Full Year Results

RNS Number : 8097R

e-Therapeutics plc

05 March 2019

 

e-therapeutics plc

Results for the year ended 31 January 2019

Secured first commercial deal and continued expansion of Network-Driven Drug Discovery platform capabilities

5 March 2019:  e-therapeutics plc (AIM: ETX, "e-therapeutics"), the network-driven drug discovery ("NDD") company, announces its full year results for the year ended 31 January 2019.

Highlights

SECURED FIRST COMMERCIAL DEAL ON NDD PLATFORM

• Signed commercial research collaboration deal with Novo Nordisk in its core disease area of type-2 diabetes
• Important validation of e-therapeutics and its technologies
• Business development activities continue with a number of discussions progressing on a range of revenue-generating and value-creating deals

ESTABLISHED PARTNERSHIPS DELIVERING

• Further developed network-driven drug discovery ("NDD") platform with a strong focus on the application to generate useful, actionable insight from genomic data
• Successful initial work in Parkinson's Disease in collaboration with C4X Discovery identified potential new disease mechanisms
• Collaborations with Biorelate and Intellegens have been augmenting core NDD platform capabilities and adding to e-therapeutics' already rich pool of biological data

EXCITING RESULTS DEMONSTRATING POTENTIAL OF NDD PLATFORM TO TRANSFORM DRUG DISCOVERY

•  In-house work on patient segment-specific NDD work in breast cancer delivered promising results
•  Application of NDD platform to highly industry-relevant target deconvolution and mechanism of action (MoA) work on complex diseases
• Creation of new Genome Associated Interaction Networks ("GAINs") functionality to better understand population genetic data

PROGRESS ON EXISTING AND NEW DISCOVERY PROGRAMMES IN COMPLEX DISEASES WHERE THERE IS SIGNIFICANT UNMET NEED

• Continued progress on two immuno-oncology programmes driving external discussions on capital efficient means to fund further work
• Creation of new partner-ready programmes in neurodegeneration, fibrosis and tumour microenvironment also driving business development discussions

Financial highlights

• Revenues of £0.04m (FY18: £nil)
• Cash and deposits at 31 January 2019 of £5.9m (FY18: £9.6m)
• Cash and deposits reduction in the year of £3.7m (FY18: £4.4m)
• Operating loss of £5.1m (FY18: loss of £6.8m)
• R&D tax credit of £1.1m (FY18: £1.4m)

Ray Barlow, CEO of e-therapeutics, said:

"During the year we continued to make good operational progress and began to realise the full potential of our NDD platform and approach.  We secured our first commercial deal with Novo Nordisk in type 2-diabetes, continued to develop and invent new assets and programmes in commercially-relevant areas and we generated new NDD-based innovation in the highly attractive field of functional genomics.

In executing our plans, we have managed our cash and resources carefully to nurture our core business and to enable us to continue to offer a range of assets and capabilities to the industry. We remain focused on our extensive business development efforts and are in a number of detailed discussions with potential partners. Confident in the broad versatility and utility of the NDD platform, we remain focused on translating this into value for our shareholders."

Iain Ross, Chairman of e-therapeutics, added:

"e-Therapeutics has continued to successfully deliver on its commitment to progress its unique NDD platform and the assets derived from it.

In addition to achieving commercial validation of the NDD platform, the Company also created a range of new and potentially valuable options for monetisation of the overall NDD approach.

Over the coming year, in order to fully exploit all its assets and capabilities, we will continue to look at alternative sources of funding, including broader industry partnerships, 'shared funding' approaches and, if appropriate, M&A.  We look forward to maintaining an open dialogue with our shareholders as we execute our strategy over the year ahead."

-Ends-

For more information, please contact:

e-therapeutics plc Iain Ross, Chairman Ray Barlow, Chief Executive Officer Steve Medlicott, Finance Director	Tel: [phone] www.etherapeutics.co.uk
Numis Securities Limited Michael Meade/Freddie Barnfield (Nominated Adviser) James Black (Corporate Broking)	Tel: [phone] www.numis.com
FTI Consulting Simon Conway/Brett Pollard	Tel: [phone] Email: [e-mail]

About e-therapeutics

We are an Oxford, UK-based company with a unique and powerful computer-based drug discovery platform and a specialised approach to network biology.

Our novel network-driven methodology allows us to discover new and better drugs in a more efficient and effective way.

