Advitech Announces Second-Quarter Highlights and Financial Results

QUÉBEC – August 24, 2005 - Advitech Inc. (TSX-V : AVI) today announced its financial results and operating highlights for the second quarter ended June 30, 2005.

Commenting on the recent developments about XP-828L, Renaud Beauchesne, President and CEO of Advitech mentioned : “Last year, we told our shareholders that our main priority would be the completion of a clinical trial on XP-828L before the end of the second quarter of 2005. We have delivered on this commitment. The results showed that 21.4% of the patients using XP-828L experienced a clinically significant improvement in their condition. In the opinion of the scientific experts we consulted, these are excellent results for a nutraceutical product like XP-828L.”

“These positive results allow us to step up the discussions undertaken earlier this year with the objective of concluding a first marketing agreement before the end of 2005. This is going to be our most important priority for the coming months”, concluded Beauchesne.

Positive results of the XP-828L clinical trial on XP-828L for mild-to-moderate psoriasis

On July 5, 2005, the Company reported positive results from its clinical trial of XP-828L, its new oral product for treating mild-to-moderate psoriasis. The main objective of the 112-day multi-center study, involving 84 patients, was to confirm the efficacy and safety of XP-828L. The study was conducted by Robert Bissonnette, M.D., and Yves Poulin, M.D., two renowned dermatologists who have been involved in several clinical trials on psoriasis. Results from the study confirm the efficacy of XP-828L compared with placebo, as measured by the Physician’s Global Assessment (PGA) scale, the primary endpoint of the study. The study achieved another important objective by confirming the excellent safety profile of XP-828L. During the entire 112-day study, no related serious adverse event (SAE) was reported.

Navigant Consulting Study

In July 2005, the Company retained the services of Navigant Consulting Inc. to assess the market potential of XP-828L. Navigant, which recently published a comprehensive study of the U.S. psoriasis market, is a U.S.- based consulting firm offering specialized services in the biotech and health care sectors.

Navigant conducted an in-depth survey of U.S. dermatologists to determine their level of interest in XP-828L as an alternative Over-the-Counter (OTC) treatment for patients suffering from mild to moderate psoriasis. The results of the Navigant study are positive and confirm the positioning and potential of XP 828L.

Experienced executive for the Marketing Alliance Program

The Company also announced on July 13, 2005, that Mr. Pierre Mailloux, an executive with more than twenty years of experience in the pharmaceutical industry, will assist in carrying out the marketing alliance program. Mr. Mailloux will provide the Company with his extensive experience in U.S. and international business development activities. His role will be to help the Company in identifying potential marketing partners and negotiating distribution agreements.

For the second quarter ended June 30, 2005, net loss stood at $536,168, or $0.01 per share, compared to a net loss of $188,976, or $0.00 per share for the same period in 2004, an increase of $347,192. Gross research and development expenses were $309,617 during the second quarter of 2005, compared to $205,431 for the same period last year.

For the six-month period ended June 30, 2005, net loss stood at $1,207,437, or $0.02 per share, compared to a net loss of $456,354, or $0.01 per share for the same period in 2004, an increase of $751,083. Gross research and development expenses were $773,137 during the six-month period ended June 30, 2005, compared to $392,001 for the same period last year.

At June 30, 2005, cash and cash equivalents totalled $1,273,360, compared to $1,839,112 as at March 31, 2005, or a decrease of $565,752 during this quarter, which is in line with the Company’s expectations.


Loss before discontinued operations amounted to $536,168 for the second quarter ended June 30, 2005, compared to a loss of $181,083 for the second quarter ended June 30, 2004, an increase of $355,085, or 196.1%. For the six-month period ended June 30, 2005, loss before discontinued operations amounted to $1,207,437 compared to a loss of $475,013 for the same period last year, an increase of $732,424, or 154.2%. The increased loss is explained by higher research and development expenses for the XP-828L development program, higher administrative expenses and by a reduction in the contribution of commercial activities.

Total revenues were $226,321 for the second quarter ended June 30, 2005, compared to $627,738 for the second quarter ended June 30, 2004, a decrease of $401,417, or 63.9%. Revenue from product sales totalled $194,011 for the quarter ended June 30, 2005, compared to $559,916 for the corresponding quarter of 2004, a decrease of $365,905, or 65.3%. Of this amount, $212,850 can be attributed to lower sales of Lactium, and $153,055 to sales of products in 2004 that are no longer sold by the Company. For the second quarter of 2005, revenues derived from research contracts amounted to $7,200 compared to $33,900 for the corresponding quarter of 2004. This decrease of $26,700, or 78.8% 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 second quarter 2005, royalties amounted to $25,110 compared to $33,922 for the second quarter of 2004, a decrease of $8,812, or 26.0%.

