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Epigenomics AG Reports Financial Results for a Successful Fiscal Year 2007

Successful execution on corporate strategy – Financial and strategic framework set for the future   Financials in line with latest expectations:   * Full year revenue EUR 2.6 million * Operational costs reduced by EUR 3.8 million, EBIT improved by 14% to EUR (13.5 million) * Successfully completed PIPE transaction, liquidity position at EUR 10 million as of December 31 2007 * Capital increase in early 2008 secures funding and provides financial framework for further strategy execution * “Epi 2010”: management initiative to extend cash resources   Management delivered on corporate strategy:   * Licensed colorectal cancer test to Abbott Molecular as the first non-exclusive IVD-partner * Licensed colorectal cancer Septin 9 biomarker to Quest Diagnostics in early 2008 * Set the stage for major clinical colorectal cancer screening cohort study PRESEPT to start in Q2 2008 * Further progressed prostate and lung cancer development programs * Further secured protection of diagnostic body fluid and tissue workflows with key technology patents granted * Expanded licensing agreement with Qiagen to include IVD sample preparation solutions   Press Release, Berlin, Germany and Seattle, WA, U.S.A.

31.03.2008

Epigenomics AG (Frankfurt, Prime Standard: ECX), a cancer molecular diagnostics company developing tests based on DNA methylation, today reported its financial results for the fiscal year ending December 31, 2007 and provided an update on strategy and operations.

Geert Nygaard, CEO of Epigenomics, said:

“We look back on a successful year in which we focused our efforts on our key value driver, the colorectal cancer screening test. We delivered and we will continue to deliver on our strategy and achieved all our goals: we have executed several deals in line with our non-exclusive licensing approach, continued the development of our cancer screening test products and could strengthen the patent protection of our technology and biomarker portfolio which is the broadest in DNA methylation. With the capital increase and the licensing agreement with Quest Diagnostics we have successfully started into the new fiscal year and we will keep up the pace in bringing our key products to the market.”

Operational Review 2007 and recent highlights

In Q1 2007 Epigenomics’ management under the lead of the new CEO, Geert Walther Nygaard, decided to realign the company’s strategy and organization with operational focus on its key value drivers and fastest route to market for Epigenomics’ lead products. By setting this focus, Epigenomics drove the development of the colorectal cancer test significantly forward towards commercialization over the course of the last year. In particular, the workflow for this and subsequent cancer screening tests was successfully optimized creating an assay procedure that can serve as a reference for Epigenomics’ diagnostics industry partners developing diagnostics products based on Epigenomics colorectal cancer biomarker Septin 9.

To maximize diagnostic platform access and ultimately market penetration and value for Epigenomics, the company moved towards a nonexclusive licensing approach in early 2007. In line with this partnering model, Epigenomics entered into a number of key strategic partnerships since then.

The first strategic in-vitro diagnostics partnership was signed with Abbott Molecular in the second half of 2007. The collaboration focuses on the development and global commercialization of a molecular diagnostic test for the early detection of colorectal cancer. Abbott obtained nonexclusive worldwide rights to Epigenomics’ proprietary biomarker Septin 9. Market launch for an IVD test based on Septin 9 is anticipated for 2009 in Europe followed by the filing for U.S. approval in 2010.

As second diagnostics industry partner Quest Diagnostics has obtained the rights to commercialize Epigenomics’ Septin 9 biomarker as a laboratory-developed test (LDT) to aid in the early detection of colorectal cancer in the U.S. With this LDT expected to be launched later in 2008, Epigenomics’ Septin 9 biomarker will for the first time become commercially available to patients and doctors.

In preparation of the PRESEPT study, a multi-center study to characterize Septin 9 clinical performance and health economic benefit in a U.S. colorectal cancer screening guideline-eligible population, Epigenomics established a high-profile Medical Advisory Board. The board includes renowned U.S. cancer and public health experts and supports the company with the design and execution of the clinical study.

Epigenomics’ further pipeline programs in prostate and lung cancer progressed well in line with expectations and in 2007, the company entered into several new R&D collaborations with pharma and biotech companies including Centocor, Myriad Genetics, Johnson & Johnson Pharmaceutical Research & Development, and Merck & Co..

In 2007, Epigenomics also further secured the patent protection of key elements of its workflow for diagnostic tests on body fluids and tissue. Key patents for its early cancer detection technologies were issued, which considerably strengthened its leading intellectual property portfolio in DNA methylation technology. Since the beginning of 2007, Epigenomics made significant headway in leveraging this patent portfolio for setting a technology standard in the industry. Strategic alliances included expanding the partnership with Qiagen to applied testing and in vitro molecular diagnostics. Further, Epigenomics recently licensed the non-exclusive rights to several proprietary core technologies for body fluid and tissue testing to OncoMethylome Sciences and entered into a strategic cross-licensing agreement with DxS for DxS’ proprietary Scorpions® technology. This licensing strategy provides Epigenomics with revenues from upfront and milestone payments in the short term and will provide mid- to long-term upside through participation in the partners’ commercial success via significant royalties on product sales.