We use our highly productive drug discovery engine to develop our own IP-protected, pre-clinical drug discovery programmes which will be of interest to partners looking to acquire or in-license novel and differentiated assets. We are currently developing two programmes in immuno-oncology and have a number of partner-ready projects in areas such as neurodegeneration, fibrosis and tumour microenvironment.

Because of our novel network-driven drug discovery ("NDD") approach, we believe there is potential to enter into several different types of collaborative partnerships with biotech, pharma and other technology companies to create sustainable mutual value.

About Network-Driven Drug Discovery ("NDD")

e-therapeutics' proprietary NDD platform comprises a suite of powerful computational tools to augment and interrogate the vast amount of biological information currently available in both public and private databases.

Our NDD platform is founded on sophisticated network science and employs techniques such as machine learning, artificial intelligence and state-of-the-art data analysis tools. Using our biological expertise, we can create and analyse network models of disease to identify likely proteins that could effectively be disrupted to treat the disease.

We believe that our network-driven approach more realistically reflects the true complexity of disease, with its multiple and often interconnected cellular pathways. By modelling and analysing disease networks and considering the pattern of connections between proteins, and not just single pathways, we more efficiently select the very best drug-like compounds for screening and for subsequent medicinal chemistry and pre-clinical testing. With our novel methodology, significant numbers of active molecules can be identified and tested quickly. Our approach is highly productive and consistently generates hits that have been progressed into potent, selective and novel drug molecules.

Our overall aim is to discover more efficacious drugs more effectively. By using more biologically realistic, cell and tissue-based assays we can choose and design compounds that are more likely to translate into better, more clinically efficacious drugs.

Chairman's Statement

e-therapeutics has made substantial progress during the financial year under review. We continue to operate a lean and effective organisation in a highly competitive and dynamic sector. In particular, we have continued to progress our existing assets, established new collaborations with C4X Discovery and Novo Nordisk, and have made progress in our collaborations with Biorelate and Intellegens, which together have further enhanced our platform and capabilities. 

Our new in-house work on using the Network-driven drug discovery ("NDD") approach to address significant opportunities in functional genomics is particularly exciting.

Most recently we were pleased to announce a significant collaboration with Novo Nordisk and we anticipate announcing further collaborations over the coming year.  We have created a broad range of assets and capabilities and are looking at a number of different commercial deals, all with the potential to provide additional revenues for the business and to build value for our shareholders.

It has been a challenging year in terms of external financial, regulatory and political uncertainty. e-Therapeutics has continued to deliver on its strategy to develop and enhance its unique and robust NDD platform. Ultimately this has only been achieved by exercising strict financial prudence throughout the year, and prioritising and focusing our resources on the development of the NDD platform. By necessity, and in the absence of actively seeking additional funding, we have not been able to fully exploit and invest in our in-house NDD-derived project assets.

As a consequence, the Board is now evaluating alternative sources of capital, including through more extensive collaborations and 'shared funding' projects. Whilst some of these initiatives may result in the Group having to share the potential overall upside with third parties, they will enable us to progress our NDD-derived programmes and increase the overall probability of success, maximising the creation of shareholder value. In addition, we intend to continue our focus on corporate and business development activities and the monetisation of our assets and capabilities.  Furthermore, we remain alert to all opportunities including, if appropriate, M&A.

Your Board remains convinced of the importance, value and utility of e-therapeutics and its technology, and accordingly we will continue to aim to create and realise that value for our shareholders.

In summary, as planned during the year, e-therapeutics successfully progressed the development of its unique NDD platform and secured further validating third party collaborations. Over the coming year, in order to fully exploit all its assets and capabilities, the Group will look to form broader industry partnerships and to secure additional funding to ensure sustainable success.

Finally, I would like to extend my thanks to my Board and management colleagues and to the staff for their continuing commitment.  

Iain G Ross

Non-Executive Chairman

4 March 2019

Chief Executive Officer's Statement

I am pleased to provide this statement on e-therapeutics' progress for the 2018/19 financial year. This time last year, we communicated that there was a clear need for our NDD technologies and assets, which provide a clear solution to some of the industry's most pressing needs. We also articulated a clear plan to continue the turnaround of the business, to engage with potential partners and to create a business that could be highly valued by the healthcare industry. We detail below how we continue to execute diligently against these strategic and tactical plans. We note the progress we have made during the year and highlight how we intend to move the business forward.

