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Ondine Biopharma Announces Second Quarter 2008 Financial Results
Date:8/14/2008

VANCOUVER, Aug. 14 /PRNewswire-FirstCall/ - Ondine Biopharma Corporation (the "Company" or "Ondine", TSX: OBP; AIM: OBP) a medical technology company developing photodisinfection based products, today announced its financial results for the second quarter ended June 30, 2008.

"During the past quarter we made significant regulatory and clinical progress with our photodisinfection technology and we are leveraging our successes to advance discussions with prospective strategic partners," stated Carolyn Cross, Ondine's President & CEO, "We also took steps to build on our technology as we see the opportunity to address many unmet medical needs with our photodisinfection platform. Accordingly, having validated Periowave (TM) in the Canadian dental market, we are refocusing our resources on new product development and obtaining appropriate strategic partners for the commercialization and co-development of our photodisinfection-based product pipeline."

2008 Second Quarter Results and Recent Developments

FINANCIAL RESULTS

For the quarter ended June 30, 2008 (the "Second Quarter of 2008"), the Company recorded a loss of $2.43 million or $0.04 per common share compared with a loss of $3.79 million or $0.07 per common share during the quarter ended June 30, 2007 (the "Second Quarter of 2007"). For the six months ended June 30, 2008 (the "First Half of 2008"), the Company recorded a loss of $4.9 million or $0.08 per common share compared with a loss of $7.24 million or $0.13 per common share during the six months ended June 30, 2007 (the "First Half of 2007"). Product sales of our laser base stations and treatment kits during the Second Quarter of 2008 amounted to $0.26 million with a gross margin of $0.18 million (69.8%) compared to product sales of $0.51 million and a gross margin of $0.23 million (45.6%) during the Second Quarter of 2007. Product sales of our laser base stations and treatment kits during the First Half of 2008 amounted213,348 1,873,860

Income taxes payable 31,646 30,765

Current portion of deferred tenant inducement 45,311 42,374

Future income tax 68,947 67,026

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Total current liabilities 1,359,252 2,014,025

Deferred tenant inducement, net of

current portion 130,280 145,967

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Total liabilities 1,489,532 2,159,992

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Shareholders' equity

Share capital 51,329,202 51,193,823

Contributed surplus 3,710,441 3,467,847

Deficit (48,711,747) (43,816,528)

Accumulated other comprehensive loss (256) (1,204)

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Total shareholders' equity 6,327,640 10,843,938

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7,817,172 13,003,930

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Ondine Biopharma Corporation

CONSOLIDATED STATEMENTS OF LOSS

AND COMPREHENSIVE LOSS

(Unaudited - expressed in Canadian dollars)

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Three months ended Six months ended

June 30, June 30,

------------------------- -------------------------

2008 2007 2008 2007

$ $ $ $

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REVENUE

Product sales 260,387 510,574 462,415 1,118,133

Cost of sales 78,664 277,821 140,391 627,575

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Gross margin 181,723 232,753 322,024 490,558

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EXPENSES

Research and

development 1,161,564 1,600,850 2,268,427 3,253,193

General and

administration 855,244 1,304,785 1,679,657 2,461,603

Marketing and sales 556,872 1,003,645 1,237,239 1,926,947

Depreciation and

amortization 89,495 110,136 181,659 198,299

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(2,663,175) (4,019,416) (5,366,982) (7,840,042)

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Other

Interest income 45,474 96,217 123,232 214,166

Foreign exchange

gain (loss) 3,761 (98,960) 26,507 (119,334)

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49,235 (2,743) 149,739 94,832

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Loss before income

taxes (2,432,217) (3,789,406) (4,895,219) (7,254,652)

Income tax recovery - - - 13,000

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Loss for the period (2,432,217) (3,789,406) (4,895,219) (7,241,652)

Unrealized gain on

short-term

investments 355 282 948 2,223

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Comprehensive loss

for the period (2,431,862) (3,789,124) (4,894,271) (7,239,429)

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Basic and diluted

loss per common

share (0.04) (0.07) (0.08) (0.13)

