Biotie Interim Report 1 January - 31 March 2016

Lundbeck received European marketing authorization for Selincro in February 2013 and the product has since been introduced in Europe. Favorable reimbursement decisions were made in the second half of 2014 in a number of key markets, including France, Spain and the United Kingdom.

Lundbeck and Otsuka Pharmaceutical Co. Ltd. are collaborating, as part of their existing alliance, to develop and commercialize nalmefene in Japan, and a 660-patient Phase 3 study in Japan was commenced in Q1 2015.

Tozadenant (SYN115) is an orally administered, potent and selective adenosine A2a receptor antagonist being developed for the treatment of Parkinson's disease.

In a 420-patient Phase 2b trial, tozadenant displayed clinically important and statistically significant effects across pre-specified primary and multiple secondary endpoints at a number of doses. In addition, tozadenant has been found to be generally safe and well tolerated in the ten clinical trials that have been conducted to date. Full data from the Phase 2b study were published in Lancet Neurology in July 2014.

In July 2015, Biotie announced the start of the tozadenant Phase 3 study in Parkinson's disease (study TOZ-PD). The Company has agreed on a Special Protocol Assessment for TOZ-PD with the FDA. Based on discussions with the FDA at the End of Phase 2 meeting, Biotie believes that the planned Phase 3 clinical program, together with existing data, could form the basis for approval of tozadenant as an adjunctive treatment to levodopa in Parkinson's patients experiencing end-of-dose wearing off episodes. The TOZ-PD study will use the primary and secondary endpoints and enrollment criteria used in the Phase 2b clinical trial. The study is expected to enroll 450 patients experiencing levodopa related end-of-dose wearing off, who will be randomized to receive twice daily doses of 60mg or 120mg of tozadenant or placebo in addition to their standard anti-Parkinson's disease medications for 24 weeks. The primary endpoint will be the reduction in the number of hours spent in the "off" state in patients taking tozadenant as compared to placebo between baseline and week 24, as assessed by patient-completed diaries and averaged over three consecutive days. The double-blind placebo controlled period is expected to be followed by a 52 week open label treatment period to collect additional clinical safety data. The study is currently planned to be conducted in the United States, Canada and selected European countries. Based on current estimates top-line data from the double-blind portion is expected to be available by the end of 2017.

Providing the double-blind portion of TOZ-PD meets its primary efficacy endpoint, another open label trial is expected to be initiated in a separate population of 450 patients to establish the requisite number of unique exposures required for approval.

Biotie has exclusive worldwide rights to develop and commercialize tozadenant for all uses to treat or prevent human diseases and disorders under a license agreement with F. Hoffmann-La Roche Ltd (Roche).

SYN120 is an oral, dual antagonist of the 5-HT6 and 5-HT2A receptors. These two distinct properties could result in a unique therapeutic profile for SYN120 combining pro-cognitive and antipsychotic activities in neuro-degenerative diseases, such as Parkinson's and Alzheimer's. SYN120 has completed single and multiple ascending dose Phase 1 clinical studies and a Phase 1 positron emission tomography imaging study to determine therapeutic dose for subsequent Phase 2 studies. In these trials, doses well above the anticipated therapeutic dose were well tolerated.

In July 2014, Biotie was awarded a grant of up to $2.0 million from the Michael J. Fox Foundation (MJFF) to investigate SYN120 in Parkinson's disease patients with dementia, and patient enrollment into a Phase 2a study primarily funded under the grant was commenced in December 2014. The SYNAPSE study is an 80 patient, Phase 2a, randomized, double-blind, multi-center, placebo-controlled trial in patients with Parkinson's disease dementia. Patients are randomized 1:1 to placebo or SYN120 dosed once daily over a 16 week treatment period. In addition to assessing safety and tolerability, the main focus of the study is to establish efficacy of SYN120 on cognition using the Cognitive Drug Research (CDR) Computerized Cognition Battery as the primary efficacy endpoint. The study is being conducted by the Parkinson Study Group (PSG) at approximately 12 specialist sites in the United States. Biotie and the PSG share responsibility for the design and execution of the study, and top-line results of the study are expected around the end of 2016.

Biotie has exclusive worldwide rights to develop and commercialize SYN120 under a license agreement with Roche and will be able to use data from the MJFF-funded study for any future regulatory submission for SYN120, including Alzheimer's disease, although further clinical development plans in such indications will depend on the availability of funding.

