inhalation therapeutics opportunity€¦ · inhalation market. the company’s current pipeline...

†BOLD WORDS IN TEXT ARE REFERENCED IN GLOSSARY ON PAGES 46-47.

Inhalation Therapeutics Opportunity

Snapshot July 18, 2005

LAB International Inc. (“LAB” or “the Company”) is an integrated product development company that operates two distinct business units: (1) LAB Pharma and (2) LAB Research. LAB Pharma is focused on the growing multi-billion-dollar inhalation market by developing proprietary products and offering its inhalation systems as well as its formulation expertise and manufacturing capabilities to the pharmaceutical and biotechnology industry. LAB Pharma’s lead product in development is a fast-acting Fentanyl formulation for the treatment of breakthrough cancer pain (BTCP)†, a US$1 billion market. The compound is delivered using the Company’s approved TAIFUN® dry powder inhaler (DPI) platform, a well-patented, regulatory-approved, multi-dose, reservoir-based technology engineered to consistently deliver a uniform dose into the deep lungs, independent of inhalation flow-rate or environmental humidity. LAB initiated Phase II clinical trials of Fentanyl TAIFUN® in the first quarter of 2005, following successful pre-IND meetings with both U.S. and European regulatory bodies to demonstrate the product’s clinical efficacy, with special emphasis on the time to significant pain relief—providing an ideal platform for breathing-impaired patients, specifically children and the elderly. TAIFUN® has already been approved in 10 European countries for the delivery of the asthma drug Salbutamol (as Salbutamol TAIFUN®). LAB’s pipeline also includes therapeutics for asthma, chronic obstructive pulmonary disorder (COPD), chronic renal failure (CRF), and other growth hormone deficiencies. LAB Research, a profitable and growing contract research organization (CRO), supports LAB Pharma’s drug development efforts and, at the same time, provides drug development services to more than 500 pharmaceutical and biotechnology clients from state-of-the-art facilities in Canada, the U.S., Denmark, and Hungary. LAB Research provides the Company with ongoing access to non-dilutive new capital through its recurring revenues, which the Company expects to exceed $45 million in 2005, with more than $9 million in free cash flow expected for the current year.

Recent Financial Data

Key Points

■ LAB Pharma possesses three clinical stage products that could participate in the US$15 billion inhalation market with limited competition. Its lead product, Fentanyl TAIFUN® (in Phase II), addresses a US$1 billion underserved BTCP market. The TAIFUN® platform was approved for commercialization in Europe.

■ LAB Pharma’s growth hormone releasing hormone (GHRH) has successfully completed a Phase I/II clinical trial and initiated a Phase II trial at the beginning of the second quarter of 2005 to test human efficacy of the drug for malnutrition in pre-dialysis CRF.

■ LAB Research provides a unique and integrated lower-risk business model for the Company, decreasing dependence on the public markets for development funding of proprietary products and reducing expenses and risks versus traditional therapeutic development.

■ LAB Research is growing faster than the US$7 billion CRO industry, and following the February 2005 acquisition of Scantox of Denmark, has become one of the five largest CROs worldwide in terms of preclinical focus, with positive EBITDA and revenues expected to almost double in 2005 from 2004.

■ LAB maintains a solid cash position of approximately $10 million as well as annual funding commitments from co-development partners totaling $6 million in 2005.

Ticker (Exchange)1 LAB.TO (TSX) Recent Price (07/18/05) $0.94 52-Week Range $0.63-1.45 Shares Outstanding 54.3 million Market Cap. $51.0 million Avg. 3-month volume 39,800 Insider Owners + 5% 25% Institutional Owners 55% EPS (as of 03/31/05) ($0.06) Employees 450

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LAB International Inc.

445 Armand-Frappier Blvd.Laval, Quebec H7V 4B3

Tel: (450) 973-2240 Fax: (450) 973-2259

www.labinc.ca

1Amounts are in Canadian dollars (CD), except pricing data, which is in U.S. dollars (US).

Executive Informational Overview

Table of Contents

Snapshot .................................................................................................................................................1

Recent Financial Data ...................................................................................................................................1

Key Points .....................................................................................................................................................1

Executive Overview.......................................................................................................................................3

Growth Strategy.............................................................................................................................................7

Intellectual Property.......................................................................................................................................9

Management, Board of Directors, and Scientific Advisory Board ...............................................................10

Core Story ...................................................................................................................................................14

LAB Pharma ...........................................................................................................................................14

Inhalation Market ...............................................................................................................................14

LAB Pharma's Technologies .........................................................................................................17

Pain Management Market .................................................................................................................21

LAB Pharma's TAIFUN® Inhalation Delivery Platform...................................................................23

Growth Hormone Market ...................................................................................................................24

LAB Pharma's Growth Hormone Releasing Hormone (GHRH) for Chronic Renal Failure (CRF)26

Asthma Market ..................................................................................................................................27

LAB Pharma's Calcitonin Gene-Related Peptide (CGRP) for Asthma .........................................28

LAB Pharma's Salbutamol TAIFUN®.............................................................................................28

Partnerships/Alliances/In-Licensing Agreements/Academic Collaborations.....................................29

LAB Research ........................................................................................................................................31

Recent Achivements....................................................................................................................................34

Potential Near-Term Milestones..................................................................................................................35

Key Points to Consider ................................................................................................................................36

Historical Financial Results .........................................................................................................................37

Risks............................................................................................................................................................40

Recent Events .............................................................................................................................................42

Glossary of Lesser-Known Terms ...............................................................................................................46


Executive Overview [As used herein, the terms “LAB”, “the Company”, and “the Firm” mean LAB International Inc. and its subsidiaries, unless the context requires otherwise. Business units are referred to as either LAB Pharma or LAB Research.] LAB International Inc. is an integrated product development company that operates as two distinct business units: (1) LAB Pharma, which operates as an inhalation therapeutics organization and (2) LAB Research, which, as a contract research organization (CRO), provides research services to the pharmaceutical and biotechnology industries. LAB Pharma is focused on the growing multi-billion-dollar inhalation market by developing proprietary products and offering its inhalation systems as well as formulation expertise and manufacturing capabilities to the pharmaceutical and biotechnology industries. LAB Pharma’s lead product in development is a fast-acting Fentanyl formulation for the treatment of breakthrough cancer pain (BTCP), a US$1 billion market. The compound is delivered using the Company’s approved TAIFUN® dry powder inhaler (DPI) platform, a well-patented, regulatory-approved, multi-dose technology engineered to consistently deliver a uniform dose into the deep lungs, independent of inhalation flow-rate or environmental humidity. LAB gained the TAIFUN® platform through its acquisition of Focus Inhalation Oy (“Focus”) on January 1, 2004. TAIFUN® has already been approved for commercialization in 10 European countries for the delivery of the asthma drug Salbutamol (as Salbutamol TAIFUN®). LAB’s pipeline also includes therapeutics for asthma, chronic obstructive pulmonary disorder (COPD), chronic renal failure (CRF), and other growth hormone deficiencies. LAB Research’s drug development efforts provide services to more than 500 pharmaceutical and biotechnology clients from state-of-the-art facilities in Canada, the U.S., Denmark, and Hungary. The concept behind the CRO is to provide greater efficiency due to the maintenance of professional staff to ensure throughput of work. LAB Research provides the Company with ongoing access to non-dilutive new capital through its recurring revenues, which the Company expects to exceed $45 million in 2005, with more than $9 million in free cash flow forecast for the year. The Company’s business model is outlined in Figure 1.

• Product IP & development • Multinational preclinical CRO • Inhalation platforms • Non-dilutive capital • Formulation & production • Risk mitigation • Value creation • Successful 1Q 2005

Revenue +66%; EBITDA +105% Source: LAB International Inc.

(contract research)(product development)

LAB International Inc.

Figure 1LAB International Inc.BUSINESS MODEL

LAB Pharma LAB Research


LAB Pharma LAB Pharma is focused on the growing multi-billion-dollar inhalation market, developing proprietary products and offering inhalation systems to the pharmaceutical and biotechnology industry along with formulation expertise and manufacturing capabilities. Inhaled products into the lungs (pulmonary drug delivery) represent a non-invasive, rapid method of drug absorption into the bloodstream. This drug delivery method can be very useful for peptides and proteins as they are not affected by digestion. It can also provide an ideal platform for breathing-impaired patients, such as children and the elderly. TAIFUN® Inhaler Platform LAB Pharma’s proprietary TAIFUN® inhaler platform is a regulatory-approved, well-patented, multiple-dose DPI platform engineered to provide highly efficient delivery of active drugs into the deep lungs, independent of inhalation flow-rate or environmental humidity. The TAIFUN® technology consists of a unique moisture-balancing drug reservoir with precise and reproducible dose metering. The number and size of the doses is adjustable to suit the drug, and the patient can easily see the number of remaining doses. Figure 2 provides an illustration of the TAIFUN® inhaler platform.

More than ten years of experience and $80 million have been invested into the development of the TAIFUN® technology platform, which can be applied to a range of therapeutics, both for the treatment of the lung directly and for the rapid systemic delivery of drugs throughout the body. LAB’s vision is to become a leading developer of dry powder respiratory products, targeting the growing US$15 billion inhalation market. The Company’s current pipeline includes inhalation-delivered therapeutics for pain management, asthma, chronic renal failure (CRF), and other growth hormone deficiencies. Its most advanced application in development is for breakthrough cancer pain (BTCP), being developed as Fentanyl TAIFUN®. Fentanyl TAIFUN®

LAB Pharma’s lead product in development is a fast-acting Fentanyl formulation for the treatment of BTCP, experienced by approximately two-thirds of those with chronic cancer pain. BTCP is described as an intermittent flare of pain that can occur even though the individual is taking analgesic medication on a regular basis. It typically occurs from one to eight times a day and lasts, on average, 30-60 minutes. The fastest alternative to intravenous administration of pain medication is administration through the lungs. LAB Pharma’s Fentanyl TAIFUN® has achieved therapeutic plasma concentrations as fast as five to ten minutes after administration.

Source: LAB International Inc.

Figure 2LAB Pharma

TAIFUN® INHALER PLATFORM


The Company initiated Phase II clinical trials in the first quarter 2005, following successful pre-IND meetings with both U.S. and European regulatory bodies, to demonstrate the clinical efficacy of Fentanyl TAIFUN®, with special emphasis on the time to significant pain relief. Also in 2004, LAB Pharma announced a licensing agreement with the Ferrer Group (Barcelona, Spain) as well as with SK Chemicals Co. Ltd (Seoul, Korea) for the co-development and distribution of Fentanyl TAIFUN® throughout Europe, Latin America, and South America as well as South Korea and China. The product launch is planned for 2009. Other Pipeline Candidates In addition to its lead development candidate, Fentanyl TAIFUN® for BTCP, LAB Pharma’s pipeline also includes therapeutics for asthma, COPD, CRF, and other growth hormone deficiencies, briefly described below. Figure 3 summarizes LAB Pharma’s drug development pipeline, along with the size of the respective U.S. market, with details on each product contained within this report.

Growth Hormone Releasing Hormone (GHRH) LAB Pharma is developing GHRH as an injectable formulation for the treatment of malnutrition in patients with late pre-end stage Chronic Renal Failure (CRF, stage IV, pre-dialysis). LAB Pharma’s proprietary analogue of GHRH has demonstrated increased affinity to the pituitary receptor and an increased half-life in plasma compared with the natural product. LAB’s GHRH successfully completed a Phase I/II clinical trial in 2004 confirming the high potency of the drug in terms of its efficacy to release growth hormones in healthy volunteers. The Company initiated a Phase II trial on July 5, 2005. The market for GHRH is estimated at more than US$1 billion. While the current product is delivered parenterally, LAB has developed a dry powder formulation which it intends to develop as an inhaled formulation by combining GHRH with its approved inhalation formulation and delivery system, TAIFUN®.

Calcitonin Gene Related Peptide (CGRP) CGRP is in a new “hybrid” class of asthma therapeutic. In preclinical testing, CGRP has shown combined bronchodilatory, anti-inflammatory, and bronchoprotective properties for relieving asthma symptoms. LAB Pharma is developing CGRP into an inhalation-delivered product. The Company is hoping to show clinical proof of concept using a nebulized formulation, and if successful, subsequently to develop a dry powder formulation in its TAIFUN® inhaler. LAB announced on June 28, 2005 that it had initiated enrollment in a Phase I trial. This Phase I trial is expected to be completed in time for the Company to file an Investigational New Drug (IND) application or equivalent prior to initiating a Phase II study for testing the bronchodilatory properties of LAB CGRP before year-end. Salbutamol TAIFUN® The TAIFUN® technology has been approved in 10 European countries for the delivery of the asthma drug Salbutamol (as Salbuvent TAIFUN®). Salbuvent TAIFUN® is a short-acting Beta2 agonist for the treatment of acute asthmatic attacks. Whereas the Company is currently not actively pursuing commercialization of this product due to the recent low price levels of Salbutamol products, this approval demonstrates the regulatory approvability the TAIFUN® platform and the Company’s capability to develop DPI products for the market.

Product Disease/Indication Market $US

Fentanyl TAIFUN® BTCP Q1/05 $1 billion

GHRH CRF - AIDS Q2/05 $500 million

CGRP asthma Q2/05 $9 billion


Figure 3LAB Pharma

DRUG DEVELOPMENT PIPELINELaunchPre-clinical Phase I Phase II Phase III


LAB Research LAB’s other business unit, LAB Research, is a profitable and growing contract research organization (CRO) supporting LAB Pharma’s drug development efforts and, at the same time, serving more than 500 pharmaceutical and biotechnology clients from state-of-the-art facilities in Canada, the U.S., Denmark, and Hungary. LAB Research provides the Company with ongoing access to non-dilutive new capital through its recurring revenues, with more than $9 million in free cash flow forecast for 2005. Frost & Sullivan (www.frost.com), a leading market research company, estimates the global CRO business could climb from US$7.8 billion in 2002 to US$14.4 billion 2007, with LAB Research achieving a top-5 participant in terms of preclinical focus following the acquisition of Scantox of Denmark in February 2005. Headquarters, Facilities, and Employees LAB International is headquartered in Laval, Quebec, Canada with a total of 450 employees throughout its organization. The Company’s drug development activities through LAB Pharma are concentrated in Turku, Finland. A new state-of-the-art research, development, and production facility in the Biovalley of Turku, Finland was designed and constructed specifically to fulfill the special demands of inhalation product development and manufacturing. The facility includes research and development laboratories, several qualified good manufacturing practice (GMP) clean room areas for clinical Phase I-II trial product manufacturing, pilot scale manufacturing (clinical Phase III), and full scale commercial manufacturing. The facility has been built in full compliance of the Title 21 Code of Federal Register (CFR) Part 11 requirements, and fulfills the most stringent quality standards. LAB Research employs close to 400 individuals and provides services globally from facilities in Laval, Quebec; San Diego, California; Copenhagen, Denmark; and Veszprém, Hungary. In 2003, LAB Research expanded its presence by acquiring Toxicological Research Centre Ltd. (TRC), located in Veszprém, Hungary. This 53,000 square foot CRO facility was renamed LAB International Research (Hungary) Ltd., and holds expertise in inhalation toxicology, an important component for LAB’s strategy of full integration. In February 2005, LAB expanded its European presence by acquiring Scantox Biologisk Laboratorium A/S, (Scantox) of Denmark, the largest Scandinavian-based provider of preclinical contract services. The Scantox acquisition added 75,000 square feet of certified space as well as significant scientific expertise to the LAB Research Group. Pictures of each of the Company’s facilities are provided in Figure 4.

