Inflazyme Pharmaceuticals Ltd. Announces Financial Results for the Quarter and Year Ended March 31, 2006

Inflazyme Pharmaceuticals Ltd. (TSX: IZP) today reported its financial results for the fourth quarter and year ended March 31, 2006.

Results of operations for the year ended March 31, 2006

The net loss for the year ended March 31, 2006 was $11,683,843 ($0.11 per common share) compared to a net loss of $28,107,675 ($0.27 per common share) in the prior year. The decrease in the loss of $16,423,832 for the year ended March 31, 2006 was primarily due to the gain on sale of Inflazyme Pharmaceuticals Canada Inc. (IPCI), lower write-downs related to acquired intangible assets, restructuring expenses incurred in the prior year, lower research and development expenses, lower general and administration expenses and lower amortization expenses.

Gain on sale of IPCI

On September 20, 2005, the Company initiated a corporate reorganization that culminated with the sale of a wholly-owned subsidiary on October 27, 2005. The net gain from the sale of IPCI was $6,794,150.

Write-down of acquired intangible assets

The write-down of acquired intangible assets for the year ended March 31, 2006, was $5,820,602 compared to $8,346,079 for the prior year. In the current year the write-down relates to the Prodaptin(TM) technology, the ATH technology and the Core 2 technology. In the prior year the write-down related to the Prodaptin(TM) technology and GH9001.

Research and development

Research and development expenses for fiscal 2006 were $5,471,531 as compared to the research and development expense recorded in the prior year of $9,041,933 for a decrease of $3,570,402 or 39%. A number of factors explain this result. The decrease was due to the reduction in personnel expenses through headcount reductions and the resultant reduction in laboratory activity. Contract research activity was also lower during the year compared to the prior year.

The Company expects that research and development expenditures, more specifically the contract research expenses, will increase in the near future as a result of its Phase IIb asthma study with IPL512,602. The estimated contract research costs of the Phase IIb study will be approximately $6 million dollars.

General and administration

General and administration expenses for the year ended March 31, 2006 were $4,088,588 compared to $5,312,724 for the prior year. The decrease of $1,224,136 or 23% for the year ended March 31, 2006 was due to decreased expenses of a US subsidiary that was wound up at the end of the prior year, lower rent expense, decreased travel expenses, lower foreign exchange losses and lower CEO/CFO certification project costs.

Amortization

Amortization expense for the year ended March 31, 2006 was $3,264,105 compared to $4,623,377 in the prior year. The decrease of $1,359,272 was related to a lower acquired intangible asset base due to the write-down of $8,346,079 in the prior year.

Interest income

Interest income for the year ended March 31, 2006 was $417,089 compared to $557,908 for the prior year. The decrease of $140,819 for the year was primarily due to lower investment balances offset by higher interest rates during the year.

Liquidity and Capital Resources

At March 31, 2006 the Company's cash, cash equivalents and short-term investments totaled $12,809,087 compared to $15,860,738 at March 31, 2005. Working capital at March 31, 2006 was $12,510,958 compared to $15,070,231 at March 31, 2005.

Cash and cash equivalents were $12,809,087 at March 31, 2006 compared to $15,650,334 at March 31, 2005, a decrease of $2,841,247. The decrease reflects cash used in operations of $9,294,396, cash used to re-pay long term debt of $52,955, offset by cash from investing activities of $6,506,104. The cash from investing activities relates primarily to the net proceeds of $6,794,150 from the sale of IPCI.

The Company believes that its cash position at March 31, 2006 will enable the Company to fund operating expenses and capital requirements into the second quarter of calendar 2007.

Results of operations for the quarter ended March 31, 2006

The net loss for the quarter ended March 31, 2006 was $9,432,176 ($0.08 per common share), after non-cash items of $6,992,698, compared to a net loss of $10,511,477 ($0.10 per common share), after non-cash items of $7,288,432, for the quarter ended March 31, 2005. Cash used in operating activities for the quarter ended March 31, 2006 was $2,900,876 compared to $2,733,677 for the corresponding quarter last year.

