Gentium announces financial results for the third quarter ended September 30, 2009

Nov 30 2009

Gentium S.p.A. (NASDAQ: GENT) (the “Company”) today reported financial results for the quarter ended September 30, 2009.

Financial Highlights

Gentium S.p.A., or the Company, reports its financial condition and operating results using U.S. Generally Accepted Accounting Principles (GAAP). The Company’s financial statements are prepared using the Euro (€) as its functional currency. On September 30, 2009, €1.00 = $1.4643.

For the third quarter ended September 30, 2009 compared with the prior year’s third quarter:

• Total revenues were €2.50 million, compared with €1.85 million. The increase was primarily attributable to named-patient sales of Defibrotide throughout the European and Asia-Pacific markets, offset by a decrease in other revenues, mainly cost sharing revenues from Sigma-Tau.
• Operating costs and expenses were €3.49 million, compared with €8.86 million. Operating costs and expense for the three-month period ended September 30, 2008 included a write down of acquired assets of €3.05 million.
• Research and development expenses, which are included in operating costs and expenses, were €0.85 million, compared with €2.51 million. Lower costs were due to the completion in enrollment in both the pediatric prevention and treatment studies as well as cost-reduction initiatives.
• Operating loss was €0.99 million, compared with €7.02 million. Operating losses in 2008 included a write down of acquired assets of €3.05 million. The lower operating loss for the nine months ended September 30, 2009 was due to the higher revenues and gross margins attributable to named-patient sales and lower general and administrative and research and development expenses.
• Net loss was €1.02 million, compared with €5.85 million.
• Basic and diluted net loss per share was €0.07 compared with €0.39 per share.

For the nine-month period ended September 30, 2009 compared with the comparable prior-year period:

• Total revenues were €6.12 million, compared with €6.40 million.
• Operating costs and expenses were €10.66 million, compared with €22.89 million.
• Research and development expenses, which are included in operating costs and expenses, were €2.66 million, compared with €7.87 million. Research and development expenses for the nine-month periods ended September 30, 2009 and 2008 are net of €0.76 million and €0.79 million, respectively, of government grants in the form of a tax credit, accrued as a reduction of research and development expenses.
• Operating loss was €4.54 million, compared with €16.49 million.
• Interest income (expense), net, was (€0.09) million, compared with €0.17 million.
• Net loss was €4.48 million, compared with €16.46 million.
• Basic and diluted net loss per share was €0.30, compared with €1.10 per share.

Cash and cash equivalents and short term available for sale securities as of September 30, 2009 were €0.97 million compared with €11.49 million as of December 31, 2008. In March 2009, the Company made a final installment payment of €4.0 million related to the acquisition of marketing authorizations and trademarks for Prociclide and Noravid (previous forms of Defibrotide sold only in Italy). Net cash used in operating activities for the nine-month period ended September 30, 2009 was €5.68 million compared with €11.09 million for the same period in 2008. The reduction in net cash used in operating activities between the two periods reflects a decrease in spending on development activities coupled with increased cash flows from the named-patient program. The Company also utilized Cassa Integrazione, a mechanism available to companies in Italy to temporarily lay-off employees, with the Italian government funding a portion of the costs of the employees during the lay-off period.

In light of increased revenues from the named-patient program and cost-reduction initiatives, among other factors, the Company currently anticipates that its cash will meet its operating requirements through June 2010. However, in order for the Company to continue as a going concern beyond this point, the Company will likely need to obtain capital from external sources.

“We are pleased with the revenue that continues to be generated through the named-patient program,” said Gary Gemignani, Executive Vice-President and Chief Financial Officer. “We have also initiated a cost recovery program, which is being administered by US Oncology, for distribution of Defibrotide through our expanded access program in the U.S., which we believe, along with the named-patient program, continues to demonstrate the demand that exists for Defibrotide. We continue to evaluate our strategic options and look forward to continuing our efforts toward obtaining regulatory approval to market Defibrotide.”

Company Update

Gentium reported top-line results from a historically controlled, multicenter, open label, Phase III trial designed to evaluate the safety and efficacy of 25 mg/kg/day of Defibrotide for the treatment of severe veno-occlusive disease (sVOD) in hematopoietic stem cell transplant (SCT) patients. The results demonstrated strong trends in favor of the Defibrotide-treated patients for complete response and survival, but did not reach the protocol-specified levels of significance for the primary and secondary endpoints at 100 days. Gentium will announce final results from this trial and the Company's Phase II/III Pediatric Prevention trial in two oral presentations at the American Society of Hematology Conference (ASH) on December 7, 2009 in New Orleans.

In the third quarter, Gentium also announced that five of the eight members of its Board of Directors resigned, thereby triggering automatic termination of its entire Board of Directors under Italian law. Following an ordinary meeting of shareholders, the Company recently announced the election of a new Board of Directors and the appointment of Dr. Khalid Islam as Interim CEO.

