Advitech Announces First-Quarter Financial Results

QUÉBEC – May 4, 2005 - Advitech Inc. (TSX-V : AVI) today announced its highlights and financial results for the first quarter ended March 31, 2005. At its annual shareholders’ meeting held yesterday, its first as a publicly-traded company, President and Chief Executive Officer Renaud Beauchesne presented the highlights of 2004 and the prospects for 2005.

“During the annual shareholders’ meeting held yesterday, I pointed out that our top priority over the coming months will be to realize the commercial potential of XP-828L, our most promising technology for the psoriasis market.” mentioned Renaud Beauchesne, President and Chief Executive Officer of Advitech. “In addition to focusing on marketing, we intend to continue developing the XP-828L platform for other applications as a bellwether of its long-term potential.”


RECENT HIGHLIGHTS


Clinical Study on XP-828L for Mild to Moderate Psoriasis

The double-blind, placebo-controlled clinical study is progressing on schedule. All participating patients have now completed the first 56 days of treatment and approximately 60% of the patients will have completed the 112-day study by mid-May. The study will be completed before the end of June, and the results are expected to be released in early July 2005.

Commercial Partnerships for XP-828L

Discussions are under way with several pharmaceutical companies to market XP 828L. Positive feedback from these discussions confirms the high demand for an orally administered, safe product for people suffering from mild to moderate psoriasis, or some 90% of the total market. XP-828L appears to be well-positioned to meet this need.

Presentation to Congress of the American Academy of Dermatology (AAD)

A scientific poster on the findings of the open clinical trial on XP-828L was presented at the Congress of the American Academy of Dermatology (AAD), held in New Orleans, February 18-23, 2005. More than 8,000 dermatologists and other health professionals from all over the world took part in the Congress. During this event the Company initiated discussions with several pharmaceutical companies for marketing XP-828L.

XP-828L in Vivo Study for Inflammatory Bowel Diseases

A first in vivo study has been initiated on the use of XP-828L for inflammatory bowel diseases, in collaboration with the Centre de Recherche du Centre Hospitalier de l’Université Laval (CRCHUL). The results are expected midway through the third quarter, and if positive, a first clinical study could be undertaken in 2006.


Partnership with Laval University and the NSERC

The Natural Sciences and Engineering Research Council of Canada (NSERC) has agreed to support a joint Advitech-Université Laval project to identify new applications for XP-828L. This project, under the supervision of Sylvie Gauthier, Ph.D., Advitech’s Associate Researcher, will involve several researchers and will benefit from funding from both the NSERC and Advitech of close to $1.2 million, over three years.


FINANCIAL RESULTS

For the first quarter ended March 31, 2005, net loss stood at $671,269 or $0.01 per share, compared to a net loss of $267,378 or $0.01 per share for the same period in 2004, an increase of $403,891. For this quarter, operating revenue reached $157,034, compared to $406,388 for the first quarter of 2004, or a decrease of 61,4%. Gross research and development expenses were $463,520 during the first quarter of 2005, compared to $186,570 for the same period last year.

At March 31, 2005, cash and cash equivalents totalled $1,839,112, compared to $2,628,006 at December 31, 2004, or a decrease of $788,894 during this quarter, which is in line with the Company’s expectations.


“The achievements of the first quarter strengthened the Company’s position in the market for chronic inflammatory diseases. We will accelerate our XP-828L marketing program over the coming quarters to ensure maximum impact if the results of our clinical trial are positive,” Renaud Beauchesne concluded.

The loss before discontinued operations amounted to $671,269 for the first quarter ended March 31, 2005, compared to a loss of $293,930 for the first quarter ended March 31, 2004, an increase of $377,339, or 128.4%. This increase is due mainly to a reduction in sales of Lactium, an increase in research and development expenses for the clinical development of XP-828L, and an increase in sales and marketing expenses for the XP-828L pre-commercialization program.

