Interim Results
Phytopharm PLC
08 May 2006
8th May 2006
Interim Results
Phytopharm plc (PYM: London Stock Exchange) ('Phytopharm', the 'Group' or the
'Company') today announces its interim results for the six-month period ended 28
February 2006.
Key Points - Operational
• Successful completion of the first stage and progression into second
stage of the Joint Development Agreement for Hoodia gordonii extract with
Unilever. Second stage includes clinical studies.
• Commitment by Unilever to pay a further £3.5 million out of a
potential total of £21 million in payments to Phytopharm.
• Good overall safety and tolerability demonstrated in 256 patient Phase
IIa clinical study for PYM50028 (Cogane(TM)) in mild to moderate Alzheimer's
disease patients.
• Sub-analysis of the Phase IIa data in a smaller number of patients
with more moderate Alzheimer's disease disclosed today shows an emerging
trend for slower disease progression in patients taking Cogane(TM)compared
with placebo.
• Exclusive global marketing and distribution agreement with Schering-Plough
Animal Health (Schering-Plough) for Phytopica
• Launch of Phytopicaafter end of period: Phytopharm responsible for
manufacture and Schering-Plough Animal Health for marketing and distribution.
Key Points - Financial
• Revenue of £0.88 million (H1 2005 £6.34 million)
• Loss of £3.64 million (H1 2005 profit of £0.43 million)
• Cash balance of £8.07 million (H1 2005 £3.67 million)
Dr Richard Dixey, Chief Executive of Phytopharm, said:
'We are delighted with the successful progression of our products with our
partners Unilever and Schering-Plough. We have been encouraged by our data set
for Cogane(TM) in moderate Alzheimer's patients. This has allowed us to
actively seek global partners and preliminary discussions have commenced with
suitable licensees to undertake longer term studies with this potentially
disease modifying product.'
Enquiries:
Phytopharm plc Today: 07867 782000
Dr Richard Dixey, Chief Executive Thereafter: 01480 437697
Dr Daryl Rees, Chief Operating Officer Tel: 01480 437697
Mobile: 07710 479626
Financial Dynamics
David Yates / Ben Atwell Tel: 0207 831 3113
A recording of the analyst conference call and presentation can be found on the
home page of the Company website by 2pm today and available for one month.
www.phytopharm.com
Operational Review
Phytopharm is a pharmaceutical company with a plant extract division. The
Company's strategy is to develop first-in-class products through 'proof of
principle' clinical testing, and then secure partners for late stage
development, sales and marketing.
Phytopharm has two operating divisions. The pharmaceutical division is dedicated
to the discovery and development of novel chemical entities as prescription
medicines and the plant extract division is focussed on the development of plant
extracts as functional foods and veterinary products.
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, Phytopharm seeks to finance the further development of its products
through licensing or partnering arrangements with third parties.
Pharmaceutical Division
The progress of our pharmaceutical products over the period, each at different
stages of development, is described below.
Alzheimer's disease
Our lead product, Cogane(TM) (coded PYM50028) is being developed as a potential
disease modifying agent for Alzheimer's and Parkinson's disease. This novel
synthetic chemical is orally active and has neuroprotective and neurotrophic
properties. Cogane(TM) restores the learning and memory ability in Alzheimer's
disease models and thereby offers the potential to arrest or reverse the
symptoms of Alzheimer's disease.
In late November 2005 we announced the preliminary results obtained from the
Phase IIa clinical study of Cogane(TM) in mild and moderate Alzheimer's disease
patients. The Oxford Project to Investigate Memory and Ageing (OPTIMA) was the
lead clinical centre and 15 other sites in the UK participated in the study.
Two hundred and fifty six subjects with Alzheimer's disease ranging in severity
from mild to moderate were randomly allocated to receive either Cogane(TM) (n =
127) or a placebo (n = 129) orally once daily for 12 weeks. The majority of
patients enrolled had mild disease. The baseline demography data confirmed that
the treatment groups were well balanced for factors such as age, gender and
severity of disease.
The overall safety data confirm that Cogane(TM) administered orally once daily
for up to 12 weeks is well tolerated and has a good overall clinical safety
profile. There were no substantial differences in the adverse event and
laboratory safety data for each group.
The prospectively defined primary efficacy measure was the change in word recall
score, assessed using the Hopkins verbal learning test. The baseline scores and
changes over time were not significantly different between the groups.