Financial Review 2007

Oliver Schacht, CFO of Epigenomics AG, commented:

“Last year we have successfully managed to reduce operational costs by EUR 3.8 million – ahead of our target of EUR 2 to 3 million - following the restructuring in fall 2006 and by keeping strict financial discipline ever since. With the successful completion of a PIPE transaction in 2007 and the capital increase earlier this year we have extended our cash reach well into 2010. We will now look to allocate further funding for the commercialization of key value drivers and at the same time minimize further dilution of Epigenomics’ share capital.”

In 2007, Epigenomics recognized total revenue of EUR 2.6 million, a decrease of almost 27% from the previous year’s EUR 3.5 million. This decline was exclusively attributable to the terminated Roche collaboration and the nonexclusive nature of the Abbott deal signed towards the end of the third quarter in 2007. However, this drop could be partly compensated by increased revenues from the Clinical Solutions business and from licensing. Clinical Solutions, recently renamed to Biomarker Solutions, could grow its revenue by 50% from EUR 0.6 million to EUR 0.9 million while Epigenomics’ licensing activities contributed with EUR 1.1 million the highest proportion to total revenue, mainly due to additional new licensing agreements closed in 2007.

In the past year Epigenomics continued its strong commitment to building and defending a leadership position in DNA methylation-based products, science and technology. Cost of sales from the execution of partnered programs decreased by EUR 4.1 million to EUR 0.9 million compared to 2006 as Epigenomics’ diagnostics R&D projects were no longer externally partnered and costs shifted significantly from ‘Cost of Sales’ to ‘R&D’. R&D costs consequently increased from EUR 8.7 million in 2006 to EUR 10.5 million.

Stringent financial discipline and the reorganization in fall of 2006 have led to a reduction of the operating cost basis by EUR 3.8 million. Marketing and business development costs fell from EUR 2.7 million in 2006 to EUR 1.3 million. This decrease was partly attributable to a more focused utilization of external market research services and the streamlining of Epigenomics’ overall strategy. General and administrative costs amounted to EUR 4.3 million – slightly above the previous year’s figure (EUR 4.1 million), mainly because of higher stock option expenses.

In 2007, EBIT added up to EUR (13.5 million), a significant 14% improvement compared to previous year’s EUR (15.8 million). At EUR 13.2 million, net loss for the full year 2007 also showed a substantial improvement over the previous year’s figure (EUR 15.4 million).

Net cash inflow from financing activities amounted to EUR 4.6 million. This was due to the PIPE financing in the second quarter of 2007, compared to EUR 0.8 million in 2006, which was mainly the result inflows from stock option exercises.

Liquid assets including marketable securities on December 31, 2007 totaled EUR 10.0 million compared with EUR 17.3 million at the end of the previous year. The liquidity position was mainly affected by the continued cash consumption by operations, especially for Epigenomics’ product development.

Capital Increase and Initiative “Epi 2010”

In Q1 2008 Epigenomics successfully completed a capital increase initiated in 2007 and secured the company’s funding despite a very difficult market environment. Epigenomics successfully placed the maximum number of 8,458,062 new shares at a price of EUR 1.60 each resulting in gross proceeds of about EUR 13.5 million. With the capital increase the total issued share capital of Epigenomics increased from EUR 18,252,824 as of December 31, 2007 to EUR 26,710,886 as of February 29, 2008.

Within the financial framework given by the liquidity after the transaction, Epigenomics’ management will assign the highest priority on the clinical development and commercialization of the cancer screening tests, in particular the leading colorectal cancer screening test, as key value drivers and allocate resources accordingly. To secure appropriate funding of these programs, the management has launched the initiative “Epi 2010” with the goal of extending the company’s cash to reach well into 2010 and reducing cash burn from EUR 12 million in 2007 to below EUR 10 million in 2008. As a result of an initial review of all operations and options to leverage assets outside the screening focus, surveillance and monitoring applications of Epigenomics’ colorectal cancer biomarkers were already licensed to Quest Diagnostics as part of the agreement signed in February 2008.

Further, the management has decided to leverage the value of the prostate cancer tissue test after completion of clinical validation through licensing or partnering rather than investing into the infrastructure for proprietary commercialization. The initial review under the initiative will be completed in Q2-2008 and potential further measures will be implemented throughout 2008.

The initiative “Epi 2010” underlines management’s commitment to minimize further dilution of Epigenomics’ share capital. Consequently, management will suggest to the shareholders at the Annual General Shareholder Meeting scheduled for June 3, 2008 to approve an authorized and a conditional capital limited to 10% of shares outstanding each, to retain minimum flexibility.

Future Outlook

Epigenomics will build on last year’s success and continues to focus on driving forward the clinical development and commercialization of its colorectal cancer test. The company expects to present data on the clinical performance of Septin 9 measured with the improved reference assay procedure developed in 2007 at major conferences within Q2 2008. A major operational focus throughout 2008 and part of 2009 will be on the PRESEPT study. This multi-center study with several thousand subjects is designed to characterize Septin 9 clinical performance and health economic benefit in a U.S. colorectal cancer screening guideline-eligible population. The primary goal of the study is to demonstrate that Septin 9 performance satisfies latest U.S. colorectal cancer screening requirements. The study is scheduled to start in Q2 2008 and first results of an interim analysis are expected in Q1-2009. The final results are expected to be presented at major conferences later in 2009.