LAB International (Corporate Headquarters) LAB Pharma (Main Activities) LAB Research (U.S. Managed Facility)LAB Research Turku, Finland San Diego, CaliforniaLaval, Quebec

LAB Research LAB ResearchMedicon Valley, Denmark Veszprém, Hungary


Figure 4LAB International Inc.

CORPORATE FACILITIES


Growth Strategy LAB International LAB International’s vision is to become a leading integrated product development organization (IPDO) with a diversified product portfolio, gradually transforming into a specialty pharmaceutical firm. In order to achieve this goal, the Company plans to complete the following objectives over the next three to five years: ■ Executing current development projects toward the first major product launch in 2009 (Fentanyl

TAIFUN®); ■ Broadening drug delivery platforms by acquiring complementary technologies; ■ Increasing market penetration through joint ventures and partnerships both for new products as well

as value-added technologies; ■ Growing LAB Research’s revenues to surpass $100 million through organic growth and acquisitions

in all relevant geographic locations; ■ Developing both operational units (LAB Pharma and LAB Research) into successful “stand-alone”

and “self-sufficient” operations; ■ Obtaining a U.S. or European listing for the Pharma unit following a successful spin-off at the

appropriate time; and ■ Accessing growth investment from the capital markets, when appropriate, while limiting dilution.

Since going public in 2002, LAB International has secured several rounds of institutional financing in addition to the funding that it had secured as part of the Focus transaction concluded in January 2004.

LAB Pharma LAB Pharma’s initial plan is to remain a technology-driven pharmaceutical development organization, in which sales and distribution of its products are primarily carried out through license agreements with pharmaceutical companies. Where appropriate, commercial rights are to become leveraged to gradually transform the unit into a specialty pharmaceutical company with a dedicated sales force responsible for the sales and distribution of its products in selected markets. The Company expects to also target merger and acquisition (M&A) transactions if and when applicable. The following summarizes the main objectives of LAB Pharma over the next three to five years: ■ Broaden pipeline. LAB Pharma expects to broaden its pipeline by leveraging its proprietary drug

delivery platforms. The goal is to add at least one significant development project per year, and of these new projects, to have at least half being developed jointly with a partner company from the start.

New projects are expected to be initiated as has been done with existing off-patent systemically active compounds, such as fentanyl. These new products are expected to occur in therapeutic areas where fast onset of action or difficulty to deliver systemically via conventional routes of administration are key success factors. Near-term, the Company has specifically targeted:

o Launching its lead product, Fentanyl TAIFUN®, for the treatment of breakthrough cancer pain in

2009; and o Forming development and licensing partnerships to commercialize Fentanyl TAIFUN®, GHRH,

and CGRP.


Joint ventures are targeted to develop new products by leveraging the IPDO business model. Besides the drug delivery technology, LAB’s contribution is expected to include preclinical development services, early clinical services and CMC development. This compares with technology license agreements, where commercial rights are shared with the joint venture partner, giving LAB access to new proprietary compounds at more developed stages, while limiting cash investments. These new products could occur in the treatment of respiratory diseases (new chemical entities or NCE), and emerging therapeutic areas, such as inhaled anti-bacterials or inhaled peptides. Sponsored co-development projects are targeted in collaboration with pharmaceutical companies by application of a partner’s proprietary compound in LAB’s inhalation platforms. Development is expected to only be initiated subject to a fully-sponsored technology license agreement, with commercial rights for the sales of the products being typically retained by the partner.

■ Increase revenues. Besides outlicensing objectives of the Company’s current projects, and

partnering objectives for new products, revenues are also expected to increase in line with greater partner funding obtained to support the development of its pipeline. The medium-to-long-term goal is to cover most of the external expenses of the projects through partner funding and to make the internal organizational infrastructure self-sustainable by selling its contract services when possible, adapting the model currently employed by LAB Research. In order to reach such operational status, LAB Pharma will likely need to evolve into a self-sustainable unit.

■ Broaden technology platform offering. To increase product development opportunities available to

the Company, the selection of proprietary dry delivery platforms will need to be broadened. The Company is expected to prioritize new intellectual property, which enhances the applicability of its core technologies in the segment of DPIs. The Company may also broaden its offering into other types of formulations, which may include nasal drug delivery, special oral technologies which enable the customized combination of therapies, fast melt oral technologies, and oral peptide delivery technologies.

LAB Research LAB Research aims to extend its service offerings through geographic expansion as well as through strategic acquisitions of other independent service providers that offer complementary work such as metabolism, specialized toxicology, bio-analytical, and early-stage clinical services. One such example was the recent acquisition of Scantox Biologisk Laboratorium A/S (Denmark), discussed on page 32. LAB Research is considering expansion via mergers and acquisitions (M&A) to complement internal growth in order to reach the critical mass target of 500,000 square feet; $100 million in revenues; and 1,000 employees.


Intellectual Property LAB is working towards becoming a leading developer of dry powder respiratory products, targeting the multi-billion-dollar inhalation market, which continues to undergo growth and change. The Company’s TAIFUN® inhaler has been peer reviewed and is considered best-in-class and a high quality DPI platform with consistent lung deposition across a range of inhalation flow rates (Newman & Busse, 2002). TAIFUN® technology is covered by three device patents and one formulation patent, with others pending, (the longest extending up to at least 2018). A summary of these patents is provided in Figure 5.

LAB has exclusive worldwide rights to the LABHaler®, GHRH, and CGRP, and could acquire worldwide exclusive rights to the patents on products or technology that it develops in collaboration with third parties.

Dose metering system- High dose uniformity, meets FDA standards

-

Vortex chamber- High lung deposition, independent from inhalation flow rate

Integrated desiccant system- Reliable performance in extreme humidity

"Wet suspension" method- Homogeneous powder ensures reliable metering of dose- High chemical and aerodynamic stability of formulation


Figure 5LAB Pharma

TAIFUN® TECHNOLOGY: PATENTS


Management, Board of Directors, and Scientific Advisory Board Management Table 1 summarizes LAB International’s key management, with detailed biographies following.

Halvor Jaeger, M.D., F.C.P., Chief Executive Officer (CEO) Dr. Jaeger is currently CEO of LAB International. After receiving an M.D. degree from the University of Ulm in Germany in 1976, Dr. Jaeger started a scientific career at this University. In 1979, he founded LAB in Germany and, as its CEO, developed it into of one of the principal contract research institutes in Germany. In addition, he lectured on pharmacology for several years. After selling LAB Germany in 1995 to a worldwide provider of pharmaceutical services, he relocated to Canada and took over LAB International Canada. After substantial increase in value, the Phase I/Bioanalytical business of the company was sold to a Toronto-based public company in 1998, and the pharmaceutical arm to a French company. At that time, LAB Preclinical was founded as a new company and taken public in 2002 as a product development company. Dr. Jaeger has written and/or collaborated on over 100 scientific publications. He acted as Expert Agréé for the French Health Authorities in pharmacokinetics. In 1996, he was appointed Fellow of the American College of Clinical Pharmacology. Luc Mainville, M.B.A., Chief Operating Officer (COO) Mr. Mainville is currently COO of LAB International. He has experience in the financial and investment industry as well as in the biotechnology sector. During his career, Mr. Mainville has held executive positions with various private and public companies, including URRMA Biopharma, RTP Pharma, and Waratah Pharmaceuticals, which he co-founded and brought public in 2000. Previous to 1998, Mr. Mainville was senior vice president and partner in the corporate finance group of KPMG, one of Canada’s largest accounting firms. Mr. Mainville holds an M.B.A. as well as bachelor’s degree in finance and accounting. He also holds a brokerage certificate and has received formal training in hedging and derivatives. Over the last 5 years, Mr. Mainville has been involved in ten successful rounds of financing totaling $150 million, attracting investments from Canadian, U.S., and European sources. During that period, Mr. Mainville was also successful in spearheading two biotechnology mergers as well as several acquisitions. Andrew Reiter, C.A., Chief Financial Officer (CFO), LAB International Mr. Reiter is currently CFO of LAB International. He is an accomplished senior financial executive with extensive experience in publicly traded corporations. During his career, Mr. Reiter has held various executive financial positions with private and public companies, including CFO at Silonex Inc.; director of finance/corporate controller at SR Telecom; corporate controller at The Yellow Pages Group; vice-president, finance and administration at Dicom Express Inc.; and senior manager at Deloitte & Touche. Mr. Reiter holds a C.A. designation with a diploma in Public Accountancy from McGill University and a

Halvor Jaeger, M.D., F.C.P. Chief Executive Officer (CEO)Luc Mainville, M.B.A. Chief Operating Officer (COO)Andrew Reiter, C.A. Chief Financial Officer (CFO), LAB InternationalHanns-Christian Palka Vice-President Risk Management, LAB InternationalEckard Hennings Vice-President I.T., LAB InternationalTaneli Jouhikainen, M.D., Ph.D., M.B.A. President, LAB PharmaLeigh Berryman, M.I. (Biol), C. Biol, RQAP-GLP President, LAB Research


Table 1LAB International Inc.

MANAGEMENT


Bachelor of Commerce from Concordia University. Over the last 10 years Mr. Reiter has been involved in numerous financings and investment rounds. Hanns-Christian Palka, Vice-President Risk Management, LAB International Mr. Palka is currently the vice-president, risk management of LAB International. He is a veteran executive with an international background and more than 15 years of management experience in the communications, software, and pharmaceutical industries. During his career, Mr. Palka has held executive positions in various companies, including manager, finance and administration at Roche Pharma; managing director at Freedomland ITN; international campaign team manager at JBA Software products Ltd.; and business development manager at JBA Germany. Mr. Palka is a graduate of the University of Hohenheim in Germany. Eckard Hennings, Vice-President I.T., LAB International Mr. Hennings is a veteran executive with more than 25 years of experience in Enterprise Resource Planning (ERP) systems, manufacturing execution systems, computer administration, and software development. During his career, Mr. Hennings held executive positions in various companies, including CEO of GUARDUS Solutions AG; COO of GUARDUS Software AG; president and founder of Technische Software Consulting; head of IT of Baldwin Grafotec, an international manufacturing company; project leader for Nixdorf; and project leader for Lingl, a manufacturing company and software developer. Taneli Jouhikainen, M.D., Ph.D., M.B.A., President, LAB Pharma Dr. Jouhikainen is president of LAB Pharma. He has a combination of large pharmaceutical research and development experience, as well as an in-depth knowledge of the pulmonary drug delivery industry. Since 1995, Dr. Jouhikainen has served in management positions with increasing responsibilities. During his career, Dr. Jouhikainen has held executive positions with various companies including president and CEO for Focus Inhalation; vice-president, business development and strategy for Focus Inhalation; chairman of the board for Spectrum Medical Sciences; and director, clinical research and development, for Leiras (part of Schering AG). Dr. Jouhikainen is a Licentiate of Medicine, Doctor of Medical Sciences, and an M.B.A. Dr. Jouhikainen is also a published author in scientific publications in peer reviewed scientific journals. Leigh Berryman, M.I. (Biol), C. Biol, RQAP-GLP, President, LAB Research Mr. Berryman is president of LAB Research. He is a professional accredited toxicologist with over 28 years of experience in the industry (20 years in contract research). He graduated from the University of Newcastle, U.K. in 1976, with an honors degree in physiology, and joined a major UK-based CRO, where he held the position of senior scientific officer. In 1982, he joined a global pharmaceutical company as departmental head, regulatory toxicology, with the responsibility of bringing a new facility into compliance with good laboratory practice (GLP) standards in terms of staff, procedure, and equipment. In 1987, he moved back into contract research as director, toxicology, with an international CRO in Holland. In 1992, he accepted the position of toxicological advisor to the Shell Company and interacted in Shell’s interests with a number of governmental agencies and regulatory bodies. In 1994, he moved to Canada to the initial position of director, toxicology, and thereafter, director, business development, with a Canadian-based CRO, where he was responsible for all business aspects of this mid-sized CRO. He joined LAB Pharmacological Inc. in October 1997 as vice president, program management, with responsibilities in business development and coordination, and founded LAB Pre-Clinical Research International Inc. in July 1998. Board of Directors LAB International’s Board of Directors oversees the conduct of and supervises Company management. Table 2 (page 12) provides a summary of board members, followed by detailed biographies.


Dr. Günter Knorr, Chairman Dr. Knorr has practiced law in Germany since 1975. For more than 20 years, he has provided legal and business advice in contract research and development of pharmaceutical products, acting as counsel to German, Swiss, and American companies. He has also acted on advisory boards of German information technology companies, and was involved in the publication of commentary to the German Drug Act in 2001. Dr. Knorr’s law office has represented LAB in Europe since its inception. Hans-Rainer Hoffman, Ph.D., Member Dr. Hoffmann has been a scientist and manager in the pharmaceutical industry for over 20 years. He received a Ph.D. in Medicinal Chemistry from the Philips-University Marburg. A pioneer in transdermal drug delivery, Dr. Hoffmann became managing director of LTS Lohmann Therapy Systems, the largest manufacturer of transdermal products in the world. Presently an adjunct professor at the University of Rhode Island, Dr. Hoffmann is the inventor or co-inventor of more than 40 patents and co-author of the new edition of "Pharmazeutische Technologie". Maurice St-Jacques, Ph.D., Member Prof. St-Jacques received a B.Sc. from the University of Ottawa and a Ph.D. (Chemistry-NMR) from the University of California at Los Angeles. He is presently a professor at the Universite de Montreal Chemistry Department, and has also served as chairman of the Chemistry Department, vice-dean of the Faculty of Graduate Studies, associate vice-rector for research and vice-rector for research and planning. Prof. St-Jacques was responsible for setting up the Office of University-Industry Liaison, and he has been a board member of many inter-institutional and interdisciplinary research centers. Halvor Jaeger, M.D., F.C.P., Member (Biography on page 10). Keijo Väkiparta, M.Sc., M.B.A., Member Mr. Väkiparta received an Executive M.B.A. from the Helsinki School of Economics and a M.Sc. (Pharm.) from the University of Helsinki. He has been with BioFund since 2001, and, prior to this, worked for over 20 years with Tamro Group, a leading healthcare company in Northern Europe, where he held executive positions such as president of Tamda and Tamro MedLab groups. Mr. Väkiparta has a strong background in internationalization and acquisitions and serves as board member of Finnish and Canadian companies. Dr. Karsten Skydsgaard, Member Dr. Skydsgaard received a Doctorate in Veterinary Medicine from the Royal Veterinary and Agricultural University in Copenhagen and an Executive M.B.A. from the Scandinavian International Management Institute in Copenhagen. He has been working at Novo Nordisk since 1992, in increasingly important managerial positions, from manager, toxicology to director, drug safety; director, preclinical development; and vice-president, preclinical development since 2000. Dr. Skydsgaard is also a published author and lecturer.