Although the Phase IIa clinical trial was not of a sufficient duration to
observe deterioration in cognitive function in the group of Alzheimer's patients
whose disease severity included both mild and moderate disease, a subset
analysis on the smaller number of patients with moderate Alzheimer's disease
showed a trend towards deterioration in the placebo group, with no significant
deterioration observed in the Cogane(TM) group.
This encouraging emerging trend for slower disease progression in more moderate
Alzheimer's patients with Cogane(TM) confirms the need for longer term studies
for efficacy determination. Further work has now been initiated in preparation
for a 12 month Phase IIb study planned for calendar H2 2007 and preliminary
discussions have commenced with potentially suitable licensees to undertake
these longer term studies.
Motor neurone disease
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. Although the precise molecular pathways that cause the
death of motor neurones in ALS remain unknown, possible mechanisms include
mitochondrial alterations and glutamate mediated excitotoxicity. In pre-
clinical studies, the single chemical Myogane(TM) protects against neuronal
damage, reverses the decrease of neuronal growth factors and reverses neuronal
degeneration observed in motor neurones. Myogane(TM) also increases neurite
outgrowth, reverses oxidative damage and reverses neuronal apoptosis in vitro.
When administered orally to a transgenic preclinical model of ALS, Myogane(TM)
delays the loss of muscle strength and extends survival time.
In 2004, we successfully completed a Phase Ia clinical study to evaluate the
safety, tolerability and pharmacokinetic profile of Myogane(TM). This residential
clinical study was conducted under an investigational new drug (IND) 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 that the
FDA had granted Orphan Drug and Fast Track designation to Myogane(TM) for the
treatment of ALS. Building on this success we have further developed new
formulations suitable for ALS patients and are completing safety studies to
support further clinical studies planned for calendar Q1 2007. Preliminary
discussions have commenced with potentially suitable licensees to undertake
these studies.
Parkinson's disease
PYM50028 is also being developed for Parkinson's disease. A consistent feature
of the disease is the loss of dopamine-containing cells in the substantia nigra
area of the brain. Current drugs can mitigate many of the symptoms for a while
but do not alter the prognosis of steady decline. Recent studies suggest that
one important mechanism involved in neuronal degeneration of the substantia
nigra is the production of toxic free radicals. Phytopharm has generated data
demonstrating that PYM50028 reverses free radical neurotoxicity produced by
1-methyl-4-phenylpyridium (MPP+) in dopaminergic neurones and reverses the
decrease of neuronal growth factors and dopamine receptors in the brain. Once '
proof of principle' has been demonstrated with this compound in patients with
Alzheimer's disease (see above) it is anticipated that we will undertake
clinical studies in Parkinson's disease patients.
Asthma and other inflammatory disorders
Asthma is a chronic inflammatory disorder of the airways that causes recurrent
episodes of wheezing, breathlessness, chest tightness and coughing. In
addition, asthma is usually associated with widespread but variable airflow
obstruction. Inhibition of inflammation and relaxation of airway smooth muscle
are therefore key components of asthma treatment. Steady progress has been made
in identifying novel synthetic molecules that can be developed as a
pharmaceutical 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 in 2006 in
pre-clinical models of asthma and anticipate lead candidate selection in
calendar H1 2007. The programme is currently in the pre-clinical development
stage.
Obesity and metabolic syndrome
Obesity leads to a cluster of metabolic alterations and as a result is a major
risk factor for insulin resistance, type 2 diabetes, coronary artery disease,
hypertension, stroke, osteoarthritis and certain forms of cancer. Weight is
gained when energy intake exceeds energy expenditure. The excess energy is
stored as fat, and if there is an extended period of positive energy balance,
obesity will result. The mechanism of action of the chemical series based on
the active components of our Hoodia gordonii extract (see below) is under
investigation. Proteomic research is helping to define novel targets and the
design of new molecules as pharmaceutical candidates for metabolic syndrome.
This programme is currently in the pre-clinical development stage.
Plant Extract Division
The progress of our plant extract products over the period is described below.
Obesity
Our obesity functional food product is based on an extract of the succulent
plant, Hoodia gordonii, which 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 the Hoodia gordonii extract to Unilever plc. Under the terms of the
agreement, Phytopharm and Unilever are collaborating on a five-stage research
and development programme of safety and efficacy studies with a view to bringing
new weight management products to market.