Epigenomics expects Quest Diagnostics to launch a laboratory-developed blood test to aid in the early detection of colorectal cancer in the second half of 2008. This will mark an important milestone in Epigenomics’ commercialization strategy, as patients and doctors will for the first time be given access to a commercial test based on Epigenomics’ proprietary Septin 9 biomarker.

In collaboration with TIB MOLBIOL, Epigenomics intends to leverage its proprietary biomarkers and technologies in the research market thereby facilitating ancillary academic and clinical research into the biology and further applications of these biomarkers. First products from this collaboration are expected to be launched still in Q2 2008.

Epigenomics will continue to execute on its non-exclusive licensing strategy and is seeking further diagnostic industry partners for the commercialization of its cancer screening programs. A second IVD licensing and partnering deal is expected to be signed by year-end of 2008.

In the development programs for prostate and lung cancer screening tests, Epigenomics anticipates to make further progress with regards to the optimization and clinical development of the respective biomarker panels throughout 2008 to create further attractive product development and partnering opportunities for 2009 and beyond.

Financials for the fiscal year 2008 are expected to be characterized by continued fiscal discipline and focus on the cancer screening programs. Epigenomics anticipates 2008 revenue of EUR 3 to 4 million to be above 2007 revenue depending on current R&D collaborations and partnerships as well as potential new partnerships as outlined. EBIT with EUR (11.5 million) to (12.5 million) for the fiscal year 2008 is expected to be significantly better than 2007 EBIT (EUR (13.5 million)) Cash burn shall be further reduced compared to the 2007 level and is expected be below EUR (10 million) for 2008.

Further Information

The complete Annual Report 2007 published today can be downloaded from Epigenomics’ website.

Internet link: http://www.epigenomics.com/en/investor_relations/Financial_Information/

Epigenomics will host a press conference and analyst meeting in German today at 10 am CET at the premises of the Villa Bonn - Frankfurter Gesellschaft für Handel Industrie und Wirtschaft in Frankfurt am Main:

Villa Bonn
Frankfurter Gesellschaft für Handel Industrie und Wirtschaft
Siesmayerstrasse 12
60323 Frankfurt am Main

Room: Vortragsraum (OG)

Epigenomics’ management will also host a conference call at 3 pm CET / 9 am EST today to discuss 2007 financial results and outlook for 2008. The conference call will be conducted in English.

Dial-in number (within Germany.): +49 (0) 6103 485 3001

Dial-in number (outside Germany): +1 480 629 1990

Please dial-in at least 10 minutes prior to commencement of the conference call.

To follow the presentation, Epigenomics kindly ask all participants of the call to download the slide set from the company website prior to the call where it will be made available as a PDF file at 10 am CET (4 am EST) on the same day.

Internet link: http://www.epigenomics.com/en/down_loads/corporate_material/

The conference call will be recorded and also made available on the company website web as an audio file after the call.

Internet link: http://www.epigenomics.com/en/down_loads/corporate_material/

About Epigenomics AG

Epigenomics is a molecular diagnostics company with a focus on the development of novel products for cancer. Using DNA methylation biomarkers, Epigenomics’ tests can potentially diagnose cancer at an early stage and thereby may reduce mortality from this dreaded disease.

The company develops diagnostic screening tests for the early detection of cancer. Based on body fluid samples (e.g. blood and urine), these tests are aimed at finding cancer at an early stage before symptoms occur. Epigenomics’ product pipeline contains a validated biomarker for the early detection of colorectal cancer in blood plasma, and further proprietary DNA methylation biomarkers at various stages of development for prostate and lung cancer detection in body fluids. For development and global commercialization as in vitro diagnostic test kits, Epigenomics pursues a non-exclusive partnering strategy with diagnostics industry companies. As a first strategic partner, Abbott Molecular Inc. licensed the worldwide non-exclusive rights to Epigenomics’ proprietary Septin 9 biomarker for colorectal cancer. Epigenomics also aims at giving patients and doctors early access to these biomarkers through reference laboratory testing services. As a first reference laboratory partner, Quest Diagnostics Inc., the leading provider of diagnostic testing, information and services, obtained the license to commercialize a laboratory-developed test (LDT) for Septin 9 in the U.S.

Pharma, diagnostics and biotech partners can access Epigenomics’ portfolio of proprietary DNA methylation technologies and biomarkers protected by more than 150 patent families through Biomarker Services, IVD Development Collaborations, and Licensing. The company is headquartered in Berlin, Germany, and has a wholly owned subsidiary in Seattle, WA, USA. For more information, please visit Epigenomics’ website at www.epigenomics.com.


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Disclaimer

This communication expressly or implicitly contains certain forward-looking statements concerning Epigenomics AG and its business. Such statements involve certain known and unknown risks, uncertainties and other factors which could cause the actual results, financial condition, performance or achievements of Epigenomics AG to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Epigenomics AG is providing this communication as of this date and does not undertake to update any forward-looking statements contained herein as a result of new information, future events or otherwise.