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Weighted average

number of common

shares

outstanding 61,342,509 54,692,493 61,192,919 54,643,874

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Ondine Biopharma Corporation

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited - expressed in Canadian dollars)

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Share Contributed

Number of Capital Surplus

Common Shares $ $

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Balance, December 31, 2006 54,592,493 45,453,690 1,801,209

Transitional adjustment to

beginning balance on adoption

of new accounting policy - - -

Common shares issued for cash

during the year for:

Exercise of stock options 100,000 25,000 -

Private placement of units

(net of issue costs) 6,335,182 5,697,133 1,267,036

Reallocation of contributed

surplus arising from

stock-based compensation on

exercise of stock options - 18,000 (18,000)

Stock-based compensation - - 417,602

Loss for the year - - -

Unrealized gain on

short-term investments - - -

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Balance, December 31, 2007 61,027,675 51,193,823 3,467,847

Common shares issued for

cash during the period for:

Exercise of stock options 314,834 78,709 -

Reallocation of contributed

surplus arising from

stock-based compensation on

exercise of stock options - 56,670 (56,670)

Stock-based compensation - - 299,264

Loss for the period - - -

Unrealized gain on

short-term investments - - -

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Balance, June 30, 2008 61,342,509 51,329,202 3,710,441

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(Unaudited - expressed in Canadian dollars)

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Accumulated

Other Total

Comprehensive Shareholders'

Deficit Loss Equity

$ $ $

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Balance, December 31, 2006 (30,663,407) - 16,591,492

Transitional adjustment to

beginning balance on adoption

of new accounting policy 4,401 (4,401) -

Common shares issued for cash

during the year for:

Exercise of stock options - - 25,000

Private placement of units

(net of issue costs) - - 6,964,169

Reallocation of contributed

surplus arising from

stock-based compensation on

exercise of stock options - - -

Stock-based compensation - - 417,602

Loss for the year (13,157,522) - (13,157,522)

Unrealized gain on

short-term investments - 3,197 3,197

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Balance, December 31, 2007 (43,816,528) (1,204) 10,843,938

Common shares issued for

cash during the period for:

Exercise of stock options - - 78,709

Reallocation of contributed

surplus arising from

stock-based compensation on

exercise of stock options - - -

Stock-based compensation - - 299,264

Loss for the period (4,895,219) - (4,895,219)

Unrealized gain on

short-term investments - 948 948

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Balance, June 30, 2008 (48,711,747) (256) 6,327,640

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Ondine Biopharma Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - expressed in Canadian dollars)

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Three months ended Six months ended

June 30, June 30,

------------------------- -------------------------

2008 2007 2008 2007

$ $ $ $

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OPERATING ACTIVITIES

Loss for the period (2,432,217) (3,789,406) (4,895,219) (7,241,652)

Add items not

affecting cash:

Depreciation and

amortization 89,495 110,136 181,659 198,299

Stock-based

compensation 198,319 (11,487) 299,264 176,171

Deferred leasehold

inducement (3,791) (2,925) (12,750) (5,850)

Unrealized foreign

exchange gain (459) (5,288) 1,921 (5,669)

Changes in non-cash

working capital

items relating to

operations:

Accounts

receivable 82,872 166,011 39,031 132,283

Inventory 30,719 244,571 (55,912) 143,499

Prepaid expenses

and deposits (69,018) (124,799) 11,339 248

Accounts payable

and accrued

liabilities (61,392) 376,690 (660,512) 179,246

Income taxes

payable 66 (1,565) 881 (30,609)

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Cash used in

operating

activities (2,165,406) (3,038,062) (5,090,298) (6,454,034)

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FINANCING ACTIVITIES

Issuance of share

capital - - 78,709 25,000

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Cash provided by

financing

activities - - 78,709 25,000

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INVESTING ACTIVITIES

Net redemptions of

short-term

investments 3,798,345 3,337,699 3,747,660 3,976,626

Purchase of capital

assets (43,366) (168,915) (87,978) (353,418)