Strategy and business plan

Investments in the period have been focused on the business plan we announced last year, which is founded on three main pillars:

1.   Creating and licensing partner-driven NDD-derived programmes

2.   Out-licensing of our own NDD-derived assets

3.   Continuously updating and enhancing our NDD platform.

As detailed below, we believe there is an opportunity to monetise some of the new functionalities we have created for the NDD platform.

Partner-driven NDD-derived programmes

In the interim release in October 2018 we highlighted work we had carried out during the year in disease areas such as neurodegeneration, fibrosis and immuno-oncology. This new work leverages our expertise in network biology and creates new opportunities in industry-relevant and potentially high value discovery areas.

Some of these programmes, which did not exist until recently, were the subject of several discussions with potential partners during the year. Business development work in this area continues and we were pleased to announce our first commercial deal in forming a research collaboration with Novo Nordisk in its core area of type-2 diabetes in December 2018. This is the first time we have applied the NDD approach into metabolic disease and this also demonstrates our ability to go from concept to a partner-ready programme in a matter of months. We look forward to providing an update on the progress of this collaboration in due course.

The fact that we passed deep level due diligence with a respected world leader in a new area is a good indication of the quality and substance of our NDD approach. This deal also further demonstrates the versatility of the NDD platform to address diseases of great relevance to society, medicine and the industry.

As highlighted in my review of last year, one of the challenges of a highly productive platform is to have sufficient funds to invest in all the NDD-derived programmes we have created. As a result, it has been necessary to create partnerships with the industry at an earlier stage than ideal to seek commercial funding and validation. To this end, business development continues to be a core part of our corporate strategy and we hope to be able to announce a number of additional collaborations during the coming financial year.

Self-funded NDD-derived assets

As part of the strategic review we conducted in 2017, we decided to focus the core of our internal investment on two NDD-derived assets in the immuno-oncology area: Tryptophan Catabolism and Immune Checkpoint Modulation.

We continue to make progress in our Tryptophan Catabolism programme. As previously noted, our lead series are novel, potent, first-in-class compounds that work by a different Mechanism of Action ("MoA") to the existing IDO or TDO inhibitors. We are currently undertaking further in vivo work to show how our novel MoA can impact the underlying therapeutic approach, particularly in combination with approved and marketed checkpoint inhibitors.

In our Immune Checkpoint Modulation programme, we have continued to explore the two classes of novel compounds which we know are acting by two distinct immunological mechanisms. We have continued to test efficacy across a range of T-cell driven tumour cell killing assays and to attempt to further deconvolve their biological targets.

Given our need to continue to fully support our core NDD platform and capabilities, we have not been able to invest as heavily in these projects as we would have ideally liked, and the current reality remains that we will need to identify and secure incremental funds if we wish to take these programmes forward into the more expensive candidate selection and IND-enabling stages of development. As detailed in the Chairman's Statement, we are looking at a range of alternative funding routes for these assets at the moment.

Monetising our NDD platform

In order to maintain our competitive position, we continuously need to improve and evolve our core skills and capabilities. Accordingly, during the year we continued to invest in the augmentation of the NDD platform.

We are particularly excited by the work we have done using our NDD approach to interrogate human genomic data. We are very encouraged by the work we have done in-house in patient segment-specific NDD work, which we exemplified using breast cancer data from patients. We have presented this externally now on a number of occasions and have received positive reactions.

On 8 December 2018, we announced we had successfully completed the initial phase of our work on Parkinson's Disease in collaboration with C4X Discovery ("C4XD"). Using NDD we have been able to interrogate human genetic data from ca.200 PD-associated genes derived from C4XD's Taxonomy3 technology. This enabled us to confirm the centrality of a number of known mechanisms in Parkinson's Disease and, very importantly, identify potentially completely novel mechanisms. We are currently in discussions with C4XD to see how we can extend this initial work to exploit the synergy between technological approaches.

We believe that this approach is applicable to population genetic data for a multitude of other diseases and are marketing this innovation as GAINs ("Genome-Associated Interaction Networks"). We are looking to further explore the opportunity created by this development, as it directly addresses some of the key challenges the industry faces in linking genetic data to underlying disease mechanisms and phenotype.

Our other ongoing collaborations have also contributed to the development of our skills and capabilities. On 15 January 2018, we announced two collaborations with highly innovative AI companies. These collaborations give us unique access to a number of state-of-the art AI and machine learning techniques. We previously highlighted the contribution of our Biorelate collaboration where we have successfully used its AI-based natural language processing ("NLP") techniques to extract useful, structured biological information to help inform our NDD-derived fibrosis projects. We have also advanced our own machine learning capabilities and are progressing with the integration of Intellegen's neural network approach to create new, potentially proprietary, predicted biological data that will be useful in our existing and new NDD projects.

