CombinatoRx Reports Financial Results for the Third Quarter 2009

November 3, 2009 7:30 AM EST

-- Positive Product News Moving into Proposed Merger Close --

CAMBRIDGE, Mass.--(BUSINESS WIRE)-- CombinatoRx, Incorporated (NASDAQ: CRXX) today reported financial results for the third quarter ended September 30, 2009.

"With a number of recent positive product-related updates, including an FDA Advisory Committee on Exalgo and its REMS program, Sanofi-Aventis' acquisition of Prednisporin, a CombinatoRx-derived combination drug candidate, through its pending acquisition of Fovea Pharmaceuticals, and the presentation at ACR of positive 12-month knee osteoarthritis clinical data for Synavive, we are well-positioned to create a sustainable biotechnology company as we move toward the closing of our proposed merger with Neuromed" commented Robert Forrester, Interim President and CEO of CombinatoRx.

Recent Accomplishments and Business Update:

    --  A meeting of CombinatoRx stockholders is scheduled for November 16, 2009
        to vote on matters related to the proposed merger with Neuromed
        Pharmaceuticals Inc. The merger seeks to create a sustainable
        biotechnology company, bringing together the product assets and
        financial resources of both organizations, including potential Exalgo
        (TM) cash milestones and royalty revenue, and Neuromed's proven drug
        development expertise, with the CombinatoRx portfolio of product
        candidates and our unique drug discovery capabilities. The rights to
        Exalgo were recently acquired by Mallinckrodt Inc., a subsidiary of
        Covidien plc, for $15 million in upfront payments, additional
        development funding of up to $16 million to cover internal and external
        costs associated with Exalgo, an approval milestone of $30 million,
        which could potentially increase up to $40 million, and tiered royalties
        on Exalgo net sales after any marketing approval by the U.S. Food and
        Drug Administration.
    --  On September 23, 2009, the FDA's Anesthetics and Life Support Advisory
        Committee and its Drug Safety and Risk Management Advisory Committee
        jointly discussed the new drug application, or NDA, submitted by
        Neuromed for Exalgo seeking FDA approval for the management of moderate
        to severe pain in opioid tolerant patients requiring continuous, around
        the clock opioid analgesia for an extended period of time. The joint
        advisory committee provided feedback to the FDA with regard to the
        proposed Risk Evaluation Mitigation Strategy (REMS) program for Exalgo.
        The FDA has assigned a PDUFA date of November 22, 2009 to complete its
        review of Exalgo.
    --  A CombinatoRx-derived combination drug candidate, PrednisporinTM
        (FOV1101), was recognized as a key asset by Sanofi-Aventis in its
        pending acquisition of our collaborator, Fovea Pharmaceuticals. This
        acquisition validates our business strategy of leveraging the
        CombinatoRx discovery technology platform and products through strategic
        alliances. Positive clinical results with Prednisporin in subjects with
        persistent allergic conjunctivitis were recently announced and based on
        this data; further advanced clinical trials for Prednisporin both in the
        United States and in Europe are planned by Fovea. CombinatoRx also
        recently enhanced its economic interest in Prednisporin and the other
        product candidates licensed to Fovea for ophthalmic development. Under
        the amended agreement, CombinatoRx will be eligible to receive
        development and regulatory-based milestone payments for Prednisporin of
        up to approximately $40 million and increased tiered royalty payments of
        up to 12% of net sales.
    --  SynaviveTM was shown to maintain efficacy levels throughout a 12-month
        knee osteoarthritis (OA) extension trial. This data was presented at the
        American College of Rheumatology (ACR) 2009 Annual Meeting in
        Philadelphia on October 20, 2009 and further supports the core study
        data, which was presented at EULAR in June 2009, in which knee OA
        efficacy was observed early in treatment and sustained throughout the
        three month core study in all WOMAC measurement subscales including
        pain, stiffness and physical function. In addition to maintaining
        efficacy for the Synavive treatment group, placebo treated subjects in
        the core study also experienced statistically significant improvement in
        all WOMAC measurement subscales upon crossing over to Synavive in the
        extension trial. Importantly, no treatment-related increases in
        glucocorticoid associated adverse events were observed in the
        Synavive-treated subjects.

Third Quarter 2009 Financial Results (Unaudited):

As of September 30, 2009, CombinatoRx had cash, cash equivalents, restricted cash and short-term investments of $22.2 million compared to $30.6 million on June 30, 2009 and $43.7 million on December 31, 2008. This decrease from June 30, 2009 is primarily due to $2.6 million in restructuring costs and $1.8 million in professional fees associated with our ongoing strategic realignment and proposed merger with Neuromed.

Total revenue was $2.7 million in the third quarter of 2009 compared to $3.0 million reported in the third quarter of 2008.