Operating Results

Net product sales for the nine-month period ended September 30, 2009 were €5.99 million compared with €4.12 million for the same period in 2008, an increase of €1.87 million or 45%. The increase was primarily due to the initiation of a named-patient program in April 2009 to distribute Defibrotide throughout the European and Asia-Pacific markets. Named-patient program gross sales for the period from April 21, 2009 through September 30, 2009 amounted to €2.82 million or €2.43 million net of related service payments. Through October 30, 2009, the Company has generated €3.54 million in gross revenue, or €3.05 million in net revenue, through the named-patient program.

Sales to a related party, Sirton, for the nine-month periods ended September 30, 2009 and 2008 represented 3% and 13% of the total product sales, net, respectively. The decrease in sales to Sirton is primarily due to the fact that the Company entered into direct agreements with Sirton’s customers in order to mitigate the risk associated with Sirton’s poor financial condition.

Sales to third parties decreased to €3.37 million for the nine-month period ended September 30, 2009 compared with €3.57 million for the same period in 2008. The nine-month period ended September 30, 2009 does not includes sales of Prociclide and Noravid (due to discontinuation of such sale), which in the prior period amounted to €1.72 million. The discontinuation of sales of Prociclide and Noravid was offset for the current nine-month period due to higher volume of sales to third parties and price increase.

Other revenues, primarily cost-sharing revenues from Sigma-Tau, were €0.13 million for the nine-month period ended September 30, 2009, compared with €2.28 million for the same period in 2008. Fluctuation versus the prior period is primarily due to timing on the recognition of reimbursement of certain costs incurred for the Company’s Phase III clinical trial of Defibrotide to treat Severe VOD.

Cost of goods sold was €3.13 million for the nine-month period ended September 30, 2009 compared with €4.32 million for the same period in 2008. Cost of goods sold as a percentage of product sales was 52% for the nine-month period ended September 30, 2009 compared with 105% for the same period in 2008. The percentage decrease is primarily due to (i) higher margins on Defibrotide sold through the named-patient program, (ii) price increases in the active pharmaceutical ingredient business, and (iii) discontinuation of negative margins associated with Prociclide and Noravid. The Company has fully expensed, during the prior nine-month period, costs associated with the production of Defibrotide; therefore, costs of goods sold do not reflect the full costs of production, because a portion of the active pharmaceuticals ingredients, conversion and labor and overhead costs incurred to produce Defibrotide sold through the named-patient program were previously expensed. Additionally, the higher percentage for the nine-month period ended in 2008 was primarily due to the fact that product sales to Sirton were not recognized after March 2008, due to Sirton's poor financial condition and concerns over the collectability of such receivables. Cost of goods sold as of September 30, 2009 and 2008 include an allowance on inventory of €0.1 million and €0.06 million, respectively.

The Company incurred research and development expenses of €2.66 million for the nine- month period ended September 30, 2009 compared with €7.87 million for the same period in 2008. Research and development expenses for the nine-month periods ended September 30, 2009 and 2008 are net of €0.76 million and €0.79 million, respectively, of government grants, in the form of a tax credit, which have been accrued as a reduction of expense. Research and development expenses were primarily for the development of Defibrotide to treat and prevent VOD. The decrease from the comparable period in 2008 is primarily due to lower stock based compensation costs and development expenses (including contract research organization expenses and regulatory activities) following the completion of enrollment of the treatment trial, as well as cost-reduction initiatives.

General and administrative expenses were €3.96 million for the nine-month period ended September 30, 2009 compared with €6.36 million for the same period 2008. General and administrative expenses from the prior nine-month-period reflect the establishment of an allowance for doubtful accounts of €1.77 million, which was partially released for €0.41 million in 2009. The decrease in general and administrative expense is also attributable to lower stock based compensation costs and a decrease in payroll costs due to the temporary layoffs under the Cassa Integrazione program during the nine-month period ended September 30, 2009. For the nine-month period ended September 30, 2009, general and administrative expenses include recognition of service fees for named-patient program of €0.39 million.

Foreign currency exchange gain (loss) is primarily due to remeasurement of U.S. dollar cash balances. The positive result between 2009 and 2008 is due to a more favorable exchange rate in 2009 between the Euro and U.S. dollar and a lower cash balance in 2009 versus 2008.

Interest income (expense), net amounted to (€0.09) million and €0.17 million for the nine- month periods ended September 30, 2009 and 2008, respectively. Gross interest income amounted to €0.03 million and €0.43 million for the nine-month periods ended September 30, 2009 and 2008, respectively, a decrease of €0.40 million. The decrease is a result of a lower amount of invested funds in the nine-month period ended September 30, 2009 and a decrease in interest rates. Interest expense totalled €0.12 million and €0.26 million for the nine-month periods ended September 30, 2009 and 2008, respectively, a decrease of €0.13 million attributable to a fluctuation in interest rate and decrease of principal debt outstanding.

Net loss was €4.48 million for the nine-month period ended September 30, 2009 compared with €16.46 million for the same period in 2008. The difference was primarily due to lower research and development expenses, general and administrative expenses, and other income and revenues, as well as no write-down of acquired assets, which in 2008 amounted to €3.5 million, offset by an increase in margin from product sales through the named-patient program.