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Neoprobe Announces Third Quarter 2010 Results

^{Published on 2010-11-10 05:40:59 - Market Wire}
 

DUBLIN, Ohio--([ BUSINESS WIRE ])--Neoprobe Corporation (OTCBB: NEOP - News), a diversified developer of innovative oncology surgical and diagnostic products, today announced consolidated results for the third quarter of 2010 and for the nine-month period ended September 30, 2010.

"In summary, our gamma detection device business continues to demonstrate positive performance"

Neoprobea™s revenues for the third quarter of 2010 were $2.3 million compared to $2.6 million for the third quarter of 2009, an 11% decrease as revenues in the third quarter of 2009 were unseasonably high and included initial stocking orders for new products. Gross profit remained steady at $1.7 million for the third quarter of 2010 compared to the third quarter of 2009 despite the decline in revenues. Third quarter 2010 operating expenses were $3.9 million compared to $2.0 million for the third quarter of 2009, primarily as a result of the Companya™s continued investment in its Lymphoseek^® drug initiative. Loss from operations for the third quarter of 2010 was $2.2 million compared to $324,000 for the third quarter of 2009.

For the third quarter of 2010, Neoprobe reported a net loss attributable to common stockholders of $2.4 million, or $0.03 per share, compared to a net loss attributable to common stockholders of $25.1 million, or $0.34 per share, for the third quarter of 2009. As discussed more fully below, the net losses attributable to common stockholders for the third quarter of 2009 include significant non-cash losses aggregating $22.6 million. These non-cash losses were due to the extinguishment accounting treatment related to the modification of certain terms of the Companya™s convertible debt, preferred stock and related warrants in July 2009 as well as mark-to-market adjustments related to derivative accounting treatment required for certain financial instruments on the Companya™s balance sheet, most of which were modified in the July 2009 transaction.

Year-to-date revenues for the nine-month period ended September 30, 2010 were $7.5 million compared to $7.1 million for the same period in 2009, a 6% increase. Gross profit was $5.2 million for the nine-month period ended September 30, 2010 compared to $4.7 million for the same period in 2009, a 10% increase. Operating expenses for the nine-month period ended September 30, 2010 were $10.1 million compared to $6.1 million for the same period of 2009. Neoprobea™s loss from operations for the nine-month period ended September 30, 2010 was $4.9 million compared to $1.4 million for the same period in 2009.

For the nine-month period ended September 30, 2010, Neoprobe reported a net loss attributable to common stockholders of $56.1 million, or $0.70 per share, compared to a net loss attributable to common stockholders of $39.5 million, or $0.56 per share, for the same period in 2009. As discussed more fully below, the net loss attributable to common stockholders for the first nine months of 2010 and 2009 included significant non-cash losses and deemed dividends aggregating $50.4 million and $34.8 million, respectively. In 2010, these non-cash charges were primarily due to the extinguishment accounting related to the June 2010 exchange of the Companya™s previous convertible debt and preferred stock for a new series of preferred stock and to mark-to-market adjustments related to derivative accounting treatment required for certain financial instruments on the Companya™s balance sheet. In 2009, these non-cash charges included the extinguishment accounting related to the modification of certain terms of the Companya™s convertible debt, preferred stock and related warrants and the mark-to-market adjustments related to derivative accounting treatment required for certain financial instruments on the Companya™s balance sheet at that time.

Brent Larson, Neoprobea™s Senior Vice President and CFO, said, aRevenue increased on a year-to-date basis despite being lower for the quarter than in the prior year. Third quarter 2009 revenues were unseasonably high and included some initial stock orders on new products. More importantly perhaps than the year-to-date revenue increase, our gross margins have continued to improve. For the third quarter of 2010, gross margin rose to 73% of revenue compared to 64% for the third quarter of 2009 due to the receipt of grant funds, favorable pricing and lower material costs. This positive margin movement in the third quarter contributed to an overall increase in our year-to-date gross margin of 69% for the nine months ended September 30, 2010 compared to 67% for the same period in the prior year. We are pleased with our ongoing efforts to effectively manage our device business coupled with the non-dilutive contributions that our grant application efforts are starting to provide.a