Research and development expenses totaled $4.9 million in the third quarter of 2009 compared to $13.8 million in the third quarter of 2008. The decrease was due primarily to reduced clinical program costs related to Synavive and CRx-401 as well as reduced compensation and benefit costs as a result of our restructuring initiatives.

General and administrative expenses were $3.6 million in the third quarter of 2009, compared to $3.8 million in the third quarter of 2008. The $0.2 million decrease was primarily due to a decrease in overall general and administrative expenses related to our fourth quarter 2008 and third quarter 2009 restructurings, offset by an increase in professional fees and consulting expenses associated with our proposed merger with Neuromed.

Net loss for the quarter ended September 30, 2009 was $8.3 million, or $0.24 per share, as compared to a net loss of $15.6 million, or $0.45 per share, in the third quarter of 2008 which included a loss from discontinued operations of $1.2 million. Stock-based compensation expense was approximately $0.6 million in the third quarter of 2009, as compared to $1.5 million in the third quarter of 2008.

Financial Implications of Restructurings:

CombinatoRx announced a restructuring initiative in November 2008 to focus on its core drug discovery strengths by reducing its workforce and scope of activities. On July 1, 2009, in connection with the entry into the Agreement and Plan of Merger with Neuromed, CombinatoRx committed to an additional restructuring plan that resulted in a reduction of an additional 36% of its workforce. As a result of the July 2009 restructuring plan, CombinatoRx recorded a restructuring charge of approximately $2.6 million in the quarter ended September 30, 2009, primarily representing cash payments for severance and other personnel-related expenses. As a result, CombinatoRx is reducing its ongoing operating cash expenditures to provide financial viability and strategic flexibility with current cash reserves without equity financing to fund its planned operations into 2012.

About CombinatoRx:

CombinatoRx, Incorporated (CRXX) is pioneering the new field of synergistic combination pharmaceuticals. Going beyond traditional combinations, CombinatoRx creates product candidates with novel mechanisms of action, striking at the biological complexities of human disease. The CombinatoRx proprietary drug discovery technology provides a renewable and previously untapped source of novel drug candidates. The Company was founded in 2000 and is located in Cambridge, Massachusetts. To learn more about CombinatoRx, please visit www.combinatorx.com.

Forward-Looking Statement:

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning CombinatoRx, its planned merger with Neuromed, Neuromed's product candidate Exalgo and its potential for FDA approval and the ability to generate future revenues for the combined company, Neuromed's agreement with Mallinckrodt, the CombinatoRx drug discovery technology, Fovea's product candidate Prednisporin(TM), its clinical potential and the amended agreement with Fovea, the potential of the CombinatoRx product candidate Synavive, CombinatoRx's financial condition, results of operations, projected expenses, cash positions and business plans. These forward-looking statements about future expectations, plans and prospects of CombinatoRx involve significant risks, uncertainties and assumptions, including risks related to the ability to complete the merger transaction with Neuromed, potential difficulty and delays in obtaining regulatory approval for the sale and marketing of Exalgo, or CombinatoRx's product candidates, the unproven nature of the CombinatoRx drug discovery technology, the ability of Fovea, Sanofi-Aventis and Mallinckrodt to perform their obligations under their collaboration agreements with CombinatoRx and Neuromed, the ability of the Company or its collaboration partners to initiate and successfully complete clinical trials of its product candidates, the Company's ability to obtain additional financing or funding for its research and development and those other risks that can be found in the "Risk Factors" section of the CombinatoRx Annual Report on Form 10-K on file with the Securities and Exchange Commission and the other reports that CombinatoRx periodically files with the Securities and Exchange Commission. Actual results may differ materially from those CombinatoRx contemplated by these forward-looking statements. These forward looking statements reflect management's current views and CombinatoRx does not undertake to update any of these forward-looking statements to reflect a change in its views or events or circumstances that occur after the date of this release.

Important Additional Information Will Be Filed with the SEC

This press release does not constitute an offer of any securities for sale. In connection with the merger with Neuromed, CombinatoRx has filed with the SEC a registration statement on Form S-4 (File No. 333-161146) (the "S-4"), which, as amended, was declared effective on October 22, 2009. The joint proxy statement/prospectus of CombinatoRx and Neuromed included in the S-4 was filed with the SEC under Rule 424(b)(3) of the Securities Act of 1933 on October 22, 2009 and mailed to CombinatoRx and Neuromed stockholders. Investors and security holders of CombinatoRx are urged to read the S-4 and the joint proxy statement/prospectus (including all amendments and supplements thereto) and the other relevant material because they contain important information about CombinatoRx, Neuromed and the proposed transaction. The S-4, joint proxy statement/prospectus and other relevant materials, and any and all documents filed by CombinatoRx with the SEC, may be obtained free of charge at the SEC's web site at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by CombinatoRx by directing a written request to CombinatoRx, Incorporated, 245 First Street, Third Floor, Cambridge, MA 02142, Attention: Secretary. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND THE OTHER RELEVANT MATERIALS BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE PROPOSED TRANSACTIONS.

