Neoprobe Announces Second Quarter 2010 Results

Neoprobe Corporation (OTCBB:NEOP), a diversified developer of innovative oncology surgical and diagnostic products, today announced consolidated results for the second quarter of 2010 and for the six-month period ended June 30, 2010.

Neoprobe’s revenues for the second quarter of 2010 were $2.5 million compared to $1.8 million for the second quarter of 2009, a 41% increase. Second quarter 2010 operating expenses were $2.7 million compared to $2.1 million for the second quarter of 2009. Gross margin on product revenues was $1.7 million for the second quarter of 2010 compared to $1.2 million for the second quarter of 2009. Loss from operations for the second quarter of 2010 was $929,000 compared to $877,000 for the second quarter of 2009.

For the second quarter of 2010, Neoprobe reported a net loss attributable to common stockholders of $51.2 million, or $0.64 per share, compared to a net loss attributable to common stockholders of $15.2 million, or $0.21 per share, for the second quarter of 2009. As discussed more fully below, the net losses attributable to common stockholders for the second quarters of both 2010 and 2009 include significant non-cash losses aggregating $50 million and $13.7 million, respectively, due in 2010 primarily to the extinguishment accounting related to the June 2010 exchange of the Company’s previous convertible debt and preferred stock for a new series of preferred stock and in 2009 to mark-to-market adjustments related to derivative accounting treatment required for certain financial instruments on the Company’s balance sheet at that time.

Year-to-date revenues for the six-month period ended June 30, 2010 were $5.2 million compared to $4.5 million for the same period in 2009, a 16% increase. Gross margin on product revenues was $3.5 million for the six-month period ended June 30, 2010 compared to $3.1 million for the same period in 2009. Operating expenses for the six-month period ended June 30, 2010 were $6.2 million compared to $4.2 million for the same period of 2009. Neoprobe’s loss from operations for the six-month period ended June 30, 2010 was $2.7 million compared to $1.1 million for the same period in 2009.

For the first half of 2010, Neoprobe reported a net loss attributable to common stockholders of $53.7 million, or $0.67 per share, compared to a net loss attributable to common stockholders of $14.4 million, or $0.20 per share, for the same period in 2009. As discussed more fully below, the net loss attributable to common stockholders for the first halves of the 2010 and 2009 included significant non-cash losses aggregating $50.3 million and $12.2 million, respectively, due in 2010 primarily to the extinguishment accounting related to the June 2010 exchange of the Company’s previous convertible debt and preferred stock for a new series of preferred stock and in 2009 to mark-to-market adjustments related to derivative accounting treatment required for certain financial instruments on the Company’s balance sheet at that time.

Brent Larson, Neoprobe’s Senior Vice President and CFO, said, "Gamma detection device revenue increased 16 percent on a year-to-date basis to $5.2 million for the six-month period ended June 30, 2010 compared to $4.5 million for the comparable prior year period. The increases were due to increased sales volumes offset by slightly lower prices. Gross margins from our device sales remained steady at 68 percent for the first half of 2010 compared to the same period in 2009.”

David Bupp, Neoprobe’s President and CEO, said, "Our operating expenses during the first six months of 2010 increased as a direct result of our progress in clinical, manufacturing and regulatory activities related to our Lymphoseek^® drug initiative. We are preparing a New Drug Application (NDA) for Lymphoseek and intend to hold a pre-NDA meeting with FDA later this quarter followed by the NDA submission in the fourth quarter.”

"We are pleased with the progress we’ve made with the clinical and regulatory pathway for Lymphoseek,” Bupp continued. "We continue to report positive milestone achievements as we move closer to the goal of filing the NDA for Lymphoseek. We are also continuing our efforts to move our biologic development activities ahead to support a second advanced stage clinical program with RIGScan^™ CR. We have successfully completed the re-characterization of the RIGScan CR biologic agent and are now preparing an investigational new drug (IND) amendment and a Phase 3 clinical protocol to support the ongoing clinical development program.”

The following are some of the milestones achieved by Neoprobe so far in 2010:

• Completion of a successful meeting with FDA to review the Phase 3 (NEO3-05) clinical study results and discussion of development plans to support a NDA submission for Lymphoseek as a lymphatic-tissue tracing agent;
• Completion of successful pre-NDA dialogue with FDA on Lymphoseek pre-clinical data;
• Completion of successful pre-NDA dialogue with FDA on Lymphoseek chemistry, manufacturing and control data;
• Election of two new directors to Neoprobe’s Board, bringing significant drug industry and medical product development expertise;
• Completion of exchange transactions that converted all of the Company’s outstanding debt to equity;
• Preparation of the NDA for Lymphoseek well underway;
• Initiation of a third Phase 3 Lymphoseek clinical study in patients with breast cancer or melanoma to support expanded post-marketing product labeling;
• Achieving revenue increases of 16% for the first half of 2010 over 2009 following an increase of 15% for the first half of 2009 over the same period in 2008;
• Completion of preliminary RIGS^® development activities including transfer of biologic license application to CDER and preparation of an IND for the biologic product; and,
• Filing of a shelf registration on Form S-3 to allow the Company to raise capital as necessary through the sale of up to $20 million in a primary offering of securities to provide us with additional financial planning flexibility and to support the diversification of our share ownership to new institutions.