Finally, based on the progress in these areas, we now consider there to be an opportunity to monetise some of the innovations which we have created. As such, we are currently finalising marketing materials for distribution to existing and new contacts that may provide a means for us to generate revenues.

Cost control

We continue to manage our cash resources very carefully and, as a consequence, earlier in the year we took the decision to slow our investment in the self-funded NDD-derived assets. This decision was based on the capital we have available and our overarching aim to ensure we can maintain our core NDD platform and capabilities to enable us to offer the full gamut of our capabilities to commercial partners.

We do consider that the data we have generated on the Tryptophan Catabolism and Immune Checkpoint Modulation projects are commercially attractive and the programmes are fundable. In order to explore non-dilutive sources of funding, we are in detailed discussions with parties who are potentially willing to fund the next stages of development of these (and other) programmes in exchange for a proportion of downstream economics. We continue to consider this as a way to progress our other discovery projects in a capital-efficient manner.

As highlighted in my statement last year, we wish to invest further in our assets and continue the current business model into the medium term; therefore we need to identify additional funds. To raise our international profile, during the year, we completed a first round of non-deal investor roadshows in the USA, mainland Europe, China and Hong Kong. Our plan was to introduce new investors to the Company who, in the future, may wish to participate in the growth of the business. Generally, our technologies were well received and, as the level of industrial validation of the Company increases, we will have a sound basis to re-engage with this investor base if we so choose.

As outlined in our interim results, we are now proactively considering inorganic growth options. Accordingly, we continue to actively assess prospects that have the potential to add significant value by enabling further augmentation of our core technology platform or providing downstream skills, capabilities or cash to further develop NDD-derived assets.

Outlook

During the year, we completed our first commercial transaction with Novo Nordisk, a world-leading healthcare company. This was an important validating milestone for e-therapeutics and its technologies. We are constantly looking to create industry-relevant innovation by augmenting our core NDD platform and using our network biology expertise to create new opportunities for the business.

We continue to execute a systematic, comprehensive and wide-ranging business development exercise which forms the foundation of a number of ongoing discussions with potential partners.

During the year, we anticipated that the capital markets would become more challenging for a business of our scale, especially due to macroeconomic and political forces. As such, we took the prudent decision to concentrate our available resources on our core platform, assets and activities whilst seeking non-dilutive sources of capital. In doing so, we have extended our cash runway but remain open to means to progress our promising NDD-derived programmes, especially via partnership and non-dilutive sources.

Our NDD platform is addressing clear drug discovery challenges and has the potential to transform and accelerate drug development. We are confident of its broad versatility and utility and remain focused on means to translate this into value for our shareholders. We look forward to maintaining an open dialogue with our shareholders during the coming year.

Ray Barlow

Chief Executive Officer

4 March 2019

Financial review

As outlined in the Chief Executive Officer's Statement, we were pleased to report our first commercial deal in December 2018 with Novo Nordisk in the area of type-2 diabetes. Whilst the financial terms were not disclosed, we confirmed that the research collaboration agreement would last for a period of up to 12 months. Work commenced in January 2019 and accordingly, to reflect the level of work done, we have reported associated revenues of £0.04m in the year to 31 January 2019 (2018: £nil).

The overall operating loss for the year was £5.1m (2018: loss of £6.8m). The loss reported in the second half of the year of £2.3m (H2 2018: £3.1m) reflects a three-year trend of sequentially declining six-monthly losses and was the lowest half-yearly loss since 2012. This reduced loss reflects lower external spend on our self-funded NDD-derived assets in the period, but also continued strong focus on cost control across the whole Group.

R&D spend for the year of £3.7m (2018: £5.0m) was £1.3m lower than the prior year. The last remaining clinical trial, ETS2101, ended in August 2018 and this, combined with reduced spend on the self-funded assets, accounted for the majority of the reduction in R&D spend. 

Administrative costs in the year of £1.5m (2018: £1.7m) continue to decline, primarily due to a reduction in people costs.

Year end cash and cash equivalents were £5.9m (2018: £9.6m). The cash reduction for the year as a whole was £3.7m (2018: £4.4m). After adjusting for the R&D tax credit of £1.4m (2018: £3.0m) the underlying cash burn of £5.1m was in line with the operating loss. This compares with an underlying cash burn in the prior year of £7.4m.

