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Allelix Reports Q3 1998 Updates and Results.

TORONTO--(BUSINESS WIRE)--July 13, 1998--Allelix Biopharmaceu(TSE:AXB.) (ME:AXB.) Allelix Biopharmaceuticals Inc. today reported business updates and financial results for the third quarter of fiscal 1998.

Highlights

- ALX-0646 for migraine moves into clinic - Phase Ia dosing finished.

- Clinical results for ALX1-11 submitted for presentation.

- Pre-clinical results for ALX-0600 presented at major gastroenterology meeting - on track for Phase I in the near future.

- Graham Strachan to assume position as Vice Chair. Business Unit Updates

Neuroscience - In April, Allelix moved into the clinic with ALX-0646 for migraine. The first trial was a Phase Ia single-dose escalation study with 24 healthy volunteers and the final dose level was administered early in July. Following data analysis, the Phase Ib dose optimization study is scheduled to start in August. The development plan anticipates initiation of a Phase II study by the end of 1998 or the beginning of 1999.

In the schizophrenia program, discussions with potential pharmaceutical partners advanced significantly during the quarter. In addition, pre-clinical testing of the lead compound and other drugs from the same family of GRI-1 antagonists provided further information regarding the novel mechanism of action in preparation for clinical trials.

In addition, the Company plans to be in the clinic before the end of the year with a third neuroscience product. Three candidates are under consideration; an Allelix/Pharm-Eco compound for dementia, a GRI-2 antagonist targeting spasticity in spinal cord injury and one drug from a family of compounds under development for cocaine abuse treatment.

Protein Therapeutics - Encouraging data from three separate animal studies with the gastroenterology compound, ALX-0600, generated enthusiasm for the Company at the American Gastroenterology Association's Digestive Disease Week in New Orleans. Canadian researchers presented results from studies incorporating models of potential indications. Dr. Jon Meddings and his colleagues from the Gastrointestinal Research Group at the University of Calgary showed that ALX-0600 stimulated intestinal growth and absorptive capacity in rats following removal of portions of small bowel. Dr. Daniel Drucker of the Toronto Hospital reported that ALX-0600 reversed weight loss and facilitated healing in the presence of intestinal inflammation. Dr. Mary Purdue and scientists at the McMaster University Intestinal Disease Research Group demonstrated that ALX-0600 has the potential to reduce intestinal permeability, which could be beneficial in treating inflammation.

Significant progress was made during the quarter to advance ALX-0600 into the clinic. Data supporting an application for human testing were generated in toxicology, process development, manufacturing, product formulation and stability. The project is scheduled to enter Phase I in the near future.

Abstracts of scientific data from various studies relating to the Phase II trial of ALX1-11 (PTH; recombinant human Parathyroid Hormone 1-84) for osteoporosis have been submitted for review in anticipation of presentations at the meeting of the American Society for Bone & Mineral Research (ASBMR) in December. Presentation of this data will coincide with the planned start of Phase III clinical studies. Other Developments

Graham Strachan has indicated to the Board of Directors his desire to relinquish his position as President and Chief Executive Officer of Allelix once a successor is identified and in place. Mr. Strachan will serve as Vice Chair of the Company and as a member of the Board of Directors. In this role he will focus on strategic and corporate development issues to accelerate the process of attaining profitability in the business.

Mr. Strachan noted, "As a founder and President of Allelix since 1987, I have enjoyed the unique aspects of building a biopharmaceutical company over this time. However, at this point I am looking forward to being less intensely focused on day to day operating responsibilities. The Board of Directors has established a search committee that is evaluating both internal and external candidates to assume the leadership role of the Company." Financial highlights

Revenue for the quarter ended May 31, 1998 was $2.7 million, $0.9 million below the comparable quarter of fiscal 1997.

