Final Results
Phytopharm PLC
02 November 2005
2nd November 2005
Preliminary results for the year ended 31 August 2005
Phytopharm plc (PYM: London Stock Exchange) ('Phytopharm' or the 'Company', or
the 'Group') today announces its preliminary results for the year ended 31
August 2005.
Key Points - Operational
• Completion of a Licence and Joint Development Agreement with Unilever
for Hoodia gordonii extract
• Successful interim data review for Phase II proof of principle study
in Alzheimer's disease (Cogane(TM))
• Receipt of £4 million milestone in February 2005 (£3.6 million net received
in March 2005) from Yamanouchi Pharmaceutical Co., Ltd following evaluation
of interim Phase II Alzheimer's disease data (Cogane(TM)), confirming that
the data had met the criteria in the licensing agreement
• Termination of Cogane(TM) licensing agreement by Yamanouchi in March 2005,
following Yamanouchi's post-merger portfolio review
• Completion of subject dosing and follow-up in Phase II proof of principle
study in Alzheimer's disease (Cogane(TM))
Key Points - Financial
• Turnover increased to £7.4 million (2004 £1.1 million)
• Loss reduced to £2.7 million (2004 £6.2 million)
• Cash balance increased to £11.6 million (2004 £5.4 million)
• Placing of new shares announced in May raised £9.0 million after expenses
Dr Richard Dixey, Chief Executive of Phytopharm, said:
'The highlight of the year was the signing of a worldwide licence agreement with
Unilever, a global leader in weight management products, for our Hoodia gordonii
extract. We will be seeking further licensing deals over next year including our
veterinary portfolio and our Alzheimer's product Cogane(TM), following analysis
of the data emerging from the proof of principle study at the end of this
quarter. '
Enquiries:
Phytopharm plc Today: 07867 782000
Dr Richard Dixey, Chief Executive Thereafter: 01480 437697
Mobile: 07867 782000
Dr Wang Chong, Chief Financial Officer Tel: 01480 437697
Mobile: 07876 684223
Financial Dynamics
David Yates / Ben Atwell Tel: 0207 831 3113
A presentation for analysts will be held at Financial Dynamics, Holborn Gate, 26
Southampton Buildings, London WC2A 1PB at 9:30am today.
www.phytopharm.com
Introduction
Phytopharm is a dedicated pharmaceutical company specialising in the discovery
and development of novel pharmaceutical and functional food products for
neurodegeneration, obesity and metabolic disease, dermatology and inflammation.
The Company's strategy is to develop first-in-class products through 'proof of
principle' clinical testing, and then secure pharmaceutical partners for late
stage development, sales and marketing.
The business model of Phytopharm is to identify plant extracts with some
evidence of clinical efficacy and to isolate, derivatise and develop novel
pharmaceutical agents from these plant extracts. During the development of such
ethical pharmaceutical products additional income may be derived from the sales
of the plant extracts themselves in the veterinary and functional food markets.
This business model generates a lean cash burn, and the Company is configured in
a semi-virtual manner with low staff overheads to capitalise on this advantage.
As the greatest part of the cash burn occurs during the later phases of product
development, by which time substantial income from plant extract sales will not
yet have been achieved, Phytopharm will seek to finance the further development
of its lead neuroprotective and neurotrophic products, Cogane(TM) and
Myogane(TM), through licensing or partnering arrangements with third parties.
Operational review
The progress of our products over the year, each at different stages of
development, is described below.
Neurodegeneration
The neurodegeneration programmes include Alzheimer's disease, Parkinson's
disease and amyotrophic lateral sclerosis, a motor neurone disease. A library of
active molecules has been developed by Phytopharm, and nine patent families
protecting this library have been filed world-wide.
Our lead product, Cogane(TM) (coded PYM50028) is being developed for Alzheimer's
and Parkinson's disease. In pre-clinical studies, PYM50028 has been shown to be
neuroprotective and neurotrophic, reversing both the decrease of neuronal growth
factors and neuronal degeneration that are observed in the ageing brain.
Importantly, this product has also been shown to restore levels of proteins that
are altered in the ageing brain, returning them to levels observed in the young,
causing beneficial outgrowth and branching of neurites.