In the second half of the year, the cash reduction of £1.7m was the lowest half yearly burn rate since 2011. It is important to be aware that whilst we are continually looking at all costs, we have continued and will continue to invest in both core NDD platform functionality and the self-funded assets. The decision to increase investment in the platform was made over two years ago and this is evidenced by the advances we have made over the last 12 months in patient-specific segmentation, our proprietary database expansion and the recent C4X Discovery collaboration.

Notwithstanding the fact that we will continue to invest within both the platform and the self-funded assets, we anticipate a further, more modest, reduction in operating loss in the current year.

We are anticipating claiming an R&D tax credit of £1.1m for the current financial year. Combined with our year end cash position and based on the second half cash consumption exit rate, we maintain our expectation that we will have sufficient cash to continue core operations into late 2020. However, as always, this will need to be evaluated if we wish to invest in further experimental validation of new NDD-derived programmes or later stage preclinical work.

Steve Medlicott

Finance Director

4 March 2019

Consolidated Income Statement

For the year ended 31 January 2019

		2019	2018
	Notes	£000	£000
Revenue		44	-
Cost of sales		-	-
Gross profit		44	-
Research and Development expenditure		(3,673)	(5,019)
Administrative expenses		(1,485)	(1,749)
Operating loss		(5,114)	(6,768)
Investment income		29	49
Loss before tax		(5,085)	(6,719)
Taxation	5	1,086	1,360
Loss for the year attributable to equity holders of the Company		(3,999)	(5,359)
Loss per share - basic and diluted	6	(1.49)p	(2.00)p

Consolidated Statement of Comprehensive Income

For the year ended 31 January 2019

	2019	2018
	£000	£000
Loss for the financial year	(3,999)	(5,359)
Other comprehensive income	-	-
Total comprehensive loss for the financial year	(3,999)	(5,359)

Consolidated Statement of Changes in Equity

For the year ended 31 January 2019

	Share	Share	Retained
	capital	premium	earnings	Total
	£000	£000	£000	£000
As at 1 February 2017	268	65,143	(49,431)	15,980
Total comprehensive income for year
Loss for the financial year	-	-	(5,359)	(5,359)
Total comprehensive loss for year	-	-	(5,359)	(5,359)
Transactions with owners, recorded directly in equity
Issue of ordinary shares	1	11	-	12
Equity-settled share-based payment transactions	-	-	105	105
Total contributions by and distribution to owners	1	11	105	117
As at 31 January 2018	269	65,154	(54,685)	10,738
Total comprehensive income for year
Loss for the financial year	-	-	(3,999)	(3,999)
Total comprehensive loss for year	-	-	(3,999)	(3,999)
Transactions with owners, recorded directly in equity
Issue of ordinary shares	-	11	-	11
Equity-settled share-based payment transactions	-	-	52	52
Total contributions by and distribution to owners	-	11	52	63
As at 31 January 2019	269	65,165	(58,632)	6,802

Company Statement of Changes in Equity

For the year ended 31 January 2019

	Share	Share	Retained
	capital	premium	earnings	Total
	£000	£000	£000	£000
As at 1 February 2017	268	65,143	(46,873)	18,538
Total comprehensive income for year
Loss for the financial year	-	-	(5,347)	(5,347)
Total comprehensive loss for year	-	-	(5,347)	(5,347)
Transactions with owners, recorded directly in equity
Issue of ordinary shares	1	11	-	12
Equity-settled share-based payment transactions	-	-	105	105
Total contributions by and distribution to owners	1	11	105	117
As at 31 January 2018	269	65,154	(52,115)	13,308
Total comprehensive income for year
Loss for the financial year	-	-	(3,997)	(3,997)
Total comprehensive loss for year	-	-	(3,997)	(3,997)
Transactions with owners, recorded directly in equity
Issue of ordinary shares	-	11	-	11
Equity-settled share-based payment transactions	-	-	52	52
Total contributions by and distribution to owners	-	11	52	63
As at 31 January 2019	269	65,165	(56,060)	9,374

