Preliminary Results

RNS Number : 1024D

Avacta Group PLC

26 November 2009

 



Avacta Group plc

Unaudited Preliminary Results for the year to 31 July 2009

A year of solid commercial progress

Avacta Group plc ("Avacta", the "Group" or the "Company") which develops detection and analysis technology and services aimed at the pharmaceutical, healthcare, security and industrial sectors, is pleased to announce its unaudited preliminary results for the year to 31 July 2009.

Highlights:

• Flagship product Optim launched and initial orders secured

• MIDAS diagnostic platform on track to launch early in 2010

• Avacta Animal Health division established following strategic acquisition

• Revenue growth of 100% to £0.94m (2008: £0.47m)

• Underlying operating loss £1.82m (2008: £1.53m)

• Reported operating loss (including non-recurring expenses and share based payment charges) of £2.86m (2008: loss £1.65m)

• Year end cash at bank of £0.88m (2008: £1.10m)

• Current cash £2.1m following successful placing of £2.0m completed during November 2009

Alastair Smith, CEO commented:  

"Since coming to AIM in late 2006 Avacta has established two business units vertically aligned in each of their markets; being biotech support and diagnostics. Our first product, Optim, aimed at reducing risk in drug development is in the marketplace and is generating considerable interest and our first diagnostic device, MIDAS, is expected to launch in the veterinary market shortly.  

"Both of these devices combine one-off hardware sales with two recurring revenue streams; consumable cartridges and support and maintenance contracts. Avacta has recently raised additional funds to maintain an element of its development resources to bring further devices and diagnostic tests to market in the near future.

"Avacta sits at a transitional point as it shifts from early stage product development to the commercialisation of innovative, high value technologies to complement our expert services. The opportunity for Avacta Group is substantial and tangible and we anticipate continuing strong newsflow in the coming year."

26 November 2009

Enquiries:

Avacta Group plc	084 4414 0452
Alastair Smith, Chief Executive Officer
Daniel Stewart & Company plc	020 7776 6550
Simon Leathers / Stewart Dickson
Haggie Financial LLP	020 7417 8989
Nicholas Nelson / Kathy Boate

The Company's Unaudited Preliminary Results are available on its website www.avacta.com

Chairman's and Chief Executive Officer's Report

Business overview

Avacta has maintained its impressive momentum since its admission to AIM having completed development, launched and commenced sales of the first of a range of high value analytical and diagnostic instruments.

In addition, the Group has been actively building and strengthening its operations through acquisition, having acquired three companies to support its short term objectives in animal healthcare and its longer term objectives in human healthcare. The integration of each of the acquired companies is now complete.

Optim, our flagship analytical instrument was launched in April and the first sales announced last month. Optim is designed to assist drug developers to get their products to market more quickly and cost effectively. We have a clear and very powerful value proposition for Optim which is being readily received by our initial target customer group of biopharmaceutical companies worldwide.  The high level of interest is reflected in a substantial qualified pipeline of potential customers going through the sales process. Further complementary instruments employing additional biophysical techniques to further assist drug developers are also in development and are anticipated to launch during 2010 and 2011.

MIDAS, the Group's first diagnostic instrument which will be commercialised initially in the veterinary healthcare market, is planned to launch during early 2010 and Avacta has an established route to market through the strategic acquisition of Avacta Animal Health (formerly YorkTest Veterinary Services), a services business with a high degree of penetration into the UK veterinary market and overseas reach to Europe and the Far East. The MIDAS platform will deliver rapid point of care testing in the veterinary clinic and is capable of running an extensive range of diagnostic tests. Avacta has a proprietary pipeline of additional tests to be launched over the next few years.  Moreover, we have our sights set on using exactly the same technology for the delivery of rapid point of care testing for human healthcare.

The progress made during the year and our future plans have been well received by investors. Accordingly, Avacta recently completed a placing which raised £2.0m to fulfil the commercialisation and after sales support of Optim and MIDAS and to continue pushing on towards the roll-out of further complementary instruments to Optim and additional diagnostics tests for the MIDAS platform.

Avacta is moving confidently towards becoming a leading provider of high value technology products and services to the life sciences sector.

Technological devices

Biopharmaceutical development tools

Optim provides drug developers with the capability to understand, at earlier stages than has previously been technically possible, the likelihood of a candidate drug compound developing successfully into a viable biological drug. This capability to measure or predict in advance a host of potential biophysical problems which might occur down-stream is highly valuable to drug developers. Indeed, it is estimated that approximately 80% of candidate drug compounds that enter the development process fail to reach market. Optim has the potential to reduce this failure rate considerably, significantly reducing material cost and time taken in drug development programmes.