In January 2005, we announced the successful outcome of a scheduled interim data
review for the ongoing Phase II 'proof of principle' clinical study with
PYM50028 in Alzheimer's disease. This study is being conducted under a clinical
trial authorisation (CTA) from the UK Medicines and Healthcare Products
Regulatory Agency (MHRA). The Phase II study utilises a randomised, double-
blind, placebo-controlled design to evaluate the safety, efficacy and
pharmacokinetic profile of PYM50028 after once daily oral administration over
three months. The effects of PYM50028 on memory, concentration and executive
function are being evaluated during the study. In accordance with the protocol,
an interim review was conducted after the first 60 subjects completed the study.
The objectives of this review were to evaluate the emergent safety profile of
the product and to re-estimate the total number of subjects required to measure
the efficacy of PYM50028 on cognitive performance.
The sample size re-assessment was conducted by an independent statistician, who
reported that due to slightly increased variability between subjects the sample
size for the study should be increased from 200 to 238 subjects. Phytopharm
subsequently received regulatory and ethics approval for this amendment.
The safety review was conducted by an independent consultant physician, who was
provided with blinded data for each of the two treatment groups. He concluded
that 'the data obtained to date indicate that the study medication is not
associated with any safety concerns.' Therefore, the study continued with no
changes to the safety monitoring. These safety data from 60 patients were
forwarded to Yamanouchi Pharmaceutical Co. Ltd ('Yamanouchi') in February 2005
and this triggered the milestone payment received in March 2005 of £4 million
(£3.6 million net). This payment confirmed that the data met the criteria set
out in the licensing agreement.
In March 2005, Phytopharm received confirmation from Yamanouchi that, as a
result of a portfolio review arising out of the merger of Yamanouchi with
Fujisawa Pharmaceutical Co, Yamanouchi was terminating the licensing agreement,
covering Japan and some other Asian countries, in connection with PYM50028.
Phytopharm had previously announced in February 2005 that it had been informed
by Yamanouchi that it was likely to terminate this agreement.
In September 2005, we announced that a total of 256 subjects had completed their
participation into this study, including a 6 week monitoring period to assess
any changes following cessation of dosing. During the study the safety,
efficacy and pharmacokinetic profile of PYM50028 was compared to placebo
treatment. These data are now being analysed and it is anticipated that the
results of the study will be announced early in December 2005. Following
analysis of the results we will be seeking further global licensing partners for
this product and preliminary discussions have commenced with potential
licensees.
Our second lead product Myogane(TM) (coded PYM50018) is being developed for
amyotrophic lateral sclerosis (ALS; also known as Lou Gehrig's disease). ALS is
the most common motor neurone disease and results from progressive degeneration
of both upper and lower motor neurones. In pre-clinical models, PYM50018
protects against neuronal damage, increases neurite outgrowth, reverses
oxidative damage and reverses neuronal apoptosis in vitro. When administered
orally to a transgenic pre-clinical model of ALS, PYM50018 delays the loss of
muscle strength and extends survival time.
Last year, we successfully completed a Phase Ia clinical study to evaluate the
safety, tolerability and pharmacokinetic profile of PYM50018. This residential
clinical study was conducted under an investigational new drug (IND) application
filed with the United States Food and Drug Administration (FDA) and confirmed
that the product was well absorbed with a good safety profile. We also announced
last year that the FDA had granted Orphan Drug and Fast Track designation to
PYM50018 for the treatment of ALS. Building on this success we are now
developing the manufacturing process and new formulations to support further
clinical studies with PYM50018 for ALS.
Obesity and metabolic disease
Our obesity programme includes an extract of Hoodia gordonii for the dietary
control of obesity. This extract contains a novel appetite suppressant that
reduces caloric intake in overweight subjects, as demonstrated in our
double-blind, placebo-controlled clinical study announced in December 2001.
Extracts of Hoodia gordonii and the active molecules therein are the subject of
a global patenting programme, with major patents granted in the US, UK and Japan
and pending in Europe and all other major territories.
In December 2004, we announced that we had granted an exclusive global licence
for our Hoodia gordonii extract to Unilever plc. As part of the agreement,
Unilever committed to initial payments totalling approximately £6.5 million
($12.5 million) out of a potential total of £21 million ($40 million) in
payments to us. In addition, we will receive a royalty on sales of all
products, including globally recognised brands, containing the extract. We are
collaborating with Unilever on a five stage research and development programme
of safety and efficacy studies with a view to bringing new products to market.
Unilever will manage the agronomy programme and will support the international
patent programme for the products.