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Cash provided by

investing

activities 3,754,979 3,168,784 3,659,682 3,623,208

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Increase (decrease)

in cash and cash

equivalents during

the period 1,589,573 130,722 (1,351,907) (2,805,826)

Cash and cash

equivalents,

beginning of period 1,598,765 1,586,329 4,540,245 4,522,877

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Cash and cash

equivalents, end

of period 3,188,338 1,717,051 3,188,338 1,717,051

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to $0.46 million with a gross margin of $0.32 million (69.6%) compared to product sales of $1.18 million and a gross margin of $0.49 million (43.9%) during the First Half of 2007.

REGULATORY AND PRODUCT DEVELOPMENTS

In May of 2008, the Company announced it received a Health Canada license for the use of its non-antibiotic photodisinfection system for the treatment of Otitis Externa. Otitis Externa is an inflammation of the outer ear and ear canal often caused by bacteria such as Pseudomonas aeruginosa and Staphylococcus aureus. Moderate Otitis Externa can result in narrowing of the canal and swelling of soft tissue, while severe Otitis Externa can cause significant obstruction of the ear canal and invasion of soft tissues. The acute form affects four in 1,000 persons annually and the chronic form affects approximately three to five percent of the population. Common treatments include antibiotics, painkillers and steroids. In the United States, approximately 7.5 million prescriptions are written yearly to treat Otitis Externa, costing the healthcare system about US$310 million. The Company intends to undertake a search for an appropriate partner for the commercialization of this new application.

In June of 2008, the Company received a Health Canada license for a next-generation multi-purpose laser system that is suitable for a broad range of applications in high volume settings, such as hospitals and large institutions. This system will initially be directed towards decolonization of potentially pathogenic bacteria such as Staphylococcus aureus and methicillin-resistant Staphylococcus aureus ("MRSA") in the nose, as well as for the decolonization of micro organisms from other sites.

In July of 2008, a poster presentation titled "In vitro Bactericidal Efficacy of Periowave Photodynamic Disinfection System", based on research conducted by Loma Linda University School of Dentistry (Loma Linda, California), was presented at the International Association for Dental Research (IADR) 86th General Session & Exhibition in Toronto, Ontario, Canada. Periowave(TM) was used in this study to eradicate Gram-negative bacteria including E. faecalis, which can be difficult to kill even using bleach as a disinfectant. The bacteria are unaffected by the light or the photosensitizer when used alone. When exposed to the Periowave(TM) Photodisinfection System, these virulent pathogens are completely eliminated within 60 seconds. Because Periowave(TM) works so differently than antibiotics, it does not increase bacterial resistance - an important advantage as more and more bacteria develop immunity to the conventional agents used today.

In July of 2008, the Company acquired an exclusive license for the human therapeutic use of a gold-nanoparticle photosensitizer from UCL Business plc. In vitro studies have shown this compound to be highly efficacious in killing MRSA, a prominent hospital-acquired pathogen. Ondine intends to further develop this new agent for integration into the Company's Photodisinfection System for use in various medical applications.

In August of 2008, the Company announced that the results of a study using the Company's platform photodisinfection technology to eliminate Pseudomonas aeruginosa would be published in the peer-reviewed journal Photochemistry and Photobiology. The article has been e-published ahead of the print version and is currently available online at http://www3.interscience.wiley.com/journal/120121002/issue. P. aeruginosa is an opportunistic pathogen that is able to live in practically any environment, including distilled water or even some hospital disinfectant solutions. It is resistant to almost all antibiotics, and it is often the source of intractable infections in cystic fibrosis patients, where the fatality rate can approach 50%. In the recently published article titled "In Vitro Photodynamic Eradication of Pseudomonas aeruginosa in Planktonic and Biofilm Culture", Ondine researchers conclusively demonstrated rapid eradication of P. aeruginosa in both free-floating (planktonic) and the highly-resistant biofilm forms.