Balance Sheets

As at 31 January 2019

		Group			Company
		2019	2018		2019	2018
	Notes	£000	£000		£000	£000
Non-current assets
Intangible assets	7	119	135		2,943	2,959
Property, plant and equipment	8	42	71		42	71
		161	206		2,985	3,030
Current assets
Tax receivable		1,098	1,364		1,098	1,364
Trade and other receivables		18	91		18	89
Prepayments		328	504		328	504
Fixed-term deposits		-	2,500		-	2,500
Cash and cash equivalents		5,904	7,097		5,904	7,097
		7,348	11,556		7,348	11,554
Total assets		7,509	11,762		10,333	14,584
Current liabilities
Trade and other payables		501	1,024		753	1,276
Contract liabilities		206	-		206	-
Total liabilities		707	1,024		959	1,276
Net assets		6,802	10,738		9,374	13,308
Equity
Share capital	9	269	269		269	269
Share premium		65,165	65,154		65,165	65,154
Retained earnings		(58,632)	(54,685)		(56,060)	(52,115)
Total equity attributable to equity holders of the Company		6,802	10,738		9,374	13,308

Statements of Cash Flow

For the year ended 31 January 2019

		Group
		2019	2018
	Notes	£000	£000
Loss for the year		(3,999)	(5,359)
Adjustments for:
Depreciation, amortisation and impairment	7,8	73	72
Investment income		(29)	(49)
Equity-settled share-based payment expenses		52	105
Taxation		(1,086)	(1,360)
Operating cash flows before movements in working capital		(4,989)	(6,591)
Decrease in trade and other receivables		252	145
Decrease in trade and other payables		(317)	(927)
Tax received		1,352	2,968
Net cash used in operating activities		(3,702)	(4,405)
Interest received		26	86
Acquisition of subsidiary		-	-
Acquisition of property, plant and equipment	8	(8)	(66)
Acquisition of other intangible assets	7	(20)	(5)
Decrease in fixed-term deposits		2,500	7,000
Net cash from investing activities		2,498	7,015
Net proceeds from issue of share capital		11	12
Net cash from financing activities		11	12
Net (decrease)/increase in cash and cash equivalents		(1,193)	2,622
Cash and cash equivalents at 1 February		7,097	4,475
Cash and cash equivalents at 31 January		5,904	7,097

Notes

1.     Status of Audit

The financial information presented in this statement does not constitute the Company's statutory accounts for the year ended 31 January 2019 or the year ended 31 January 2018 but is derived from those accounts. Statutory accounts for the year ended 31 January 2018 have been delivered to the Registrar of Companies and those for the year ended 31 January 2019 will be delivered following the Company's Annual General Meeting. The Auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their reports, and did not contain statements under s498(2) or (3) of the Companies Act 2006.

2.     Basis of preparation

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards, as adopted by the European Union (EU) ("IFRS"), this announcement does not in itself contain sufficient information to comply with IFRS. This preliminary announcement has been prepared using the accounting policies that are expected to be published in the Group's accounts for the year ended 31 January 2019, which are consistent with the accounting policies published in the Group's accounts for the year ended 31 January 2018 and that are available on the Company's website at www.etherapeutics.co.uk, with the exception of those new standards, interpretations and amendments which became effective during the year and were adopted by the Group, albeit with no impact on the Group's loss for the year or equity.

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. The Company undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

Going concern

The Group recognised revenue from its first commercial deal during the year, yet is currently still largely reliant on its existing cash resources to fund ongoing operations. The primary focus of the management is on establishing additional commercial collaborations during the coming financial year. The Group is in late stage discussions with a number of well-known pharma and biotech potential partners. It is anticipated that such discussions will be income generating and will provide both non-dilutive funding and commercial validation.

As at 31 January 2019 the Group reports cash and liquid resources of £5,904,000 and an underlying cash burn during the year, excluding discretionary spend and development closure costs, of £3,902,000. The Directors have prepared a detailed financial forecast for the next two financial years. This forecast assumes no further sales and the continuation of costs associated with drug discovery. The impact of Brexit has been considered and management believe that there will be minimal to no impact other than the impact on UK GDP.

These financial forecasts assume that the existing structure and functionality of the Group is maintained and that investment in both the in silico platform and discovery assets will continue. However, the Group is continually reviewing discretionary costs across all areas of the business, as evidenced by the fact that the six-monthly reported loss before tax has declined sequentially over the last two years. The Directors anticipate that the coming financial year will see a similar trend of an ongoing reduction in costs, albeit at perhaps a more modest rate.

Present projections suggest that, in the absence of additional revenue and excluding receipt of the anticipated R&D tax credit of £1,098,000, the Group's cash resources will last until July 2020. At the date of preparation of this preliminary announcement, the Group anticipates that the R&D tax credit will be received and therefore has been recognised as receivable at the year end. Assuming the receipt of this R&D tax credit as planned, cash is forecast to last until October 2020.