During the course of this year the programme has made good progress and clinical
studies are planned for H1 2006.
Phytopharm and Unilever have also become aware of many companies that are
selling products over the Internet claiming to contain Hoodia and causing weight
loss. Phytopharm and Unilever are in discussion with the relevant authorities
concerning this development.
Phytopharm has also developed screens that are predictive of appetite
suppressant activity to develop and evaluate prescription product candidates
from our obesity and metabolic disease programme.
Dermatology
The dermatology programmes include products for canine skin disorders and human
eczema. These products have a dual mode of action that targets both the allergic
and inflammatory components of skin disorders.
Following the success last year of the three-plant product, coded PYM00217, in
our European multi-centre study in canine atopic dermatitis, we launched
PYM00217 as a complementary pet food with the brand name Phytopica(TM) . Following
the successful UK launch to veterinary dermatologists in 2004, the average
weekly sales have grown 101% during the year. Further sales growth will require
a dedicated sales force to target all veterinary practitioners throughout the UK
and also expand into international markets. We have enjoyed considerable
interest from potential licensing partners and are in on-going discussions with
multinational companies.
Inflammation
The inflammation programmes include products for canine joint disorders and
human inflammatory disorders, including asthma. These products are characterised
by their inhibition of a wide range of enzymes central to chronic inflammation.
Last year, we announced the launch of Zanthofen(TM) (coded PYM50014) for the
maintenance of canine joint mobility. Pre-clinical studies have demonstrated
that the components of Zanthofen(TM) maintain normal white cell function and have
anti-oxidant properties that help maintain joint mobility. Zanthofen(TM) is
available to veterinary practitioners across the UK and is marketed by
Phytopharm's marketing partner, Genitrix Ltd, a UK based veterinary product
company. Further sales growth will require expansion into international markets
and discussions with interested parties are ongoing.
Steady progress has been made in identifying novel synthetic molecules that can
be developed as a prescription medicine for the treatment of asthma and other
inflammatory disorders. Pre-clinical studies have demonstrated anti-inflammatory
and anti-spasmodic activity in several models of asthma and inflammation. We
anticipate that further proof of concept studies will be investigated during
2006 using these compounds in pre-clinical models of asthma.
Other events
This year has also been marked by the resignation of our broker Canaccord
Capital. Whilst we have received expressions of interest from a number of
brokerage houses to take on this important role, we have decided to wait until
the results of the Cogane(TM) study become available in December before making a
final decision.
Financial Review
Turnover
Revenues for the year ended 31 August 2005 were £7.38 million (2004: £1.07
million). The revenues for 2005 comprised principally £3.2 million in payments
received from Unilever, for the exclusive licence to develop, manufacture and
market Hoodia gordonii extract for the dietary control of obesity on a global
basis, and a £4 million (£3.6 million net of Japanese withholding tax) milestone
payment from Yamanouchi, following acknowledgement by Yamanouchi that the safety
data in relation to 60 patients treated with PYM50028 had fulfilled the criteria
in the licensing agreement. The significant increase in revenues for the period
reflects the intermittent timing of milestone payments.
Operating expenses
Research and development expenses
Phytopharm subcontracts all laboratory work to third party specialists. The
research and development expenses include the reimbursement of the costs
incurred by the third party subcontractors and the overhead of Phytopharm
arising from research and development activities. Research and development
expenses were £8.46 million (2004: £6.35 million). Expenditure was dominated by
the ongoing PYM50028 Phase IIa clinical trial in Alzheimer's disease and the
commencement of development and agronomy work on Hoodia gordonii extract for the
dietary control of obesity; the latter programme is now fully funded by
Unilever. Expenses were also incurred on work to secure a robust supply chain
for PYM50018 for motor neurone disease.
Administrative expenses
Administrative expenses comprised mainly the costs incurred in respect of the
employees in the finance, business development and secretarial departments.
Administrative expenses were £1.81 million (2004: £1.71 million). The increased
costs reflect the additional one-off costs of an aborted £23.9 million
fundraising, US financial compliance costs and the share option compensation
charge.
Net interest receivable
Net interest receivable comprises mainly the interest income generated from cash
invested in short-term deposits. Net interest income was £0.34 million (2004:
£0.24 million). The change over the year was due to changing short-term deposits
as the Company utilised the cash of £6.3 million raised from the equity
financing in February 2004, and £9.0 million, net of issue costs, raised from an
additional equity financing in April 2005, as well as changing interest rates
during the year.