David Bupp, Neoprobea™s President and CEO, said, aOur operating expenses during the first nine months of 2010 increased as a direct result of our progress in clinical, manufacturing and regulatory activities related to our Lymphoseekdrug initiative. We put in a great deal of effort in 2010 to be in a position to file our new drug application (NDA) for Lymphoseek. That effort has served us well as we now expect to file the NDA shortly following the completion of patient enrollment in our ongoing NEO3-09 Phase 3 clinical trial in patients with breast cancer or melanoma.a

aWe are pleased with the progress wea™ve made with the clinical and regulatory pathway for Lymphoseek,a Bupp continued. aWe are also continuing our efforts to move our biologic development activities ahead to support a second advanced-stage clinical program with RIGScan^a" CR. We have successfully completed the re-characterization of the RIGScan CR biologic agent and are now preparing an investigational new drug (IND) amendment and a Phase 3 clinical protocol to support the ongoing clinical development program.a

The following are some of the milestones achieved by Neoprobe so far in 2010:

• Completion of a successful meeting with FDA to review the Phase 3 (NEO3-05) clinical study results and development plan discussion to support a NDA submission for Lymphoseek as a lymphatic-tissue tracing agent;
• Completion of successful pre-NDA dialogue with FDA on Lymphoseek pre-clinical data;
• Completion of successful pre-NDA dialogue with FDA on Lymphoseek chemistry, manufacturing and control data;
• Election of two new directors to Neoprobea™s Board, bringing significant drug industry and corporate development expertise to the Companya™s leadership;
• Completion of exchange transactions that converted all of the Companya™s outstanding debt to equity;
• Initiation of a third Phase 3 Lymphoseek clinical study in patients with breast cancer or melanoma to support the filing of the NDA with the potential to expand Lymphoseeka™s product labeling;
• Achieved revenue and gross margin increases of 6% and 10%, respectively, for the first nine months of 2010 over 2009;
• Completion of preliminary RIGS^® development activities including transfer of biologic license application to CDER and preparation of an IND for the biologic product;
• Received notice of grant awards totaling over $1.2 million to support Lymphoseek development through non-dilutive funding;
• Completion of a pre-NDA meeting for Lymphoseek clarifying the regulatory pathway for Lymphoseek approval;
• Filed a complete response to the open biologic license application (BLA) for RIGScan CR;
• Filing of a shelf registration on Form S-3 to allow the Company to raise capital as necessary through the sale of up to $20 million in a primary offering of securities to provide us with additional financial planning flexibility and to support the diversification of our share ownership to new institutions; and
• Completion of a $6 million equity financing for working capital purposes and to support ongoing development efforts.

aIn summary, our gamma detection device business continues to demonstrate positive performance,a Bupp continued. aWe had completed preparation of the Lymphoseek NDA last month without the clinical data from NEO3-09. Since FDA would like the data filed with the primary NDA, we may have the opportunity to launch the product with the enhanced labeling. We are encouraged with the biologic characterization information for the RIGS technology obtained to date. Lastly, we believe our recently completed financing should buoy investor confidence regarding our ability to both reach our near-term milestones such as the commercialization of Lymphoseek and to take critical steps toward our longer term product development goals regarding RIGScan.a

Under the applicable accounting rules for complex financial instruments, embedded features in certain of the Companya™s notes and preferred stock and the warrants to purchase common stock that have been issued from time to time have been considered derivative liabilities because these instruments contained language that provided for the resetting of the instrumentsa™ exercise/conversion prices in the event that the Company issued common stock at prices below the exercise/conversion prices of the respective instruments. Treatment of these instruments as derivative liabilities resulted in them being required to be reflected on the Companya™s balance sheet at their fair values (i.e., marked to market) based on certain assumptions, including the trading price of the Companya™s common stock. As the share price of the Companya™s common stock increased over a given period, significant mark-to-market adjustments were recorded as non-cash expenses in the Companya™s statements of operations. Neoprobea™s management believes that the inclusion of such mark-to-market adjustments in the Companya™s financial results does not appropriately communicate the results of the Companya™s operating performance and development activities to our investors. As a result, Neoprobea™s management believes the ability of investors to analyze Neoprobea™s business trends and to understand Neoprobea™s performance may be better served from reviewing certain operational measures such as revenues, development expenses and income (loss) from operations.