Günter Knorr, Chairman Partner, Knorr Rechtsanwalte AGHans-Rainer Hoffman, Ph.D. Member of Executive Board, LTS PharmaMaurice St-Jacques, Ph.D. Professor, Universite de Montreal Chemistry DepartmentHalvor Jaeger, M.D., F.C.P. Chief Executive Officer (CEO), LAB InternationalKeijo Väkiparta, M.Sc., MBA Investment Director, Parner BioFundKarsten Skydsgaard VP, Preclinical Development, Novo Nordisk A/S, Denmark


LAB International Inc.BOARD OF DIRECTORS

Table 2


Scientific Advisory Board On February 23, 2005, LAB announced the creation of a new Scientific Advisory Board (SAB) to support the Company’s product development efforts. Each member of its SAB is a world-class leader in their respective fields and was selected by LAB to provide specific scientific and clinical guidance for the development of LAB’s maturing pipeline of inhalation delivered drugs. Table 3 provides a summary of SAB members and their respective fields of expertise, followed by detailed biographies

Erwin W. Gelfand, M.D., Asthma, COPD and CGRP Dr. Gelfand is the chairman of the Department of Pediatrics at the National Jewish Center for Immunology and Respiratory Medicine, Denver, Colorado. He is also a Professor of Pediatrics, Microbiology and Immunology at the University of Colorado Health Sciences Center, Denver, Colorado since 1987; a Diplomate of the American Board of Pediatrics and Fellow, Royal College of Physicians and Surgeons; and the recipient of numerous scholastic and scientific awards. Marie C. Gelato, M.D., Ph.D., GHRH and Endocrinology Dr. Gelato is the chief administrator of the research program (program director) and has been the director of the clinical research center since 1987, and prior to that, professor of medicine at the State University of New York at Stony Brook. Dr. Gelato served as a Member on the FDA CDER Endocrinologic and Metabolic Drug Advisory Committee from 2000 until 2003. Dr. Gelato enjoys a national and international reputation for her research using GHRH in clinical trials as well as her work with regulation of the insulin-like growth factor system. Peter S.A. Glass, M.B., Ch.B., D.A., FFA, Pain Management and Fentanyl Dr. Glass is a professor and chairman, department of anesthesiology and chief of anesthesia, University Hospital, Stony Brook, NY; a prolific author of scientific articles; frequent lecturer; and recipient of numerous professional awards. Richard N. Dalby, Ph.D., Inhalation Drug Delivery Dr. Dalby is a professor at the Department of Pharmaceutical Sciences, University of Maryland. Dr. Dalby is a member of the Royal Pharmaceutical Society of Great Britain, American Association of Pharmaceutical Scientists, and American Association of Colleges of Pharmacy. Robert A. Snow, Ph.D., M.B.A., General Drug Delivery and New Technologies Dr. Snow is a consultant to companies in intellectual property creation, drug delivery, and chemistry. Dr. Snow was vice-president, chief scientific officer at Skyepharma plc (SKYE-NASDAQ) and RTP Pharma; group leader, Advanced Drug Delivery at Eastman Pharmaceuticals; and senior research staff associate at Eastman Kodak Research Laboratories (EK-NYSE).

Erwin W. Gelfand, M.D. Asthma, COPD and CGRPMarie C. Gelato, M.D., Ph.D. GHRH and EndocrinologyPeter S.A. Glass, M.B., Ch.B., D.A., FFA Pain Management and FentanylRichard N. Dalby, Ph.D. Inhalation Drug DeliveryRobert A. Snow, Ph.D., M.B.A. General Drug Delivery and New Technologies



SCIENTIFIC ADVISORY BOARD


Core Story LAB International (LAB Pharma and LAB Research) is an integrated drug development company focused on the growing multi-billion-dollar inhalation market. LAB Pharma’s lead product, for the treatment of breakthrough cancer pain (BTCP), is a fast-acting Fentanyl formulation delivered using the Company’s approved TAIFUN® DPI platform (called Fentanyl TAIFUN®). Its pipeline also includes therapeutics for asthma, COPD, CRF, and other growth hormone deficiencies. LAB Pharma’s main activities take place in Turku, Finland. An overview of the inhalation market as it pertains to LAB Pharma is provided below. LAB Pharma INHALATION MARKET

Over the past twenty years, drug delivery has become a leading facet in the advancement of the quality of life and a key factor in the business success of pharmaceutical companies. While the vast majority of drugs are still developed to be administered either orally or parenterally, newer, non-invasive, and/or semi-invasive delivery techniques are gaining attention, investment dollars, and market share. As Figure 6 illustrates, the fastest, most pain-free alternative to injection is through inhalation or pulmonary delivery. Pulmonary administration is a convenient way to mimic intravenous administration in a non-invasive way as it can achieve the following objectives:

� Rapid onset of pharmacological action;

� Avoidance of first pass hepatic metabolism; and

� Dosing without potential for nausea and vomiting.

Currently available inhaler platforms are separated into three groups: (1) Metered dose inhalers or MDIs, which are pressurized sprays that are the traditional means of

delivering of asthma medications; (2) Dry powder inhalers or DPIs, which are breath-activated drug delivery devices that have become a

more common alternative to MDIs; and (3) Nebulizers, which are “misters” that aerosolize medication in liquid solutions or suspensions, and are

used for children over age 5 and for those with severe asthma. Inhalation forms the basis of self-administration for a number of drugs to treat and control upper respiratory tract diseases (URT), including asthma and COPD, where COPD includes emphysema and chronic bronchitis. Collectively, these conditions represent a growing market of more than 300 million patients worldwide. Inhalation is expected to remain the leading treatment protocol for upper respiratory diseases, with total worldwide unit sales of all types of inhalers expected to rise by an average annual rate of more than 7% over the next five years, as illustrated in Figure 7 (page 15).



FASTEST PAIN-FREE ALTERNATIVE TO INJECTION

Peak Plasma Levels by Delivery Method(Minutes)

Inhalation

0 10 20 30 40 50

Injection

Mucosal

Oral

Peak Plasma Levels by Delivery Method(Minutes)

Inhalation

0 10 20 30 40 50

Injection

Mucosal

Oral


Delivery of Proteins and Polypepties Driven by advances in genomics and proteomics, the number of new molecular entities developed from biological sources is expected to increase dramatically as a percent of all drugs over the next five years. These large-molecule compounds, mainly proteins and polypeptides, represent a significant opportunity for pulmonary drug delivery since inhalation methods can safely, effectively, and consistently deliver beneficial quantities of large molecule therapeutic substances to the deep lung for systemic distribution. This means that they are likely to become a focal point for clinical development and commercialization. Proteins and polypeptides are currently administered via injection to avoid the disabling chemical effects of the gastrointestinal tract. Because of limitations with other methods of large-molecule drug delivery, pulmonary delivery of these substances is gaining considerable interest. In this category, pulmonary delivery of insulin is the furthest along, with Pfizer Inc. (PFE-NYSE) and Aventis (AVE-NYSE) co-developing Exubera as an inhaled short-acting insulin preparation indicated for the treatment of type 1 and type 2 diabetes. Phase III development of Exubera has been completed. There have been widely publicized concerns about the drug's long-term pulmonary safety, which has led to filings for regulatory approval in Europe and the U.S. being pushed back several times to allow for more safety data. Exubera has now been filed for regulatory approval with the European Agency for the Evaluation of Medicinal Products (EMEA) in Europe and with the FDA in the United States. Factors Influencing Demand Continued improvement in such enabling technologies as high-throughput screening, proteomics and protein expression, and cell micro arrays are expected to yield an increasing number of large molecule drug candidates at an accelerating rate. External factors that may influence the demand for inhalation-based therapeutics include: � The growth in the number of cases of upper respiratory disease. As the number of asthmatics and

COPD patients continues to increase, the existing URT market franchise for inhalers is expected to continue to provide unit growth and margins that are likely to fund ongoing research into technology improvements that are focused on systemic delivery of proteins and peptides, as well as novel small molecule therapeutics.

Source: Datamonitor; IMS Health.

Figure 7ASTHMA/COPD, WORLDWIDE SALES

Asthma/COPD - Worldwide Sales of Inhalable Drugs (2011)

(Total Market =US $18.03 billion)

Combination ICS & LABA

39%

Other11%

Beta2-agonist8%

Corticosteroids8%

Leukotrine modifier

21%Anticholinergic

13%

Asthma/COPD - Worldwide Sales of Inhalable Drugs (2002)

(Total Market =US $13.18 billion)

Other8%

Corticosteroids23%

Leukotrine modifier

15%

Anticholinergic10%

Beta2-agonist22%

Combination ICS & LABA

22%


� The expected increase in self-administration for the treatment of chronic conditions. The continued emphasis on healthcare cost containment and the increasing availability of drug therapies for previously untreatable ailments is expected to continue to drive double-digit growth, specifically in the market for self-administration of insulin. Also, Deoxyribonucleic Acid (DNA)-based therapies and therapeutic vaccines are on track to be introduced to a new and expanding population as a process of home drug treatments. Other candidates who could fall into this category of self-administration include patients with rheumatoid arthritis, osteoporosis, hepatitis C, and multiple sclerosis.

� The increasing use of high level of licensing activities. Licensing has been and will continue to be a very important part of commercial biotechnology. In 1978, Genentech Inc. (DNA-NYSE) licensed its first therapeutic recombinant insulin to Eli Lilly & Company (LLY-NYSE); then six years following, Amgen Inc. (AMGN-NASDAQ) entered into an agreement with Kirin, selling its rights to the drug erythropoietin in Japan. These, and other similar licensing agreements, helped to pave the way for a dominant and continuing trend within the biopharmaceutical industry of growth through very sophisticated collaborations between biotechnology and pharmaceutical companies.

Dry Powder Inhalers In the past, MDIs and nebulizers dominated the market share for the treatment of various inflammatory respiratory diseases; however, DPIs have increasingly become the delivery method of choice. A leading driver of this increase is the prohibition, and subsequent phase-out, of chlorofluorocarbon (CFC)-based aerosol inhalers or pressurized metered-dose inhalers (pMDI). Furthermore, clear evidence exists that a well designed DPI is considerably more efficient in delivering a drug into the deep lung, the predominant site of action. This is largely attributable to the natural dose generation, triggered by the flow of air through the DPI upon inhalation by the patient. In contrast, most pMDI’s require precise coordination of the manual dose triggering and inhalation. Device Characteristics All marketed DPI products are comprised of micronized drug particles (either agglomerated or blended), which are delivered from passive DPIs. These inhalers are passive in the sense that they rely on the patient’s inspirational effort to disperse the powder into a respirable aerosol. Fine powder particles (<5 µm) generate fine aerosols, but particle adhesion often reduces delivery efficiency and leads to flow rate-dependent lung deposition. Factors that affect the aerosol dispersion of carrier-based formulations include drug and carrier properties, such as size, shape, surface roughness, chemical composition and crystalline state, drug-carrier ratio, and the presence of tertiary components. The particle size, shape, surface morphology, and chemical composition of carrier particles can also influence aerosol dispersion. Greater drug deposition can likely be attained with smaller particle size of the active drug and increased segregation of the fine particles from the carrier. A depiction of the important characteristics for systemic drug delivery with DPIs is provided in Table 4.

Attribute RequirementFlexible dosing Accommodate patient variabilityEfficient delivery to the alveolar region Effective systemic or local delivery of DPIDose-to-dose reproducibility Compliance with drug protocolStable drug formulation Consistency over life of inhaler


IMPORTANT DPI CHARACTERISTICS FOR SYSTEMIC DRUG DELIVERYTable 4


LAB Pharma’s Technologies TAIFUN®

LAB’s TAIFUN® technology platform comprises highly efficient inhaler technology with a patented integrated desegregation system (vortex-chamber) and a unique humidity control system (desiccant capsule inside the drug reservoir). The wet suspension formulation method gives very high homogeneity to the formulations, reduces amorphous surface material in the drug particles, and ensures high stability of the formulations. The Company’s DPI provides a number of technical improvements and clinical benefits compared with current leading inhaled drug delivery systems. In particular, the TAIFUN® DPI enables highly reliable and efficient delivery of active drugs into patients’ lungs in a wide range of clinical and environmental conditions. In addition, the platform can be applied to a variety of active compounds and is easy to use, portable, and discreet. The mechanical robustness and inexpensive manufacturing cost could make TAIFUN® an attractive second generation DPI. A snapshot of the TAIFUN® and its attributes is provided in Figure 8. LAB Pharma has demonstrated that its TAIFUN® inhaler represents a significant improvement over the currently marketed MDIs and DPIs, and believes the combination of technical performance, user friendliness, and distinguished style offers a competitive advantage compared with other new generation inhalers in development. Technical innovations in the TAIFUN® DPI include the following: � Dose metering mechanism to measure each dose from the drug reservoir upon activation of the

device before use;

� Vortex-chamber technology disintegrates the micronized active drug particles effectively from the carrier particles upon inhalation;

� Semi-permeable desiccant capsule to regulate moisture in the drug reservoir. The desiccant (silica gel) is placed inside a sealed capsule within the drug reservoir and absorbs moisture in a humid environment and releases it in a dry environment;

� One-way valve to prevent the patient from exhaling through the inhaler;

� Formulation of the dry powder by a process where the blending of the micronized active drug with carrier particles is carried out in a liquid suspension state. This allows the use of various methods to improve the homogeneity, stability, and aerosol performance of the powders.

Effective disintegration of the micronized active particles and the carrier particles must be obtained upon inhalation in order to ensure the successful delivery of the active drug into the small airways of the lung and achieve clinical efficacy. In the TAIFUN® DPI, the design of the vortex chamber creates a turbulent air flow with high cyclonic forces, creating a “typhoon effect”, which is strong enough to annul the two powder components from each other despite the high level of initial attachment.

Small and portableRobust Easy to operate (breath-actuated) Superior flow-rate independenceSuperior performance Regulatory approved Proprietary formulation technology Strong patent position (exp. 2018)



TAIFUN® ATTRIBUTES


In clinical studies, TAIFUN® has shown high lung deposition irrespective of the inhalation flow rate. In addition to the benefits associated with the vortex chamber, the novel powder formulations further contribute to the independence of flow rate and respirable fraction. The powder’s improved aerodynamic properties facilitate high deposition of the drug deep into the lung and good in-use powder stability. A graph of the lung deposition, independent of flow rate, is provided in Figure 9.

LABHaler®

LAB’s alternative to its TAIFUN® platform is the LABHaler®, a disposable single dose DPI, which is in development and may be used for the application of controlled substances, emergency treatment, and in certain niche markets, such as pediatrics. The breath-controlled inhalation device for dry powder medication focuses on pharmaceuticals with high hygienic demands or that could react delicately to difficult environmental effects, and can thus not be delivered through a multi-dose inhalation system. A snapshot of the LABHaler® and its attributes is provided in Figure 10.

The LABHaler’s® development was based upon over ten years of research and development experience in the field of pulmonary drug delivery. This research was carried out with particular emphasis on size and constructional simplicity, as well as on achieving the highest respirable mass fraction possible. Because the disposable device is pre-filled, pre-metered, and pre-dosed, patients only have to break the seal and the LABHaler® is ready for use. Additionally, overdosing with this inhaler is not possible. The LABHaler® is made exclusively of one component consisting of an air duct (air/powder mixer) between a delivery area and a mouth piece. Furthermore, it is transparent, thus ensuring visibly that the dose has been inhaled. Competition in the Inhalation Market Currently, there are several DPI products on the market that compete with LAB Pharma’s inhalation technology platform. Competing companies in the inhalation drug delivery technology business can be divided into three categories: (a) large pharmaceutical companies; (b) pulmonary drug delivery companies; and (c) regional and/or local companies having a generic DPI.

Low manufacturing costs Emergency applications Advantages for US market Suitable for children Disposable


LAB International Inc.LABHALER™ UNIT DOSE: SINGLE DOSE DPI

Figure 10

Guaranteed dosage accuracy even with “subobstruction” flow ratesSource: LAB International Inc.