BTT1023 is a fully human monoclonal antibody that specifically binds to vascular adhesion protein 1 (VAP-1), an endothelial cell adhesion receptor expressed on blood vessels. Recent investigation has shown that VAP-1, in addition to its previously demonstrated role in inflammation, is also involved in the process of fibrosis, which can occur in several organs and is poorly treated with current drugs.

In July 2014, Biotie partnered with the University of Birmingham, UK, who were awarded grant funding to conduct an investigator-sponsored, Phase 2, proof of concept study with BTT1023 in primary sclerosing cholangitis (PSC), a chronic and progressive orphan fibrotic disease for which there are currently no FDA-approved treatments. The grant was awarded by the UK's National Institute for Health Research (NIHR) Efficacy and Mechanism Evaluation Programme, funded and managed by NIHR on behalf of the Medical Research Council - NIHR partnership. The grant holder and Co-Investigator for the study is Professor David Adams, Director of the NIHR Biomedical Research Unit in Liver Disease and Centre for Liver Research at the University of Birmingham.

The BUTEO study being funded under the grant opened for patient recruitment in March 2015. It is an open label, single arm, multi-center study that will evaluate efficacy, safety and pharmacokinetic properties of BTT1023 in 41 patients with PSC. Patients will receive BTT1023 via intravenous infusion every two weeks over an 11 week treatment period. The primary efficacy endpoint is a reduction of elevated levels of alkaline phosphatase, a blood biomarker of bile duct inflammation; secondary endpoints include various measures of liver injury and fibrosis.

The two-stage study design includes a pre-planned interim analysis. Based on current estimates, it is expected that the requisite number of patients will have been treated by the end of 2016 to enable the interim analysis to be completed.

The European Commission has granted BTT1023 Orphan Drug Designation in the EU for the treatment of PSC. After the reporting period in April 2016, Biotie submitted an application to the FDA for Orphan Drug Designation in the United States for BTT1023 in the treatment of PSC. Biotie retains full rights to BTT1023.

Management Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial information contained herein, which has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. The Company presents its consolidated financial information in euros.

Overview

In the periods presented the Company has earned revenue from Lundbeck, in the form of royalties for Selincro, and from UCB in the form Phase 3 development funding for tozadenant. The accounting policies that the Company applies in recognizing these revenues are set out in detail in note 2 to the consolidated financial statements for the year ended December 31, 2015.

The Company's research and development activities are central to its business model and expenditure on research and development is recognized as an expense in the period in which it is incurred. The Company's current research and development activities mainly relate to the following key programs, which are all currently recruiting patients: Phase 3 clinical trial of tozadenant in Parkinson's disease; Phase 2a clinical trial of SYN120 in Parkinson's disease dementia; and Phase 2 clinical trial of BTT1023 in primary sclerosing cholangitis.

General and administrative expenses consist of salary-related and external costs related to the Company's executive, finance and other support functions, including the costs associated of compliance with the on-going requirements of being a listed company on Nasdaq in the United States and on the Nasdaq OMX market in Helsinki, including insurance, general administration overhead, investor relations, legal and professional fees and audit fees.

Other operating income consists primarily of grant income and rent received on a sub-lease.

Our policy is to invest funds in low-risk investments, which primarily consists of money market funds and interest-bearing saving and investment accounts. Savings and deposit accounts generate a small amount of interest income. Interest expenses consist primarily of non-cash interest in respect of the Tekes loans and the convertible capital loan.

Other net financial income (expense) primarily relates to all non-interest related items and comprises net foreign exchange gains (losses) that arise from our intercompany borrowings, and unrealized and realized gains from money market funds, that are reflected as financial assets held at fair value through profit and loss.

The Company does not generally pay any corporate income taxes, as there are currently cumulative operating losses in each subsidiary company.

Results of Operations: comparison of the three months ended March 31, 2016 and March 31, 2015

Revenue

Revenue decreased by €0.1 million to €0.8 million for the three months ended March 31, 2016 compared to €0.9 million for the three months ended March 31, 2015. The decrease was primarily due to the increase in the level of royalties from the Lundbeck license agreement of €0.1 million, being more than offset by the final phase 3 development funding from UCB for tozadenant of €0.2 million recognized in the first quarter of 2015.  

Research and development expenses

Research and development expenses increased by €0.8 million for the three months ended March 31, 2016 to €5.6 million, compared to €4.8 million for the three months ended March 31, 2015. The majority of the expenditure in each period was in relation to tozadenant, with the increase mainly being due to the stage of the development activities.

General and administrative expenses

General and administrative expenses increased by €3.1 million to €4.8 million for the three months ended March 31, 2016, as compared to €1.7 million for the three months ended March 31, 2015. The increase was mainly due to professional advisor fees in respect of the Acorda Tender Offer.

