Ms. Jennifer Shea reports

BIONICHE LIFE SCIENCES INC. REPORTS FISCAL 2014 SECOND QUARTER RESULTS AND ANNOUNCES STRATEGIC EXPENDITURE REVIEW AND NEW ONE HEALTH STRATEGY

Bioniche Life Sciences Inc. has released financial results for the fiscal 2014 second quarter ended Dec. 31, 2013.

Highlights include:

• Bioniche Animal Health generated 100-per-cent year-over-year EBITDA (earnings before interest, taxes, depreciation and amortization) increase;
• Negotiations continuing for the sale of the animal health business;
  • No public announcement until a binding agreement is executed;
• Implementation of strategic expenditure review and substantial work force reduction;
• Focused strategy for One Health partnering and divestment;
  • Significant reduction in continuing operational spend;
• Positioning the company for sustainable future with a focus on the human health business.

Bioniche Animal Health posts strong year-to-date results

Bioniche Animal Health (an asset held for sale) generated an EBITDA of $4-million on a year-to-date basis at Dec. 31, 2013, as compared with $2-million at Dec. 31, 2012. This was achieved through a combination of a 19.2-per-cent reduction in expenses, a 2-per-cent improvement in margins and a 4-per-cent increase in revenues as compared with the same period in fiscal 2013.

"Our U.S. business is largely driving these positive results," said Dr. Michael Berendt, chief executive officer of Bioniche Life Sciences. "Improvements in the U.S. economy, a strong U.S. dollar and positive trends in the livestock industry are fuelling improved revenues. In addition, our European and export businesses are seeing better results, in part due to the expanded registrations of our lead product, Folltropin, in seven new [European Union] countries."

Bioniche Animal Health divestment update

The company is currently in negotiations with regard to the divestment of its animal health business. The divestment process has taken longer than expected. A number of counterparties have completed due diligence and submitted bids in late 2013 and early 2014, and negotiations are continuing. If successfully concluded, a definitive agreement will be signed and a special shareholder meeting will be scheduled, at which time shareholders will be asked to vote on the transaction.

Strategic expenditure review

Over the last three months, management initiated a strategic review of program expenditures to ensure that the company's financial resources are dedicated to activities and resources that will drive shareholder value in the short, medium and long term, with a focus on optimizing the company's ability to add value to its human health franchise. At the same time, the company is focused on ensuring that the sales process of the animal health business is successfully completed, and that its investment to date in the One Health division can be recouped through the sale and/or partnership of its associated assets, including the Econiche vaccine technology and the vaccine manufacturing centre (VMC) in Belleville, Ont.

As a direct result of the strategic expenditure review, the company has taken the difficult decision to reduce more than 40 employee positions. In the short term, this will result in severance expenses of approximately $1.2-million, while annual salary and benefits expenses will be reduced by approximately $3-million. In addition, the company has delisted from the Australian Securities Exchange, has listed two non-core properties for immediate sale and has undertaken numerous smaller transactions dedicated to reducing operating expenses on a continuing basis by negotiating reductions in past supplier invoices and discounts, and lower rates for future goods and services. Management is considering additional measures to continue to ensure that the company is run as efficiently as possible, and will finalize, implement and announce these measures as the divestment of the animal health business is achieved and as the U.S. regulatory pathway for Urocidin is clarified.

Fiscal 2014 second quarter and year-to-date financial results

As a result of the company's decision to divest the animal health business last year, the fiscal 2014 second quarter financial statements have been segmented into continuing operations (the human health business and the One Health business unit) and discontinued operations (the animal health business unit).

Continuing operations

The company's continuing operations recorded no revenues in the quarter, as compared with $8,000 in the same period in fiscal 2013. On a year-to-date basis, there was no revenues at Dec. 31, 2013, as compared with $80,000 at Dec. 31, 2012. In fiscal 2013, the company received reimbursement from its former development partner for Urocidin-related development costs. Such reimbursement was discontinued when the company regained global rights to Urocidin in December, 2012.

Cash and cash equivalents from continuing operations amounted to $11.2-million at Dec. 31, 2013, as compared with $4.2-million at June 30, 2013. This improvement reflects the completion of a $9.8-million Canadian equity offering and related private placement in September, 2013, as well as loan advances from Paladin Labs Inc., less operating and research and development activities and higher financial expenses.

The company's total liabilities and shareholder deficiency at Dec. 31, 2013, is $50.5-million, as compared with $61.5-million at June 30, 2013.

Financial expenses settled in cash continue to be a substantial contributor to the company's average monthly burn rate. These amounted to $1.4-million for the second quarter of fiscal 2014 compared with $900,000 recorded in the second quarter of fiscal 2013. On a year-to-date basis, such expenses were $2.7-million at Dec. 31, 2013, as compared with $1.7-million at Dec. 31, 2012.