In April 2006 we announced that we had successfully completed the first stage of
our Joint Development Agreement. We also announced that we are now progressing
through the second stage which includes clinical studies.
As part of the agreement, Unilever committed to initial payments of
approximately £6.5 million for the first stage and for the second stage have now
committed to a further £3.5 million out of a potential total of £21 million in
payments to Phytopharm. In addition Phytopharm will receive an undisclosed
royalty on sales of all products containing the extract. Unilever is also
managing a separate agronomy programme and supporting the international patent
programme for the products.
Phytopharm and Unilever have also become aware of many companies that are
selling products over the Internet and in some stores claiming to contain Hoodia
and causing weight loss. Phytopharm and Unilever are in discussion with the
relevant authorities concerning this development.
Canine skin health
Phytopica(TM) is a natural three plant product that provides a novel 3 in 1
approach to help maintain a normal healthy immune system, support normal white
cell function and provide anti-oxidant benefits. Following the success in 2004
of our European multi-centre study in canine atopic dermatitis, we launched
Phytopica(TM) as a complementary pet food. Canine dermatological disorders are
well recognised by veterinarians to be a major problem in small animal practice,
with an estimated 15% of the UK dog population (around 900,000 dogs) affected by
skin conditions due to allergy (Source: Animal Pharm). Maintenance of a healthy
skin and coat and alleviation of itching are of major importance to canine
general health and quality of life.
In January 2006 we announced that we had entered into an exclusive global
marketing and distribution agreement with Schering-Plough Animal Health for
Phytopica(TM). Under the terms of the agreement, Phytopharm is responsible for
the manufacture and sale of Phytopica(TM) to Schering-Plough. Schering-Plough
is responsible for the global sales, marketing and distribution of
Phytopica(TM).
In April 2006 we announced the UK launch by Schering-Plough of Phytopica(TM) as
an effective aid to the management of canine atopic dermatitis. Phytopica(TM)
has been proven extensively in clinical trials and enjoys strong support from
veterinary dermatologists in the UK. Launched at the world's largest companion
animal congress, the British Small Animal Veterinary Association (BSAVA) in
Birmingham, 20-23 April 2006, Phytopica(TM) has an excellent safety profile and
is recognised as suitable for all dogs whatever size or breed.
Following the UK launch, Schering-Plough will seek to market and distribute
Phytopica(TM) in Europe and the USA. With Schering-Plough's global presence we
look forward to strong growth from this product.
Canine joint health
In 2004 we announced the launch of Zanthofen(TM) 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. Since then Zanthofen(TM) has been
available to veterinary practitioners across the UK and is marketed by
Phytopharm's marketing partner, Genitrix Ltd, a UK based veterinary product
company. Income from this product is currently small, and sales growth from this
product will require expansion into international markets. Discussions with
interested parties are ongoing.
Outlook
Phytopharm is making good progress in developing a broad portfolio of products
with substantial potential value. We are progressing to the second stage of our
obesity programme with Unilever and Schering-Plough is in the process of
launching Phytopica(TM) in the UK as an effective aid to the management of
canine atopic dermatitis as a part of its global marketing deal.
Our plant extract division is now generating significant revenue and we continue
to invest in the pharmaceutical division of the Company. Full confidential
disclosure of the substantial data sets for both Cogane(TM) and Myogane(TM), our
lead products for Alzheimer's and motor neurone disease, are now in progress
with interested potential licensing partners.
Overall, with growing revenues from our marketed products, major licensing
partners in place for Hoodia gordonii and Phytopica(TM) and further licensing
discussions underway with other products in our portfolio, Phytopharm is well
placed to continue its progress during the coming year.
Financial Review
The financial performance for the six months to 28 February 2006 reflects the
ongoing development of the Company's novel pharmaceutical and functional food
products. Revenue of £0.84 million for the period was generated from Unilever
for the development of the Hoodia gordonii programme and further revenue of
£0.04 million was generated from sales of Phytopica(TM) as a companion animal
health product. Phytopica(TM) was licensed to Schering-Plough in January 2006
and formally launched after the period end, in April 2006. Revenue for the
comparable period (six months to 28 February 2005) included a £4 million (£3.6
million net of Japanese withholding tax) milestone payment by Yamanouchi
Pharmaceutical Company Ltd (Yamanouchi) following acknowledgement that the
safety data in relation to the first 60 patents treated with Cogane(TM) in the
Phase IIa study had fulfilled the criteria set out in the licensing agreement.