SUPERIOR FLOW RATE: INDEPENDENCE OF LUNG DEPOSITION(Salbutamol 50 microg/dose MDPI, 60% RH)

doses

18I/min30I/min56I/min

Salb

utam

ol, m

icro

g


Large Pharmaceutical Companies AstraZeneca PLC (AZN-NYSE), GlaxoSmithKline (GSK-NYSE), Boehringer Ingelheim, and Novartis (NVS-NYSE) are the leading pharmaceutical companies within this space. Recently, Aventis and Schering Plough (SGP-NYSE) have become emerging participants in the asthma markets with their own inhalers. In general, these firms do not compete with LAB Pharma as providers of technology, but their products naturally form the competition in the respiratory market. However, the adoption of DPI technologies by these large pharmaceutical companies is a clear sign of the major transformation in the inhaler marketplace. To date, AstraZeneca’s TurbuHaler® and GlaxoSmithKline’s Diskus® are considered the “gold standards” for multiple dose DPIs. � GlaxoSmithKline's Diskus® inhaler is a disc-shaped device that contains 60 doses. The powder is

unit-packaged in an aluminum-covered blister disc, and the number of doses in a single inhaler is not able to be modified. Upon use, each unit is pierced before inhalation to release the dose of the drug.

� AstraZeneca’s suite of DPI products, with its Turbuhaler® technology, is one of the world leaders in

this segment. However, due to inconsistency in delivered dose content uniformity, only its budesonide product, called Pulmicort Turbuhaler, has ever reached the U.S. market.

� Schering Plough has recently acquired the U.S. license for Foradil®, a single-capsule inhaler version

of formoterol. This product, which is marketed by Novarits outside the U.S., applies a simple technology and is not complemented with an anti-inflammatory product.

� Boehringer Ingelheim has just developed a new anti-muscarinic compound, tiotropium (Spiriva®) for

the treatment of COPD. This product applies DPI technology as the only currently approved application. It marks the first significant new respiratory compound that has been developed directly into a DPI formulation. Similar to Foradil®, Spiriva® applies a simple capsule-based inhaler, where the administration of each dose requires the insertion and removal of a powder capsule into the inhaler upon use.

LAB’s TAIFUN® has been compared with the aforementioned marketed inhalers in several in-vitro and clinical studies. The results of these studies indicate that relative efficacy of TAIFUN® in clinical use, as measured by force expiratory volume, is approximately two-fold as compared with AstraZeneca’s TurbuHaler® and approximately three- to four-fold as compared with GlaxoSmithKline’s Ventolin® MDI (a pressurized aerosol) with a spacer. Based on these studies, comparable clinical efficacy is obtained with a lower dose when using TAIFUN®. Similarly, it has been shown that marketed inhalers that lack specific humidity protectors may lose a substantial part of fine particles in high humidity conditions, and thus lose clinical value. TAIFUN®’s patented desiccant system prevents these events, even in the most extreme humid conditions, and therefore maintains reliable clinical performance. A depiction of the performance of LAB’s TAIFUN® versus AstraZeneca’s TurbuHaler® in terms of the change in forced expiration volume is provided in Figure 11.



TAIFUN® PERFORMANCE COMPARED WITH TURBUHALER®


Pulmonary Drug Delivery Companies LAB’s most significant competitors to its technology are the pulmonary drug delivery companies. Core competitors in this segment produce multiple dose DPIs. These companies include: Innovata Biomed, Viatris (formerly Sofotec), Skyepharma plc, IVAX Corp. (IVX-AMEX), and Vectura Group plc. In addition, Battelle Pharma is also entering the field with a liquid-based inhaler employing an electrical aerosol system. Of these companies, Vectura represents the closest European competitor to LAB Pharma. The Company has developed its proprietary powder processing and device technology, and has applied it to new inhalation products. Vectura’s lead products are currently in Phase II clinical development. In the U.S., Nektar Therapeutic Systems (NKTR-NASDAQ) and Aradigm Corporation (ARDM-NASDAQ) are the closest competitors. Nektar (formerly Inhale Therapeutic Systems) is developing several products that apply their proprietary Inhance® multiple-unit dose inhaler. Aradigm has a liquid-based multiple unit dose inhaler, which is being developed for the administration of insulin via the lungs. Neither product has been granted regulatory approval to date. Regional/Local Companies with Generic DPI A small number of regional European companies have developed or obtained inhalation technology in order to develop generic respiratory products for sale in their respective regions. While these are technically less developed inhalers, many have obtained reasonable sales in countries where an established sales force has been available to promote these products. The most significant of these platforms are the Easyhaler by Orion Pharma of Finland, Pulvinal by Chiesi Farmaceutici SpA of Italy, and Jethaler by Ratiopharm International of Germany. These platforms are not available for general listing nor are they technically compatible with the U.S. regulatory requirements. A comparison of pulmonary drug delivery and regional and local companies is provided in Table 5.


Table 5

INHALATION COMPETITIONLAB International Inc.

Company Device RF% Sensitivity to Flow Rate

Moisture Protection

Double Dosing Prohibited

Prevention of Exhaling into

Device

Formulation Tech.

Therapy Area

Already Marketing/Phase

LAB Pharma Taifun ~40% Very low Yes Yes YesPatened wet suspension

process

Asthma COPD

SystemicApproval in EU

Sofotec Novolazer ~30% Moderate No Yes No information available

No proprietary technology

Asthma COPD Yes (EU)

Nektar Inhance SoloEarly Stage; Not

available for testing

Early Stage; Not available for

testing

Early Stage; No information available



PulmoSphere and Inhance

Tech.

Asthma COPD

SystemicNo/Phase I

Innovata Biomed Clickhaler ~30% Low No No No Micro-capsule for protiens

Asthma COPD

SystemicApproval in EU

Ivax Airmax ~30% Moderate NoEarly Stage; No

information available

YesNo

proprietary technology

Asthma COPD

Approved, pending launch

SkyePharma Certihaler ~30% ModerateWithin the

powder formulation

Yes No

Skyeprotect Sykefine

Skyedry Nano-technology

Asthma COPD

Proteins Systemic

Approved, pending launch

Vectura Aspirair Not available for testing

Not available for testing Blisters No information

availableNo information

available PowderHale

Asthma COPD

Proteins Systemic

No/Phase II

Battelle Pharma Mystic >50% Low Solution or suspension

No information available

No information available --

Oncology Proteins Systemic

No/Phase II

Ratiopham Jethaler ~30% Not known No Yes No Ringtablet Asthma Approved in Germany


PAIN MANAGEMENT MARKET Pain involves the interaction between several chemicals in the brain and spinal cord. These chemicals, called neurotransmitters, send out nerve impulses from one nerve cell to another. Neurotransmitters stimulate receptors found on the surface of the nerve and brain cells, which function like gates, allowing messages to pass from one nerve cell to the next. Persistent pain can have a severe impact on a person’s quality of life. Accurate assessment and optimal treatment of pain are extremely important not only because relief of pain and suffering is ethically desirable, but also because unrelieved pain is physiologically harmful. As such, the control of pain is now recognized as not only important, but also an essential component, and thus one of the main targets of cancer therapy. The market for pain management is divided into two categories: acute or chronic. Acute pain, for the most part, results from disease, inflammation, or injury to tissues. This type of pain generally comes on suddenly, for example, after trauma or surgery, and may be accompanied by anxiety or emotional distress. The cause of acute pain can commonly be diagnosed and treated, and the pain is self-limiting, that is, it is confined to a given period of time and severity. Chronic pain is widely believed to represent a disease itself. It can be made much worse by environmental and psychological factors. Chronic pain persists over a longer period of time than acute pain, and is resistant to most medical treatments. It can, and often does, cause severe problems for patients. Chronic pain is often seen in cancer patients. The percentage of patients suffering from cancer pain is between 50% and 80%, where the pain is segmented into three categories and incidence is reported as follows: 5% who experience no or occasional pain, 35% who experience mild pain, and 60% who experience moderate to severe pain. Moderate to severe pain can usually be treated with opioid medication. Breakthrough Cancer Pain (BTCP) Breakthrough cancer pain (BTCP) is experienced by approximately two-thirds of cancer patients. This cancer-related pain is defined as transitory exacerbation of pain that can occur even though the individual is taking analgesic medication on a regular basis. These bursts of pain are called ‘breakthrough pain’ because the pain breaks through the regular pain medication. Episodes can vary from one to eight per day, and the duration may last anywhere from minutes to hours, with median and average duration typically reported as 30 and 60 minutes, respectively. A typical cycle of breakthrough cancer pain is illustrated in Figure 12. According to Kalorama Information (www.kaloramainformation.com), a market research firm, the global market for adjunctive therapies to treat cancer pain is expected to grow by approximately 10.5% annually between 2001 and 2006, to US$4.5 billion from US$2.75 billion. The share of the BTCP segment is expected to rise to close to 15% from approximately 5% over this time period. A significant challenge for the pain management market is to develop effective and fast-acting analgesic treatments that enable easy patient-controlled dosing. According to the European Association for Palliative Care, morphine is the opiate of choice for the treatment of moderate to severe cancer pain. However, this recommendation is based on familiarity, availability and cost, and not on proven clinical superiority. Alternative opiates and routes of administration are being evaluated.



BREAKTHROUGH CANCER PAIN


One significant alternative to morphine is fentanyl, an opiate antagonist. Between 1975 and 1982, fentanyl was widely adopted as a potent intraoperative pain-relieving agent with relatively few adverse side effects. Common methods of administration for fentanyl include intravenously or via spinal or epidural routes. The drug is highly lipid soluble, which also enables transdermal, transmucosal, and inhalation administration. Fentanyl was also found to be more effective and less addictive than morphine. Current BTCP Alternatives Duragesic®, a transdermal fentanyl patch, is one of the leading baseline treatments of chronic pain. The patch releases fentanyl continuously for three days, and has been the most successful product in the primary cancer segment, with annual sales over US$1 billion since 2001. Its solid efficacy and ease of administration have led to the reported patient preference over sustained-release oral morphine. Duragesic® is scheduled for patent expiration in 2005-2006 (dependent on territory); therefore, a number of generic patches are expected to reach the market, likely causing a drop in price, but a further increase in market share of fentanyl-based products for the primary cancer pain segment. The success of fentanyl-based products in the primary cancer pain market has created an attractive opportunity for BTCP products based on the same drug since pain specialists prefer to limit the number of different opiate compounds for a single patient. At present, only one such product is available, ACTIQ® Fentanyl lozenge (transmucosal) by Cephalon, Inc (CEPH-NASDAQ). ACTIQ® Fentanyl lozenge is expected to generate sales this year of US$390-420 million. The drug has a dosage time of 15 minutes or more and an onset of between 15 to 45 minutes. LAB believes the ideal medication for BTCP should be easily administered and work rapidly. Studies show that the pain relief after dermal application (such as by Duragesic®) starts slowly as the plasma steady state is reached in 35+ hours. Transmucosal applications (such as ACTIQ®) may take 20-70 minutes after application to reach maximum clinical effectiveness. A summary of competing products/development efforts in the pain management marketplace is provided in Table 6.

Company Product Development Stage Comments

Cephalon Inc. Actiq® Approved; Sales: US$345 million (2004)

Oral transmucosal lozenge formulation. Time to onset of action is 10-15 minutes, though Tmax achieved 20-40 minutes after completion of administration (15 min).

Cephalon Inc. OraVescent®

FentanylPhase II complete Oral transmucosal fast dissolve tablet formulation. Phase I PK

shows slightly faster absorption than Actiq®.Orexo AB Rapinyl Fetanyl Phase II complete Oral transmucosal fast dissolve tablet formulation. Phase I PK

shows slightly faster absorption than Actiq®.

Aradigm Corp. AERx® Fetanyl Phase I PK complete Aerosol delivery of fentanyl with AERx pulmonary delivery device. No progress reported since 2002.

ALZA/Johnson & Johnson E-Trans® NDA submitted in September 2003

Electronically-controlled transdermal patch.

ZARS, Inc. Titragesia Starting Phase II Combination-patch technology based on heat generating patches increasing transdermal penetration.



COMPETING PRODUCTS/DEVELOPMENTS IN PAIN MANAGEMENT MARKET

Approved

In Development


LAB Pharma’s TAIFUN® Inhalation Delivery Platform LAB Pharma believes that the rapid onset of action and ease of use of its Fentanyl TAIFUN® and clear advantages versus oral, transmucosal, and injectable alternatives, are likely to provide significantly improved cancer pain therapy. The Company is developing fentanyl in its TAIFUN® inhalation delivery platform, since inhalation has demonstrated to be the most rapid and painless alternative to intravenous administration, as illustrated in Figure 6 (page 14). Fentanyl TAIFUN® for Pain Management Fentanyl TAIFUN® is a DPI formulation of fentanyl administered with the TAIFUN® MDPI. LAB is developing each inhaler with 30 doses and at least 2 strengths, with the possibility of titration to the right dose according to clinical need. The target product profile comprises the following clinical characteristics: (1) fast onset of pain relief of <10 minutes in the majority of patients; (2) strong patient preference of Fentanyl TAIFUN® over control (oral/transmucosal opiate administration); and (3) good tolerability as a safe treatment. LAB intends to register and launch the product globally, with a European market authorization application expected to be filed in 2008. Phase I Results In the first Phase I study, Fentanyl TAIFUN®

was administered to 16 healthy volunteers to assess the pharmacokinetic (PK) profile of Fentanyl TAIFUN® and to compare the bioavailability of the inhaled formulation with intravenous administration of fentanyl. Results of the study demonstrated that the absorption of fentanyl from the TAIFUN® device was very rapid. Only five minutes after administration, the plasma concentrations reached an average of 73% of the respective maximum concentrations. This profile indicates a high instantaneous absorption in the deep lung, subsequently complemented by absorption via the upper airways, oral mucosa, and the gastrointestinal tract. The rapid absorption was well reflected in the appearance of the first opiate-related effects, observed 6.5 minutes (median) after the administration of Fentanyl TAIFUN®, as compared to 4 minutes (median) after the start of intravenous infusion. The absolute bioavailability was on average 80%. Fentanyl TAIFUN® was well tolerated and safety data did not reveal any concerns for the inhaler. A multiple dose PK study in healthy volunteers is not possible due to the addictive potential of the substance. A depiction of this data is provided in Figure 13. Successful Pre-IND meetings Prompt Phase II Studies The further development of Fentanyl TAIFUN® is expected to include the investigation of therapeutic comparability of Fentanyl TAIFUN® to the ACTIQ® lozenge and demonstration of efficacy and safety for the indication of treatment of breakthrough cancer pain in patients with malignancies who are already receiving and who are tolerant of opioid therapy for their underlying persistent cancer pain. Table 7 (page 24) provides a comparison of Fentanyl TAIFUN® to ACTIQ® Fentanyl lozenge.


