PAI Paion

        
    The biopharmaceutical company PAION AG (ISIN DE000A0B65S3; Frankfurt Stock Exchange, Prime Standard: PA8; London
AIM: PAI) today reported its financial results according to International Financial Reporting Standards (IFRS) for the
nine months ended 30 September 2008.
    At the end of the reporting period, cash and cash equivalents amounted to EUR 38.8 million and were significantly
strengthened by the upfront payment of EUR 8 million paid by Lundbeck in the beginning of 2008. Research and development
expenses amounted to EUR 6.1 million and were EUR 0.7 million lower than in the first nine months of 2007.
    The loss for the period amounted to EUR 9.3 million, compared to EUR 6.7 million in the corresponding prior year's
period including one-off transaction costs and expenses for restructuring measures in connection with the acquisition of
the CeNeS group (in the following: PAION UK group) which was completed in June 2008.
    Operational highlights since the beginning of 2008:
* At the end of January, the extended licensing agreement with H. Lundbeck A/S for the stroke drug Desmoteplase came
into effect and PAION received a non-refundable upfront payment of EUR 8 million* In June 2008, the acquisition of CeNeS
Pharmaceuticals was completed and its drug candidates were integrated into PAION's development pipeline* In September
2008, PAION reported that the Phase I study with its short-acting sedative/anaesthetic CNS 7056 has progressed to dose
levels that induced pronounced sedation in healthy volunteers* In addition, PAION also reported that within the CNS 7056
Phase I study, the first group including a comparison with midazolam, the current gold standard for procedural sedation,
had been completed* At the beginning of November, PAION reported the re-launch of the partnering activities for its pain
drug M6G, following positive results from a meta-analysis of clinical data    Dr. Wolfgang S�hngen, PAION's CEO
commented: "Following the acquisition-driven strategic extension of our development pipeline to a total of six product
candidates in clinical development we now concentrate on value-generating development steps. We have already
demonstrated this with CNS 7056, our promising short-acting sedative. Our business model continues to focus on the
partnering of our development projects, which should make us less vulnerable to capital markets'sentiment. We believe
that our development expertise gives us a sustainable basis to achieve this goal and our cash position of EUR 39 million
will provide us with the necessary flexibility. We have been able to attract strong partners in the past and we are
confident that we will be able to do so in the future, driven by value generation in our pipeline." 
     Consolidated financial results for the first nine months 2008: 
    Revenues for the nine months to 30 September 2008 amounted to EUR 2.7 million (Q1-Q3 2007: EUR 4.4 million) and
primarily include the refund of development expenses by Lundbeck and the systematic release of deferred income in
connection with the license agreement concluded with Lundbeck. As part of the outlicensing agreement between PAION and
Lundbeck, Lundbeck made a non-refundable upfront payment of EUR 8 million, which was recognized as a deferred income
item and is being released over the anticipated development period for Desmoteplase. The revenues in 2007 included
refunds from Forest in the amount of EUR 1.1 million as well as the release of an upfront payment of EUR 1.7 million.
The gross result amounted to EUR 2.0 million and was similar to the corresponding prior year's period (EUR 1.8 million).
    Research and development expenses in the period decreased by EUR 0.7 million to EUR 6.1 million compared to the
corresponding period in the prior year. The decrease is primarily attributable to the new license agreement with
Lundbeck, according to which Lundbeck will bear all development expenses for Desmoteplase. Furthermore, significantly
lower expenses arose for Enecadin, the development of which was terminated in April 2008. These cost savings were
compensated by the take-over of the PAION UK compounds in connection with the acquisition of the PAION UK group for
which research and development expenses have been incurred since the acquisition date, 20 June 2008.
    Compared to the prior year's period, the general and administrative expenses increased significantly because of
transaction and consulting fees in connection with the acquisition of the PAION UK group in June as well as one-off
expenses for restructuring measures and amounted to EUR 6.2 million (prior year's period: EUR 3.2 million). In addition,
the general and administrative expenses include severance payments as well as one-off expenses which relate to the
technical settlement of the exchange of the shares and from the admission of all PAION shares on AIM.
    Net loss for the nine months to 30 September 2008 was EUR 9.3 million, an increase of EUR 2.6 million over the prior
period. This increase was mainly due to the significantly higher general and administrative expenses.
    At the end of the reporting period, 30 September 2008, cash and cash equivalents amounted to EUR 38.8 million. These
were significantly strengthened by the non-refundable upfront payment of EUR 8 million paid by Lundbeck in the beginning
of 2008.