The unique selling point of Optim is that it can provide detailed analysis, characterisation and interpretation of critical properties of biological drug compounds using minute quantities of material, thus making such crucial analysis possible at an early stage, which reduces drug development risk. As expected, the Group is experiencing strong interest in Optim and the directors are confident that demand will support a series of ambitious sales targets.

Additional complementary instruments employing the Group's expertise in biophysical techniques are also in development with a number expected to be commercially available in the coming year.

Point of care diagnostics

Avacta's core technologies are being leveraged to address the growing market demand for point of care diagnostic devices in both human and animal healthcare. Avacta regards the diagnostics market, and specifically point of care diagnostics, as a potential high value market and it has several opportunities to take forward. Avacta expects to launch its first diagnostic product, MIDAS, which can detect protein markers of disease in biological fluids, such as blood and urine, early in 2010 following extensive testing both in-house and with selected veterinary practices in the UK. The early prototype system has been developed into a production model that includes a standalone hardware unit which detects protein markers from a proprietary consumable cartridge containing reagents specific to each diagnostic test. 

MIDAS will be commercialised in the veterinary healthcare market initially to accelerate revenues. The core technology is equally applicable, without any additional technical development, in the human healthcare market and Avacta plans to commercialise the technology in that market as quickly as is possible. Avacta is seeking commercial partners who have clinically approved diagnostic tests that can be leveraged on to the MIDAS platform for point of care delivery.  

The Group identified the field of personalised medicine diagnostics as one of particular interest and, through its acquisitions during the year, has established a capability in this area. Supported by Takeda Pharmaceutical Company in Japan, Avacta is developing a method of patient sub-grouping which, if successful, is expected to lead to further commercialisation of the Group's proprietary approach.

Contract services

Avacta Analytical  

Avacta Analytical is positioned as a world leading provider of biophysical analysis of biopharmaceutical drugs. Despite the global economic downturn which has had an effect on pharmaceutical outsourcing spend during 2008/2009, Avacta Analytical delivered services to fourteen new clients over the past financial year.

The business has strengthened its commercial team in recent months to accelerate the delivery to market of its suite of biophysical analysis services and Optim together, as a "solution sell".  Accordingly, order intake on biophysical services has increased substantially.

The commercial team will be strengthened again to support the anticipated growth and to cover the expanding portfolio of instruments (Optim and the complementary instruments) and services.

Avacta Animal Health

Avacta acquired Yorktest Veterinary Services Limited during February 2009 and has rebranded the business as Avacta Animal Health recognising the wider commercial opportunities that Avacta intends to bring to the acquired business.

Avacta Animal Health's core service offering is a complete allergy testing service to veterinary practices in the UK, EU and further afield.  The technology enables the analysis of canine, feline and equine blood samples to assist in the diagnosis and treatment of adverse reactions to foods, pollens, insects and moulds. The business has established itself as a leading animal allergy testing provider by maintaining rigorous quality control and high levels of customer support and currently provides its services to around 60% of UK veterinary clinics. It sells its proprietary testing kits into distributors and partners in the EU, Middle East and Far East.

This well established and highly regarded business provides the Group with a strategically important route to market for MIDAS and an opportunity to expand the range of diagnostic services beyond allergy testing.

Financial overview

The continued investment in our technological progress has increased the reported operating loss of the Group to £2.86m (2008: loss £1.65m), which is in line with management expectations. Non-recurring administrative expenses and share based payment charges of £1.04m reduce the underlying operating loss to £1.82m (2008: £1.53m).

Revenues grew 100% to £0.94m (2008: £0.47m), including £0.57m from the acquired Avacta Animal Health business in the six month period since acquisition. This represents 13% year on year growth on its own organic business. Other revenues from Avacta's core biophysical services business grew by 18% at £0.37m (2008: £0.32m), a creditable performance in difficult trading conditions.

The Group reported cash balances of £0.88m (2008: £1.10m) and this has been strengthened during the period after the balance sheet date with the completion in November 2009 of a placing of approximately 133 million new Ordinary shares at 1.5p generating £2.0m gross.

The Group has recognised £0.15m in the income statement in respect of R&D tax credits received or receivable (2008: £0.11m). The Group also received £0.14m from the acquired Curidium Medica plc net assets.  

Loss per share increased to 0.28p (2008: 0.18p).

