Biophage Pharma announces improved 2007 third quarter financial results

Monday, October 29, 2007

Montreal, October 29, 2007 - Biophage Pharma Inc. (TSX: BUG.V), a high-potential company focused on the development of innovative phage-based products and technologies for the detection, prevention and control of bacterial infections, reported today improved financial results for its third quarter ended August 31, 2007.

Overview of Operations
Biophage reached an important milestone in its Biosensors Division in the third quarter of 2007. The company launched the PDS® Biosensor at the Nanotoxicity 2007 Trade show in Paris, France on June 27, 2007. This product represents the first of many innovative biosensors in development by our Biosensor Division. Biophage President and CEO, Dr. Mandeville, made a presentation on the PDS® technology platform and the targeted markets for this biosensor, which was designed for the rapid detection of toxicity (predictive toxicity) of metals and nanoparticles.

The global demand for biosensors capable of rapidly detecting the toxic effect of metals or nanoparticles on living human cells is exploding. According to a recent BBC technical market research report, the U.S. in vitro toxicity testing (predictive toxicity) market had a value of $765 million in 2006 and will double by 2011, reaching $1.5 billion. Biophage is well positioned to capitalize on this rapidly expanding market by offering companies and research laboratories a novel and efficient biosensor that can rapidly screen large numbers of compounds for cell toxicity.

The PDS® Biosensor allows for the rapid and simultaneous screening of a large number of toxic compounds, metals and nanoparticles and determines their relative level of toxicity. It can also identify important parameters that determine toxicity levels at various stages of development and manufacturing, allowing companies to explore different strategies to circumvent potential toxic effects or mitigate the risk to humans, animals and the environment. Our targeted clients are government and regulatory agencies, research laboratories and environmental investigators in the biopharmaceutical, agricultural, cosmetics and probiotics fields.

In the Therapeutics Division, Biophage signed an important Memorandum of Understanding (M.O.U.) with Hygie Canada of Longueuil, Quebec. Under the terms of this M.O.U., both parties will engage in the development of an environment-friendly system that utilizes naturally occurring phages in either a liquid form or bound to plastic in order to reduce the incidence of nosocomial infections. L'Hôpital du Sacré-Coeur de Montréal will play a key role in this development.

Nosocomial infections (infections acquired in hospitals) are a major cause of health-care complications, with important socio-economic impacts such as prolonged hospital stays, increased mortality and morbidity and significant increases in health costs. In North America, nosocomial infections are the fourth leading cause of death. Since April 2003, several Quebec hospitals have reported an increase in the incidence of morbidity and mortality resulting from C. difficile infections. Nosocomial infections have become more prevalent in the last few years with an alarming increase in bacterial superbugs, which are resistant to antibiotics (for example Methicillin-Resistant Staphylococcus Aureus (MRSA) infections).

Currently, in the fight against the propagation of nosocomial infections, potentially toxic chemical agents are used for the decontamination of the health-care environment. The use of these chemicals can have serious repercussions as for example, chemical toxicity, development of bacterial resistance and physical deterioration of treated surfaces. Natural products such as phages have evolved to become a viable alternative for the prevention and control of nosocomial infections. These phage-based products can also be developed as therapeutic agents, covering the various levels of bacterial contamination.

On August 28, 2007 Biophage Pharma announced the signing of a follow-on contract with Alberta Agriculture and Food. As the direct result of a successful pilot study (previously announced on April 3, 2007), Biophage and Alberta Agriculture and Food have now entered into an agreement to proceed with the production of large-scale volumes of highly purified bacteriophage preparations in a fermentor. Securing this contract marks the beginning of a new business opportunity for Biophage and strengthens its relationship with Alberta Agriculture and Food. The completion of this second contract will bring Biophage in a position to offer biotech companies working in this field, as well as food producers and distributors, the commercial volumes of bacteriophages required to prevent bacterial contaminations throughout the supply chain, from the farm field to packaged products on store shelves.

Since the landmark U.S. Food and Drug Administration ruling of August 2006 allowing the use of phage preparations on ready-to-use-meat and poultry products, Biophage has received several inquiries from food producers and distributors who recognize the commercial potential of this innovative, safe and environmentally friendly solution for the control of bacterial contaminations.

Financial Results
Contract revenues for the three months ended August 31, 2007 amounted to $148,587 compared with $184,311 in the same three month period in fiscal 2006. The decrease in substantially attributable to the completion of significant projects with important clients and slightly lower revenues from Beryllium (BeLPT) testing, although partially offset by an increase in revenues generated from MELISA® testing. Contract revenue for the nine months ended August 31, 2007 amounted to $434,681, compared to $604,834 for the nine months ended August 31, 2006.

Research and development ("R&D") costs for the three months ended August 31, 2007 (before tax credits) amounted to $143,337, representing an increase of $27,167, or 23%, over the $116,170 recorded in the same interim period in the preceding fiscal year. The increase is substantially attributable to the hiring of additional staff affected to R&D. R&D tax credits for the third quarter amounted to $68,983, including a $30,000 provision for the interim period (21% of the R&D costs recorded in the three months ended August 31, 2007) and $38,983 from a favorable assessment and refund received in early June 2007 in regards to the previous fiscal year's provisioned R&D tax credits. This compares to a $20,000 provision for the three month period ended August 31, 2006, which represented 17% of the R&D costs recorded in the third quarter of fiscal 2006. For the nine months ended August 31, 2007, R&D costs totaled $409,538, representing a $115,381, or 39% increase over the $294,157 recorded in the equivalent nine-month interim period in the previous fiscal year, whereby the increase is also attributable to additional staff and efforts towards R&D.