The loss before amortization increased by $3.9 million to $7.0 million in 1998. The Company reported a net loss of $10.9 million ($0.60 per share) for the period, compared with a loss of $3.4 million ($0.22 peraine and the preparation of ALX-0600 for Phase 7.1 million received from Astra following its decision to proceed into Phase III clinical trials with ALX1-11ith a loss of $8.3 million in 1997. For the firar to date loss reflects primarily the non-cashartnership with established pharmaceutical companies including Astra AB, Eli Lilly and Janssen Pharmaceutica. Products in development include ALX1-11 for the treatment o As at May 31,

3,105 Prepaid expenses and other ------------------------------------------------------

$86,716 $71,000 ---------------------------------------------------lease obligations 1,011 --------------- Capital lease obligations 1,407 1,700 --------------------------------------------------------------- Shareholders' equity Share capital 149,718 120,670 Deficit (73,066) (55,129) --------------------------------------------------------------- Total shareholders' equity 76,652 65,541 ---------------------------------------------------------------

$86,716 $71,000 --------------------------------------------------------------- ---------------------------------------------------------------

Comparative figures have been reclassified

Consolidated Statements of Loss and Deficit (unaudited) (in thousands)

For the three months For the nine months

ended May 31, ended May 31,

1998 1997 1998 1997

Revenues Collaborative and

contract revenue $2,188 $3,032 $25,398 $11,777 Interest income 557 643 1,714 1,767 ---------------------------------------------------------------

2,745 3,676 27,112 13,544 ---------------------------------------------------------------

Expenses Research and development 7,647 5,309 20,895 17,473 General and

administrative 2,057 1,414 7,039 4,389 ---------------------------------------------------------------

9,704 6,723 27,934 21,862 --------------------------------------------------------------- Loss before dilution

gain and amortization (6,959) (3,048) (822) (8,317) Dilution gain - - 1,089 - Amortization (3,910) (334) (11,352) (784) --------------------------------------------------------------- Net loss for

the period (10,869) (3,382) (11,085) (9,101) Deficit,

beginning of period (62,197) (51,748) (61,981) (44,252) Share issue -----------------

Loss per share $(0.60) $(0.22) $(0.62) $(0.66) --------------------------------------------------------------- Weighted average

number of shares

outstanding 18,093,087 15,160,907 17,891,635 13,734,666 ---------------------------------------------------------------

Comparative figures have been reclassified

Consolidated Statements of Changes in Financial Position (unaudited) (in thousands)

For the three months For the nine months

ended May 31, ended May 31,

1998 1997 1998 1997

----------------------------------------- Operating Activities Net loss

for the period $(10,869) $(3,382) $(11,085) $(9,101) Add items not requiring

a current (inflow)

outflow of cash

Amortization 3,910 334 11,352 784

Dilution gain - - (1,089) - ---------------------------------------------------------------

(6,959) (3,048) (822) (8,317)

Net change in non-cash

working capital balances

related to operations (1,284) 131 (2,829) (276) --------------------------------------------------------------- Cash used in

operating activities (8,243) (2,916) (3,651) (8,593) ---------------------------------------------------------------

Investing Activities Purchase of

capital assets (523) (439) (1,765) (739) Investment in

Allelix Pharm-Eco LP - (2,474) (2,587) (2,475) Acquisition of

research programs - - (2,080) --------------------------------------------------------------- Cash used in

investing activities (523) (2,913) (4,352) (5,294) ---------------------------------------------------------------

Financing Activities Increase in capital

lease obligations - 553 109 775 Payment of capital

lease obligations (374) (144) (1,139) (417) Proceeds from

issuance of warrants - - - 480 Proceeds from issuance

of share capital 1,483 1,262 4,386 32,241 --------------------------------------------------------------- Cash provided by

financing activities 1,109 1,671 3,356 33,079 --------------------------------------------------------------- Net increase

(decrease) in cash (7,657) (4,159) (4,647) 19,192

Cash and marketable

securities, beginning

of period 53,441 64,235 50,431 40,884 --------------------------------------------------------------- Cash and marketable

securities,

end of period $45,784 $60,076 $45,784 $60,076 --------------------------------------------------------------- ---------------------------------------------------------------

Comparative figures have been reclassified

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