Since the successful fundraising in May 2005, expenditure on research and
development has continued as planned for the six months ended 28 February 2006.
A total of £3.79 million was spent during the period compared to £4.32 million
for the six months ended 28 February 2005. 63% of this expenditure has been
incurred on the Alzheimer's and motor neurone disease programmes. This includes
the completion of the Cogane(TM) Phase IIa study and initiation of the work
necessary to prepare for a twelve month Phase IIb study planned to commence in
H2 2007 and the development of new formulations and safety studies for Myogane
(TM). A further 26% of expenditure has been incurred on the continuing
development of Hoodia gordonii extract which has now progressed into the second
stage of development. The remaining expenditure includes pre-clinical work on
the asthma and metabolic syndrome programmes.
Expenditure on selling, general and administration expenses for the six months
ended 28 February 2006 decreased to £1.08 million (H1 2005 £1.24 million) due to
the inclusion of the fundraising costs in the previous period.
As a result of the successful fundraising in May 2005, interest receivable has
increased to £0.22 million for the six months ended 28 February 2006.
Non-current assets at 28 February 2006 comprise property, plant and equipment of
£0.24 million (H1 2005 £0.16 million).
Current assets at 28 February 2006 amounted to £10.33 million and comprised
inventories of £0.72 million, amounts receivable of £1.54 million and cash
resources of £8.07 million. Inventories decreased in the six months to 28
February 2006 due to product sales and the provision for short-dated finished
goods and raw materials. Cash resources described as cash and cash equivalents
are initially invested for a period of 90 days or less. The increase in cash
resources of £7.97 million between 28 February 2005 and 31 August 2005 reflects
the fundraising in May 2005 offset by the cash utilised in the business. The
business utilised a further £3.57 million in the six months to 28 February 2006.
Amounts receivable have increased to £1.54 million since 31 August 2005 due to
the research and development tax credit recoverable for the six months to
February 2006. Amounts receivable at 28 February 2005 were £6.33 million which
included the £4 million milestone payment due from Yamanouchi (£3.6 million net
of Japanese withholding tax). Current liabilities comprised trade and other
payables amounting to £2.17 million at 28 February 2006.
The net cash used in operating activities for the six months to 28 February 2006
was £3.64 million. The net cash generated from investing activities arises from
interest received of £0.22 million offset by net expenditure on fixed assets of
£0.15 million. In the twelve months to 31 August 2005 additional cash was
generated of £0.61 million arising from the repayment by Unilever of advances to
certain suppliers made by the Group in 2004.
Implementation of International Financial Reporting Standards
The financial results for the six months ended 28 February 2006 are the first
results prepared in accordance with International Financial Reporting Standards
('IFRS'). Prior to these results the Group prepared its audited annual financial
statements in accordance with UK Generally Accepted Accounting Practices ('UK
GAAP').
In accordance with IFRS1 the results for the six months ended 28 February 2005
and year ended 31 August 2005 included in these interim results have been
restated in accordance with IFRS. The impact of the restatement is described in
detail in note 2 to the financial statements.
The principal adjustments relate to:
1. Share based payments. Under IFRS, a charge to the income statement is made
to reflect the fair value of awards at grant date.
2. Holiday pay. Under IFRS, a provision for holiday entitlement not taken is
required.
The profit for the six months ended 28 February 2005 was decreased from £0.74
million to £0.43 million principally due to the charge for the fair value of
share option grants. This charge increased the loss for the year ended 31 August
2005 by £0.65 million to a total of £3.33 million and the loss for the six
months to 28 February 2006 by £0.23 million to a total of £3.64 million.
Other than holiday pay, there have been no adjustments under IFRS affecting the
net assets of the Group.
All comparisons above refer to the results reported under IFRS.
Dr Richard Dixey
Director
Independent review report to Phytopharm plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 28 February 2006 which comprises the unaudited consolidated
interim balance sheet as at 28 February 2006 and the related unaudited
consolidated interim statements of income, cash flows and changes in
shareholders' equity for the six months then ended and related notes. We have
read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority.
As disclosed in note 1, the next annual financial statements of the Group will
be prepared in accordance with accounting standards adopted for use in the
European Union. The interim report has been prepared in accordance with the
basis set out in note 1.
