MESSAGE TO SHAREHOLDERS
Dear Shareholders,
This has been a landmark quarter in AEterna's ten-year history at the
scientific, clinical and corporate levels. Recent research data and clinical
results along with the signing of our first strategic alliances with
pharmaceutical companies on the European market, have brought us another step
closer to our ultimate goal which is to be among the first in the world to bring
an angiogenesis inhibitor to market. Datamonitor, an independent market analysis
company, recently ranked AEterna as the frontrunner in this new therapeutic
class.
OVERVIEW OF FIRST QUARTER ACTIVITIES
NEOVASTAT'S DEMONSTRATED EFFICACY IN PHASE I/II CLINICAL TRIAL
Clinical data from a Phase I/II clinical trial demonstrated a
statistically significant two-fold increase (p < 0.01) in median
survival time for metastatic renal cell carcinoma (kidney cancer)
patients refractory to standard treatments and who were administered a
higher dose of its lead product, Neovastat. The median survival time of
patients treated with a dose of 30mL twice a day was 7.1 months,
compared to 16.3 months for patients who had received a dose of 120mL
twice a day while expected survival time for a patient with metastatic
renal cell carcinoma who does not respond to standard treatments, is
approximately 8 months. These results were presented at the recent 92nd
Annual Meeting of the American Association for Cancer Research (AACR),
held in New Orleans.
NEOVASTAT: TWO ADDITIONAL MECHANISMS OF ACTION
Other new research results presented at the AACR meeting demonstrated a
third mechanism of action of Neovastat which induces apoptosis
(programmed cell death) of endothelial cells. New data evidencing a
fourth mechanism of action was presented at the American Society of
Clinical Oncology (ASCO) Annual Meeting in San Francisco, showing that
Neovastat is able to increase the level of angiostatin in mice with
implanted human glioblastoma, a form of brain cancer. These results
confirm Neovastat's position as a unique product with multiple
mechanisms of action.
NEOVASTAT'S STRENGTHENED INTELLECTUAL PROPERTY
The United States Patent and Trademark Office granted AEterna another
key patent that covers a new process allowing the isolation of
bioactive components from cartilage, thus broadening the protection and
exclusivity of Neovastat. To this day, AEterna has filed 8 patents of
which 5 have already been granted.
EUROPEAN STRATEGIC ALLIANCES
AEterna signed its first two strategic alliances which cover 85% of the
European market with Grupo Ferrer Internacional, S.A., from Spain, and
Medac GmbH from Hamburg, the German oncology business unit of the
multinational Schering AG. These two agreements account for more than
30% of the worldwide pharmaceutical market. Under the terms of these
agreements, AEterna will secure the production of Neovastat and will
receive double digit royalties on total net sales. Milestone payments
to AEterna of more than $CAN 35 million are also included in these two
deals.
FOCUS ON ONCOLOGY AND NEW BOARD MEMBERS
AEterna appointed new members to its Scientific Advisory Board:
oncologists Dr. Janice Dutcher, MD and Dr. Kenneth C. Anderson, MD,
both from the United States, and Dr. Francois Berger, MD, PhD, from
France.
Furthermore, Ms. Stormy Byorum from the United States and Mr. Pierre
MacDonald were appointed to AEterna's Board of Directors, while Mr.
Pierre Laurin was named Chairman of the Board of its subsidiary, Atrium
Biotechnologies Inc. The Company also announced the appointment of Mr.
Gilles Gagnon as AEterna's new Vice President and Chief Operating
Officer.
FINANCIAL RESULTS
Sales of Atrium Biotechnologies Inc. were up to 37.3% during this first quarter,
reaching $2.8 million compared to $2 million for the same period last year. This
gain is mainly due to increased sales in the United States and in Asia as well
as revenues generated by the acquisition of a line of nutritional supplement
products in the United States last October.
AEterna increased R&D investments to $7.2 million in comparison to $CAN 5.5
million during the same quarter of 2000. This increase is part of the strategic
development of Neovastat through current pivotal Phase III clinical trials in
lung and kidney cancers and the current pivotal Phase II trial in multiple
myeloma, a form of blood cancer.
During the first quarter, the Company registered a net loss of $CAN 3.2 million,
or $0.11 per share, compared to a net loss of $CAN 2.2 million or $0.08 per
share for the quarter ended March 31, 2000. Major investments in the ongoing
late-stage clinical development program account for most of the net loss
increase.