Financial Review

The improvement in gross margin percentage during the Second Quarter of 2008, as compared to the Second Quarter of 2007, is primarily due to a higher percentage of treatment kit sales compared to total product sales in the quarter, as the Company earns a significantly higher margin on its treatment kit sales as compared to the margin it earns on the sales of its laser base stations. Having cancelled the Company's exclusive distribution agreement with a Canadian dental distributor in February of 2008, the Company commenced sales of its products to additional dental distributors in Canada during the Second Quarter of 2008, including the sale of its laser base stations to one of the new distributors. Product sales in the Second Quarter of 2007 included a $220,000 sale of Periowave(TM) laser base stations to the Radcliffe Foundation which donated them to certain universities and colleges across Canada, which did not recur in the Second Quarter of 2008.

The Company is seeing additional market acceptance for its products in Canada. Our top users in Canada are currently deploying Periowave(TM) two to three times per day in their practices. Information obtained from the Company's Canadian distributors show an increase of 13% in the number of treatment kits sold by them during the First Half of 2008, when compared to the First Half of 2007. In addition, a number of dental offices in Canada have purchased more than one laser base station. The priority for the Canadian market launch of Periowave(TM) is to establish the appropriate marketing and sales strategies, as well as identifying key strategic partnership opportunities, for the larger United States and European markets.

Although the Company is seeing increasing market acceptance for Periowave(TM), its sales to date have been limited and there is not sufficient sales history to reasonably predict future demand, including the full impact of seasonality on its sales. The Company expects that the summer months will generally be a slower sales period and this may have a negative impact on third quarter sales. In addition, substantially all of the Company's sales in Canada have been to one distributor, Henry Schein Canada, Inc. ("HSC"). In February 2008, the Company elected to cancel its exclusive distribution agreement with HSC for the Canadian market. Thereafter, the relationship continues on a non-exclusive basis. The Company expects that the sale of its products through additional distributors in Canada will add to the installed base of its Periowave(TM) PDD systems in Canada as the Company continues to work on increasing the utilization rate of its consumable product by end users.

Sales by the Company to its distributors are not necessarily reflective of the distributors' sales to dental offices. Until the Company has adequate sales history to accurately forecast demand on an ongoing basis, fluctuations in distributors' inventory levels could significantly impact sales in future quarters.

During the Second Quarter of 2008, the Company continued to work with leading hygiene and dental schools across Canada by assisting them with the adoption of Periowave(TM) into their educational programs and training clinics. Validation by these dental schools adds significant credibility to the novel approach of using photodisinfection ("PDD") to treat gum disease. We are confident that in time, the Periowave(TM) system will be incorporated into their teaching curriculums and this will have a positive effect on the market penetration of Periowave(TM) in the general dental community in Canada.

During the Second Quarter of 2008 the Company continued to invest in research and development including, among other things: i) a number of research and development programs on potential new applications of the Company's PDD technology, including research programs at University College London, principally for the non-antibiotic treatment of MRSA and other topical infections; and ii) analysis of the data collected from a clinical study of Periowave(TM) for the treatment of periodontitis conducted by the University College London Eastman Dental Hospital. This analysis is expected to be completed in the second half of 2008. In addition, the Company is having ongoing communications with the United States Food and Drug Administration (FDA) in connection with the Company's submission for regulatory clearance to market Periowave(TM) in the United States. The objective of these communications is to assist the FDA in their determination of the appropriate regulatory pathway for review of the Company's submission.

The decrease in loss for the Second Quarter of 2008, when compared to the Second Quarter of 2007, was primarily due to decreases in operating costs as further described below.

Research and development expenses for the Second Quarter of 2008 were $1.16 million, a decrease of $0.44 million when compared to $1.6 million incurred during the Second Quarter of 2007. The decrease was primarily due to a reduction in clinical trial staff, which reduced salaries and benefits costs, and a reduction in clinical trial costs following the conclusion of the Company's clinical trials utilizing Periowave(TM) for the treatment of periodontitis. These reductions were partially offset by regulatory consulting fees, primarily in connection with the Company's FDA submission, and higher legal fees, primarily relating to patent costs in connection with the development of the Company's IP.