The accounting policies are consistent with those that the Directors intend to
use in the next annual financial statements. As explained in note 1, there is,
however, a possibility that the Directors may determine that some changes are
necessary when preparing the full annual financial statements for the first time
in accordance with accounting standards adopted for use in the European Union.
The IFRS standards and IFRIC interpretations that will be applicable and adopted
for use in the European Union at 31 August 2006 are not known with certainty at
the time of preparing this interim financial information.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
Company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 28 February 2006.
PricewaterhouseCoopers LLP
Cambridge
5 May 2006
Notes:
a. The maintenance and integrity of the Phytopharm plc website is the
responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the website.
b. Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
Unaudited consolidated income statement
For the six months ended 28 February 2006
Unaudited Unaudited Unaudited
Six months Six months Twelve months
ended ended ended
28 February 28 February 31 August
2006 2005 2005
(restated) (restated)
note £ £ £
Revenue 3 879,420 6,340,644 7,378,110
Cost of sales (239,434) (371,054) (399,842)
_____ _____ _____
Gross profit 639,986 5,969,590 6,978,268
Research and development expenses (3,790,941) (4,317,226) (8,910,005)
Selling, general and administrative expenses (1,076,732) (1,239,847) (2,006,794)
_____ _____ _____
Operating (loss)/profit (4,227,687) 412,517 (3,938,531)
Interest receivable and similar income 223,087 93,356 338,212
Interest payable and similar charges - (296) (295)
_____ _____ _____
(Loss)/profit on ordinary activities before (4,004,600) 505,577 (3,600,614)
taxation
UK tax credit on (loss)/profit on ordinary 4 367,544 328,208 674,341
activities
Foreign tax charge 4 - (400,000) (400,000)
_____ _____ _____
(Loss)/profit for the period (3,637,056) 433,785 (3,326,273)
_____ _____ _____
Basic (loss)/earnings per share (pence) 5 (7.1) 1.0 (7.3)
Diluted (loss)/earnings per share (pence) 5 (7.1) 1.0 (7.3)
Unaudited consolidated statement of changes in shareholders' equity
For the six months ended 28 February 2006
Share Share Other Retained Total
capital premium reserves earnings
£ £ £ £ £
Balance at 1 September 2004 427,488 38,134,657 (204,211) (33,079,538) 5,278,396
Profit for the six-month period - - - 433,785 433,785
_____ _____ _____ _____ _____
Total recognised income and expense for 427,488 38,134,657 (204,211) (32,645,753) 5,712,181
the period
Issue of equity share capital 3,509 154,384 - - 157,893
Equity share options charge - - - 344,089 344,089
_____ _____ _____ _____ _____
Balance at 28 February 2005 430,997 38,289,041 (204,211) (32,301,664) 6,214,163
_____ _____ _____ _____ _____
Loss for the six-month period - - - (3,760,058) (3,760,058)
_____ _____ _____ _____ _____
Total recognised income and expense for - - - (3,760,058) (3,760,058)
the period
Issue of equity share capital 80,812 8,867,667 - - 8,948,479
Equity share options charge - - - 411,141 411,141
_____ _____ _____ _____ _____
Balance at 31 August 2005 511,809 47,156,708 (204,211) (35,650,581) 11,813,725
_____ _____ _____ _____ _____
Loss for the six-month period - - - (3,637,056) (3,637,056)
_____ _____ _____ _____ _____
Total recognised income and expense for 511,809 47,156,708 (204,211) (39,287,637) 8,176,669
the period
Equity share options charge - - - 228,018 228,018
_____ _____ _____ _____ _____
Balance at 28 February 2006 511,809 47,156,708 (204,211) (39,059,619) 8,404,687
_____ _____ _____ _____ _____
Unaudited consolidated balance sheet
As at 28 February 2006
Unaudited Unaudited Unaudited
Six months Sixmonths Twelve months
ended ended ended
28 February 28 February 31 August
2006 2005 2005
(restated) (restated)
note £ £ £
Non-current assets
Property, plant and equipment 242,474 154,628 146,002
_____ _____ _____
Non-current assets 242,474 154,628 146,002
Current assets
Inventories 6 722,258 347,574 947,221
Trade and other receivables 7 1,538,712 6,325,063 1,339,430
Cash and cash equivalents 8,070,426 3,671,502 11,640,739
_____ _____ _____
Current assets 10,331,396 10,344,139 13,927,390
_____ _____ _____
Current liabilities