AEterna maintains a solid financial position with more than $CAN 62.2 million in
cash and short-term investments as of March 31, 2001. The Company also has
access to an additional $CAN 17 million through the Technology Partnerships
Canada program.
OUTLOOK
Our sound financial position enables us to have access to sufficient funds to
complete our key pivotal clinical studies in kidney cancer and multiple myeloma
by the end of 2002.
Over the next few months, AEterna will pursue discussions with other
pharmaceutical companies for the distribution and commercialization of
Neovastat, according to our multiple partnership strategy. We will also continue
to seek the acquisition of a biotech company or new technologies that will
broaden our product pipeline.
Dr. Eric Dupont, PhD
President and Chief Executive Officer
May 24, 2001
SAFE HARBOR STATEMENT
This report contains forward-looking statements, which are made pursuant to the
safe harbor provisions of the U.S. Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown
risks and uncertainties which could cause the Company's actual results to differ
materially from those in the forward-looking statements. Such risks and
uncertainties include, among others, the availability of funds and resources to
pursue R&D projects, the successful and timely completion of clinical studies,
the ability of the Company to take advantage of the business opportunities in
the pharmaceutical industry, uncertainties related to the regulatory process and
general changes in economic conditions. Investors should consult the Company's
ongoing quarterly and annual filings with the Canadian and U.S. securities
commissions for additional information on risks and uncertainties relating to
the forward-looking statements. Investors are cautioned not to rely on these
forward-looking statements. The Company does not undertake to update these
forward-looking statements.
GENERAL INFORMATION
AEterna Laboratories Inc.
1405, Parc-Technologique Blvd., Quebec, Quebec G1P 4P5 Canada
Tel.: (418)652-8525 Fax: (418) 652-0881
E-mail: AETERNA@AETERNA.COM Website: http//www.aeterna.com
STOCK SYMBOL
TSE: AEL
NASDAQ: AELA
Shares outstanding: 30.2 millions
AETERNA LABORATORIES INC.
CONSOLIDATED BALANCE SHEETS
(expressed in Canadian dollars)
AS AT AS AT
MARCH 31, DECEMBER 31,
2001 2000
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(UNAUDITED) (RESTATED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,613,227 $ 7,260,582
Short-term investments 53,599,507 61,388,205
Accounts receivable 6,887,550 4,842,845
Research and development
tax credits recoverable 1,370,000 1,092,000
Inventory 2,553,854 2,484,139
Prepaid expenses 1,148,836 588,442
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74,172,974 77,656,213
CAPITAL ASSETS 14,756,302 14,928,146
OTHER ASSETS 7,113,145 7,347,884
FUTURE INCOME TAX ASSETS 717,375 650,000
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$ 96,759,796 $100,582,243
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LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 5,500,096 $ 5,860,960
Income taxes 117,000 650,000
Current portion of long-term debt 191,000 313,953
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5,808,096 6,824,913
LONG-TERM DEBT 4,753,500 4,753,500
REDEEMABLE COMMON SHARES OF THE
SUBSIDIARY (NOTES 2 AND 3) 24,609,547 24,609,547
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35,171,143 36,187,960
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SHAREHOLDERS' EQUITY
SHARE CAPITAL 80,447,264 80,008,032
DEFICIT (18,858,611) (15,613,749)
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61,588,653 64,394,283
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$ 96,759,796 $100,582,243
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SUBSEQUENT EVENT (NOTE 3)
SEE ACCOMPANYING NOTES
AETERNA LABORATORIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000
(expressed in Canadian dollars)
UNAUDITED 2001 2000
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(RESTATED)
REVENUES $ 2,766,625 $ 2,015,053
OPERATING EXPENSES
Cost of goods sold 443,653 297,091
Selling and administrative 833,648 456,244
Research and development 7,214,218 5,475,258
Research and development
tax credits and grants (2,042,000) (1,638,483)
Depreciation and amortization
Capital assets 291,816 281,446
Other assets 83,651 37,863
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6,824,986 4,909,419
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OPERATING LOSS (4,058,361) (2,894,366)
INTEREST INCOME 1,075,599 746,409
INTEREST EXPENSE (262,100) (8,900)
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NET LOSS FOR THE PERIOD $(3,244,862) $ (2,156,857)
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NET LOSS PER SHARE
Basic and fully diluted $ (0.11) $ (0.08)
WEIGHTED AVERAGE NUMBER OF SHARES USED TO
CALCULATE LOSS PER SHARE 30,114,062 28,502,994
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CONSOLIDATED STATEMENTS OF DEFICIT
FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000
(expressed in Canadian dollars)
UNAUDITED 2001 2000
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(RESTATED)
BALANCE - BEGINNING OF PERIOD $(15,613,749) $ (5,955,956)
Net loss for the period (3,244,862) (2,156,857)