Taxation
There were no corporation tax charges for the period under review due to the
incidence of tax losses. The tax credit on the loss on ordinary activities was
£0.28 million (2004: £0.53 million). The tax credit is net of a 10% withholding
tax on the income from Yamanouchi.
Liquidity and capital resources
Since Phytopharm's initial public offering, cash expenditures have exceeded
revenues. Phytopharm has financed its research and development operations
primarily through:
• an initial public offering of ordinary shares in 1996
• ordinary share offerings in November 1998, October 2000, December 2001,
February 2004 and May 2005
• revenue generated from collaborative arrangements.
The net cash used by operating activities for the year ended 31 August 2005 was
£4.02 million (2004: £6.83 million) resulting principally from the decrease in
operating losses incurred by the Company during the year.
Phytopharm's net cash outflow for capital expenditure was £54,000 (2004:
£103,000). The capital expenditure is primarily for office and administrative
facilities. The net cash inflow of £614,000 from the repayment of advances to
suppliers arises from the repayment by Unilever of advances made to certain
suppliers in 2004. There was no cash outflow for acquisitions during these
periods.
Phytopharm's net cash inflow from financing activities was £9.11 million (2004:
£6.37 million). The net cash inflow in 2005 primarily resulted from an equity
financing in May 2005 and the proceeds from the exercise of the share options.
Phytopharm had cash and short-term deposits of £11.64 million at 31 August 2005
(2004: £5.43 million). The increase in cash and short-term deposits mainly
reflected the payments received from licensing partners and also the fund
raising in May 2005. Phytopharm invested funds that were surplus to its
requirements in highly liquid short-term deposits and has not borrowed funds
during the financial year. Phytopharm had working capital of £11.68 million at
31 August 2005 (2004: £5.11 million). Overall the results for the year were
within the budget.
Consolidated Profit and Loss Account for the year ended 31 August 2005
Notes 2005 2004
Unaudited Audited
£'000 £'000
Turnover 2 7,378 1,072
Cost of sales (400) (10)
__________ __________
Gross profit 6,978 1,062
Net operating expenses 3 (10,271) (8,058)
__________ __________
Operating loss (3,293) (6,996)
Interest receivable and similar income 338 239
__________ __________
Loss on ordinary activities before taxation (2,955) (6,757)
__________ __________
Tax on loss on ordinary activities 4 274 531
__________ __________
Loss for the year 6 (2,681) (6,226)
========= =========
Basic and fully diluted loss per ordinary share (pence) 5 (5.9) (15.3)
All revenue and expenses shown above were generated from continuing operations.
The Group has no recognised gains or losses for the financial year other than
those disclosed above.
Consolidated Balance Sheet at 31 August 2005
Notes 2005 2004
Unaudited Audited
£'000 £'000
Fixed assets
Tangible assets 146 178
Current assets
Stocks 947 350
Debtors falling due after one year - 614
Debtors falling due within one year 1,340 978
Cash held on deposit as short term investments 11,600 5,237
Cash at bank and in hand 40 194
__________ __________
13,927 7,373
Creditors: amounts falling due within one year (2,244) (2,259)
__________ __________
Net current assets 11,683 5,114
__________ __________
Total assets less current liabilities 11,829 5,292
__________ __________
Net assets 11,829 5,292
========= =========
Capital and reserves
Called up share capital 512 427
Share premium account 6 47,157 38,135
Merger reserve 6 (204) (204)
Profit and loss account 6 (35,636) (33,066)
__________ __________
Equity shareholders' funds 11,829 5,292
========= =========
Consolidated Cash Flow Statement for the year ended 31 August 2005
Notes 2005 2004
Unaudited Audited
£'000 £'000
Net cash outflow from continuing operating activities 7 (4,024) (6,826)
_________ _________
Returns on investment and servicing of finance
Interest received 338 239
_________ _________
Taxation
UK corporation tax received 630 856
Foreign taxation paid (400) (100)
_________ _________
Net cash inflow from taxation 230 756
_________ _________
Capital expenditure and financial investment
Purchase of tangible fixed assets (64) (117)
Sale of tangible fixed assets 9 14
Repayment of advances to/(advances to) suppliers 614 (614)
_________ _________
Net cash inflow/(outflow) for capital expenditure and 559 (717)
financial investment
_________ _________
Cash outflow before use of liquid resources and financing (2,897) (6,548)
_________ _________
Management of liquid resources
Increase in cash held on short term deposit (6,362) (106)
_________ _________
Financing
Proceeds from exercise of share options 158 37
Proceeds from issue of share capital 10,101 6,483
Expenses of issue of share capital (1,153) (154)
Repayment of principal under finance leases (1) -
_________ _________
Net cash inflow from financing 9,105 6,366
_________ _________
Decrease in cash in the year (154) (288)
======== ========
Notes to the preliminary announcement
1. Basis of preparation
The financial information for the year ended 31 August 2005 is unaudited and has
been prepared in accordance with the accounting policies set out in the Annual
Report for the year ended 31 August 2004. The financial information relating to
the years ended 31 August 2005 and 31 August 2004 does not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985. The data
relating to the year ended 31 August 2004 has been extracted from the full
report for that year which has been filed with the Registrar of Companies. The
report of the auditors on these accounts was unqualified. Statutory accounts for
the year ended 31 August 2005 will be delivered to the Registrar of Companies
for England and Wales in due course. The report of the auditors on the 2005
accounts has yet to be signed.