Trade and other payables 8 (2,169,183) (4,284,604) (2,259,667)
_____ _____ _____
Net current assets 8,162,213 6,059,535 11,667,723
_____ _____ _____
Net assets 8,404,687 6,214,163 11,813,725
_____ _____ _____
Share capital 511,809 430,977 511,809
Share premium 47,156,708 38,289,041 47,156,708
Other reserves (204,211) (204,211) (204,211)
Retained deficit (39,059,619) (32,301,664) (35,650,581)
_____ _____ _____
Shareholders' funds 8,404,687 6,214,163 11,813,725
_____ _____ _____
Unaudited consolidated cash flow statement
For the six months ended 28 February 2006
Unaudited Unaudited Unaudited
Six Six Twelve months
months months
ended ended ended
28 February 28 February 31 August
2006 2005 2005
(restated) (restated)
£ £ £
Cash flow from operating activities
Operating (loss)/profit (4,227,687) 412,517 (3,938,531)
Depreciation 54,327 44,752 89,605
Loss/(gain) on disposal of property, plant and equipment 1,304 (1,437) (1,150)
Option charge 228,018 344,088 755,230
_____ _____ _____
(3,944,038) 799,920 (3,094,846)
Changes in working capital
Decrease/(increase) in trade and other receivables 18,262 (5,019,018) (317,552)
(Decrease)/increase in trade and other payables (89,085) 1,611,724 (14,612)
Decrease/(increase) in inventories 224,963 2,960 (596,687)
_____ _____ _____
Cash used in operations (3,789,898) (2,604,414) (4,023,697)
Taxation received 150,000 - 630,300
Foreign taxation paid - - (400,000)
Interest paid - (296) (295)
_____ _____ _____
Net cash used in operating activities (3,639,898) (2,604,710) (3,793,692)
Cash flows from investing activities
Purchase of tangible fixed assets (178,854) (29,126) (62,845)
Sale of tangible fixed assets 26,750 9,000 9,000
Repayment of advances to suppliers - 613,929 613,929
Interest received 223,087 93,356 338,212
_____ _____ _____
Net cash generated from investing activities 70,983 687,159 898,296
Cash flows from financing activities
Issue of shares - 157,893 10,259,384
Share issue costs - - (1,153,012)
Capital element of finance leases (1,398) - (1,397)
_____ _____ _____
Net cash (used in)/generated from financing activities (1,398) 157,893 9,104,975
_____ _____ _____
Movements in cash and cash equivalents in the period (3,570,313) (1,759,658) 6,209,579
Cash and cash equivalents at the beginning of the period 11,640,739 5,431,160 5,431,160
_____ _____ _____
Cash and cash equivalents at end of period 8,070,426 3,671,502 11,640,739
_____ _____ _____
Notes to the financial statements
For the six months ended 28 February 2006
1 Accounting policies and basis of preparation
Basis of preparation
Prior to 2006 the Group prepared its audited financial statements under UK
Generally Accepted Accounting Practices (UK GAAP). For the year ended 31 August
2006, the Group is required to prepare its annual consolidated financial
statements in accordance with accounting standards adopted in the European Union
(EU). As such those financial statements will take account of the requirements
and options in IFRS1 'First-time adoption of International Financial Reporting
Standards (IFRS)' as they relate to the comparatives included herein.
The financial information for the six months ended 28 February 2006 is unaudited
and has been prepared in accordance with the Group's accounting policies based
on IFRS, that are expected to apply for 2006. The financial information for the
six months ended 28 February 2005 and the year ended 31 August 2005 is also
unaudited and has been restated under IFRS.
An explanation of how the transition from UK GAAP to IFRS has affected the
Group's financial position, income statement and cash flow is set out in note 2.
The reconciliations set out in note 2 are based on the IFRS expected to be
applicable as at 31 August 2006 and the interpretations of those standards. The
IFRS and IFRIC interpretations that will be applicable at 31 August 2006 are not
known with certainty. These interim consolidated statements are based on
management's understanding of issued standards and interpretations and current
facts and circumstances, which may change. For example, amended or additional
standards or interpretations may be issued by the IASB. IFRS is currently being
applied in the United Kingdom and in a large number of other countries
simultaneously for the first time.