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BALANCE - END OF PERIOD $(18,858,611) $ (8,112,813)
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SEE ACCOMPANYING NOTES
AETERNA LABORATORIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000
(expressed in Canadian dollars)
UNAUDITED 2001 2000
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(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (3,244,862) $ (2,156,857)
Items not affecting cash
Depreciation and amortization 375,467 319,309
Future income taxes (67,375) --
Interest expense 262,100 8,900
Change in non-cash operating working capital items
Accounts receivable (2,044,705) (1,268,834)
Research and development tax
credits recoverable (278,000) (262,443)
Inventory (69,715) (395,063)
Prepaid expenses (560,394) (249,148)
Accounts payable and accrued liabilities (360,864) 1,694,825
Income taxes (533,000) --
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(6,521,348) (2,309,311)
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of share capital,
net of related expenses 439,232 4,149,104
Payments of long-term debt (122,953) --
Redeemable common shares of
the subsidiary (notes 2 and 3) -- 10,000,000
Deferred interest expense paid in cash -- (235,721)
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316,279 13,913,383
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CASH FLOWS FROM INVESTING ACTIVITIES
Change in short-term investments 7,788,698 (907,656)
Purchase of capital assets (119,972) (209,812)
Additions to other assets (111,012) (31,126)
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7,557,714 (1,148,594)
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NET CHANGE IN CASH AND CASH EQUIVALENTS 1,352,645 10,455,478
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 7,260,582 6,025,733
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CASH AND CASH EQUIVALENTS - END OF PERIOD $ 8,613,227 $ 16,481,211
ADDITIONAL INFORMATION
Interest paid -- --
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Income taxes paid $ 600,375 $ --
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SEE ACCOMPANYING NOTES
AETERNA LABORATORIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000
(expressed in Canadian dollars)
UNAUDITED
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1 BASIS OF PRESENTATION
These unaudited quaterly financial statements have been prepared by the Company
in accordance with Canadian generally accepted accounting principles for
quaterly financial information and reflect, in the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations and cash flows as at March 31, 2001, and for all periods presented.
The accounting policies and methods of computation adopted in these financial
statements are the same as those used in the preparation of the Company's most
recent annual consolidated financial statements. All disclosures required for
annual financial statements have not been included in these financial
statements. These consolidated financial statements should be read in
conjunction with the Company's most recent annual consolidated financial
statements. The results of operations for the three-month period ended March 31,
2001, are not necessarily indicative of the results for the full year.
2 RESTATEMENTS
The Company has restated its financial statements to reflect a change in the
method of accounting for the issuance of redeemable common shares by its
subsidiary, Atrium Biotechnologies Inc. (Atrium), to its minority shareholders.
The financial statements have been restated to eliminate the recognition of a
minority interest and the previously recognized dilution gain recorded on the
issuance of the subsidiary's redeemable common shares. The redeemable common
shares of the subsidiary are classified as a liability in accordance with the
substance of the shareholders' agreement and the definition of a financial
liability.
3 SUBSEQUENT EVENT
In May 2001, Atrium and all its shareholders amended certain terms of the
shareholders' agreement. As a result of the amendment, the Company will
reclassify the common shares issued by Atrium to the minority shareholders from
a liability to equity. In addition, the Company will no longer have an
obligation to deliver cash or another financial amount to the minority
shareholders of Atrium. Accordingly, in the second quarter of the financial year
ending December 31, 2001, the Company will recognize a dilution gain and a
minority interest in Atrium.
On a pro-forma basis, the impact of these amendments as at December 31, 2000 and
for the year ended December 31, 2000 will be to bring the Company back to the
situation it was before the restatements as described in note 2.
4 SEGMENT INFORMATION
THREE MONTHS ENDED MARCH 31
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2001 2000
===================================
(RESTATED)
REVENUES
Cosmetics and nutrition $ 2,766,625 $ 2,015,053
Biopharmaceutical -- --
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$ 2,766,625 $ 2,015,053
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NET EARNINGS (LOSS) FOR THE PERIOD
Cosmetics and nutrition $ 1,418,056 $ 1,216,803
Biopharmaceutical (4,662,918) (3,373,660)
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$ (3,244,862) $ (2,156,857)
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