General and administration expenses for the Second Quarter of 2008 were $0.86 million, a decrease of $0.44 million when compared to $1.3 million incurred during the Second Quarter of 2007. The decrease was primarily due to a reduction in staff which reduced salaries and benefits costs.

Marketing and sales expenses for the Second Quarter of 2008 were $0.56 million, a decrease of $0.44 million when compared to $1 million incurred during the Second Quarter of 2007. The decrease was primarily due to reductions in advertising and promotions activities and in consulting fees as the Company transitions to its priority of obtaining FDA clearance for Periowave(TM) to be sold in the United States market and to a renewed focus on its research and development activities.

As at June 30, 2008 the Company had cash, cash equivalents and short-term investments totaling $5.05 million compared with $10.15 million as at December 31, 2007. During the First Half of 2008 the Company used cash of approximately $5.1 million for its operating activities, $3.7 million was provided by net redemptions of short-term investments, $0.09 million was used for the purchase of capital assets, and $0.08 million was provided by the issuance of common shares on exercise of stock options.

As at June 30, 2008 the Company had 61,342,509 common shares outstanding.

Additional analysis of the Company's financial results for the three months and six months ended June 30, 2008 is included in our management's discussion and analysis of financial condition and results of operations (MDA) for Second Quarter 2008, which will be available on the Company's website and on http://www.sedar.com.

About Periowave(TM)

Periowave(TM) is a photodisinfection system commercialized by Ondine that utilizes low-intensity lasers and microbiological stains to target and destroy microbial pathogens and reduce the symptoms of disease. The photodisinfection technology was developed by Professor Michael Wilson and colleagues at the Eastman Dental Institute, University College London, and licensed to Ondine by UCL Business plc, a wholly-owned subsidiary of University College London. Periowave(TM) is currently approved in Canada and the European Union for several oral indications. Additional information about Periowave(TM) is available at http://www.periowave.com

About Ondine Biopharma Corporation

Ondine is developing non-antibiotic therapies for the treatment of a broad spectrum of bacterial, fungal and viral infections. The Company is focused on developing and commercializing leading edge products utilizing its patented light-activated technology. Photodisinfection provides broad-spectrum antimicrobial efficacy without encouraging the formation and spread of antibiotic resistance. The Company is based in Vancouver, British Columbia, Canada, with a research and development laboratory in Bothell, Washington, USA, and an international office in St. Michael, Barbados. For additional information, please visit the Company's website at: http://www.ondinebiopharma.com.

Forward-Looking Statements:

Certain statements contained in this release containing words like "believe", "intend", "may", "expect" and other similar expressions, are forward-looking statements that involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those projected in the Company's forward-looking statements include the following: market acceptance of our technologies and products; our ability to obtain financing; our financial and technical resources relative to those of our competitors; our ability to keep up with rapid technological change; government regulation of our technologies; our ability to enforce our intellectual property rights and protect our proprietary technologies; the ability to obtain and develop partnership opportunities; the timing of commercial product launches; the ability to achieve key technical milestones in key products and other risk factors identified from time to time in the Company's public filings.

The TSX Exchange has not reviewed and does not accept responsibility for

the adequacy or accuracy of this release.

Ondine Biopharma Corporation

Incorporated under the laws of British Columbia

CONSOLIDATED BALANCE SHEETS

As at (Unaudited - expressed in Canadian dollars)

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June 30, December 31,

2008 2007

$ $

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ASSETS

Current

Cash and cash equivalents 3,188,338 4,540,245

Short-term investments 1,860,124 5,606,836

Accounts receivable 614,417 653,448

Inventories 626,473 570,561

Prepaid expenses and deposits 515,181 526,520

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Total current assets 6,804,533 11,897,610

Capital assets 918,109 991,606

Intangible assets 94,530 114,714

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7,817,172 13,003,930

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LIABILITIES AND SHAREHOLDERS' EQUITY

Current

Accounts payable and accrued liabilities 1,
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SOURCE Ondine Biopharma Corporation
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