2. Turnover
2005 2004
Unaudited Audited
£'000 £'000
Licensing and development 7,249 1,052
Product sales 129 20
_________ _________
7,378 1,072
======== ========
3. Other operating expenses
2005 2004
Unaudited Audited
£'000 £'000
Research and development:
Funded 1,606 -
Unfunded 6,856 6,347
_________ _________
8,462 6,347
Administrative expenses 1,809 1,711
_________ _________
10,271 8,058
======== ========
4. Tax on loss on ordinary activities
2005 2004
Unaudited Audited
£'000 £'000
United Kingdom
Corporation tax credit 674 631
Foreign Taxation
Withholding tax suffered (400) (100)
_________ _________
274 531
======== ========
The Group has taken advantage of the Research and Development corporation tax
credits introduced in the Finance Act 2000 whereby the Group may surrender
corporation tax losses incurred on research and development expenditure for a
corporation tax refund at the rate of 24 pence in the pound.
5. Loss per share
The basic undiluted loss per share is based on the loss for the year of
£2,680,457 (2004: loss of £6,226,130) and on 45,623,780 (2004: 40,820,636)
ordinary shares, being the weighted average number of shares in issue during the
period.
The Company has no dilutive potential ordinary shares in issue because it is
loss making.
A further measure of earnings per share has been recommended by the Institute of
Investment Management and Research (the 'IIMR') for adoption by financial
analysts. This measure, known as headline earnings, adjusts standard earnings
per share to eliminate capital items only. There are no material adjustments in
respect of this measure
6. Share premium account and reserves
Share Profit
premium Merger and loss
account reserve account
Unaudited Unaudited Unaudited
£'000 £'000 £'000
At 1 September 2004 38,135 (204) (33,066)
Premium on issue of shares 10,175 - -
Expenses of new share issue (1,153) - -
Loss for the year - - (2,681)
Share option compensation charge - - 111
_________ _________ _________
At 31 August 2005 47,157 (204) (35,636)
======== ======== ========
7. Reconciliation of operating loss to net cash outflow from
operating activities
2005 2004
Unaudited Audited
£'000 £'000
Continuing activities
Operating loss (3,293) (6,996)
Depreciation on tangible fixed assets 90 93
Gain on disposal of fixed assets (1) (6)
Increase in stocks (597) (308)
Increase in debtors (318) (108)
(Decrease)/increase in creditors (16) 444
Increase in provision for share option compensation charge 111 55
_________ _________
Net cash outflow from continuing operating activities (4,024) (6,826)
======== ========
8. Related party transactions
The Group was obliged during the year to pay to the Inland Revenue £157,731 in
respect of personal tax arising on the exercise by the Chief Executive Officer
of 288,889 share options on 3 December 2004, near the end of the exercise
period. Dr Dixey is accordingly obliged to reimburse such amount to the Company
including interest charges at 5%, being the Inland Revenue Approved Rate. The
balance outstanding at 31 August 2005 is £161,616, the maximum liability during
the year, including £3,885 accrued interest. No provision for this debt has been
made and there are no security or guarantee arrangements in place. The total
amount, including interest, is included in other debtors due within one year.
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