Research and development

During the quarter ended March 31, 2006 research and development expenses were $1,796,724 compared to $1,130,996 for the same period during the prior year, an increase of $665,728. The increase is a result of ramp up of contract research and development activities for the Phase IIb study of IPL512,602 during Q4 2006, offset by reduced laboratory activities and personnel costs as compared to the corresponding period last year.

General and administration

General and administration expenses for the quarter ended March 31, 2006 were $840,862 compared to $1,018,006 for the corresponding period in the prior year. The $177,144 decrease is primarily related to lower corporate and office expenses, and professional fees as compared to the same quarter in the prior year. These reductions were somewhat offset by higher personnel costs, travel and corporate communications activities.

Interest income

Interest income for the quarter ended March 31, 2006 was $122,478 compared to $110,970 for the quarter ended March 31, 2005.

Clinical Progress in 2005 and First Quarter FY 2006

IPL455,903 entered Phase IIa trial in Age Associated Memory Impairment in March 2006

Based on the positive results of the single and multi-dose Phase I studies obtained during 2005, Helicon Therapeutics, our partner, has advanced the product into further clinical development. The Phase IIa study is a four week, randomized, double-blind parallel trial comparing the efficacy, safety and tolerability of once daily dosing with IPL455,903 to placebo in subjects 50 years or older with Age Associated Memory Impairment. The study is expected to enroll approximately 75 subjects and is being conducted in Europe. Subjects will be evaluated using a specifically designed battery of cognitive tests and will be assessed according to standard Age Associated Memory Impairment criteria.

Results of the Phase IIa study are expected in Q3 2006. Information obtained from this study will be combined with those obtained from the Phase I studies and will be used to plan and prepare for additional Phase II clinical studies which could take place in late 2006.

"We are excited that IPL455,903 (otherwise known as HT-0712) has now entered a Phase IIa clinical study. We were very pleased with the results of the earlier Phase I studies since it was demonstrated that the drug did not cause emesis, a side effect that has prohibited the advancement of other PDE4 inhibitors through clinical development. Our drug is a brain penetrable PDE4 inhibitor that has been shown to be safe and well tolerated in studies to date," said Dr. Kevin Mullane, President and CEO Inflazyme.

IPL512,602 entered Phase IIb trial in Asthma in May 2006

In December 2005, we decided to commit the necessary resources to advance IPL512,602 into its next phase of development.

"We are excited that in May 2006, IPL512,602 entered a Phase IIb study which is called Control of Asthma Patients Symptomatic on Inhaled Corticosteroids Study (CAPSICS). This next trial builds on the measures of asthma control that were positive in the earlier Phase IIa study. These measures of asthma control include - an improvement in Asthma Quality of Life, a reduced need for rescue medication and an improvement in airway hyperresponsiveness - key fundamental aspects in the treatment of asthma," said Dr. Mullane.

The study is an eight week, randomized, double blind, parallel group, multi-center trial comparing the efficacy of IPL512,602 to placebo in male or female subjects with moderate to severe asthma and who remain symptomatic despite taking their regular asthma medication.

The purpose of the study is to assess the efficacy and safety of 20mg of IPL512,602 given once daily as an oral asthma medication. IPL512,602 represents a new therapeutic approach discovered by Inflazyme that focuses on improving asthma control and reducing asthma symptoms.

Approximately 200 male or female subjects, suffering from asthma symptoms and attacks despite taking their regular medications, will be enrolled in the study.

The study is being conducted at several major asthma centers across the US, Eastern Europe, Russia and the Ukraine and preliminary results are expected in Q1 2007.

Research Progress

Our research team is identifying additional PDE4 inhibitors for respiratory and inflammatory indications based on our active pharmacophore from the IPL455,903 series which has been shown to be non-emetic in studies to date. The objective is to identify compounds which demonstrate efficacy and safety advantages over other PDE4 inhibitors currently in development by competitor pharmaceutical and biotechnology companies.

Conference Call

Inflazyme will host a conference call to discuss this announcement on Wednesday, May 24, 2006 at 9:00 am Pacific Time/12:00 pm Eastern Time. To access the live call, please dial 416-695-5261 or 1-888-789-0089. Audio replay of the conference call will be available until June 24, 2006 by calling 416-695-5275 or 1-888-509-0081 and entering passcode 622594.