Fentanyl TAIFUN® compared to IV curve (red/top)


FENTANYL TAIFUN® PHASE I DATAMean Fentanyl plasma levels (blue/bottom curve) after single

pulmonary application (pa) of 200 µg

05 0

1 0 01 5 02 0 02 5 03 0 03 5 04 0 04 5 05 0 0

0 2 0 4 0 6 0 80 1 0 0 12 0

T im e (m in )

Fent

anyl

pla

sma

conc

entr

atio

n (p

g/m

l)


Phase II In the first quarter 2005, LAB announced the initiation of a Phase II clinical trial for Fentanyl TAIFUN®. Successful pre-IND meetings with both U.S. and European regulatory bodies resulted in a development program applicable for both regions, thus enabling further development of the product. The Phase II trial is expected to be carried out as a multi-center trial in several European countries. The primary objective is to demonstrate the clinical efficacy of Fentanyl TAIFUN® in patients with BTCP, with special emphasis on the time to significant pain relief. The enrollment of patients is expected to continue over the next few months and results of the Phase II trial could be available before year end. The multi-centered, randomized, double-blind, placebo-controlled Phase II trial is investigating the efficacy and safety of Fentanyl TAIFUN® for the treatment of BTCP, monitoring response at different Fentanyl doses. The trial is enrolling 112 cancer patients on maintenance opioid therapy for persistent pain. GROWTH HORMONE MARKET Growth hormone, also known as somatotropin, is a single chain polypeptide of 191 amino acids, produced by the somatotropic cells of the anterior pituitary gland. In addition to its role in promoting linear growth in children, growth hormone is also an important anabolic hormone with stimulatory effects on protein synthesis, especially in the liver, spleen, kidney, thymus and red blood cells, and on lipolysis.

Growth hormone activity has two distinct effects, as illustrated in Figure 14. � Direct effects. Direct effects

are the result of growth hormone binding its receptor on target cells. Fat cells, for example, have growth hormone receptors, and growth hormone stimulates them to break down triglyceride and suppresses their ability to take up and accumulate circulating lipids; and

� Indirect effects. Indirect effects are mediated primarily by an insulin-like growth factor-1 (IGF-1), a hormone that is secreted from the liver and other tissues in response to growth hormone. A majority of the growth promoting effects of growth hormone is actually due to IGF-1 acting on its target cells.

Growth hormone stimulates protein anabolism in many tissues. This effect reflects increased amino acid uptake, increased protein synthesis, and decreased oxidation of proteins. Growth hormone is one of the many hormones that maintain blood glucose within a normal range. Ironically, the administration of growth hormone has the reverse effect and stimulates insulin secretion.

LAB International Inc.Figure 14

GROWTH HORMONE ACTIVITY


Source: LAB International


COMPARISON OF FENTANYL TAIFUN® TO ACTIQ® FENTANYL LOZENGEFentanyl TAIFUN® MDPI is easier and quicker to administer than ACTIQ®

Fentanyl TAIFUN® dispensed with one inhalation; ACTIQ® consumed for 15 minutesFentanyl TAIFUN® has a quicker onset of action than ACTIQ®

Fentanyl TAIFUN® reaches therapeutic levels in 5-10 minutes; ACTIQ® takes 20-30+ minutes



Growth hormone is released in a pulsative pattern, controlled by hypothalamic hormones (GHRH and somatostatin) and one hormone from the stomach, called ghrelin. GHRH is a hypothalamic peptide that stimulates both the synthesis and secretion of growth hormone. Somatostatin is a peptide produced by several tissues in the body, including the hypothalamus, and inhibits growth hormone released in response to GHRH and to other stimulatory factors, such as low blood glucose concentration. Ghrelin is a peptide hormone secreted from the stomach. Ghrelin binds to receptors on somatotrophs and potently stimulates secretion of growth hormone. Growth hormone secretion is also part of a negative feedback loop involving IGF-1. High blood levels of IGF-1 lead to decreased secretion of growth hormone not only by directly suppressing the somatotroph, but by stimulating release of somatostatin from the hypothalamus. When growth hormone is not secreted in sufficient quantity, recombinant growth hormone has been used as a replacement. The significant cost of producing recombinant growth hormone, inconvenience of administration by injection, long-term safety concerns of growth hormone therapy, and the disruption of the endogenous growth hormone releasing rhythm limit the hormone’s critical uses. Consequently, methods for increasing growth hormone secretion without disturbing the body’s own growth hormone releasing pattern and the resultant steep increase in IGF-1 are actively sought by researchers worldwide. Growth hormones and their releasing factors have been the subject of many clinical investigations for different therapeutic areas, such as growth retardation, sleep disorders, COPD, wasting, hip fracture, cancer cachexia, and lipodystropy. To date there have been positive clinical results shown in wasting related disorders. Current Market Participants and Developments In 2003, the global human growth hormone market was approximately US$1.8 billion (with over 350,000 patients). It was dominated by five major pharmaceutical companies: Pfizer/Pharmacia, Eli Lilly & Company (LLY-NYSE), Novo Nordisk A/S, Genentech, and Serono SA (SRA-NYSE). The market is growing at a steady pace, and had increased 7.5% between 2002 and 2003. The growth hormones currently on the market are all administered by injections with the exception of Serono’s Serostim, which is administered through a conventional needle injection or with the SeroJet™ needle-free delivery device. It is also the only growth hormone that has an indication for AIDS-related wasting. A snapshot of the competing products within this area that are currently in development is provided in Table 8.

Company Product Development Stage Potential IndicationsAeterna Zentaris EP-1572 Phase I GHD in adults and children

AIDS and cancer cachexiaAmgen Metreleptin Phase II LipodystrophyArk Therapeutics EG-005 Marketed Ace inhibitor

Phase II LipodystrophyConjuChem DAC-GRF Start Phase I GHD in adults and children, wastingLAB Pharma LAB GHRH Phase II commenced CRFSerono Serostim Marketed AIDS Wasting

Start Phase III HIV LipodystrophyTheratechnologies TH9507 Phase II completed HIV Lipodystrophy, Sleep, COPD wasting, Hip fracture



OVERVIEW OF COMPETING PRODUCTS/DEVELOPMENTS IN GHRH MARKET


LAB Pharma’s Growth Hormone Releasing Hormone (GHRH) for Chronic Renal Failure (CRF) LAB Pharma is developing an injectable formulation of GHRH for the treatment of malnutrition in patients with late pre-end-stage CRF. CRF is characterized by a progressive destruction of the renal (kidney) mass with irreversible sclerosis and the loss of nephrons over a period of a few months to several years. Further to the loss of nephrons, the Glomerular Filtration Rate (GFR) progressively decreases. The GFR is considered the best measure of overall kidney function. Normal GFR varies according to patient age, sex, and body size, and is often referred as GFR>=90cc/min. CRF is a term used specifically for cases where patients’ GFR is less than 30 cc/min. The National Kidney Foundation estimates that approximately 300,000 adults in the U.S. have stage 5 kidney failure. Another 400,000 adults are in stage 4 (severe) chronic kidney disease, and approximately 7.5 million are in stage 3 (moderate). A depiction of the market potential (as estimated by LAB International) for the treatment of malnutrition in patients with CRF is provided in Table 9.

Accordingly LAB’s GHRH product for pre-dialysis CRF may benefit from Orphan drug status in the U.S. CRF results in metabolic derangements as well as nutritional and hormonal dysfunction, which, in turn may lead to several complications including anemia, bone disease, insulin resistance, dyslipidemia, and malnutrition. Many clinical CRF studies have demonstrated that the nutritional status of patients improves and catabolism is reduced in response to growth hormone or IGF-1 treatment. Treatment with IGF-1 also results in a significant increase in GFR rates. There is a direct correlation between nutritional status at the start of dialysis and higher mortality. Thus, there is a strong rationale for treatment with growth hormone/growth hormone factors to improve the nutritional status of patients with end stage renal disease prior to dialysis. LAB’s GHRH analogues have been selected based on their binding affinity to the GHRH (1-44) NH2 receptor and the resistance to proteolysis in-vitro. Other GHRH designed so far have been based on structural changes aimed at only improving their half-lives in-vivo (11 to 15 minutes in human blood). LAB believes that none of the publicly disclosed human GHRH agonists are rationally designed to exert both increased plasma half-life and binding affinity to the GHRH receptor. Thus, the Company anticipates the effective therapeutic dose of the present GHRH agonists could be much lower and the duration of their therapeutic effects in clinical applications longer than the existing products on the market or in development. Consequently, in addition to its first application in CRF, LAB has stated that it is planning to develop its GHRH analogue in an inhalation delivery system, offering patients a more convenient and painless alternative to the injection method. Phase I/II Results and Future Progress In September 2004, positive results were reported from LAB’s Phase I/II trial for its GHRH. The results showed a rapid and significant increase in the levels of growth hormones at all dosage levels and all subjects after administration, providing evidence as to the potent and consistent effect of the drug. Moreover, no significant adverse drug effects were observed at any of the doses administered.


MARKET POTENTIAL FOR TREATMENT OF MALNUTRITION IN PATIENTS WITH CRF Prevalence of Stage 4 pre-dialysis patients in the U.S. is 400,000- Growing at 2.1% annually U.S. represents 50% of worldwide pharmaceutical sales Number of pre-dialysis patients suffering from malnutrition is 44% Duration of chronic therapy is 10 months on average



The randomized, cross-over single ascending dose study was conducted in ten healthy, non-smoking volunteers aged above 50. Doses ranged from 5 µg/kg to 25 µg/kg. Each volunteer received all doses including placebo, thus acting as his own control. Growth hormone levels were measured over a 24-hour period. For the 0-4 and 0-12 hour periods, the average increase of growth hormone secretion was found to be statistically significant at all dose levels, reaching up to 40 times over placebo, demonstrating a higher than expected potency of the drug. Even at the lowest dose, an immediate, consistent, and marked increase in growth hormone levels was observed. LAB’s GHRH respected the natural pulsatility of growth hormone secretion, as no interference with the natural nighttime growth hormone secretion was observed. After completion of this dose-response trial, LAB Pharma has selected the first clinical indication for which it intends to evaluate the efficacy of its GHRH analogue. GHRH will be evaluated for the treatment of malnutrition in patients with late pre-end-stage chronic renal failure (CRF, stage 4, pre-dialysis) in a Phase II trial, which the Company initiated on July 5, 2005. LAB’s targeted timing for a submission in Europe and the U.S. is 2009. The Company is also reviewing other growth hormone and GHRH clinical applications for its patented GHRH analogue technology. Through a worldwide exclusive licensing agreement with the University of Montreal and Centre Hospitalier de l'Université de Montreal (Montreal, Quebec, Canada) or CHUM, LAB Pharma has acquired rights to commercialize this synthetic GHRH agonist. ASTHMA MARKET Asthma is a chronic inflammation of the bronchial tubes that causes swelling and constriction of the airways and results in difficulty breathing, as illustrated in Figure 15. The bronchial narrowing is usually either totally or at least partially reversible with treatments. Bronchial tubes that are chronically inflamed may become overly sensitive to allergens (specific triggers) or irritants (non-specific triggers). Asthma is the leading cause of respiratory distress in the world and increasing numbers of people both in the developed world and in emerging countries suffer some degree of airway disease. According to DataMonitor, asthma and COPD affect up to 52 million and 30 million people, respectively, in the seven major markets (U.S., Japan, France, Germany, Italy, Spain, and UK), as of 2002. The prevalence of asthma has risen dramatically over the last 30 years, and due to tobacco consumption in the 1970s and 1980s, COPD has become a major problem, costing the U.S. healthcare system over US$30 billion in medical costs in 2000. Worldwide sales of drugs for the treatment of asthma reached nearly US$10.7 billion in 2003. This market is expected to continue to grow at 7-8% during the next ten-year period. The asthma market is divided as follows: � Broncho-dilating agents (short- and long-term acting Beta2 agonists, anti-cholinergics);

� Anti-inflammatory agents (corticosteroids, leukotriene antagonists); and

� Combination products (long acting Beta2 agonists + corticosteroid).



WHAT ASTHMA MAKES IT HARD TO BREATHE


Short-Acting Beta2 Agonists In 2003, sales for short-acting Beta2 agonists were US$1.5 billion. Salbutamol, also known as Albuterol, is the most prescribed short-acting Beta2 agonist. Salbutamol is a selective Beta2-adrenoreceptor agonist with broncho-dilating effect. Broncho-dilation occurs after administration of Salbutamol in patients with asthma and other diseases associated with reversible component of airway obstruction. Salbutamol is also used before exercise in subjects with exercise-induced asthma. In asthmatic patients, the broncho-dilation is achieved within a few minutes after drug inhalation and the improvement in pulmonary function lasts up to six hours. Salbutamol has rapid onset and short duration of action, and according to current treatment guidelines, is recommended to be used as needed for “rescue use.” Patients on other asthma products, such as long acting bronchodilators and anti-inflammatory medication, typically rely on a short-acting bronchodilator, for example, Salbutamol, to treat their asthma attacks. LAB Pharma’s Calcitonin Gene-Related Peptide (CGRP) for Asthma LAB Pharma’s Calcitonin Gene-Related Peptide (CGRP) is a novel peptide therapeutic for the treatment of asthma, currently in the preclinical stage of development. CGRP is not a bronchodilator and the mechanism of action is not like that of Beta2 agonists, such as Salbutamol. Rather, it is a natural molecule produced in the lung in response to allergic stimuli. Unlike current asthma drugs, LAB Pharma’s CGRP is a unique natural product combining broncho-dilatory, anti-inflammatory, and broncho-protective properties. The differentiating factors of LAB Pharma’s CGRP are described in Table 10.

LAB is developing CGRP into an inhalation-delivered product, first in a nebulized solution formulation to enable rapid advancement into clinical proof of concept studies, and subsequently with its TAIFUN® delivery platform. The Company conducted in-house formulation and toxicology studies in 2004. On June 28, 2005, the Company announced that it had initiated enrollment in a Phase I trial for LAB CGRP. The placebo-controlled dose escalation study is being conducted in a single center in Europe to investigate the safety and tolerability of inhaled CGRP. A total of ten healthy volunteers will be enrolled in the study. This Phase I trial is expected to be completed in time for the Company to file an Investigational New Drug (IND) application or equivalent prior to initiating a Phase II study for testing bronchodilatory properties of LAB CGRP before year-end. LAB Pharma’s Salbutamol TAIFUN®

LAB Pharma has developed Salbutamol TAIFUN® in its TAIFUN® inhalation delivery platform. Salbutamol TAIFUN® is a dry powder formulation of the generic asthma drug available in 50mcg/dose and 100mcg/dose. The TAIFUN® device contains 200 doses. According to systemic bioavailability and Forced Expiratory Volume in 1 second (FEV1) data obtained in clinical studies, Salbutamol inhaled via the TAIFUN® device is more potent than Salbutamol inhaled from conventional aerosol inhalers.


DIFFERENTIATING FACTORS OF LAB PHARMA'S CGRPBlocks both acute and late-phase bronchial responses associated with an asthma attackCan be used as an emergency drugPrevents non-specific airway responsivenessPrevents hyper-excitability superimposed on Bronchial Hyper ReactivityReduces lung inflammation by decreasing the time of residence for the eosinophils in the bronchial wallsIs devoid of undesirable hemodynamic side effectsIs a natural agent- Released during an antigen challenge- Primary function is to stop/down-regulate the patho-physiological manifestations associated with an allergicresponse



Specifically, the most recent clinical publication comparing Salbutamol TAIFUN® with other inhalation devices was published in Respiratory Medicine 2001 (95:949-953 “The efficacy of a new Salbutamol metered dose inhaler in comparison with two other inhaler devices). According to the article, an open cross-over and randomized study was carried out in order to compare the efficacy and safety of Salbutamol TAIFUN® 50mcg with TurboHaler 50mcg and Ventolin 100ug/dose MDI with Volumatic spacer. The estimated relative dose potency was approximately 1.9 and 2.8 fold compared to the TurboHaler and the pMDI+S, respectively. As such, in practice, a smaller dose of Salbutamol TAIFUN® is needed to produce similar broncho-dilatory response. Although Salbutamol TAIFUN® has been approved in a number of European countries, the Company is not actively pursuing commercialization of the product due to low price levels of Salbutamol products. However, the product demonstrates the effectiveness and regulatory approvability of the TAIFUN® platform. PARTNERSHIPS/ALLIANCES/IN-LICENSING AGREEMENTS/ACADEMIC COLLABORATIONS Partnerships LAB has concluded several strategic partnerships with companies and academic institutions. In out-licensing, the Company has formed the following relationships: � Grupo Ferrer. The first major licensing agreement was announced in 2004 with the Grupo Ferrer,

located in Barcelona, Spain, for the co-development and distribution of Fentanyl TAIFUN® throughout Europe, Latin America, and South America. The launch of this product is planned for 2007.