Other operating income

Other operating income for the three months ended March 31, 2016 was minimal and comprised sub-lease rental income. There was no other operating income recognized in for the three months ended March 31, 2015.

Interest income

Interest income was minimal for both of the three months ended March 31, 2016 and 2015.

Interest expenses

Interest expenses consist of non-cash interest expenses accrued on the Tekes loans and the convertible capital loans, which remained broadly stable. As a result, interest expenses were minimal for both of the three month periods ended March 31, 2016 and 2015.

Other net financial income (expenses)

Other net financial income (expenses) mainly comprises net foreign exchange differences and was a net loss of €2.0 million for the three months ended March 31, 2016 and a net loss of €0.1 million for the three months ended March 31, 2015.

Other comprehensive income

Other comprehensive income comprises currency translation differences, which mainly arise from the translation of in-process R&D assets and goodwill in our foreign subsidiaries. It was a loss of €2.5 million for the three months ended March 31, 2016, compared to a gain of €8.2million for the three months ended March 31, 2015.

Liquidity and Capital resources

Cash flows

Net cash outflow from operating activities for the three months ended March 31, 2016 was €8.3 million, an increase of €2.9 million as compared to the net cash outflow of €5.4 million during the same period in 2015, mainly due to higher general and administrative expenses.

Net cash inflow from investing activities was €6.3 million for the three months ended March 31, 2016, an increase of €2.4 million as compared to the net cash inflow of €3.9 million in the same period in 2015, due to net investment in and proceeds from sale of financial assets at fair value through profit or loss.

Net cash inflow from financing activities was minimal for both the three months ended March 31, 2016 and March 31, 2015 and related solely to the proceeds from share issues in respect of employee equity plans.

Liquid assets, comprising cash and cash equivalents and financial assets at fair value through profit and loss, totaled €68.0 million at March 31, 2016 as compared to €79.0 million at December 31, 2015. The decrease of €11.0 million was mainly due to the utilization of cash flow for financing the operating activities, principally research and development expenses.

Cash and funding sources

Our main sources of revenue during the periods presented were from UCB in relation to tozadenant and royalties from Lundbeck in relation to Selincro sales.

We have no ongoing material financial commitments, such as lines of credit or guarantees, which are expected to affect our liquidity over the next five years, other than research and development loans, some of which are due for repayment as described in note 10 to the unaudited condensed consolidated financial statements for the three months ended March 31, 2016.

Personnel

During the reporting period January - March 2016 (2015), the average number of employees amounted to 39 (39) and at the end of the reporting period, Biotie employed 39 people (40 people).

Equity rights

All equity based incentive programs were a part of the Tender Offer and all option and other instruments initially allocated to the personnel of Biotie are in possession of Acorda.

Share capital and shares

Biotie has shares quoted on Nasdaq (Small Cap) in Helsinki (ticker: BTH1V) and ADS quoted on NASDAQ (Global Select Market) in the United States (ticker: BITI), where each ADS represents 80 of the Company's shares. The Company's shares all have equal rights and each share entitles the holder to one vote at the general meeting of shareholders.

On January 5 2016, the Company announced that the Board had resolved to issue a total of 2,667,812 new shares to be delivered to employees who are participants of the Company's option and equity incentive plans on the exercise of share options and for the settlement of stock units in accordance with Chapter 10 Section 7 and Chapter 9 Section 4 of the Finnish Companies Act (624/2006, as amended). The new shares were registered with the Finnish Trade Register on January 18, 2016, and admitted to trading on Nasdaq Helsinki Ltd on January 19, 2016.

On March 31, 2016 the registered number of shares in Biotie Therapies Corp. was 1,089,608,083; of these shares 108,686,288 were held by the Company or its group companies, so that there were 980,921,795 outstanding shares at that date. The registered share capital of Biotie was € 279,218,058.55 (FAS).

After the reporting period on April 13, 2016 Acorda announced the final results of the Tender Offer and on May 2, 2016 the final results of the Subsequent Offer Period. Following this 694,904,307 Shares, 3,178,662 ADSs, 435,000 2011 Option Rights, 4,280,125 2014 Option Rights, 12,401,120 2016 Option Rights, 1,949,116 Swiss Option Rights, 25,000 2011 Share Rights, 3,972,188 2014 Share Rights and 220,400,001 Warrants were tendered, representing approximately 96.77 percent of all the shares and votes in Biotie on a fully-diluted basis as defined in the terms and conditions of the Tender Offer.