About Inflazyme

Inflazyme Pharmaceuticals is a biopharmaceutical company pioneering medical breakthroughs to transform the lives of patients with respiratory and inflammatory diseases worldwide. Further information on the Company may be obtained from its website at www.inflazyme.com.

Statements in this news release other than historical information are forward-looking statements subject to risks and uncertainties. Actual results could differ materially depending on factors such as the availability of resources, the timing and effects of regulatory actions, the strength of competition, the outcome of litigation and the effectiveness of patent protection. Additional information regarding risks and uncertainties is set forth in the current Annual Information Form for Inflazyme on file with the Canadian Securities Commissions.

Inflazyme Pharmaceuticals Ltd.
Consolidated Balance Sheets
(Unaudited)

                                           March 31         March 31
                                               2006             2005
                                       ------------     ------------
Assets

Current assets
Cash and cash equivalents              $ 12,809,087     $ 15,650,334
Short-term investments                            -          210,404
Interest receivable                          26,603           18,451
Other receivables                           189,935          145,521
Prepaid expenses                            455,610          346,260
Tax credits recoverable                      52,233        1,597,429
                                       ------------     ------------
                                         13,533,468       17,968,399

Property and equipment                    1,759,884        2,701,099
Patents and licenses                      1,930,043        1,978,294
Acquired intangible assets                        -        7,885,373
                                       ------------     ------------
                                       $ 17,223,395     $ 30,533,165
                                       ------------     ------------
                                       ------------     ------------

Liabilities

Current liabilities
Accounts payable and
 accrued liabilities                   $  1,022,510     $  2,845,213

Current portion of long-term debt                 -           52,955
                                       ------------     ------------
                                          1,022,510        2,898,168

Deferred licensing revenue                  268,275          306,601
                                       ------------     ------------
                                          1,290,785        3,204,769
                                       ------------     ------------
Shareholders' equity

Capital stock
Issued:
 Series 1, Class A preference shares              -       21,957,676
 Common shares                          138,910,033      116,952,357
                                       ------------     ------------
                                        138,910,033      138,910,033
Contributed surplus                       1,669,796        1,381,739
Deficit                                (124,647,219)    (112,963,376)
                                       ------------     ------------
                                         15,932,610       27,328,396

                                       ------------     ------------
                                       $ 17,223,395     $ 30,533,165
                                       ------------     ------------
                                       ------------     ------------

On behalf of the board

         Kevin Mullane               Louis Drapeau
         President and CEO           Director


Inflazyme Pharmaceuticals Ltd.
Consolidated Statements of Operations and Deficit
(Unaudited)

              For the Three Months Ended          For the Year Ended
             --------------------------- ---------------------------
                  March 31,     March 31,     March 31,     March 31,
                      2006          2005          2006          2005
             --------------------------- ---------------------------
Revenues
Licensing
 revenue     $       9,581 $       9,581  $     38,326 $     102,538
             --------------------------- ---------------------------

Expenses

Research and
 development     1,796,724     1,130,996     5,471,531     9,041,933
General and
 administration    840,862     1,018,006     4,088,588     5,312,724
Gain on sale
 of subsidiary           -             -    (6,794,150)            -
Amortization       817,465     1,152,417     3,264,105     4,623,377
Write-down of
 acquired
 intangible
 assets          5,820,602     6,010,282     5,820,602     8,346,079
Write-downs
 and loss on
 disposal of
 patent assets
 and assets
 held for sale     288,582       150,826       288,582       345,374
Restructuring
 expenses                -       762,000             -     1,358,488
(Gain) / loss
 on lease
 termination             -       407,500             -      (259,854)
             --------------------------- ---------------------------

Loss from
 operations     (9,554,654)  (10,622,447)  (12,100,932)  (28,665,583)
             --------------------------- ---------------------------

Interest
 income            122,478       110,970       417,089       557,908
             -------------------------------------------------------

Loss for
 the period     (9,432,176)  (10,511,477)  (11,683,843)  (28,107,675)