� SK Chemicals, Co. Ltd. The second licensing agreement was executed in November 2004 with SK

Pharma, a subsidiary of SK Chemicals Co. Ltd. (Seoul, Korea) for the development and commercialization of Fentanyl TAIFUN® for the South Korean and Chinese markets.

Alliances � Perlos Oy and Wilden AG. An agreement was reached with Perlos Oy of Finland in January 2003 for

the development and manufacturing of the TAIFUN® system. Another agreement with Wilden AG, located in Regensburg, Germany for the LABHaler® DPI device was reached in the fall of 2003. The agreement with Perlos provides that Perlos will manufacture inhaler components, as well as pre-assemble TAIFUN® inhalers, before final filling and packaging within the LAB state-of-the-art pharmaceutical facility. Perlos Pharma is a pioneer in precision injection molding of pharmaceutical grade plastic components for a wide range of applications and therapeutic areas. In the inhalation technology sector, Perlos is among the world leader, having manufactured more inhalers/inhaler components than any other company.

� TEKES (Finland). In Finland, LAB Pharma has a long-standing relationship with Tekes, the National

Technology Agency of Finland. Under the most recent project funding, LAB Pharma has received research and development funding to cover 50% of the cost of several projects, including the funding of the Fentanyl TAIFUN® up to a total of 2.1 million euros, of which 30% is in the form of a grant and 70% in the form of a low interest capital loan, with repayment subject to the commercial proceeds from the product.

In-Licensing Agreements In order to secure rights on the CGRP, GHRH, and LABhaler® platforms, LAB Pharma entered into licensing agreements with various parties, which are to receive milestones and royalties if the products achieve commercial success.


Academic Collaborations In field of academia, the Company maintains strong ties with most of its licensors including: � The University of Montreal, Canada, in relation to the LAB GHRH compound, where the product was

initially discovered, developed, and in-licensed in the year 2000. � The University of Alberta, Canada, in connection to the LAB Deagglomerator (dry powder inhaler

prototype), which was in-licensed from them in 2002. � The University of Sherbrooke, Quebec, Canada, and the National Jewish Medical & Research Center

of Denver, Colorado in relation to LAB’s CGRP compound, which was in-licensed from both institutions and acquired from Seyvika Pharma during 2003.

� The University of Turku and the Abo Akademi, both in Turku, Finland, on the physical and

physicochemical characterization of solid raw materials for inhalation drug delivery.


LAB Research LAB began in 1998 as a specialized contract research organization (CRO) providing drug development services to the pharmaceutical and biotechnology industries, and has now become one of the top 5 CROs worldwide in terms of preclinical focus (a US$7 billion market) following the February 2005 acquisition of Scantox, Biologisk Laboratorium A/S (Denmark), the leading Scandinavian, non-clinical CRO. CROs provide preclinical testing and clinical testing services in man to pharmaceutical and biotechnology companies. The concept behind the CRO is to provide a greater efficiency of operation, and in turn reduce cost of research, through the maintenance of a high work throughput, which fully utilizes professional scientific staff and fixed resources, such as equipment and specialized buildings. LAB Research is focused on the preclinical testing of discovered compounds to identify and evaluate potential risk to humans. This work includes regulatory toxicology testing in rodent and non-rodent models through oral, intravenous, infusion, intraperitoneal, dermal, subcutaneous, and intranasal routes. Pharmacokinetic work involves analyzing absorption, distribution, metabolism, and excretion information. Tissue distribution studies include investigation of localization of drug. Efficacy studies evaluate the drug potency in disease states, such as cancer, corneal ulceration, bone regeneration, and stroke. LAB Research has increased revenues by 41% in 2003 and 60% in 2004, generating more than $23 million for the Company and providing close to $6 million of free cash flow with which to fund research and development activities. LAB Research has grown both organically and through strategic acquisitions and has the capacity in place to maintain this growth from its operations in Europe and North America. Figure 16 depicts this unit’s growth over the past several years. Following the successful integration of Scantox, acquired during the first quarter of 2005, LAB Research has stated that it expects revenues to nearly double in 2005 from 2004, with EBITDA forecasted to exceed $9 million. Facilities LAB Research includes the operations of five entities: (1) LAB Pre-Clinical Research International Inc. (“LAB Pre-Clinical”), a Québec company based in Laval, Québec, Canada; (2) LAB Research International, Inc. (“LAB US”), a Nevada corporation based in San Diego, California; (3) LAB Research International (Hungary) Ltd. (“LAB Hungary”) previously named Toxicological Research Center Ltd. (“TRC”) prior to being acquired by LAB on July 4, 2003, a company incorporated under the laws of Hungary and located in Veszprém, Hungary; (4) LAB Real Estate Inc. (“LAB Real Estate”), a Québec company based in Laval, Québec; and (5) Scantox, Biologisk Laboratorium A/S (“Scantox”), a company incorporated under the laws of Denmark. LAB Pre-Clinical is a wholly-owned subsidiary of LAB. LAB Hungary is owned 99% by LAB and 1% by LAB Pre-Clinical. Scantox is a wholly-owned subsidiary of LAB and the other two companies are wholly-owned subsidiaries of LAB Pre-Clinical.

• 25%+ EBIDTA/Sales • 45% compounded annual growth • 66% revenue growth (1Q 05 vs. 1Q 04) • 105% EBIDTA growth (1Q 05 vs. 1Q 04) • 2005 should almost double following latest acquisition



LAB RESEARCH: CONTRIBUTION

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The operations are listed below: � LAB Pre-Clinical (Laval, Quebec). LAB Pre-Clinical, established in 1998, operates from two buildings

located less than one mile apart in Laval. The main building is a 38,000 square foot facility built in 2002 to support the growth of the Canadian operations. The Company also leases approximately 34,000 square feet of office, animal, and laboratory space from the Institut National de la Recherche Scientifique (INRS). LAB Pre-Clinical performs approximately 350 studies yearly and currently supports and services not only LAB Pharma, but biotechnology and pharmaceutical clients from the U.S., Canada, Europe, and Australia. The total headcount at the end of June 2005 was 160, including seven Ph.D.’s and nine veterinarians.

� LAB Hungary (Veszprém, Hungary). In July 2003, LAB Research established its contract research

services in Europe through the acquisition of TRC in Veszprém, Hungary. The Veszprém facilities, owned by LAB consist of a 53,000 square foot purpose-built space constructed in 1989, with state-of-the-art modifications added in 2004. The total number of employees at the end of June 2005 was 91.

� LAB US (San Diego, California). In May 2002, LAB Research launched LAB US, a unique preclinical

management operation (PMO) in San Diego, California. LAB US operates in a 20,000 square foot leased facility and employs seven professionals.

� Scantox, Biologisk Laboratorium A/S. On February 10, 2005, LAB Research acquired Scantox,

Biologisk Laboratorium A/S (Denmark), the leading Scandinavian, non-clinical CRO, for a total cash consideration of 28 million Danish Kroner (“Dk”) or approximately CD$6.1 million. Approximately 90% of the purchase price was paid on closing, with the remaining portion payable by March 31, 2006, subject to post-closing adjustments. Scantox is the principal GLP-compliant, non-clinical CRO in Scandinavia. Founded in 1977, Scantox employs 135 people at its state-of-the-art 75,000 square foot facilities located in Denmark. Scantox’s non-audited revenues and EBITDA for the 2004 calendar year are estimated at 92 Million Dk (CD$22 million), and 19.5 million Dk (CD$4.2 million), respectively. This acquisition is intended to assist LAB Research in nearly doubling its current revenues in 2005, and expanding its product offering to existing clients. This addition brings LAB Research’s services business closer to becoming large enough to position itself as self-reliant in funding its internal drug development programs. Following this acquisition, LAB Research operates contract research facilities in Denmark, Hungary, United States, and Canada with a total capacity approaching 300,000 square feet.

Competition There are currently 23 publicly traded CRO’s in North America with annual revenues ranging from the smallest (Commonwealth Biotechnologies) at US$8 million to the largest (Omnicare) at US$2.6 billion. Private CROs constitute multiples of this number though most are at revenue rates of less than US$10 million. CROs are generally categorized by size into three tiers: � Large >$100 million

� Mid-size >$10 million<$100 million

� Small <$10 million

The preclinical CRO industry is dominated by a small number of large, full service organizations, or Tier 1. These include IRI group, with facilities in Canada and Scotland; Covance Inc. (CVD-NYSE), with facilities in UK, Germany, and U.S.; Charles River Laboratories (CRL-NYSE), with facilities at six U.S. locations; and Huntingdon Life Sciences (HLS), with facilities in UK and the U.S. It is worth noting that the acquisition of the IRI group by Charles River in July 2004 reduces the number of large full service organizations.


There are also a number of mid-sized or Tier 2 organizations, which include MPI (U.S.), WIL Research Laboratories, LLC (U.S.), Sequani Limited (UK), RCC Ltd. (Switzerland), and Shin Nippon Biomedical Laboratories, Inc. (Japan/U.S.). The third group of companies, Tier 3, consists of similar sized companies such as ABC Laboratories (U.S.), ITR Laboratories Canada Inc. (Quebec/Japan), Notox (Holland), GeneLogic (U.S.), and BAS (U.S.). A depiction of select CRO’s is provided in Table 11.

Key Advantages LAB believes that LAB Research has significant advantages as a mid-sized CRO operating out of three major facilities worldwide. Each facility brings its own advantages in terms of regional market penetration and expertise. LAB Pre-Clinical, located in Montreal, Québec, has advantages such as: (1) Québec tax credit relief, (2) a majority of its client base being in the U.S. (exchange advantage and a lower cost of living), and (3) ready access to university biological expertise (with five major universities). LAB Scantox has an international reputation for scientific excellence in the use of highly specialized animal models in drug development programs as well as uncontested dominance in the Scandinavian market. LAB Research International in Hungary has the advantage of an extremely low Hungarian cost overhead, easy access to European Community markets, and a uniquely stable and highly qualified workforce.

Company Headquarters Size Corporation Revenues ($ million)

Comments

ABC Laboratories Columbia, MO Small Private NABAS West Lafayette, IN Small Private NACharles River Laboratories Wilmington, MA Large Public 650 One-stop-shopCommonwealth Biotechnologies Richmond, VA Small Public 8 Smallest public CROCovance Princeton, NJ Large Public 1,000 Multinational facilitiesGeneLogic Gaithersburg, MD Small Private NAHuntington Life Sciences Cambridgeshire, UK Large Private NAITR Laboratories Québec Canada Small Private 12 Montreal-based privateLAB International Laval, Quebec Mid-size Public 20 Mid-size CROMDS Inc. Toronto, Ontario Large Public 1,200 Clinical/bio-analyticalNotox The Netherlands Small Private NAOmniCare Covington, KY Large Public 2,600 Biggest CROQuintiles Research Triangle Park, NC Large Public 2,000 Largely clinicalRCC Ltd. Switzerland Mid-size Private NASHIN Nippon Biomedical Labs Japan Mid-size Private NAWIL Research Laboratories Ashland, OH Mid-size Private NA


Table 11SELECT CROs


Recent Achievements � In July 2005, LAB International announced that it had initiated a Phase II trial for its GHRH analogue.

The placebo-controlled Phase II trial, to be conducted in a single center in Europe, is investigating the efficacy and safety of GHRH for the treatment of malnutrition in patients with late pre-dialysis chronic renal failure (CRF). A total of 32 patients will be enrolled in the study, which is expected to be completed before the end of the year. The Company anticipates demonstrating an increase in growth hormone secretion levels as well as other surrogate markers such as IGF-1 and improvement in biochemical indicators of the nutritional and metabolic state.

� In June 2005, LAB International announced that it had initiated enrollment in a Phase I trial for its

novel asthma product LAB CGRP. The placebo-controlled dose escalation study is being conducted in a single center in Europe to investigate the safety and tolerability of inhaled CGRP. A total of 10 healthy volunteers will be enrolled in the study. This Phase I trial is expected to be completed in time for the Company to file an IND application or equivalent prior to initiating a Phase II study for testing bronchodilatory properties of LAB CGRP before year-end.

� In February 2005, LAB International created a new Scientific Advisory Board (SAB) to support the

Company’s product development efforts. Each member of its new SAB is considered a leader in his/her respective field and was selected by LAB to provide specific scientific and clinical guidance for the development of LAB’s maturing pipeline.

� In February 2005, LAB acquired all shares of Scantox, Biologisk Laboratorium A/S (Denmark), the

leading Scandinavian, non-clinical contract research organization (CRO). The Company has stated that the acquisition is expected to help it more than double its current revenues in 2005 and expand its product offering to existing clients.

� In the first quarter of 2005, LAB initiated Phase II clinical trials of Fentanyl TAIFUN® following

successful pre-IND meetings with both U.S. and European regulatory bodies to demonstrate the clinical efficacy with special emphasis on the time to significant pain relief.

� In 2004, LAB Pharma announced a licensing agreement with the Ferrer Group (Barcelona, Spain) as

well as SK Chemicals Co. Ltd (Seoul, Korea) for the development and distribution of Fentanyl TAIFUN® throughout Europe, Latin America, and South America.

� The ability of the LAB GHRH analogue to stimulate the secretion of GH was proven in a Phase I/II

clinical study in ten healthy volunteers. The study demonstrated the high safety profile of LAB GHRH at all doses administered with no significant adverse events observed.

� In January 2004, LAB acquired 100% of the outstanding shares of Focus Inhalation. By merging the

two product portfolios, LAB Pharma emerged as one of the leading developers and formulation experts of inhaled therapeutics.

� In 2003, LAB acquired Seyvika, a Montreal-based biotechnology company developing Calcitonine

Gene Related Peptide (CGRP). Positive preclinical testing for the hybrid asthma therapy has shown combined bronchodilatory, anti-inflammatory, and bronchoprotective properties.

� In 2003, LAB’s Research division grew by 41% and in 2004 by 60%, generating more than $15 million

in revenues for LAB and providing in excess of $3 million of free cash flow. � LAB expanded its CRO unit by acquiring Toxicological Research Center (TRC) in Veszprém, Hungary

in 2003. This expanded the Company’s reach into Europe and broadened its range of services.