Market capitalization and trading

The key data for each of the shares listed in Helsinki and the ADS listed in the United States during the twelve month period ended March 31, 2016 is shown below.

Changes in ownership

During the first quarter, the Company has received two flagging notifications (pursuant to Chapter 9, Section 5 of the Securities Markets Act) dated 12 February 2016 and 19 February 2016 from FMR LLC and its controlled entity FMR CO., Inc. whose holdings of shares and votes in the Company had decreased below the threshold of 5 per cent.

After the end of the first quarter, the Company received several flagging notifications (pursuant to Chapter 9, Section 5 of the Securities Markets Act) from shareholders whose holdings of shares and votes in the Company either increased or decreased as a result of the close of the tender offer. The information in the flagging notifications has been disclosed by several stock exchange releases dated April 12, 2016, April 14, 2016 and April 20, 2016.

Acorda Therapeutics informed on April 18, 2016 and May 2, 2016 that the share transfers relating to the Tender Offer have been carried out and as a result, Acorda Therapeutics holds in excess of 90 per cent of the outstanding number of shares in Biotie.

Risk factors

Set forth below is a description of risk factors that could affect the Company. There may, however, be additional risks unknown to the Company and other risks currently believed to be immaterial that could turn out to be material. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, either individually or together.

Risks related to the Company's financial position and capital requirements

·    The Company has incurred net losses since our inception and anticipates that it will continue to incur substantial operating losses for the foreseeable future

·    The Company may never achieve or sustain profitability

·    The Company cannot assure its investors of the adequacy of its capital resources to successfully complete the development and commercialization of its product candidates, and a failure to obtain additional capital, if needed, could force the Company to delay, limit, reduce or terminate its product development or commercialization efforts

·    The adequacy of the Company's capital resources is particularly dependent on cash generation from milestones and royalties in connection with sales of Selincro and other sources of non-dilutive funding

·    Raising additional capital may cause dilution to the Company's existing shareholders, restrict its operations or require the Company to relinquish, or license on unfavorable terms, its rights to its product candidates and may impact any future potential revenue streams

·    In connection with the Convertible Notes Financings the Company has indemnification obligations to certain investors pursuant to the subscription agreement with such investors. These obligations could subject the Company to substantial liabilities

·    Impairment charges or write-downs on the Company's assets could have a significant adverse effect on its results of operations and financial results

·    The Company is exposed to risks related to currency exchange rates

·    We conduct a significant portion of our operations outside Finland and other eurozone countries, principally in the United States

Risks related to the development and clinical testing of the Company's product candidates

·    The Company depends significantly on the success of tozadenant and its other product candidates. Tozadenant and its other product candidates are still in clinical development. If the Company's clinical trials are not successful, the Company does not obtain regulatory approval or is unable, or unable to find a partner, to commercialize tozadenant or our other product candidates, or the Company experiences significant delays in doing so, its business, financial condition and results of operations will be materially adversely affected

·    Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes

·    The results of previous clinical trials may not be predictive of future results and clinical trials of product candidates may not be successful

·    The design and conduct of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed

·    If clinical trials of the Company's product candidates are prolonged or delayed, it may be unable to obtain required regulatory approvals, and therefore be unable to commercialize its product candidates on a timely basis or at all

·    If serious adverse, undesirable or unacceptable side effects or preclinical findings are identified during the development of the Company's product candidates or following approval, the Company may need to abandon our development of such product candidates, the commercial profile of any approved label may be limited, or the Company may be subject to other significant negative consequences following marketing approval

·    The Company depends on enrollment of patients in its clinical trials for our product candidates. If the Company is unable to enroll patients in its clinical trials, its research and development efforts could be materially adversely affected

·    Due to the Company's limited resources and access to capital, the Company must and has in the past decided to prioritize development of certain product candidates; these decisions may prove to have been wrong and may adversely affect the Company's revenues

Risks related to regulatory approval of the Company's product candidates

·    Clinical development, regulatory review and approval by the U.S Food and Drug Administration (FDA), the European Medicines Agency (EMA) and comparable foreign regulatory authorities are lengthy, time consuming, expensive and inherently unpredictable activities. If the Company is ultimately unable to obtain regulatory approval for its product candidates, its business will be substantially harmed

·    The FDA's agreement to the Company's special protocol assessment for its Phase 3 trial of tozadenant does not guarantee any particular outcome from regulatory review, including ultimate approval and may not lead to a faster development or regulatory review or approval process

·    If the Company fails to obtain regulatory approval in any jurisdiction, it will not be able to market our products in that jurisdiction

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