    The balance sheet as of 30 September 2008 contains the assets and liabilities acquired within the business
combination of the PAION UK group. Compared to 31 December 2007, the balance sheet total increased by EUR 14.5 million
to EUR 60.0 million which was primarily due to the capitalization of the development projects (EUR 18.6 million) within
the first-time consolidation of the PAION UK group and to the non-refundable upfront payment by Lundbeck of EUR 8
million.
    As of 30 June 2008, the equity ratio fell to 61.4 % compared to 78.3 % on 31 December 2007. Accounting for the
subordinated loan and the release of the deferred upfront payment of Lundbeck as economic equity would increase the
equity ratio by 23 percentage points to 84.4 %.
    In total, PAION employed 35 employees as of 30 September 2008, of which 9 are from the PAION UK group. In comparison
to this, the headcount as of 31 December 2007 amounted to 53 employees (solely the German PAION group).
     Pipeline update: 
    Through the acquisition of the PAION UK-group, PAION was able to significantly broaden its portfolio which now
comprises six product candidates in clinical development. The pipeline includes CeNeS'morphine-6-glucuronide (M6G), CNS
5161 and CNS 7056 programs. Together with Flovagatran, which was purchased by PAION in April 2008, these substances add
to PAION's core development portfolio which previously consisted of Desmoteplase and Solulin.
    In July 2008, PAION started a clinical Phase I study with CNS 7056 , a new short-acting sedative and anesthetic for
intravenous administration. Among other indications, such compounds are used in endoscopic procedures such as
colonoscopies. In pre-clinical studies, a fast on/fast off action was shown with respect to sedation. Therefore, PAION
believes that the substance has a high potential for controllable sedation, especially in the field of outpatient
procedures. PAION expects that the current study will yield proof-of-concept for the target profile. To achieve this,
the study includes the comparatively large number of up to 91 healthy volunteers. A comparison group with midazolam is
included. Midazolam is the current therapeutic standard for procedural sedation in minor but painful procedures, e.g.
endoscopies. The volunteers have been divided in cohorts receiving ascending doses. At the end of September, PAION
announced that the study has progressed to dose levels that induced pronounced sedation. So far, no safety concerns have
been raised by the Drug Safety Monitoring Board. In addition, the first group including a comparison with midazolam has
been completed. In Japan, CNS 7056 is partnered with Ono Pharmaceuticals.
    For the anticoagulant Solulin , proof-of-concept has already been obtained within the scope of a Phase I study with
healthy volunteers. The study focused on safety, tolerability, pharmacokinetics, and as far as can be concluded from
laboratory results, also on the pharmacological effects following single and multiple dosing of the substance. The study
revealed that in blood samples taken from the study participants, Solulin was able to exert its anticoagulant effect
with only a very low impact on hemostasis. Following the completion of the Phase I study, PAION has now initiated the
partnering process for the further development of Solulin.
     CNS 5161 is an NMDA receptor antagonist which may prove beneficial for the treatment of neuropathic pain, i.e. pain
caused by irritation or damage of the nervous system. A second potential indication is the treatment of cancer pain.
Currently, an open-label dose escalation clinical Phase IIa study is being conducted which will enroll up to 36 cancer
patients. The study primarily focuses on assessing multiple-dose safety of the compound. In addition, efficacy signs
will be monitored. Results from this study are expected to be available in the fourth quarter of 2008. Based on the data
available at that time, PAION will then decide on the further development of CNS 5161.
    In April 2008 PAION purchased all rights to the anticoagulant Flovagatran for a one-off payment amounting to EUR 0.3
million plus a further milestone payment which will only be due in the event of receiving market authorization,
out-licensing or re-sale. This substance is characterized by a very fast onset of anticoagulation but also very rapid
deactivation once intravenous administration is stopped. This is a complementary mode of action to Solulin's fast onset
but longer lasting effect. Thus, Flovagatran could prove useful as an acute anticoagulant during major surgery such as
coronary artery bypass grafting. The substance was previously tested by its originator in two smaller Phase II studies,
although in other indications. Therefore, PAION plans to conduct additional preclinical studies in preparation for
clinical assessment in this new target indication.
    Morphine-6-glucuronide ( M6G ) is the most advanced project in the PAION UK portfolio. In clinical Phase II and
Phase III studies this morphine metabolite demonstrated an analgesic effect comparable to morphine, the"gold
standard"for severe, post-operative pain, while the common side effects of morphine administration such as nausea and
vomiting were markedly reduced. In total, more than 1,000 patients have been treated with M6G. However, in the last
Phase III study, M6G narrowly failed to demonstrate statistical significance with respect to the reduction of nausea
(p-value of 0.052 against a target of

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