Zalicus fourth quarter revenue decreases to $8.2 million

Zalicus Inc. (NASDAQ: ZLCS) today reported financial results for the fourth quarter and year ended December 31, 2011.

"In 2011, we made significant progress in advancing our product candidates in clinical development, including Synavive, Z160 and Z944," commented Mark H.N. Corrigan, MD, President and CEO of Zalicus. "During 2012, we will see the results of those studies and make important decisions on next steps. This is evident with the successful reformulation of Z160, in which we have achieved the consistent exposure levels necessary to evaluate its efficacy in a Phase 2 clinical study for neuropathic pain later this year."

Fourth Quarter 2011 and Recent Accomplishments:

Ion Channel Programs:

Significant progress has been made with our Ion channel programs this quarter.

• Initiated and successfully completed a Phase 1 clinical trial evaluating the pharmacokinetics and safety of a new formulation of Z160, a novel oral N-type calcium channel blocker. Z160 has been successfully reformulated to achieve substantial bioavailability and solubility improvements using a novel, proprietary formulation technology. Based on the data from this study, Zalicus plans to advance Z160 into Phase 2 clinical development for neuropathic pain in the second half of 2012.
• Initiated a Phase 1 clinical trial evaluating the pharmacokinetics and safety of Z944, a novel oral T-type calcium channel blocker with demonstrated preclinical potential for the treatment of acute and inflammatory pain.
• Published preclinical data in the journal Science Translational Medicine, describing the activity of Z944 to potently suppress seizures. This data reinforces the potential biologic activity of Z944, as it is generally understood that conditions of neuronal hyper-excitability, such as epilepsy and pain, are mechanistically linked.

Collaborations:

• Entered into a collaboration with Hydra Biosciences. The goal of the collaboration is to advance development of Zalicus' preclinical Ion channel modulator product candidates into clinical development for the treatment of pain. This collaboration brings together the Zalicus portfolio of novel, preclinical Ion channel product candidates, representing multiple calcium and sodium channel modulators, with Hydra's leadership in Ion channel discovery and preclinical drug development. Hydra's strong position in this area was recently solidified with the progression into the clinic of its novel TRPA1 modulator for acute pain in collaboration with Cubist Pharmaceuticals. Zalicus' clinical-stage novel Ion channel modulators currently in Phase 1 clinical development for pain, including Z-160, an N-type calcium channel blocker and Z944, a novel T-type calcium channel blocker, are not included in this collaboration.

2012 Zalicus Pipeline and Business Goals:

Zalicus has set the following goals for 2012, which include internal research and development programs and collaborations:

• Synavive®:
  • Complete Phase 2b SYNERGY rheumatoid arthritis clinical trial and report top-line data in the third quarter of 2012
• Ion Channel Programs:
  • Complete Phase 1 PK evaluations of Z160 formulations and initiate Phase 2 clinical study in 2012
  • Complete Phase 1 evaluation of Z944 and advance into Phase 2 clinical development
  • Identify new sodium channel development candidate or calcium channel back-up compounds
• Continue to execute on existing cHTS™ collaborations and secure new partners
• Target year-end ongoing financial strength

Fourth Quarter and Year-End 2011 Financial Results (Unaudited):

As of December 31, 2011, Zalicus had cash, cash equivalents, restricted cash and short-term investments of $49.7 million compared to $46.5 million on December 31, 2010.

For the year ended December 31, 2011, revenue was $8.2 million compared to $46.7 million for 2010. The decrease from the 2010 period was primarily due to the receipt of a $40.0 million milestone payment from Covidien in March 2010 related to the FDA approval of Exalgo. Zalicus recognized $0.8 million in royalty revenue from Covidien based on Exalgo™ sales for the fourth quarter ended December 31, 2011 and a total of $4.1 million in Exalgo royalty revenue from its commercial launch in April 2010 through December 31, 2011. We expect revenue for the year ending December 31, 2012 to be higher than that recorded in the year ended December 31, 2011, due to higher expected royalties on Covidien's net sales of Exalgo.

For the year ended December 31, 2011, net loss was $42.0 million, or ($0.43) per share, compared to a net loss of $35.0 million, or ($0.42) per share, in the year ended December 31, 2010. Exalgo amortization expense was $5.1 million for the year ended December 31, 2011 and $18.7 million in 2010. Stock-based compensation expense was $2.2 million and $2.9 million in the years ended December 31, 2011, and 2010, respectively. Depreciation expense was $2.1 million and $2.4 million in the years ended December 31, 2011, and 2010, respectively.

Research and development expenses were $35.3 million in the year ended December 31, 2011 compared to $23.0 million in the year ended December 31, 2010. The $12.3 million increase from the 2010 period to the 2011 period was primarily due to an increase in clinical development expenses related to the initiation of Synavive, Z160 and Z944 clinical trials in 2011.

General and administrative expenses were $10.4 million in the year ended December 31, 2011 compared to $12.1 million in the year ended December 31, 2010. The decrease was due primarily to one-time bonuses being paid in 2010 related to the FDA approval of Exalgo.