For the six-month period ended June 30, 2005, total revenues amounted to $383,355 compared to $1,034,126 for the corresponding period of 2004, a decrease of $650,771, or 62.9%. This decrease in revenues is due to lower sales of Lactium, for an amount of $375,325, and $254,288 to sales of products in 2004 that are no longer sold by the Company. These lower product sales were partly offset by increased royalties in the amount of $51,779.

For the second quarter ended June 30, 2005, the gross margin of products sold amounted to $68,989, or 35.6%, compared to a gross margin of $193,159, or 34.5% for the same quarter in 2004. For the six-month period ended June 30, 2005, gross margin of products sold amounted to $95,552, or 34.8%, compared to a gross margin of $292,006, or 32.3% for the same period in 2004. This increase in gross margin in percentage is due mainly to a reduction in costs of raw materials.

Sales and administrative expenses totalled $316,634 for the quarter ended June 30, 2005, compared to $250,917 for the same period in 2004, an increase of $65,717, or 26.2%. For the six-month period ended June 30, 2005, sales and administrative expenses amounted to $638,530 compared to $541,008 for the same period in 2004 an increase of $97,522, or 18.0%. This increase is due mainly to additional administrative expenses related to the public company status and also to increase in sales and marketing expenses related to the XP 828L commercialization program.

Research and development gross expenses were $309,617 for the second quarter of 2005, compared to $205,431 for the second quarter in 2004, an increase of $104,186, or 50.7%. For the six-month period ended June 30, 2005, research and development gross expenses amounted to $773,137 compared to $392,001 for the same period in 2004 an increase of $381,136, or 97.2%. This increase is due mainly to expenses incurred for the XP-828L development program. Research and development tax credits and grants totalled $65,249 for the second quarter ended June 30, 2005, compared to $109,971 for the second quarter ended June 30, 2004, a reduction of $44,722, or 40.7%. For the six-month period ended June 30, 2005, the reduction amounted to $66,003, or 30.3%. As a public company and because of its net losses, the Company can not claim its federal income tax credits for research and development. This will be the case until the Company’s cumulative profits exceed the total losses carried forward from previous years.

Financial expenses amounted to $30,902 for the second quarter of 2005, compared to $37,365 for the same period in 2004, a decrease of $6,463, or 17.3%. For the six-month period ended June 30, 2005, financial expenses amounted to $53,031 compared to $73,423 for the same period in 2004, a decrease of $20,392, or 27.8%. This reduction is due to an increase in interest income generated by the proceeds of the public financing completed in July 2004.

For the second quarter of 2005, depreciation of property, plant and equipment totalled $9,596, compared to $12,338 for the second quarter ended June 30, 2004, a decrease of $2,742 or 22.2%. For the six-month period ended June 30, 2005, it amounted to $19,014 compared to $24,675 for the same period in 2004, a decrease of $5,661, or 22.9%. No significant change was recorded in the value of property, plant and equipment.

Amortization of intangible assets and deferred costs totalled $8,273 for the second quarter of 2005, compared to $6,208 for the second quarter of 2004, an increase of $2,065, or 33.3%. For the six-month period ended June 30, 2005, it amounted to $15,479 compared to $16,951 for the same period in 2004 a decrease of $1,472, or 8.7%. The variation of the second quarter is due to depreciation of additional costs related to patents and licences for XP 828L.

Year-to-Date Net Loss

For the first two quarters of 2005, ended March 31 and June 30, respectively, the net loss amounted to $671,269 and $536,168. The major expenses devoted to the completion of the XP-828L clinical trial explain the higher net loss over the last quarters. During the second half of 2005, the Company intends to continue its research program as planned, but R&D expenses should be lower than during the first half of 2005. As for sales and marketing costs, they should be higher than those recorded for the previous quarters.

In spite of these losses, the Company has the financial resources required to support its operating expenses at least until the end of 2005.

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. The Company also has a line of credit, of an authorized amount of $300,000, secured by a hypothec on its receivables and, as at June 30, 2005, this line of credit was not used.

Operating activities used $560,108 in cash during the second quarter of 2005, represented by a net loss adjusted for items not affecting cash of $482,589 and an increase in working capital requirements of $77,519. Cash used for operations is mainly dedicated to research and development and its underlying administrative structure.

During the second quarter ended June 30, 2005, investment activities accounted for $4,295 in cash in connection with patents filed by the Company. The Company also used $1,349 in cash to repay certain loans.

As at June 30, 2005, the Company had $1,273,360 in cash and cash equivalents, compared to $1,839,112 as at March 31, 2005. This decrease is mainly attributable to cash used for operating activities.

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 aimed at treating mild-to-moderate psoriasis and other chronic immune-mediated inflammatory diseases (I.M.I.D.). 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.

For further information, please contact:

Advitech Inc.
Michel Lamontagne, MBA
Vice-President and Chief Financial Officer
(418) 686-7498, ext. 237
[email protected]
www.advitech.com

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