Total revenues were $157,034 for the first quarter ended March 31, 2005, compared to $406,388 for the first quarter ended March 31, 2004. Revenue from product sales totalled $80,885 for the quarter ended March 31, 2005, compared to $344,593 for the corresponding quarter of 2004, or a decrease of $263,708. Of this amount, $162,475 can be attributed to lower sales of the ingredient Lactium, and $101,233 to sales of products in 2004 that are no longer sold by the Company. For the first quarter of 2005, there was no revenue from research contracts, whereas revenue from research contracts with strategic partners amounted to $46,237 for the corresponding quarter of 2004. This decrease reflects the decision made by the Company to limit third-party research contracts and to focus its research efforts on its own proprietary products. During the first quarter 2005, royalties amounted to $76,149 compared to $15,558 for the first quarter of 2004. This increase is due to the sale of licences for products that are no longer marketed by the Company.

For the first quarter ended March 31, 2005, cost of products sold was $54,322, representing a gross margin of 32.8%, compared to $245,746 and a gross margin of 28.7% for the same quarter in 2004. This increase in gross margin is due mainly to a reduction in raw material costs used in manufacturing products.

Sales and administrative expenses amounted to $321,896 for the first quarter ended March 31, 2005, compared to $290,091 for the first quarter of 2004, an increase of $31,805, or 11.0%. The increase in sales and marketing expenses is due mainly to the addition of sales and marketing personnel and to current efforts undertaken for marketing XP-828L. During the first quarter of 2005, no significant change was recorded for administrative expenses.

Research and development gross expenses were $463,520 for the first quarter of 2005, compared to $186,570 for the first quarter ended March 31, 2004. This increase is due mainly to expenses incurred under the XP-828L clinical development program. Research and development tax credits and grants totalled $86,529 for the first quarter ended March 31, 2005, compared to $107,810 for the first quarter ended March 31, 2004. This reduction of $21,281 or 19.7% is due to change in the Company’s status. As a public company, it is no longer eligible to receive the federal income tax credits for research and development. This will be the case as long as the Company’s cumulative profits are less than the total losses carried forward from previous years.

Financial expenses amounted to $22,129 for the first quarter of 2005, compared to $36,058 for the same period in 2004, a decrease of $13,928, or 38.6%. This reduction is due to an increase in interest income generated by cash received from the public financing completed in July 2004.

Amortization of intangible assets and deferred costs totalled $7,206 for the first quarter of 2005, compared to $10,743 for the first quarter of 2004, a decrease of $3,537 or 32.9%. The allowance for depreciation on intangible assets and deferred charges resulted from depreciation of fees related to obtaining a licence and securing patents as well as those related to the issuance of debentures. These expenses are depreciated over the terms of the licence, of the patents and of the debentures, respectively. For the first quarter of 2005, no significant change was recorded in the value of tangible assets and their corresponding depreciation expense.


LIQUIDITY AND SOURCES OF FUNDS

In addition to cash provided by its current commercial activities, financial resources to support the Company’s operations have been derived from the issuance of equity, loans to finance its tax credit receivables, grants obtained from various sources and, in 2003, from the issuance of debentures. Until the activities related to its future products start generating net cash, the Company intends to continue funding its activities through the same sources. As at March 31, 2005, the Company also had a line of credit, of an authorized amount of $450,000, secured by a hypothec on its receivables and this line of credit was not used.

As at March 31, 2005, the Company had $1,839,112 in cash and cash equivalents, compared to $2,628,006 as at December 31, 2004. This decrease is mainly attributable to funds used for operating activities.

Operating activities used $768,198 in cash during the first quarter of 2005 which is derived from the net loss adjusted for items not affecting cash of $610,385 and an increase in working capital requirements of $157,813. Cash used for operations is mainly dedicated to research and development and its underlying administrative structure.

During the first quarter ended March 31, 2005, $17,025 was used for investment activities, $3,791 for the acquisition of office equipment and $13,234 for legal fees disbursed to secure patents.

As for financing activities, during the first quarter of 2005, the Company used $34,940 to repay certain loans.



About Advitech

Advitech is a biotechnology company specializing in the development of bioactive ingredients from dairy proteins. Its key focus areas are in the fields of immunology and inflammation. Its main platform, XP-828L, is a growth factor complex used as an orally administered product for mild to moderate psoriasis and other immune-mediated chronic inflammatory diseases. Advitech’s common shares are listed on the TSX Venture Exchange under the symbol AVI. The number of common shares outstanding is 54,799,818.

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This press release contains forward-looking statements which reflect the Company's current expectations regarding future events. The forward-looking statements involve risks and uncertainties. Actual results could differ materially from those projected herein. The reader is cautioned not to rely on these forward-looking statements.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

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