On July 24, 2009, Neoprobe agreed with the holder of a majority of the instruments with derivative characteristics, Platinum-Montaur Life Sciences, LLC (Montaur), to eliminate the price reset features that had substantially caused the derivative treatment of the instruments thereby permitting the Company to effectively extinguish the majority of its derivative liabilities. During the third quarter of 2009, the Company recorded $6.3 million in mark-to-market adjustments related to movement in the price of the Companya™s common stock. This contributed to a net total mark-to-market adjustment of $18.5 million being recorded for the first three quarters of 2009. As a result of the extinguishment treatment associated with the elimination of the price reset features, the Company recorded $16.2 million in non-cash loss on the extinguishment during the third quarter of 2009 and reclassified approximately $27 million in derivative liabilities to additional paid-in capital.

During June 2010, Neoprobea™s primary investor, Montaur, agreed to exchange all $10 million of its outstanding 10% senior secured convertible notes and all $3 million of its perpetual convertible preferred stock for a single new series of preferred stock convertible into 32.7 million common shares. Under the terms of the transaction, Montaura™s $7 million Series A Convertible Secured Note (originally convertible into 17.1 million common shares), $3 million Series B Convertible Note (originally convertible into 8.3 million common shares) and Series A Convertible Preferred Stock (originally convertible into 6.0 million common shares) were exchanged for Series B Convertible Preferred Stock (the Series B Preferred, convertible into a total of 32.7 million shares). As part of the consideration for the conversion, Neoprobe aprepaida interest and dividends due through the original note maturity in December 2011 by agreeing to issue Series B Preferred which is convertible into 1.3 million shares of common stock on the conversion of the new Series B Preferred. The Series B Preferred is convertible at the option of Montaur but carries no dividend and has no liquidation preference over the common stock. The Series A Convertible Preferred Stock was convertible at the option of Montaur and paid an 8% dividend until converted. Under the applicable accounting rules for financial instruments, the exchange transactions were accounted for as extinguishments of the old instruments which resulted in the Company recording non-cash losses on extinguishment of all of the Companya™s secured debt of $41.7 million related to debt instruments and a deemed dividend of $8.0 million related to the retirement of the Series A Preferred Stock. These charges accounted for the vast majority of the losses attributable to common stockholders for the nine-month period ended September 30, 2010, respectively. Excluding these non-cash losses, we would have reported losses attributable to common stockholders $0.08 per share for the nine-month period ended September 30, 2010.

Neoprobea™s President and CEO, David Bupp, Senior Vice President, Pharmaceutical Research and Clinical Development, Dr. Frederick Cope, and Senior Vice President and CFO, Brent Larson, will provide a business update and discuss the third quarter of 2010 during a conference call with the investment community scheduled for later this afternoon at 4:30 PM ET. The conference call can be accessed as follows:

About Neoprobe

Neoprobe is a biomedical company focused on enhancing patient care and improving patient outcome by meeting the critical intraoperative diagnostic information needs of physicians and therapeutic treatment needs of patients. Neoprobe currently markets the neoprobe^® GDS line of gamma detection systems that are widely used by cancer surgeons. In addition, Neoprobe holds significant interests in the development of related biomedical systems and radiopharmaceutical agents including Lymphoseek^® and RIGScan^® CR. Neoprobea™s subsidiary, Cira Biosciences, Inc., is also advancing a patient-specific cellular therapy technology platform called ACT. Neoprobea™s strategy is to deliver superior growth and shareholder return by maximizing its strong position in gamma detection technologies and diversifying into new, synergistic biomedical markets through continued investment and selective acquisitions. [ www.neoprobe.com ]

Statements in this news release, which relate to other than strictly historical facts, such as statements about the Companya™s plans and strategies, expectations for future financial performance, new and existing products and technologies, anticipated clinical and regulatory pathways, and markets for the Companya™s products are forward-looking statementsThe words abelieve,a aexpect,a aanticipate,a aestimate,a aproject,a and similar expressions identify forward-looking statements that speak only as of the date hereof.Investors are cautioned that such statements involve risks and uncertainties that could cause actual results to differ materially from historical or anticipated results due to many factors including, but not limited to, the Companya™s continuing operating losses, uncertainty of market acceptance of its products, reliance on third party manufacturers, accumulated deficit, future capital needs, uncertainty of capital funding, dependence on limited product line and distribution channels, competition, limited marketing and manufacturing experience, risks of development of new products, regulatory risks and other risks detailed in the Companya™s most recent Annual Report on Form 10-K and other Securities and Exchange Commission filings.The Company undertakes no obligation to publicly update or revise any forward-looking statements.