of actual results. None of these forward-looking statements constitutes a guarantee of the future occurrence of such facts and data or of actual results. These statements are based on data, assumptions and estimates that the Company believes are reasonable. The forward-looking statements contained in this document are made only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates of any forward-looking statements contained in this press release to reflect any change in its actual results, assumptions, expectations or any change in events, factors, conditions or circumstances on which any forward-looking statement contained in this press release is based. Condensed Financial Statements
Financial notes Note 1 - Accounting and valuation principles and other information Important accounting principles The unaudited interim report was prepared pursuant to IAS 34 Interim Financial Reporting, the Swedish Annual Accounts Act, and RFR 1 Supplementary Accounting Regulations for Groups. As with the 2013 annual accounts, the consolidated accounts were prepared in accordance with International Financial Reporting Standard (IFRS) as adopted by the EU and the Swedish Annual Accounts Act. The financial statements of the Parent Company were prepared in accordance with the Swedish Annual Accounts Act and the Swedish Financial Reporting Board's RFR 2 Accounting for Legal Entities. Accounting principles applied, except for the changes listed below, are in accordance with those described in the 2013 Annual Report. The Cortendo Group consists of the parent company Cortendo AB (publ) and its wholly-owned subsidiaries Cortendo Invest AB and BioPancreate Inc. More detailed information about the Group's accounting and valuation principles can be found in the 2013 Annual Report. Change in accounting principles There are no new accounting principles applicable from 2014 that significantly affects the Cortendo Group. Cortendo Group has adopted IFRS 10, 11 and 12, and IFRS 21 from January 1, 2014. Cortendo has in accordance with IAS 8 made a correction of error as stated in note 8. Note 2 - Fair values of financial instruments The Group carries derivatives. Refer to the annual report 2013 for a narrative description of the purpose of the holdings. The derivatives (under the heading "current liabilities") are all level 2 instruments in the fair value hierarchy in the standard IFRS 13 (inputs other than quoted prices that are observable for the instruments, either directly or indirectly, are used in the fair value measurement). At 31 December 2014 the calculated Market Values indicates NOK 2,803,804 in favor of Cortendo AB (publ). Note 3 - Transactions with Related Parties The parent company and its subsidiaries are considered to be related parties. As related parties are also considered board members, management and their immediate family members. Management refers to those persons that together with the CEO are part of the executive leadership group. In Cortendo this consists of CEO, CFO, CMO and CBO. All of executive management are employees of the company as of October 1, 2014. Intra company procurement and sales No intra company sales has occurred. Intra company interest has been charged during the period. Loans between companies in the group Intracompany borrowings only exist as clearing accounts. Procurement of services For the period before October 1, 2014, some managers were engaged in their respective leadership roles through consultant agreements. The services were procured on normal commercial terms and were invoiced after services had been performed. Remuneration to the board and management From time to time the annual meeting has resolved to issue shares or options to key personnel in the company. These key persons have either been employed or not employed, or consultants. The calculated actual value of such options has been presented in the results and balance sheet statements. The company has during the Q4 2014, entered into a contract with the CBO, CMO and another non-executive employee that could lead to a maximum issuance of 2,390,000 shares with an average strike price of SEK 8.63. Note 4 - Shares
Note 5 - Share based incentive programs The Company has issued individual option programs for employees and consultants with assignments within the management of the company. The options have primarily been subscribed for without a premium payment and with a strike price that varies between the option programs, chiefly due to the timing of the individual option program.
Note 6 - First time adoption of IFRS The Annual Report 2013 was the first report in accordance with International Financial Reporting Standard (IFRS) as adopted by the EU. The effects of the transition on the Income Statement and Balance sheet were relatively small and limited to share based incentive programs and revaluation of financial instruments. For more detailed information please see the Annual Report that is available on Cortendo's website www.cortendo.com. Note 7 - Interim Reports The Company has, as stated in note 6, from the annual report 2013 changed the reporting from Swedish GAAP to IFRS and also changed the reporting regarding the structure of the income statement, and will from now on report entirely on the basis of cost function. Previously, the Company reported currency gains and losses within the Other Operating Income and Other Operating Expense lines respectively. Such items will hereinafter be reported within Financial Income and Financial Expenses respectively. For comparison, the income statements and the balance sheets for 2013 have been adjusted to reflect the principles affecting the 2014 report. Note 8 - Restatement of Financial Statements The Company has revised its view on when a controlling interest was achieved in respect of the acquisition of shares in the subsidiary BioPancreate Inc. Following the acquisition of 36,250 shares in December 2012 Cortendo's shareholding amounted to 48.6%. The assessment is that Cortendo AB, even though the holdings are below 50%, de facto had control of BioPancreate Inc. from December 2012 due to existing put and call options. Previously the subsidiary was consolidated in November 2013, but in the context of the new approach, the subsidiary should be consolidated as of December 2012. This has been treated as a correction of error and therefore in accordance with IAS 8, a restatement of 2012 has been made with subsequent adjustments in 2013. Income statement and the Statement of Financial Position have been affected for the years 2012 and 2013. Cash flow and liquidity has not been affected. When Cortendo gained control of BioPancreate in December 2012, the shares, formerly treated as shares in associates, were revalued at fair value over the Income Statement resulting in a gain of SEK 3.06 million. The consideration for the shares in BioPancreate consisted of a new share issue in Cortendo AB of 6,105,200 shares at SEK 2.90 and the additional shares under the put and call option exercised in 2013 and 2014 of in total 3,755,500 shares at SEK 2.90. Fair value of the consideration amounted to SEK 35.7 million. The purchase price was allocated to patents and capitalized R&D to a total amount of SEK 34.3 million, goodwill of SEK 13.9 million, deferred tax liability of SEK 13.9 million and other net assets, SEK 1.3 million. The obligation was to deliver a fixed number of own equity instruments for a fixed number of Cortendo instruments. It was not a financial liability, and consequently, the put/call option is reflected within equity as part of accounting for the business combination as an obligation to issue shares. The company has changed its accounting for issuing costs. Such costs have in this report been deducted from Other capital contribution and do not affect the P&L statement. Consequently the loss for 2013 is now lower than reported in the annual report of 2013, amounting to SEK 5.1 million. The Other capital contribution as of 2012 is SEK 2.4 million lower than presented in the annual report 2013. Results and balance sheet items are translated according to the following table:
*The statement of comprehensive income in SEK has been translated into USD via the FX rates for the corresponding period.
*The balance sheet in SEK has been translated into USD via the FX rates for the corresponding period.
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