Stellar Biotechnologies Reports Second Quarter Financial Results

LOS ANGELES, May 8, 2019 /PRNewswire/ -- Stellar Biotechnologies, Inc. (Nasdaq: SBOT), a leading manufacturer of a key protein utilized in multiple immunotherapy and immuno-oncology development pipelines, today reported financial results for the three and six months ended March 31, 2019 and provided an update on its business.

During the second fiscal quarter, Stellar entered into a share exchange agreement with Edesa Biotech Inc., a Canadian biopharmaceutical company. Under the terms of the agreement, Edesa shareholders have agreed to exchange their shares of Edesa for newly-issued common shares of Stellar. The proposed transaction, which would result in a change in control of Stellar, is expected to close in June 2019, subject to customary closing conditions, including approval by Stellar shareholders of the issuance of common shares of Stellar to the Edesa shareholders.

"Operationally we have been focused on completing the transaction, which will transform Stellar into a clinical stage drug developer," said Frank R. Oakes, Stellar President and Chief Executive Officer. "The Board of Directors and management believe that focusing on nearer term milestones, which is possible through the business combination with Edesa, is in the best interest of Stellar and its shareholders."

Chief Financial Officer Kathi Niffenegger reported that in light of the proposed transaction, management has taken steps to conserve Stellar's cash resources. "We are managing our working capital toward meeting the terms of the share exchange agreement, while maintaining our core competencies, technology and associated activities. As a result, transaction-related costs were substantially offset by decreases in other expense categories during the first six months of fiscal 2019 compared to the same period last year."

Financial Results

Three Months Ended March 31, 2019

Total revenues increased by $0.06 million to $0.12 million for the three months ended March 31, 2019 compared to $0.06 million for the same period last year primarily due to increased sales of higher value, clinical-grade KLH products.

Total operating expenses increased by $0.39 million to $1.80 million for the three months ended March 31, 2019 compared $1.41 million for the same period last year.

• While product sales increased, cost of sales remained relatively unchanged at $0.06 million for the three months ended March 31, 2019 compared to the same period last year primarily due to higher margins on clinical grade KLH products.
• Cost of aquaculture decreased by $0.03 million to $0.04 million for the three months ended March 31, 2019 compared to $0.07 million for the same period last year primarily due to decreased personnel expenses related to Stellar's intended shift to optimized habitats and cultivation systems, which require less staffing, and management's decisions to postpone equipment and materials purchases in response to the proposed share exchange transaction.
• Research and development expenses decreased by $0.11 million to $0.38 million for the three months ended March 31, 2019 compared to $0.49 million for the same period last year primarily due to a decrease in contracted research services and materials.
• General and administrative expenses increased by $0.56 million to $1.33 million for the three months ended March 31, 2019 compared to $0.77 million for the same period last year primarily due to increased legal and professional fees associated with the proposed share exchange transaction.

For the second quarter of fiscal year 2019, Stellar reported a net loss of $1.66 million, or $0.31 per basic share, compared to a net loss of $1.35 million, or $ 0.90 per basic share, for the second quarter of the prior fiscal year.

Six Months Ended March 31, 2019

Total revenues increased by $0.09 million to $0.17 million for the six months ended March 31, 2019 compared to $0.08 million for the same period last year primarily due to increased sales of higher value, clinical-grade KLH products. Product sales volumes are subject to variability associated with the rate of development and progression of clinical studies of third-party products that utilize Stellar KLH.

Total operating expenses increased by $0.44 million to $3.26 million for the six months ended March 31, 2019 compared to $2.82 million for the same period last year:

• Cost of sales increased by $0.02 million to $0.09 million for the six months ended March 31, 2019 compared to $0.07 million for the same period last year primarily due to increased product sales.
• Cost of aquaculture decreased by $0.06 million to $0.11 million for the six months ended March 31, 2019 compared to $0.17 million for the same period last year primarily due to a decrease in contracted quality testing services, and decreased personnel expenses related to Stellar's intended shift to optimized habitats and cultivation systems, which require less staffing, and a postponement of equipment and materials purchases in response to the proposed share exchange agreement.
• Research and development expenses decreased by $0.27 million to $0.85 million for the six months ended March 31, 2019 compared to $1.12 million for the same period last year. The decrease was primarily due to a decrease in contracted research services and materials.
• General and administrative expenses increased by $0.76 million to $2.21 million for the six months ended March 31, 2019 compared to $1.45 million for the same period last year primarily due to increased legal and professional fees and public company costs.

For the first six months of fiscal year 2019, Stellar reported a net loss of $3.06 million, or $0.57 per basic share, compared to a net loss of $2.75 million, or $ 1.83 per basic share, for the first six months of the prior fiscal year.

Working Capital

At March 31, 2019, Stellar had working capital of $7.26 million. Cash and cash equivalents totaled $7.68 million.