It is possible to make material cost reductions in addition to those included in the financial forecasts. It is the intention of the Directors to call on these measures if required to extend cash runway. It should also be noted that the forecasts have been prepared assuming no future cash receipt from either dilutive funding or from existing or future collaboration partners. The Directors believe that current collaboration discussions will result in a material cash inflow during the coming financial year. Such cash receipts would extend the cash runway of the Group.

As a result of the above points, this preliminary announcement and the financial statements for the year ended 31 January 2019 have been prepared on the going concern basis since the Directors have a reasonable expectation that the parent Company and the Group have adequate resources to continue in operational existence for the foreseeable future.

3.     Accounting judgements and sources of estimation uncertainty

The preparation of financial statements requires the Directors to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities and income and expenses. The estimates and underlying assumptions are reviewed on an ongoing basis.

The following are the key judgements that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in this preliminary announcement and the financial statements for the year ended 31 January 2019:

·      The Directors consider the continued adoption of the going concern basis appropriate, as discussed further in Note 2 of this preliminary announcement.

·      The fair value of share options is calculated using the Monte Carlo model with an input volatility based on historical share price data over a period commensurate with the expected term of the options awarded. Historical volatility may not be indicative of future volatility, yet management judge this to be the most appropriate method of calculation. Given the share option expense of £52,000 (2018: £105,000), the volatility methodology used is not expected to have a material impact on these financial statements.

·      Revenue from collaborative partnerships is spread over the expected life of the project. Management estimate project progress at each reporting date, with consideration to project plans outlined in customer contracts, and re-measure revenue accordingly. Given the revenue recognised during the year of £44,000 (2018: £nil), any overruns or underruns within the constraints of the individual contracts with customers would not be expected to have a material impact upon this preliminary announcement or the financial statements for the year ended 31 January 2019.

The following are the key assumptions concerning estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

·      Intangible assets and goodwill have been reviewed for impairment and, as a result, an impairment charge of £19,000 (2018: £10,000) was recognised. Further details of this testing can be found in Note 7.

·      The current tax receivable of £1,098,000 (2018: £1,364,000) as disclosed in Note 5, represents an R&D tax credit based on an advance claim with HMRC. The final receivable is subject to judgement and the correct application of complex R&D tax rules. The minimum receipt approved by HMRC could be £nil. Historically, claims have been successful, and the Group expects the current year claim to be successful too.

4.     Staff numbers

The average number of persons employed by the Group and the Company (including Executive Directors and excluding Non-Executive Directors) during the year, analysed by category, was as follows:

	Number of employees Group and Company
	2019	2018
R&D Staff	14	15
Finance and administration staff	2	3
Executive Directors	2	2
	18	20

5.     Taxation

Recognised in the Income Statement:		2019	2018
		£000	£000
Current tax income
R&D tax credit receivable for the current year		(1,095)	(1,364)
Adjustments for prior year in respect of R&D tax credit		9	4
Current tax credit		(1,086)	(1,360)
Deferred tax		-	-
Total on loss on ordinary activities		(1,086)	(1,360)

Reconciliation of effective tax rate:

		2019	2018
		£000	£000
Loss before tax		(5,085)	(6,719)
Tax at UK corporation tax rate of 19% (2018: 19.17%)		(966)	(1,288)
Expenses not deductible for tax purposes		12	9
Enhanced relief for R&D		(471)	(580)
Unrelieved tax losses		320	478
Other		10	17
Adjustments in respect of prior period		9	4
Total tax credit for the year		(1,086)	(1,360)

The Group has accumulated losses available to carry forward against future trading profits of £25,216,000 (2018: £23,938,000). No deferred tax has been recognised in respect of tax losses since it is uncertain at the Balance Sheet date as to whether future profits will be available against which the unused tax losses can be utilised. At the Budget 2016, the UK government announced a reduction to the Corporation Tax main rate for the year starting 1 April 2020, setting the rate at 17%. The estimated value of the deferred tax asset not recognised, measured at this reduced main rate of 17%, is £4,305,000 (2018: £4,075,000).

The decrease in the current year tax credit is due to a decreased R&D credit, as a result of lower qualifying expenditure during the year, reflecting management's decision to reduce spend. The current year R&D credit has not yet been approved by HMRC and, therefore, there is a risk that this claim may not be successful.

Expenses not deductible include amortisation and impairment of goodwill and intangible assets.