The interim financial information has not been audited and does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985
but has been reviewed by the auditors in accordance with Bulletin 1999/4 issued
by the Auditing Practices Board. The Company's statutory accounts for the year
ended 31 August 2005, prepared under UK GAAP have been delivered to the
Registrar of Companies; the report of the auditors on these accounts was
unqualified and did not contain a statement under section 237 (2) or (3) of the
Companies Act 1985.
Accounting policies
The accounting policies set out below have been applied consistently to all of
the periods covered in the interim financial information.
Basis of consolidation
The acquisition by the Company's subsidiary, Phytotech Limited (formerly
Phytopharm Limited), of Phytodevelopments Limited on 21 March 1996 has been
accounted for as a merger in the consolidated financial statements, and all
transactions between the two companies have been eliminated.
On 3 April 1996 the Group structure was reorganised and a new holding Company
established by way of a share exchange. This has been accounted for as a merger
in the consolidated accounts, and all transactions within the Group have been
eliminated.
There has been no change to the basis set out as a result of the implementation
of IFRS.
Share-based payments
The Group makes equity-settled share-based payments to its employees and
Directors. Equity-settled share-based payments are measured at fair value at the
date of grant and are expensed on a straight line basis over the vesting period
of the award. At each balance sheet date, the Group revises its estimate of the
number of options that are expected to become exercisable. The share-based
payment charge is allocated to research and development expenses and selling,
general and administrative expenses on the basis of staff numbers.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, bank deposits repayable on
demand and other short-term highly liquid investments with maturities of 90 days
or less.
Property, plant & equipment
The cost of property, plant & equipment is its purchase cost, together with any
incidental expenses of acquisition. Depreciation is calculated so as to write
off the cost of property, plant & equipment, less its estimated residual value,
on a straight line basis over the expected useful economic lives of the assets
concerned.
The principal rates used for this purpose are:
Plant and machinery 20%
Computer equipment 33%
Fixtures and fittings 2%
Motor vehicles 25%
Leasehold improvements are amortised over the shorter of the lease term and the
asset's useful economic life.
Impairment of assets
Non-current assets are reviewed for impairment at each reporting date. An
impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset's fair value less costs to sell and value in use.
Research and development expenditure
All on-going research expenditure is currently expensed in the period in which
it is incurred. Due to the regulatory and other uncertainties inherent in the
development of the Group's products, the criteria for development costs to be
recognised as an asset, as prescribed by IAS 38 'Intangible assets', are not met
until the product has been submitted for regulatory approval and it is probable
that future economic benefit will flow to the Group. The Group does not
currently have any such internal development costs that qualify for
capitalisation as intangible assets.
Finance and operating leases
Costs in respect of operating leases are charged on a straight line basis over
the lease term. Where fixed assets are financed by leasing agreements, which
transfer to the Group substantially all the benefits and risks of ownership, the
assets are treated as if they had been purchased outright and included in
tangible fixed assets. The capital element of the leasing commitments is shown
as obligations under finance leases. The lease rentals are treated as
consisting of capital and interest elements. The capital element is applied to
reduce the outstanding obligations and the interest element is charged against
profit in proportion to the reducing capital element outstanding. Assets held
under finance leases are depreciated over the shorter of the lease term and the
useful lives of equivalent owned assets.
Foreign currencies
Transactions denominated in foreign currencies are translated into sterling,
being the functional currency of the Group, at actual rates of exchange ruling
at the date of transaction. Monetary assets and liabilities expressed in foreign
currencies are translated into sterling at rates of exchange ruling at the end
of the financial year. All foreign currency exchange differences are taken to
the income statement in the year in which they arise.
Revenue
Revenue, which excludes value added tax, represents the invoiced value of goods
and services supplied, net of certain promotional activity.
Amounts received or receivable in respect of research and development contracts,
collaborative research agreements, licence fees or milestone payments are
recognised as revenue when the licence rights are granted or the specific
conditions stipulated in the agreements have been satisfied. These amounts are
shown gross of any withholding tax.
Cost of sales and operating expenses
Cost of sales comprises the proportion of milestone and royalty income earned by
the Group and due to third parties under licence agreements and the direct cost
of goods sold including distribution costs. All research and development costs,
whether funded by third parties under licence and development agreements or not,
are included within operating expenses and classified as research and
development costs.