Administration expenses for continuing operations were $1.5-million in the second quarter of fiscal 2014, as compared with $1.4-million in the second quarter of fiscal 2013. On a year-to-date basis, administration expenses were $2.8-million in fiscal 2014 as compared with $3.1-million in the same period of fiscal 2013. Marketing and selling expenses were $200,000 in the second quarter of fiscal 2014 as compared with $400,000 in the same period last year.

Research and development expenditures for continuing operations were $23-million in the second quarter of fiscal 2014, as compared with $3.1-million in the second quarter of fiscal 2013. On a year-to-date basis, such expenditures amounted to $26.1-million at Dec. 31, 2013, as compared with $6.4-million at Dec. 31, 2012. This significant change relates to a $20-million impairment of the vaccine manufacturing centre in Belleville, Ont., due to the corporate decision to scale back the vaccine manufacturing centre operations pending the identification of a purchaser or partner for this asset.

"The VMC and Econiche remain valuable corporate assets," said Donald Olds, chief operating officer of Bioniche Life Sciences. "Unfortunately, the company has been unable to capitalize on this asset to date, as uptake of the company's E. coli O157 cattle vaccine (Econiche) has been limited, and efforts to gain government support for a national E. coli vaccination program in Canada have not met with success. Our efforts going forward will be focused on the identification of a strategic partner who can bring this vaccine technology and facility forward to commercial success."

The vaccine manufacturing centre was purpose built to make this vaccine but could be modified to make other products. The company will preserve the vaccine manufacturing centre for future use by an alliance partner, and it will limit investment to those activities that will drive a partnership.

The basic and fully diluted net loss per share for the company's continuing operations for the second quarter of fiscal 2014 is 19 cents, as compared with a basic and fully diluted net loss per share of six cents in the second quarter of fiscal 2013. On a year-to-date basis, the basic and fully diluted loss per share for continuing operations is 27 cents, as compared with a loss of 12 cents in fiscal 2013.

Discontinued operations (the animal health business)

Revenues for this business unit in the second quarter of fiscal 2014 were $8.3-million, as compared with $8.8-million in the same period in fiscal 2013. Net income in the second quarter of fiscal 2014 was $2.1-million, as compared with net income of $1.1-million in the second quarter of fiscal 2013. On a year-to-date basis, revenues at Dec. 31, 2013, were $16.1-million, as compared with $15.4-million at Dec. 31, 2012.

The basic and fully diluted net earnings per share for the company's discontinued operations for the second quarter of fiscal 2014 is two cents, as compared with earnings of one cent in the second quarter of fiscal 2013. On a year-to-date basis, the basic and fully diluted earnings per share for continuing operations is three cents, as compared with one cent in fiscal 2013.

Fiscal 2014 second quarter summary

The company's consolidated cash flow used in operations for the quarter ended Dec. 31, 2013 (both continuing and discontinued operations), was $3.7-million, as compared with cash used in operations of $4.7-million in the second quarter of fiscal 2013. On a year-to-date basis, consolidated cash flow used in operations was $8.4-million, as compared with $9.7-million for the first six months of fiscal 2013.

The average monthly burn rate (before changes in working capital) was $1-million for the second quarter of fiscal 2014, as compared with $1.1-million for the same quarter in fiscal 2013. On a year-to-date basis, the average monthly burn rate was $1.1-million, as compared with $1.4-million per month in the first half of fiscal 2013.

The company has total common shares outstanding at Feb. 5, 2014, of 141,246,810. In addition, the company has 22,270,912 outstanding warrants and 11,124,665 outstanding options, exchangeable for one common share upon exercise.

More information on the company's year-end financial results is provided in the company's fiscal 2014 second quarter management's discussion and analysis.

ASX delisting

The company's securities are no longer trading on the ASX, effective at close of trading on Monday, Feb. 3, 2014. Holders of CHESS depositary interests (CDIs) may continue to access company news via its website or on SEDAR.

Shareholder conference call and audio webcast

Shareholders are reminded that company representatives will discuss the fiscal 2014 second quarter (half-year) results and operational changes during a conference call and audio webcast on Wednesday, Feb. 12, 2014, 5 p.m. EST.

To participate in the conference call from North America, call 888-231-8191 (conference ID: 53209337). A listen-only audio webcast will be available on the Internet.

A replay of the conference call will be available until Feb. 19, 2014, at midnight by calling 1-855-859-2056 (passcode: 53209337). The webcast will be available for replay on the Internet until Feb. 12, 2015.

We seek Safe Harbor.