6.     Loss per share

The analysis of loss per share is as follows:

	2019	2018
Earnings for the purposes of basic earnings per share and diluted earnings per share, being loss attributable to owners of the Company (£000)	(3,999)	(5,359)
Weighted average number of ordinary shares for the purposes of basic earnings per share and diluted earnings per share (number)	268,581,069	268,457,115
Loss per share - basic and diluted (p)	(1.49)	(2.00)

Diluted EPS is calculated in the same way as basic EPS but also with reference to reflect the dilutive effect of share options in existence at the year end over 18,996,500 (2018: 17,052,500) ordinary shares. The diluted loss per share is identical to the basic loss per share, as potential dilutive shares are not treated as dilutive since they would reduce the loss per share.

7.        Goodwill and intangible assets

	Group				Company
		Patents and				Patents and
	Goodwill	trademarks	Total		Goodwill	trademarks	Total
	£000	£000	£000		£000	£000	£000
Cost
As at 1 February 2017	2,101	1,295	3,396		2,824	1,295	4,119
Other acquisitions - internally developed	-	5	5		-	5	5
As at 31 January 2018	2,101	1,300	3,401		2,824	1,300	4,124
Other acquisitions - internally developed	-	20	20		-	20	20
As at 31 January 2019	2,101	1,320	3,421		2,824	1,320	4,144
Amortisation and impairment
As at 1 February 2017	2,101	1,139	3,240		-	1,139	1,139
Impairment losses	-	10	10		-	10	10
Amortisation charge for the year	-	16	16		-	16	16
As at 31 January 2018	2,101	1,165	3,266		-	1,165	1,165
Impairment losses	-	19	19		-	19	19
Amortisation charge for the year	-	17	17		-	17	17
As at 31 January 2019	2,101	1,201	3,302		-	1,201	1,201
Net book value
As at 1 February 2017	-	156	156		2,824	156	2,980
As at 31 January 2018	-	135	135		2,824	135	2,959
As at 31 January 2019	-	119	119		2,824	119	2,943

Amortisation

Amortisation has been charged on patents for which the registration process is complete, over the term granted.

Impairment testing

The Group carries out a review at each Balance Sheet date to establish the economic value of each asset in the patent portfolio. If the economic value of a patent is believed to be lower than the carrying value, the carrying value is reduced accordingly. The economic value is based on estimated future income potential taking into account technical and commercial risks and external information on the likely market demand and penetration for the drugs for which the Group has patents.

The goodwill in the Company Balance Sheet arose following the hive up of the trade and assets of InRotis Technologies Limited on 15 November 2007. The goodwill is allocated to the NDD activity of the Group. In assessing goodwill impairment, recoverable amount is based on fair value less costs to sell. The carrying value of goodwill is compared to the market capitalisation of the Group as part of the impairment assessment.

In considering the carrying value of goodwill, management have not undertaken a discounted cash flow analysis on the basis that there is limited historical basis for revenue assumptions, as such the carrying value of goodwill is compared to the market capitalisation of the Group as part of the impairment assessment. At the Balance Sheet date there was £11,282,000 headroom, and since the Balance Sheet date up to the date of approval of the Annual Report and financial statements there has not been a material movement in the share price.

8.        Property, plant and equipment - Group and Company

	Plant and	Fixtures
	equipment	and fittings	Total
Group and Company	£000	£000	£000
Cost
As at 1 February 2017	128	107	235
Additions	66	-	66
As at 31 January 2018	194	107	301
Additions	8	-	8
Disposals	(4)	-	(4)
As at 31 January 2019	198	107	305
Depreciation
As at 1 February 2017	107	77	184
Depreciation charge for the year	30	16	46
As at 31 January 2018	137	93	230
Depreciation charge for the year	28	9	37
Eliminated on disposals	(4)	-	(4)
As at 31 January 2019	161	102	263
Net book value
As at 1 February 2017	21	30	51
As at 31 January 2018	57	14	71
As at 31 January 2019	37	5	42

9.  Capital and reserves

				No. of ordinary shares
				2019	2018
Share capital				'000	'000
In issue at 1 February				268,531	268,426
Issued for cash				159	105
In issue at 31 January - fully paid				268,690	268,531

				2019	2018
				£000	£000
Allotted, called up and fully paid
268,689,878 (2018: 268,530,866) ordinary shares of £0.001 each				269	269
				269	269

The Company has one class of ordinary shares, which carry no right to fixed income.

 

END

 

 

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