Potential Near-Term Milestones LAB International has set forth a series of milestones, which it has targeted to achieve in 2005. These include: Fentanyl TAIFUN® � Phase IIa ongoing: Placebo-controlled dose-response and safety (112 patients)

o Expected completion 4Q/05 � Phase IIb start 3Q/05: Active-controlled versus ACTIQ® (64 patients)

o Expected completion 1Q/06

� Phase III start 3Q/06: Active-controlled versus Morphine (200 + 200 patients)

o Expected completion 3Q/08

� Sign further licensees for Fentanyl GHRH � Complete Pilot Phase II for GHRH in Q4/05 CGRP � Phase I (nebulized formulation): Complete single dose tolerability in 10 subjects Q3/05 � Initiate Phase II for bronchodilative effect: Placebo-controlled prevention of allergen/exercise induced

asthma attacks in patients with mild/moderate asthma, 1 week/dose (Q4/05-1H/06) Other � Prepare further products for development � Proceed with one major acquisition and grow organically


Key Points to Consider � LAB Pharma offers the potential for value creation, while LAB Research provides the Company with

ongoing access to non-dilutive capital, lessening the dependence on capital markets for funding and reducing the high development risk associated with early development stages. Rather than follow the standard biotechnology business model, LAB’s profitable preclinical CRO helps to finance drug development at LAB Pharma based on inhaling DPI formulations of generic drugs and new compounds with single and multi-dose inhalers.

� LAB Research has increased revenues by 41% in 2003 and 60% in 2004, and could double revenues

in 2005. This unit is expected to generate in excess of $45 million for LAB International in 2005 and provides in excess of $9 million of free cash flow to fund research and development activities of the Group. LAB Research has become a top 5 preclinical CRO worldwide, growing faster than the US$7 billion CRO industry as a whole.

� LAB Research acquired Scantox, Biologisk Laboratorium A/S (Denmark), the leading Scandinavian,

non-clinical CRO on February 9, 2005, bringing LAB Research’s services business closer to becoming large enough to position itself as self-reliant in funding its internal drug development programs.

� LAB International created a new Scientific Advisory Board (SAB) to support the Company’s product

development efforts. Each member of the SAB is a world-class leader in his or her respective field and was selected by LAB to provide specific scientific and clinical guidance for the development of LAB’s maturing pipeline.

� The Company’s TAIFUN® inhaler has been peer reviewed and is considered best-in-class.

Accordingly, TAIFUN® technology is covered by three device patents and one formulation patent, with others pending, the longest extending up to at least 2018. TAIFUN® has already been approved in 10 European countries for the delivery of the asthma drug Salbutamol (as Salbutamol TAIFUN®).

� LAB Pharma’s lead product in development is a fast-acting Fentanyl formulation for the treatment of

breakthrough cancer pain (BTCP), a US$1 billion market, which will be administered through the TAIFUN® technology. Positive Phase I results show rapid onset of action, ease of use, and good tolerability as a safe treatment. Phase II trials for Fentanyl TAIFUN® for the treatment of BTCP, monitoring response at different Fentanyl doses, are currently underway.

� LAB Pharma’s proprietary analogue of GHRH has demonstrated increased affinity to the pituitary

receptor and an increased half-life in plasma compared to the natural product. GHRH successfully completed a Phase I/II clinical trial in 2004. The Company started a Phase II trial in the second quarter of 2005 and expects to complete the study in the second half of 2005.

� LAB Pharma is developing CGRP into an inhalation delivered product. The Company conducted in-

house formulation and toxicology studies and started a first human clinical trial in 2005, which is expected to be completed in the third quarter 2005.

� LAB International has concluded several strategic partnerships with companies and academic

institutions for the purposes of out-licensing and in-licensing.


Historical Financial Results Table’s 12, 13, and 14 (pages 37-39) provide a summary of LAB International’s key historical financial statements, including its Consolidated Statements of Operations, Consolidated Balance Sheet, and Consolidated Statement of Cash Flows.

2004 2003

Revenues $25,188 $15,018

Expenses:Direct Costs 12,746 8,026 Selling, general and administrative 11,738 5,804 Research and Development 6,242 1,181Stock-based compensation 1,069 311Amortization of property and equipment 1,597 1,005 Amortization of intangible assets 478 54 Interest on long-term debt 518 312 Foreign Exchange (59) 470

34,329 17,163

Loss before income taxes (9,141) (2,145)Provision for (recovery of) income taxes 777 (334)Net Loss (9,918) (1,811)Loss per share - Basic (0.27) (0.06) - Diluted (0.27) (0.06)


December 31,


CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands of Canadian dollars, except per share data)


2004 2003AssetsCurrent Assets: - Cash and cash equivalents $12,049 $5,656 - Accounts receivable 6,025 4,353 - Work in progress 1,381 436 - Research and tax credits receivable 830 1,894 - Prepaid expenses 370 139

20,655 12,478 Property and equipment 19,487 12,661 Intangible assets 9,024 855 Other assets 788 1,358 Future income taxes 4,213 3,859

$54,167 $31,211

Liabilities and Shareholders’ EquityCurrent Liabilities: - Bank indebtedness — $435 - Accounts payable and accrued liabilities 6,922 3,121 - Deferred revenue 3,339 2,689 - Due to TRC selling shareholders — 500 - Holdback payable 65 65 - Current portion of long-term debt 1,200 673 - Future income taxes 181 565 11,707 8,048

Long-term debt 11,433 4,848 Future income taxes 2,801 966

Shareholders’ Equity: - Share capital 35,280 18,026 - Share capital issuable 254 — - Convertible debentures 2,720 — - Warrants 1,986 2,196 - Additional paid-in-capital 5,427 2,280 - Cumulative translation adjustment 131 (29) - Deficit (17,572) (5,124)

28,226 17,349

$54,167 $31,211


(in thousands of Canadian dollars)at December 31,


CONSOLIDATED BALANCE SHEETS


2004 2003

Cash flows from operating activities: - Net loss (9,918) (1,811) Adjustments for: - Amortization and write-off of property and equipment 1,694 1,002 - Amortization and write-off of intangible assets 478 99 - Amortization of deferred financing fees 9 3 - Services rendered for shares 34 — - Stock-based compensation 1,069 311 - Future income taxes (871) (1,931) Net changes in operating assets and liabilities 1,219 (1,765)

(6,286) (4,092)

Cash flows from financing activities: - Proceeds from private placement 7,265 5,000 - Proceeds from exercise of warrants 13 — - Proceeds from issue of convertible debentures 5,693 — - Share issue cost (662) (556) - Proceeds from issuance of long-term debt 5,185 819 - Repayment of long-term debt (741) (409) - (Repayment of) proceeds from bank credit facilities (435) 435

16,318 5,289

Cash flows from investing activities: - Business acquisition, net of cash acquired of $1,098 (2003 -$281) 913 (2,272) - Advance and costs related to Focus Inhalation OY — (605) - Payment to TRC shareholders (500) — - Costs related to acquisition of Scantox, Biologisk Laboratorium A/S (51) — - Net redemption of short-term investment — 5,500 - Additions to property and equipment (3,299) (739) - Proceeds from disposal of property and equipment 47 — - Additions to license and patents (567) (243) - Deferred financing fees (40) — - Other advances and investments 8 75

(3,489) 1,716

Net increase in cash and cash equivalents 6,543 2,913 Cash and cash equivalents, beginning of year 5,656 2,772 Effect of exchange rate changes (150) (29)Cash and cash equivalents, end of year $12,049 $5,656

Cash and cash equivalents are comprised of: - Cash $4,701 $1,156 - Term deposit, bearing interest at 2% maturing in January 2005 1,348 — - Money market fund 6,000 4,500

$12,049 $5,656 Source: LAB International Inc.

Table 14

(in thousands of Canadian dollars)

LAB International Inc.CONSOLIDATED STATEMENTS OF CASH FLOWS

December 31,


Risks Some information in this report relates to future events or future business and financial performance. Such statements can be only predictions and the actual events or results may differ from those discussed due to, among other things, the risks described in LAB International’s reports in its Annual Information Form (AIF), press releases, and other forms filed from time to time. The content of this report with respect to LAB International has been compiled primarily from information available to the public and released by LAB International through news releases, SEDAR filings, and Toronto Stock Exchange (TSX) filings. LAB International is solely responsible for the accuracy of that information. Information about other companies has been prepared from publicly available documents and has not been independently verified by LAB International. For more complete information about LAB International, please refer to the Company’s Web site at www.labinc.ca. Competition LAB is subject to significant competition from other research services organizations as well as pharmaceutical companies, biotechnology companies, academic, and government research institutions, and other organizations pursuing technologies or offering services similar to those of the Company. Many of the organizations competing with the Company have greater capital resources, research and development staffs, facilities, and marketing capabilities. Product Development The success of the Company’s IPDO business will depend upon its ability to commercialize or license the commercial rights to the proprietary products which it discovers and develops. Discovery and development of new chemical compounds through the various testing phases is a lengthy and, for a company of LAB’s size and financial resources, costly process. Most newly discovered compounds, regardless of their early promise, do not survive the development process to become new products. There is no assurance that any of the new products or technologies currently being tested by the Company will reach the market or that, if any does so, it will be commercially successful. Patents The Company’s success will depend on its ability to obtain patents or rights to patents, and to operate without infringing the exclusive rights of third parties. There is no assurance that any patent (or rights) thereto granted to the Company will bring any competitive advantage to the Company, that its patent protection will not be contested by third parties, or that the patents of competitors will not be detrimental to the Company’s commercial activities. It cannot be assured that competitors will not independently develop products similar to the Company’s products, that they will not imitate the Company’s products or that, if the Company obtains patents, its competitors will not manufacture products designed to circumvent the exclusive patent rights of the Company. Additional Funding LAB’s long-term success depends on its ability to access the capital markets. The CRO business is a cash flow generating business; however, the PDO business will require material amounts of capital prior to it becoming cash flow positive. The Company is of the view that it will be able to obtain the capital it needs to satisfy the requirements of the PDO business, depending on the conditions of the markets. However, no assurance can be given that additional capital will be available on a timely basis and on acceptable conditions. To obtain the necessary capital, the Company relies on government tax credits, additional share issues, collaboration agreements, and corporate partnerships to provide full or partial funding for its activities and commercialization of its products. Should the Company fail to obtain the necessary capital, it will have to reduce its development activities, unless it is able to enter into agreements to obtain financial support from third parties. Such financial support may require that the Company waive all or a portion of its rights to some of its eventual products or technologies.


Ability to Manage Growth The Company continues to experience growth in the number of its employees and the scope of its operations. By their very nature, both the LAB Pharma and LAB Research business units need to be able to attract and retain highly skilled workforces which include MDs, PhDs of various disciplines, chemists, biologists, veterinarians, laboratory technicians, and support staff. This growth has placed, and may continue to place, a strain on the Company’s management and operations. The Company’s ability to effectively manage such growth will depend upon its ability to strengthen its management team and on its ability to attract and retain skilled employees. Foreign Currency Risk LAB is subject to foreign currency exchange risk as its revenues are primarily received in U.S. dollars and other currencies while the majority of its expenses are paid in local currencies. The consolidated profitability of the Company could therefore be affected by the Canadian/US dollar exchange rate and other exchange rates relative to the Canadian dollar, which exchange rates may fluctuate over time and cannot be accurately predicted. From time to time, the Company uses derivative financial instruments to mitigate the risk of foreign exchange losses materially affecting its operations.


Recent Events 07/05/2005—Announced that it had initiated a Phase II trial for its GHRH analogue. The placebo-controlled Phase II trial to be conducted in a single center in Europe is investigating the efficacy and safety of GHRH for the treatment of malnutrition in patients with late pre-dialysis chronic renal failure. 06/28/2005—Announced that it had initiated enrollment in a Phase I trial for its novel asthma product LAB CGRP. The placebo-controlled dose escalation study is being conducted in a single center in Europe to investigate the safety and tolerability of inhaled CGRP. This Phase I trial is expected to be completed in time for the Company to file an IND application or equivalent prior to initiating a Phase II study for testing bronchodilatory properties of LAB CGRP before year-end. 05/12/2005—Announced results for the first quarter of 2005. For the first quarter of 2005, consolidated revenue reached $9.3 million, compared with $5.6 million for the same period last year, a 66% increase. The EBITDA contribution from LAB Research doubled to $2.4 million over the first quarter of 2004 and was up 118% over the fourth quarter of 2004. 05/02/2005—Announced that Dr. Halvor Jaeger, chief executive officer of the Company, would present at the Rodman & Renshaw Techvest 2nd Annual Global Healthcare Conference on Thursday, May 5, 2005, at the InterContinental Hotel in Paris, France. 04/27/2005—Announced that it had entered into a securities purchase agreement providing for the issuance of a Secured Convertible Term Note (the “Note”) in the aggregate principal amount of US $5.0 million (CDN $6.2 million) to Laurus Master Fund, Ltd. (“Laurus”) subject to regulatory approvals. 03/30/2004—Announced results for the three- and 12-month periods ended December 31, 2004. Consolidated revenues rose to a record $25.2 million in 2004, a 68% increase over the previous year and reached $6.4 million in the fourth quarter, a 47% increase over the same period in 2003. The EBITDA contribution from LAB Research had increased by 57% during the year to reach $5.75 million. 03/29/2005—Announced that it had initiated patient enrollment for the Phase II trial of its lead product, Fentanyl TAIFUN®, a fast-acting Fentanyl formulation delivered using the Company’s TAIFUN® DPI platform. 02/23/2005—Announced the creation of a new Scientific Advisory Board (“SAB”) to support the Company’s product development efforts. 02/10/2005—Announced the acquisition of all shares of Scantox, Biologisk Laboratorium A/S (Denmark), the leading Scandinavian, non-clinical contract research organization, for a total cash consideration of 28 million Danish Kroner (Dk). Approximately 90% of the purchase price will be paid on closing, with the remaining portion payable by March 31, 2006, subject to post-closing adjustments. 01/18/2005—Announced the closing of two additional private placement transactions for gross proceeds of $2.4 million through the sale of 2.25 million units at $1.05 per unit primarily to European investors and LAB management. These transactions complete the Company’s previously announced private placement financing, bringing the total amount raised to $9.6 million. 12/30/2004—Announced the closing of an initial $7.3 million private placement financing through the sale of 6.9 million units at $1.05 per unit. LAB has also received indications for a second private placement for gross proceeds of approximately $3 million. 12/09/2004—Announced its shares were available for trading on the Regulated Unofficial Market (Freiverkehr) of the Frankfurt Stock Exchange and on XETRA®, the Deutsche Borse AG electronic trading system.