Staff

The Group has strengthened its commercial, production and engineering support teams as the resource requirement of the Group shifts from technological expertise to a more traditional business development skill set. A proportion of the technical development team is transitioning to technical sales, unit assembly and support. The Board would like to thank all staff for their dedication, commitment and innovation over the past year. 

Outlook

Since coming to AIM in late 2006 Avacta has established two business units vertically aligned in each of their markets; being biotech support and diagnostics.  Our first product, Optim, aimed at reducing risk in drug development is in the marketplace and is generating considerable interest and our first diagnostic device, MIDAS, is expected to launch in the veterinary market shortly.  

Both of these devices combine one-off hardware sales with two recurring revenue streams; consumable cartridges and support and maintenance contracts. Avacta has recently raised additional funds to maintain an element of its development resources to bring further devices and diagnostic tests to market in the near future.

Avacta sits at a transitional point as it shifts from early stage product development to the commercialisation of innovative, high value technologies to complement our expert services.  The opportunity for Avacta Group is substantial and tangible and we anticipate continuing strong newsflow in the coming year.

Gwyn Humphreys                Alastair Smith

Chairman                            Chief Executive Officer

26 November 2009

  Consolidated Income Statement for the year ended 31 July 2009

		2009	2008
	Notes	£000	£000
Revenue		944	466
Operating costs		(3,801)	(2,118)
		-------------	-------------
Operating loss before non-recurring expenses and share-based payment charges		(1,820)	(1,529)
Non-recurring administrative expenses	3	905	-
Share-based payment charges		132	123
		-------------	-------------
Operating loss		(2,857)	(1,652)
Finance income		25	83
Finance expenses		(3)	(4)
		-------------	-------------
Loss before taxation		(2,835)	(1,573)
Taxation		150	105
		-------------	-------------
Amount attributable to equity holders of the Company		(2,685)	(1,468)
		-------------	-------------
Loss per ordinary share :
- Basic and diluted	4	(0.28p)	(0.18p)
		-------------	------------

  Consolidated Balance Sheet as at 31 July 2009

		2009	2008
		£000	£000
Non-current assets
Intangible assets		7,378	3,581
Property, plant & equipment		281	290
		-------------	-------------
		7,659	3,871
		-------------	-------------
Current assets
Trade and other receivables		427	92
Income taxes		91	84
Cash and cash equivalents		878	1,097
		-------------	-------------
		1,396	1,273
		-------------	-------------
Total assets		9,055	5,144
		-------------	-------------
Current liabilities
Trade and other payables		(587)	(234)
Income taxes		(85)	-
Hire purchase agreements		(11)	(11)
		-------------	-------------
		(683)	(245)
		-------------	-------------
Non-current liabilities
Hire purchase agreements		(18)	(30)
Deferred taxation		(57)	-
		-------------	-------------
		(75)	(30)
		-------------	-------------
Total liabilities		(758)	(275)
		-------------	-------------
Net assets		8,297	4,869
		-------------	-------------
Equity attributable to equity holders of the Company
Called up share capital		1,230	900
Share premium account		11,405	6,524
Other reserve		(1,729)	(1,729)
Capital reserve		2,669	1,899
Retained earnings		(5,278)	(2,725)
		-------------	-------------
Total equity		8,297	4,869
		-------------	------------

Consolidated statement of changes in equity for the two years ended 31 July 2009 

	Share capital	Share premium	Other reserve	Capital reserve	Retained earnings
	£000	£000	£000	£000	£000
At 1 August 2007	856	4,882	(1,729)	-	(1,380)
Shares issued during the year as consideration for business combinations and in settlement of operating expenses	44	1,642	-	-	-
Shares to be issued as consideration for business combinations	-	-	-	1,899	-
Result for the period	-	-	-	-	(1,468)
Share based payment charges	-	-	-	-	123
	-------------	-------------	-------------	-------------	-------------
At 31 July 2008	900	6,524	(1,729)	1,899	(2,725)
Shares issued during the year as consideration for business combinations and in settlement of operating expenses	330	4,881	-	-	-
Shares to be issued as consideration for business combinations	-	-	-	770	-
Result for the period	-	-	-	-	(2,685)
Share based payment charges			-	-	132
	-------------	-------------	-------------	-------------	-------------
At 31 July 2009	1,230	11,405	(1,729)	2,669	(5,278)
	-------------	-------------	-------------	-------------	-------------