Costs of contracts for the three months ended August 31, 2007 amounted to $98,385, some $31,794, or 24% lower than the $130,179 incurred during the same period in the preceding fiscal year. The decrease is principally attributable to lower laboratory supplies and office expenses (commensurate with the decline in contract revenue between the two interim periods) as well as to the departure of an employee in the contract services laboratory. For the nine months ended August 31, 2007, costs of contracts amounted to $340,872, representing a $21,882 decrease from the $362,754 recorded in the comparable period in 2006, which decline is principally attributable to lower laboratory supplies and office expenses.

General and administrative expenses totalled $111,237 for the three months ended August 31, 2007, representing a decrease of $67,962, or 38%, compared to the $179,199 for the three month period ended August 31, 2006. The decrease is principally attributable to a decrease in professional fees incurred during the interim period compared to that of the corresponding three month period in fiscal 2006. For the nine months ended August 31, 2007, general and administrative expenses totalled $445,553, representing a $73,620, or 14% decrease relative to the $519,173 incurred in the corresponding nine-month period in fiscal 2006, whereby the decrease is also principally attributable to lower professional fees incurred in the period.

Biophage's net loss for the three month period ended August 31, 2007 amounted to $187,759 ($0.00 per share) compared to a net loss of $239,779 ($0.01 per share) for the corresponding three month period in the preceding fiscal year. The improvement is attributable to lower general and administrative expenses, to the favorable assessment and refund received in early June 2007 in regards to the fiscal 2006 provisioned R&D tax credits and to the lower costs of contracts, although partially offset by lower contract revenues, increased R&D efforts and the write-down of certain patents during the interim period. The net loss for the nine months ended on August 31, 2007 amounted to $801,097, compared to a loss of $567,580 for the corresponding nine-month period in fiscal 2006.

Liquidity and Financial Resources
As at August 31, 2007 Biophage had cash and cash equivalents of $155,578 compared to $214,344 at November 30, 2006. The decrease in cash and cash equivalents from November 30, 2006 levels is substantially attributable cash used in operating activities (after changes in non-cash working capital items) and the repayment of the R&D tax credits-related loan, although partially offset by cash received through the private placements completed during the nine month period) as well as the loan secured with Investment Quebec ("IQ") as described below.

During December 2006 and February 2007, the Corporation issued 4,045,458 units through private placement. Each unit is made up of one common share and one common share purchase warrant, with each such warrant exercisable for a period of two years at an exercise price of $0.17 per common share. The 4,045,458 units were issued for a total cash consideration of $525,910.

In early June 2007, the Corporation received its tax credits refund in relation to research and development expenses incurred in fiscal 2006. The refund was used to repay the Corporation's short term debt in its entirety ($100,000 as at May 31, 2007), which loan had been contracted to finance said tax credits.

On July 16, 2007, the Corporation announced that its wholly-owned subsidiary, Biophage Inc., had secured a $550,000 loan facility from IQ payable in instalments. On July 16, 2007, a first instalment of $150,000 was made and 38,181 warrants were issued to IQ. On September 19, 2007 and October 15, 2007, a second and third instalment of $50,000 each were respectively made to the Corporation under its loan facility with IQ. Pursuant to their agreement, the Corporation issued 11,400 warrants and 12,396 warrants to IQ in connection to the second and third instalments, respectively.

More detailed information regarding the foregoing can be found in the interim unaudited consolidated financial statements and related management discussion and analysis which have been filed today on SEDAR at www.sedar.com.

About Biophage Pharma Inc.
Biophage is a Canadian biotechnology company focused on the development of innovative phage-based products and technologies for the detection, prevention and control of bacterial infections. Biophage operates three divisions: (1) The Immunotox Labs division, which provides services in Immunogenicity and Immunotoxicity, Beryllium sensitivity testing (BeLPT) and exclusive MELISA® testing for the detection of sensitization to more than 200 different allergens including metals, penicillin, gluten, pollens and more recently Lyme disease (Boreliosis); (2) The Biosensors division for the development and commercialization of Biosensors PDS®; and (3) The Therapeutics division for the prevention and control of bacterial contaminations in the medical, veterinary and environment fields. Both the Biosensor and Phage therapy programs have been structured to deliver an environmentally safe solution for the early detection and rapid control of deadly microorganisms. (www.biophagepharma.net; www.immunotoxlabs.com ).

Forward-Looking Statements
Certain statements contained in this news release constitute forward-looking information within the meaning of securities laws. Implicit in this information, particularly in respect of future operating results and economic performance of the Corporation are assumptions regarding projected revenue and expenses. These assumptions, although considered reasonable by the Corporation at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of the Corporation are subject to a number of risks and uncertainties, including general economic, market and business conditions and could differ materially from what is currently expected.

Forward-looking information contained in this report is based on management's current estimates, expectations and projections, which management believes are reasonable as of the current date. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time unless required by applicable securities law.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Information:

Biophage Pharma Inc.

Rosemonde Mandeville, M.B., Ch.B., PhD
President and Chief Executive Officer
Tel: 514-496-1488
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Louis Guindon
Chief Financial Officer
Tel: 514-496-3230
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