Stellar will file its Form 10-Q for the quarter ended March 31, 2019 with the Securities and Exchange Commission on or about May 8, 2019. To view Stellar's filings with the Canadian Securities Administrators (CSA), visit the CSA's SEDAR website.

About Stellar Biotechnologies
Based north of Los Angeles at the Port of Hueneme, Stellar Biotechnologies, Inc. (Nasdaq: SBOT) is the leader in sustainable manufacture of Keyhole Limpet Hemocyanin (KLH), an immune-stimulating protein utilized as a carrier molecule in therapeutic vaccine pipelines (targeting cancers, immune disorders, Alzheimer's and inflammatory diseases) and for assessing immune system function. KLH can also be used in immunotoxicology studies for monitoring the immunomodulatory effects of drug candidates. Stellar is committed to meeting the growing demand for commercial-scale supplies of GMP grade KLH, ensuring environmentally sound KLH production, and supporting the development of KLH-based active immunotherapies. Stellar KLH is a trademark of Stellar Biotechnologies.

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Important Information and Where to Find It
Stellar has filed a definitive proxy statement with the SEC in connection with the solicitation of proxies for its 2019 Annual General Meeting of Shareholders and has mailed the definitive proxy statement to its shareholders. At the Annual Meeting, Stellar's shareholders will be asked to approve, among other things, a proposal for the issuance of its common shares in the proposed transaction with Edesa. STELLAR'S SHAREHOLDERS ARE URGED TO READ STELLAR'S DEFINITIVE PROXY STATEMENT IN CONNECTION WITH ITS SOLICITATION OF PROXIES FOR ITS ANNUAL MEETING AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT STELLAR, EDESA, AND THE PROPOSED TRANSACTION. Shareholders may obtain, free of charge, copies of the definitive proxy statement and any other documents filed by Stellar with the SEC in connection with the proposed transaction at the SEC's website (http://www.sec.gov), at Stellar's website or by writing to the Corporate Secretary at Stellar Biotechnologies, Inc., 332 E. Scott Street, Port Hueneme, California 93041.

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.

Participants in Solicitation
Stellar, Edesa, and certain of their directors and executive officers may become or be deemed participants in the solicitation of proxies from Stellar's shareholders in connection with the proposed transaction. Additional information regarding persons who may, under the rules of the SEC, be deemed to be participants in the solicitation of Stellar's shareholders in connection with the proposed transaction, and who have interests, whether as security holders, directors or employees of Stellar or Edesa or otherwise, which may be different from those of Stellar's shareholders generally, have been provided in the proxy statement and other materials filed with the SEC. Additional information regarding Stellar's directors' and executive officers' respective interests in Stellar by security holdings or otherwise is set forth in Stellar's Annual Report on Form 10-K for the year ended September 30, 2018 as filed with the SEC on November 30, 2018.

Stellar Forward-Looking Statements
This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by the use of words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "may," "will," "would," "could," "should," "might," "potential," or "continue" and variations or similar expressions, including statements related to: the expectations related to the transaction, including the timing of the transaction and the plans relating to the resulting business. Readers should not unduly rely on these forward-looking statements, which are not a guarantee of future performance. There can be no assurance that forward-looking statements will prove to be accurate, as all such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause actual results or future events to differ materially from the forward-looking statements. Such risks include, but may not be limited to: the possibility that Stellar may be unable to obtain shareholder approval required for the proposed transaction, the expected timing and likelihood of completion of the proposed transaction, the possibility that Stellar's working capital decreases prior to the transaction, and therefore, the Stellar shareholders are subject to decreased ownership in the combined company, the inability to successfully integrate the businesses or the risk that such integration may be more difficult, time-consuming or costly than expected, the occurrence of any event, change or other circumstances that could give rise to the termination of the share exchange agreement, the inability of the parties to meet expectations regarding the accounting and tax treatments of the proposed transaction, the potential for the proposed transaction to involve unexpected costs, the risk that the parties may not be able to satisfy the conditions to the proposed transaction in a timely manner or at all, risks related to disruption of management time from ongoing business operations due to the proposed transaction, the risk that the expected benefits of the proposed combination are not realized, the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of Stellar's common shares, the ability to maintain and enforce patents and other intellectual property rights or the unexpected costs associated with such enforcement or litigation, as well as general economic and business conditions, technology changes, competition, changes in strategy or development plans, availability of funds and resources, anticipated requirements for operating capital, governmental regulations and the ability or failure to comply with governmental regulations, changes in trade policy and international law and other factors referenced in Stellar's filings with securities regulators. For a discussion of further risks and uncertainties related to Stellar's business, please refer to Stellar's public company reports filed with the U.S. Securities and Exchange Commission and the British Columbia Securities Commission. All forward-looking statements are made as of the date hereof and are subject to change. Except as required by law, Stellar assumes no obligation to update such statements. This press release does not constitute an offer or solicitation of an offer for sale of any securities in any jurisdiction, including the United States.

SOURCE Stellar Biotechnologies, Inc.