Deficit,
 beginning
 of period    (115,215,043) (102,451,899) (112,963,376)  (84,855,701)
             --------------------------- ---------------------------

Deficit,
 end
 of
 period      $(124,647,219)$(112,963,376)$(124,647,219)$(112,963,376)
             --------------------------- ---------------------------
             --------------------------- ---------------------------

Basic and
 diluted
 loss per
 common
 share       $       (0.08)$       (0.10)$       (0.11)$       (0.27)
             --------------------------- ---------------------------
             --------------------------- ---------------------------

Weighted
 average
 number of
 common
 shares
 outstanding   113,534,375   106,215,150   112,170,793   105,554,884
             --------------------------- ---------------------------
             --------------------------- ---------------------------


Inflazyme Pharmaceuticals Ltd.
Consolidated Statements of Cash Flows
(Unaudited)

              For the Three Months Ended          For the Year Ended
             --------------------------- ---------------------------
                  March 31,     March 31,     March 31,     March 31,
                      2006          2005          2006          2005
             --------------------------- ---------------------------

Cash flows
 from operating
 activities
Loss for
 the period  $  (9,432,176)$ (10,511,477)$ (11,683,843)$ (28,107,675)
Items not
 affecting
 cash:
 Gain on
  sale of
  subsidiary             -             -    (6,794,150)            -
 Amortization      817,465     1,152,417     3,264,105     4,623,377
 Write-down of
  acquired
  intangible
  assets         5,820,602     6,010,282     5,820,602     8,346,079
 Write-downs
  and loss
  on disposal
  of patent
  assets and
  assets held
  for sale         288,582       150,826       288,582       345,374
 Licensing
  revenue           (9,581)       (9,581)      (38,326)      (38,324)
 Gain on
  reversal of
  lease
  liability              -             -             -    (1,090,354)
 Amortized
  lease
  liability              -             -             -      (163,556)
 Stock-based
  compensation      75,630       (15,512)      288,057       283,400
             --------------------------- ---------------------------
                (2,439,478)   (3,223,045)   (8,854,973)  (15,801,679)

Changes in
 non-cash
 working
 capital          (461,398)      489,368      (439,423)   (1,896,783)
             --------------------------- ---------------------------
                (2,900,876)   (2,733,677)   (9,294,396)  (17,698,461)

Cash flows
 from
 financing
 activities
Repayment of
 long-term
 debt               (3,695)      (32,773)      (52,955)     (408,478)
             --------------------------- ---------------------------

Cash flows from
 investing
 activities
Short-term
 investments     5,055,365        (1,184)      210,404       242,094
Cash from the
 Acquisition
 of Adprotech            -             -             -     7,345,992
Acquisition
 costs -
 Adprotech
 Limited                 -             -             -      (582,258)
Purchase of
 property and
 equipment               -       (28,939)      (86,011)     (204,404)
Patents and
 licenses         (164,605)     (133,691)     (412,439)     (423,476)
Proceeds from
 disposal of
 assets held
 for sale                -           379             -         4,241
Net proceeds
 on sale of
 subsidiary              -             -     6,794,150             -
             --------------------------- ---------------------------
                 4,890,760      (163,435)    6,506,104     6,382,189

             --------------------------- ---------------------------
Increase
 (decrease)
 in cash and
 cash
 equivalents     1,986,189    (2,929,885)   (2,841,247)  (11,724,751)

Cash and cash
 equivalents,
 beginning of
 period         10,822,898    18,580,219    15,650,334    27,375,085
             --------------------------- ---------------------------
Cash and cash
 equivalents,
 end of
 period      $  12,809,087 $  15,650,334 $  12,809,087 $  15,650,334
             --------------------------- ---------------------------
             --------------------------- ---------------------------

Supplemental
 disclosure
 of cash flow
 information
Interest paid          747         3,387         9,803        23,253
Interest
 received           95,875       110,970       390,486       557,908
Issuance of
 common shares
 on the
 acquisition of          -             -             -             -
 Adprotech
 Limited net
 assets                  -             -             -    19,533,445
Issuance of
 common shares
 on conversion
 of Series 1,
 Class A
 Preference
 shares                  -             -    21,957,676             -

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this information.

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