12/06/2004—Announced that, after completion of a successful dose-response trial, it has selected the first clinical indication for which it intends to evaluate the efficacy of its GHRH analogue. GHRH will be evaluated for the treatment of malnutrition in patients with late pre-end-stage chronic renal failure (CRF, stage 4, pre-dialysis) in a Phase II trial to be initiated during the first half of 2005. 11/29/2004—Announced LAB Pharma, its drug development subsidiary headquartered in Finland, has secured approximately $4.6 million (2.95 million euros) to support its research and development programs. The funding is granted by TEKES, the National Technology Agency of Finland, a government organization that provides funding to companies located in Finland for innovative research and development projects with high commercialization potential. 11/24/2004—Announced its drug development subsidiary, LAB Pharma, and SK Chemicals Co. Ltd. (Seoul, Korea), had entered into a licensing and development agreement for Fentanyl TAIFUN®, LAB’s fast-acting Fentanyl formulation delivered using the Company’s approved TAIFUN® DPI platform. 10/26/2004—Announced consolidated revenue for third quarter ended September 30, 2004 reached $7.5 million compared with $4.5 million for the same period last year, a 65% increase. For the nine-month period ended September 30, 2004, consolidated revenues totaled $18.8 million compared with $10.7 million for the corresponding period in 2003, a 76% increase. 10/22/2004—Announced the initiation of a Phase II clinical trial in the fourth quarter of 2004, for its lead product, Fentanyl TAIFUN®, an immediate-acting formulation for the treatment of breakthrough cancer pain. Successful pre-IND meetings with both U.S. and European regulatory bodies resulted in a development program applicable for both territories, thus enabling expedient further development of the product. 10/04/2004—Announced the securing of $8.25 million in new long-term bank financing from two financial institutions, HSBC Bank Canada and MKB Bank of Hungary, a major financial institution active in Eastern Europe. Approximately $4 million will support investments in the two main LAB Research facilities in Laval, Canada and in Veszprém, Hungary. The rest of the proceeds will support the advancement of LAB Pharma’s product pipeline and be used for general working capital purposes. 09/30/2004—Announced positive results from the Phase I/II trial for its proprietary 29 amino-acid peptide analogue of GHRH. The results showed a rapid and very significant increase in the levels of growth hormones at all dosage levels and all subjects after administration, demonstrating evidence to the strong effect of the drug. 09/08/2004—Announced the completion of dosing on all volunteers in a Phase I/II trial for its proprietary 29 amino-acid peptide analogue of GHRH and that no adverse events were reported. LAB’s GHRH analogue induces secretion of growth hormone and is developed for diseases characterized by a metabolic disturbance responding to an increase in growth hormone levels. 08/31/2004—Announced a global pharmaceutical company had entered into a four-year agreement in which LAB’s Research unit is to provide research support services to the Company from its San Diego-based facility. Under the terms of the agreement, a significant part of LAB’s capacity in San Diego will be dedicated to serving this company’s research needs. 08/26/2004—Announced the appointments of Mr. Luc Mainville as executive vice-president and chief financial officer, and Mr. Frederic Durmais as director communications and investor relations. LAB also announced the hiring of Dr. Denis Pilon as chief operating officer for LAB Research’s Canadian operations. 08/05/2004—Announced consolidated revenue for second quarter ended June 30, 2004, was $5.7 million compared with $3.0 million for the same period last year, a 92% increase. For the six-month period ended June 30, 2004, revenues totaled $11.4 million compared to $6.2 million for the corresponding period in 2003, representing an 84% increase.


08/03/2004—Announced the securing of a $5.5 million agreement to provide preclinical research and development services to an undisclosed U.S. biotech company. Under the terms of the agreement, LAB will receive minimum annual payments over a three-year period in exchange for favorable commercial terms. The services provided will be performed at LAB’s Hungarian based contract research facility. 06/22/2004—Announced the acceptance by the United States Patent and Trademark Office for all claims for CGRP, a novel peptide therapeutic for the treatment of asthma that LAB International licenses from the University of Sherbrooke on an exclusive worldwide basis. The University has been granted U.S. patent no. 6,743,429 entitled “Use of Calcitonin Gene Related Peptide (CGRP) in the prevention and alleviation of asthma and related bronchospastic pulmonary diseases.” 06/04/2004—Announced the appointment of Mr. Keijo Vakiparta to its Board of Directors. Mr. Vakiparta is a partner and investment director with BioFund Management, a leading European venture capital management company that invests solely in the life sciences. 05/25/2004—LAB International held its annual and special meeting of shareholders at the TSX Gallery in Toronto. Dr. Halvor Jaeger, CEO, and Mr. Luc Mainville, CFO, reported on the progress the Company has made, both in advancing its pipeline of inhalation delivered therapeutics and in growing its profitable research services division. 05/12/2004—Announced consolidated revenue for first quarter ended March 31, 2004, was $5.6 million compared to $3.2 million for the same period last year, a 77% increase. Revenue was primarily generated by the Company’s contract research services division, LAB Research, which saw strong organic growth in its Montreal and San Diego based operations combined with revenue generated by its new Hungarian operation, acquired in July 2003. 04/15/2004—Announced its subsidiary LAB Pharma Ltd (formerly Focus Inhalation) had signed a Development and License Agreement with Grupo Ferrer Internacional, S.A., of Barcelona, Spain, (Grupo Ferrer) for its fast-acting inhaled fentanyl product. Under the agreement, LAB Pharma and Grupo Ferrer will jointly finance the continued development of Fentanyl TAIFUN® for the European and South American markets, retaining North-America and Japan for LAB. LAB Pharma will also receive development milestone payments, royalties on sales, and manufacturing revenues for the supply of the finished product. 04/07/2004—Announced year-end and fourth quarter results for 2003. Through its contract research services division, LAB Research, consolidated revenues reached $15.0 million, compared with $10.7 million for the same period last year, representing a 41% increase. The increase was due to organic growth in the Company’s North American operations and incremental revenues generated by LAB Research’s Hungarian operation, acquired in July 2003. 04/02/2004—Announced further details of a successful Phase I study on Fentanyl TAIFUN®, the Company’s inhaled opiate analgesic for the treatment of breakthrough cancer pain. The study was designed to assess the pharmacokinetic profile of Fentanyl TAIFUN® and to compare the bioavailability of the inhaled formulation with intravenous administration of fentanyl. The results of the study, performed on 16 healthy volunteers, demonstrated that the absorption of fentanyl from Fentanyl TAIFUN® was very rapid. Only 5 minutes after administration, the plasma concentrations reached an average of 73% of the respective maximum concentrations. 03/25/2004—Announced the creation of a new division, LAB Pharma, to consolidate all of LAB’s product development activities into one operational unit. Dr. Taneli Jouhikainen, president of Focus Inhalation Oy (Focus) prior to its acquisition by LAB last January, has been appointed president of the newly formed entity, which is headquartered in Turku, Finland. 01/12/2004—Announced the closing of the acquisition of Focus Inhalation Oy (Focus), originally formed as a spin-off of Schering Oy in 2000. Through this acquisition, LAB obtains the novel, regulatory approved TAIFUN® inhalation delivery platform, as well as a suite of late-stage inhalation-based therapeutics. Shareholders of Focus, including Schering Oy, will receive 2.53 million shares of LAB in exchange for 100% of their shares as well as conversion of outstanding loans.


12/22/2003—Announced the closing of a $5 million private placement financing through the sale of 5,000,000 units at $1.00 per unit. Each unit consists of one share and one-half warrant. Each warrant will entitle the holder to purchase one common share at a price of $1.25 until December 22, 2005. The transaction was marketed by way of a brokered private placement undertaken by a syndicate of agents led by First Associates Investments Inc. and including Paradigm Capital Inc. and McFarlane Gordon Inc. 11/25/2003—Announced financial and operational results for the three and nine-month periods ended September 30, 2003. Revenue for the third quarter increased by 133% from the corresponding period in 2002, to $4.5 million from $1.9 million. Revenues also increased from second quarter 2003 to third quarter 2003 by $1.5 million or 51%. For the nine-month period, revenue increased by 27% from the corresponding period in 2002, to $10.7 million from $8.4 million. 11/20/2003—Announced the appointment of Mr. Luc Mainville as chief financial officer. 10/22/2003—Announced the entering into an agreement to purchase Focus Inhalation Oy of Turku, Finland. 10/15/2003—Announced it had appointed the Investor Based Finance Group (“IBF”) as a strategic advisor on a non-exclusive basis. IBF is assisting the Company in refining its corporate strategy, business model, and corporate finance activities, including generating and advising on business combinations and mergers. IBF has prepared a corporate profile of LAB that includes an intrinsic valuation of the Company. 10/02/2003—Announced it had entered into a definitive agreement to purchase Seyvika Pharmaceuticals, a privately held biotechnology company located in Montreal, Quebec, in consideration for approximately $3 million in LAB shares, with the initial 10% of the purchase price provided upfront in shares priced at $1.55 and the remaining 90% contingent upon development milestones. LAB also announced the appointment of Mr. Yves Cornellier, the founder and principal vendor of Seyvika, to the position of senior vice president, business development, effective October 6th. 09/24/2003—Announced the appointment of Mr. Ron Kaczorowski to the position of president and chief operating officer. 08/26/2003—Announced second quarter financial and operational results for the period ended June 30, 2003. Revenue for the second quarter ended June 30, 2003, was $3.0 million, unchanged from the $3.0 million reported in the corresponding period in the prior year. For the second quarter of 2003, the Company incurred a consolidated net loss of $351,000 compared with earnings of $110,000 for the same period in the previous fiscal year. 07/21/2003—Announced the appointment of Mr. Desmond A. Cave to the position of director, business development (Europe). Mr. Cave will be responsible for sales and marketing for LAB Toxicological Research Centre (TRC), the Company’s recently acquired contract research organization (CRO), located in Veszprém, Hungary. 07/09/2003—Announced it has entered into a definitive agreement to acquire Toxicological Research Centre Ltd. (TRC), located in Veszprém, Hungary, for a purchase price of not less than US $1.75M and not more than US $2.25M, based on TRC revenue for 2003. This acquisition is expected to close no later than July 18th.


Glossary of Lesser-Known Terms Acute pain—Pain that comes on quickly, can be severe, but lasts a relatively short time. Anabolic—The processes of metabolism that result in growth of cells or organisms. Asthma—A common disorder in which chronic inflammation of the bronchial tubes (bronchi) makes them swell, narrowing the airways. Asthma involves only the bronchial tubes and does not affect the air sacs (alveoli) or the lung tissue (the parenchyma of the lung) itself. Beta2 agonist—A class of drugs used to treat asthma. They are divided into two groups (1) short-acting and (2) long-acting. They act on the Beta2 adrenergic receptor. Breakthrough cancer pain (BTCP)—An intermittent flare of pain in cancer patients that can occur even though the individual is taking a pain-relieving medication on a regular basis. Bronchial tubes—The large air tubes leading from the trachea to the lungs that convey air to and from the lungs. The bronchi have cartilage as part of their supporting wall structure. The trachea divides to form the right and left main bronchi which, in turn, divide to form the lobar, segmental, and finally the sub-segmental bronchi. Chronic Obstructive Pulmonary Disorder (COPD)—Any disorder that persistently obstructs bronchial airflow. COPD mainly involves two related diseases, chronic bronchitis and emphysema. Both cause chronic obstruction of air flowing through the airways and in and out of the lungs. The obstruction is generally permanent and progresses (becomes worse) over time. COPD is also called chronic obstructive lung disease (COLD). Chronic pain—Pain that persists or progresses over a long period of time. Chronic Renal Failure (CRF)—Slow progressive loss of kidney function over the span of years, resulting in permanent kidney failure. Chronic kidney disease is common and may go undiagnosed until the process is far advanced and renal failure is imminent. People with permanent kidney failure need dialysis or a transplanted kidney to do the work of their failed kidneys. CRF may also be referred to as chronic kidney failure. Contract Research Organization (CRO)—An organization that offers pharmaceutical companies a range of services covering all phases of drug development, including the regulatory process and manufacturing services. CROs are able to maintain professionally staffed teams of specialists by ensuring a high throughput of work by contracting with a number of pharmaceutical companies. Desiccant—An agent used to remove the moisture. Dry Powder Inhaler (DPI)—A handheld, breath-activated device that delivers a precisely measured dose of asthma medicine into the lungs. In this way, the breath-activated discharge of medicine is always coordinated with inhalation effort. Genomics—The study of genes and their function. Genomics aims to understand the structure of the genome, including the mapping genes and sequencing the DNA. Genomics examines the molecular mechanisms and the interplay of genetic and environmental factors in disease. Glomerular Filtration Rate (GFR)—The volume of water filtered out of the plasma through glomerular capillary walls into Bowman's capsules per unit of time. Good Manufacturing Practice (GMP)—The quality system regulation overseen by the Food and Drug Administration (FDA), which includes requirements related to the methods used in, and the facilities and controls used for designing, manufacturing, packaging, labeling, storing, installing, and servicing of medical devices intended for human use.


Growth hormone—Also known as somatotropin, a hormone made in the pituitary gland that stimulates the release of another hormone called somatomedin by the liver, thereby promoting growth. Growth hormone is produced by the anterior pituitary gland, the front section of the gland, and is a polypeptide that consists of 191 amino acids. In-Vitro—Literally “in glass”, as in a test tube. A test that is performed in-vitro is one that is done in glass or plastic vessels in the laboratory. In-vitro is the opposite of in-vivo (in a living organism). Lipolysis—The breakdown of fat. Nephrons—The functional units of the kidney. Neurotransmitters—A substance that transmits nerve impulses across a synapse. New Chemical Entities (NCEs)—Patented pharmaceutical compounds that may be produced only by the patent holder or any company authorized for their production or usage. Opioid—A synthetic narcotic that resembles the naturally-occurring opiates that depress activity of the central nervous system, reduce pain, and induce sleep. Parenterally—Taken into the body or administered in a manner other than through the digestive tract, as by intravenous or intramuscular injection. Peptides—Any of various natural or synthetic compounds containing two or more amino acids linked by the carboxyl group of one amino acid to the amino group of another. Pituitary gland—The main endocrine gland. It is a small structure in the head. It is called the master gland because it produces hormones that control other glands and many body functions, including growth. Polypeptides—A peptide, such as a small protein, containing many molecules of amino acids. Proteins—Large molecules composed of one or more chains of amino acids in a specific order determined by the base sequence of nucleotides in the DNA coding for the protein. Proteins are required for the structure, function, and regulation of the body's cells, tissues, and organs. Each protein has unique functions. Proteins are essential components of muscles, skin, bones, and the body as a whole. Proteomics—The study of the proteome, the complete set of proteins produced by a species, using the technologies of large-scale protein separation and identification. The term proteomics was coined in 1994 by Marc Wilkins who defined it as "the study of proteins, how they're modified, when and where they're expressed, how they're involved in metabolic pathways and how they interact with one another." Salbutamol—A short-acting β2-adrenergic receptor agonist used for the relief of bronchospasm in conditions such as asthma and COPD. Sclerosis—Localized hardening of skin.


Legal Notes and Disclosures: This report has been prepared by LAB International Inc., (the “Company”) with the assistance of Crystal Research Associates, LLC. (“CRA”) based upon information provided by the Company. CRA has not independently verified such information. In addition, CRA has received in compensation from the Company a payment in cash of $35,000 for its services in creating this report, for updates, as well as for printing costs. Some of the information in this report relates to future events or future business and financial performance. Such statements constitute forward-looking information within the meaning of the Private Securities Litigation Act of 1995. Such statements can be only predictions and the actual events or results may differ from those discussed due to, among other things, the risks described in LAB International Inc.’s, reports on Annual Information Forms, press releases, and other forms filed from time to time. The content of this report with respect to LAB International Inc. has been compiled primarily from information available to the public released by LAB International Inc. LAB International Inc. is solely responsible for the accuracy of that information. Information as to other companies has been prepared from publicly available information and has not been independently verified by LAB International Inc. or CRA. [Certain summaries of scientific activities and outcomes have been condensed to aid the reader in gaining a general understanding.] For more complete information about LAB International Inc., the reader is directed to the Company's website at www.labinc.ca. This report is published solely for information purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any state. Past performance does not guarantee future performance. Free additional information about LAB International, and its public filings, as well as free copies of this report can be obtained in either a paper or electronic format by calling (450) 973-2240.

Jeffrey J. Kraws and Karen B. Goldfarb

Phone: 609-306-2274 Fax: 609-395-9339

Email: [email protected] Web: www.crystalra.com

inhalation therapeutics opportunity€¦ · inhalation market. the company’s current pipeline...

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