"In summary, our gamma detection device business continues to demonstrate positive performance exceeding our own expectations,” Bupp continued. "The positive development and business milestones we’ve achieved underscore the future of Neoprobe’s value to our shareholders.”

During the second quarter of 2009, Neoprobe recorded a mark-to-market adjustment of $13.7 million related to accounting for certain of its financial instruments as derivative liabilities under current accounting rules which resulted in a net total mark-to-market adjustment of $12.2 million for the first half of 2009. Under the applicable accounting rules for financial instruments, embedded features of the Company’s notes and preferred stock and the warrants to purchase common stock were considered derivative liabilities because these instruments contained language that provided for the resetting of the instruments’ exercise/conversion prices in the event that the Company issues common stock at prices below the exercise/conversion prices of the respective instruments. Treatment of these instruments as derivative liabilities resulted in them being required to be reflected on the Company’s balance sheet at their fair values (i.e., marked to market) based on certain assumptions, including the trading price of the Company’s common stock. As the share price of the Company’s common stock has increased over the past several months, significant mark-to-market adjustments have been recorded as non-cash expense in the Company’s statements of operations. Neoprobe’s management believes that the inclusion of such mark-to-market adjustments in the Company’s financial results does not appropriately communicate the results of the Company’s operating performance and development activities to our investors. As a result, Neoprobe’s management believes the ability of investors to analyze Neoprobe’s business trends and to understand Neoprobe’s performance may be better served from reviewing certain operational measures such as revenues, development expenses and income (loss) from operations.

During June 2010, Neoprobe’s primary investor, Platinum-Montaur Life Sciences, LLC (Montaur) agreed to exchange all $10 million of its outstanding 10% senior secured convertible notes and all $3 million of its perpetual convertible preferred stock for a single new series of preferred stock convertible into 32.7 million common shares. Under the terms of the transaction, Montaur’s $7 million Series A Convertible Secured Note (originally convertible into 17.1 million common shares), $3 million Series B Convertible Note (originally convertible into 8.3 million common shares) and Series A Convertible Preferred Stock (originally convertible into 6 million common shares) were exchanged for Series B Convertible Preferred Stock (the Series B Preferred, convertible into a total of 32.7 million shares). As part of the consideration for the conversion, Neoprobe "prepaid” interest and dividends due through the original note maturity in December 2011 by agreeing to issue an additional 1.3 million shares of common stock on the conversion of the new Series B Preferred. The Series B Preferred is convertible at the option of Montaur but carries no dividend and has no liquidation preference over the common stock. The Series A Convertible Preferred Stock was convertible at the option of Montaur and paid an 8% dividend until converted. Under the applicable accounting rules for financial instruments, the exchange transactions were accounted for as extinguishments of the old instruments which resulted in the Company recording non-cash losses on extinguishment of all of the Company’s secured debt of $41.7 million related to debt instruments and a deemed dividend of $8.0 million related to the retirement of the Series A Preferred Stock. These charges accounted for the vast majority of the losses attributable to common stockholders for the second quarter of 2010 and for the six-month period ended June 30, 2010, respectively. Excluding these non-cash losses, we would have reported losses attributable to common stockholders of $0.02 and $0.05 per share for the three-month and six-month periods ended June 30, 2010, respectively.

Neoprobe’s President and CEO, David Bupp, and Senior Vice President and CFO, Brent Larson, will provide a business update and discuss the company’s results for the second quarter of 2010 during a conference call scheduled for 5:00 PM ET, Monday, August 9, 2010. The conference call can be accessed as follows:

About Neoprobe

Neoprobe is a biomedical company focused on enhancing patient care and improving patient outcome by meeting the critical intraoperative diagnostic information needs of physicians and therapeutic treatment needs of patients. Neoprobe currently markets the neoprobe^® GDS line of gamma detection systems that are widely used by cancer surgeons. In addition, Neoprobe holds significant interests in the development of related biomedical systems and radiopharmaceutical agents including Lymphoseek^® and RIGScan^® CR. Neoprobe’s subsidiary, Cira Biosciences, Inc., is also advancing a patient-specific cellular therapy technology platform called ACT. Neoprobe’s strategy is to deliver superior growth and shareholder return by maximizing its strong position in gamma detection technologies and diversifying into new, synergistic biomedical markets through continued investment and selective acquisitions. www.neoprobe.com

Statements in this news release, which relate to other than strictly historical facts, such as statements about the Company’s plans and strategies, expectations for future financial performance, new and existing products and technologies, anticipated clinical and regulatory pathways, and markets for the Company’s products are forward-looking statements The words "believe,” "expect,” "anticipate,” "estimate,” "project,” and similar expressions identify forward-looking statements that speak only as of the date hereof. Investors are cautioned that such statements involve risks and uncertainties that could cause actual results to differ materially from historical or anticipated results due to many factors including, but not limited to, the Company’s continuing operating losses, uncertainty of market acceptance of its products, reliance on third party manufacturers, accumulated deficit, future capital needs, uncertainty of capital funding, dependence on limited product line and distribution channels, competition, limited marketing and manufacturing experience, risks of development of new products, regulatory risks and other risks detailed in the Company’s most recent Annual Report on Form 10-K and other Securities and Exchange Commission filings. The Company undertakes no obligation to publicly update or revise any forward-looking statements.