(c) 2009 CombinatoRx, Incorporated. All rights reserved.

CombinatoRx, Incorporated

Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)

                Three months ended September 30, Nine months ended September 30,

                2009            2008             2009            2008

                                As Adjusted                      As Adjusted

Revenue

Collaborations  $ 2,602         $ 2,778          $ 7,936         $ 8,215

Government
contracts and     140             207              757             631
grants

                  -               -                -               -

Total revenue     2,742           2,985            8,693           8,846

                  -               -                -               -

Operating
expenses:

Research and      4,881           13,790           18,124          45,477
development

General and       3,554           3,790            12,025          11,429
administration

Restructuring     2,597           -                2,613           -

                  -               -                -               -

Total
operating         11,032          17,580           32,762          56,906
expenses

Operating loss    (8,290     )    (14,595    )     (24,069    )    (48,060    )

Interest          54              413              242             2,064
income

Interest          (1         )    (160       )     (28        )    (528       )
expense

Other             (25        )    (14        )     (32        )    20

                  -               -                -               -

Loss from
continuing
operations        (8,262     )    (14,356    )     (23,887    )    (46,504    )
before
provision for
income taxes

Provision for     -               -                -               (20        )
income taxes

                  -               -                -               -

Loss from
continuing        (8,262     )    (14,356    )     (23,887    )    (46,524    )
operations

Discontinued
Operations:

Loss from
discontinued      -               (1,207     )     (1,536     )    (3,375     )
operations

Gain on
disposal of       -               -                15,640          -
discontinued
operations

                  -               -                -               -

(Loss) gain on
discontinued      -               (1,207     )     14,104          (3,375     )
operations

                  -               -                -               -

Net loss        $ (8,262     )  $ (15,563    )   $ (9,783     )  $ (49,899    )

Net (loss)
income per
share - basic
and diluted:

From
continuing      $ (0.24      )  $ (0.41      )   $ (0.68      )  $ (1.34      )
operations

From
discontinued      -               (0.04      )     0.40            (0.09      )
operations

Net loss per
share - basic   $ (0.24      )  $ (0.45      )   $ (0.28      )  $ (1.43      )
and diluted

Weighted
average number
of common
shares used in
net income
(loss)

per share
calculation -     35,038,881      34,926,731       35,026,216      34,802,763
basic and
diluted

Note: The Statements of Operations for the three and nine months ended September
30, 2008 reflect the financial results of CombinatoRx Singapore as a
discontinued operation.

CombinatoRx, Incorporated

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(Unaudited)

                                           September 30, 2009  December 31, 2008

Assets

Current assets:

Cash and cash equivalents                  $ 1,301             $ 3,039

Restricted cash                              1,550               1,250

Short-term investments                       16,823              36,614

Accounts receivable                          885                 438

Prepaid expenses and other current assets    790                 1,001

Current assets of discontinued operations    -                   7,837

Total current assets                         21,349              50,179

Property and equipment, net                  7,740               12,400

Property and equipment of discontinued       -                   995
operations, net

Restricted cash and other assets             2,619               2,923

Total assets                               $ 31,708            $ 66,497

Liabilities and stockholders' equity

Current liabilities:

Accounts payable                           $ 861               $ 2,842

Accrued expenses                             3,116               4,067

Accrued restructuring                        1,982               1,902

Deferred revenue                             6,956               5,384

Current portion of lease incentive           284                 575
obligation

Current liabilities of discontinued          -                   19,822
operations

Total current liabilities                    13,199              34,592

Deferred revenue, net of current portion     4,895               6,325

Deferred rent, net of current portion        783                 1,680

Lease incentive obligation, net of           1,797               4,074
current portion

Accrued restructuring, net of current        -                   968
portion

Liabilities of discontinued operations       -                   66

Noncontrolling interest in discontinued      -                   2,917
operations

Stockholders' equity:

Preferred stock, $0.001 par value: 5,000
shares authorized; no shares

issued and outstanding                       -                   -

Common stock, $0.001 par value: 60,000
shares authorized; 35,064

and 35,090 shares issued and outstanding
at September 30, 2009

and December 31, 2008, respectively          35                  35

Additional paid-in capital                   255,773             267,238

Accumulated other comprehensive income       6                   73

Accumulated deficit                          (244,780 )          (251,471 )

Stockholders' equity                         11,034              15,875

Total liabilities and stockholders'        $ 31,708            $ 66,497
equity

Note: The Balance Sheet as of December 31, 2008 reflects the reclassification of
CombinatoRx Singapore as a discontinued operation.

    Source: CombinatoRx, Incorporated

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