  Consolidated Cash Flow Statement for the year ended 31 July 2009

		2009	2008
	Note	£000	£000
Operating activities
Loss for the year		(2,685)	(1,468)
Amortisation		9	-
Depreciation		87	57
Share based payment charges		132	123
Net finance income		(22)	(79)
Income taxes		(150)	(105)
		-------------	-------------
Operating cash outflow before changes in working capital		(2,629)	(1,472)
Movement in trade and other receivables		(45)	78
Movement in trade and other payables		(438)	82
		-------------	-------------
Operating cash outflow from operations		(3,112)	(1,312)
Finance income received		82	83
Finance expense paid		(3)	(4)
Income tax received		316	21
		-------------	-------------
Net cash flow from operating activities		(2,717)	(1,212)
		-------------	-------------
Investing activities
Purchase of plant and equipment		(57)	(138)
Development expenditure capitalised		(155)	-
Acquisition of subsidiaries	5	2,652	(69)
		-------------	-------------
Net cash flow from investing activities		2,440	(207)
		-------------	-------------
Financing activities
Proceeds from issue of shares		70	-
Capital repayment on finance leases		(12)	(11)
		-------------	-------------
Net cash flow from financing activities		58	(11)
		-------------	-------------
Net (decrease) / increase in cash and cash equivalents		(219)	(1,430)
Cash and cash equivalents at the beginning of the year		1,097	2,527
		-------------	-------------
Cash and cash equivalents at the end of the year		878	1,097
		-------------	-------------

  Notes

1.  The financial information set out herein does not constitute the Group's statutory accounts for the year ended 31 July 2009 or the year ended 31 July 2008 but is derived from those accounts. The 2009 statutory accounts have not been finalised but this preliminary announcement has been prepared by the Directors based on the results and position which they expect will be reflected in the statutory accounts.  The comparative information in respect of the year ended 31 July 2008 has been derived from the audited statutory accounts for the year ended on that date upon which an unqualified audit opinion was expressed and which did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 and schedule 237 (2) or (3) of the Companies Act 1985. The audited accounts will be posted to all shareholders in due course and will be available on request by contacting the Company Secretary at the Company's Registered Office.

2.  Basis of preparation

The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

3.  Non-recurring administrative expenses

	2009	2008
	£000	£000
Non-recurring research projects	565	-
Non-recurring administrative expenses	242	-
Non-recurring employment expenses	98
	-------------	-------------
	905	-
	-------------	-------------

4.  Basic and diluted loss per ordinary share

The calculation of earnings per ordinary share is based on the profit or loss for the period and the weighted average number of equity voting shares in issue. The earnings per ordinary share is the same as the diluted earnings per ordinary share because the earnings per share is negative.

	2009	2008
Loss (£000)	(2,685)	(1,468)
Non-recurring administrative expenses (£000)	905	-
	-------------	-------------
Loss excluding non-recurring administrative expenses (£000)	(1,780)	(1,468)
	-------------	-------------
Weighted average number of shares (number '000)	949,383	801,261
	-------------	-------------
Basic and diluted loss per ordinary share (pence)	(0.28)p	(0.18)p
	-------------	-------------
Loss before exceptional items per ordinary share (pence)	(0.19)p	(0.18)p
	-------------	-------------

5.  Acquisitions

Avacta Animal Health Limited (formerly Yorktest Veterinary Services Limited)

On 9 February 2009, the Company legally acquired the entire issued Ordinary share capital of Avacta Animal Health Limited (formerly Yorktest Veterinary Services Limited).  

	£000
Tangible fixed assets	-
Cash in hand and at bank	232
Debtors	122
Creditors	(117)
	-------------
Net assets acquired	237
Goodwill	712
Customer related intangible assets	150
Deferred tax liability	(42)
	-------------
	1,057
Purchase consideration
Cash	1,020
Costs	37
	-------------
	1,057
	-------------
Cash outflow on acquisition	825
	-------------

Curidium Medica plc

On 3 March 2009, the Company legally acquired the entire issued Ordinary share capital of Curidium Medica plc by way of a share for share exchange. The Company allotted and issued 274,679,825 new ordinary shares of 0.1p fully paid to the holders of the Ordinary shares of Curidium Medica plc as consideration.  

	£000
Tangible fixed assets	8
Cash in hand and at bank	2,604
Debtors	275
Creditors	(235)
	-------------
Net assets acquired	2,652
Goodwill	2,729
Customer related intangible assets	60
Deferred tax liability	(17)
	-------------
	5,424
Purchase consideration
Fair value of shares issued and to be issued	5,234
Costs	190
	-------------
	5,424
	-------------
Cash inflow on acquisition	2,414
	-------------

 

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