Deferred taxation
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements in
accordance with IAS 12 'Income taxes'. Deferred tax assets and liabilities are
not discounted. Deferred tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction, other than a business
combination, that at the time of the transaction affects neither the accounting
nor taxable profit or loss. Valuation allowances are established against
deferred tax assets where it is more likely than not that some or all of the
asset will not be realised.
Pension costs
The Group contributes a percentage of employees' gross salary costs to defined
contribution money purchase schemes. Employees may opt out of the State scheme
if they wish. The pension costs charged to the income statement represent the
amount of contributions payable to the pension schemes in respect of the
accounting period.
The Group provides no other post retirement benefits to its employees.
Inventory
Inventory including raw materials, work in progress and finished goods is stated
at the lower of cost and net realisable value. Cost represents direct materials
and where applicable production overheads. Where necessary, provision is made
for obsolete, slow-moving or defective inventory.
2 Explanation of transition to IFRS
Reconciliation of equity and loss
This is the first time that the Group has prepared interim financial information
under IFRS as defined in note 1. The following disclosures are required in the
period of transition. For the purposes of this financial information the last
interim statements were for the six months ended 28 February 2005, the last
annual financial statements were for the year ended 31 August 2005 and the date
of transition to IFRS was 1 September 2004.
IFRS1 'First Time Adoption of International Financial Reporting Standards' sets
out the rules which must be applied when IFRS is adopted for the first time. The
standard sets out certain mandatory exemptions to retrospective application and
certain optional exemptions.
The most significant optional exemption available taken by the Group is the
adoption of the exemption in IFRS1 which allows a first-time adopter to apply
IFRS2 only to share options granted after 7 November 2002, that have not vested
by 1 January 2005.
Reconciliation of equity:
31 August 28 February 31 August
2004 2005 2005
note £ £ £
Net assets under UK GAAP 5,292,048 6,229,190 11,828,743
Holiday pay accrual a (13,652) (15,027) (15,018)
_____ _____ _____
Net assets under IFRS 5,278,396 6,214,163 11,813,725
_____ _____ _____
Reconciliation of profit/(loss):
28 February 31 August
2005 2005
note £ £
Profit/(loss) under UK GAAP 734,999 (2,680,457)
Share option charge b (298,838) (644,450)
Holiday pay accrual a (1,376) (1,366)
_____ _____
Net assets under IFRS 433,785 (3,326,273)
_____ _____
Reconciliation of equity at 31 August 2004 (date of transition to IFRS)
UK GAAP IFRS Effect IFRS
note £ £ £
Non-current assets
Property, plant and equipment 177,817 - 177,817
_____ _____ _____
Non-current assets 177,817 - 177,817
Current assets
Inventories 350,534 - 350,534
Trade and other receivables 1,591,766 - 1,591,766
Cash and cash equivalents - 5,431,160 5,431,160
Short term investments e 5,237,452 (5,237,452) -
Cash at bank and in hand e 193,708 (193,708) -
_____ _____ _____
Current assets 7,373,460 - 7,373,460
_____ _____ _____
Current liabilities
Trade and other payables a (2,259,229) (13,652) (2,272,881)
_____ _____ _____
Net current assets 5,114,231 (13,652) 5,100,579
_____ _____ _____
Net assets 5,292,048 (13,652) 5,278,396
_____ _____ _____
Equity
Share capital 427,488 - 427,488
Share premium 38,134,657 - 38,134,657
Other reserves (204,211) - (204,211)
Retained deficit a, b (33,065,886) (13,652) (33,079,538)
_____ _____ _____
Shareholders' funds 5,292,048 (13,652) 5,278,396
_____ _____ _____
Reconciliation of equity at 28 February 2005
UK GAAP IFRS Effect IFRS
note £ £ £
Non-current assets
Property, plant and equipment 154,628 - 154,628
_____ _____ _____
Non-current assets 154,628 - 154,628
Current assets
Inventories 347,574 - 347,574
Trade and other receivables 6,325,063 - 6,325,063
Cash and cash equivalents - 3,671,502 3,671,502
Short term investments e 3,524,233 (3,524,233) -
Cash at bank and in hand e 147,269 (147,269) -
_____ _____ _____
Current assets 10,344,139 - 10,344,139
_____ _____ _____
Current liabilities
Trade and other payables a (4,269,577) (15,027) (4,284,604)
_____ _____ _____
Net current assets 6,074,562 (15,027) 6,059,535
_____ _____ _____
Net assets 6,229,190 (15,027) 6,214,163
_____ _____ _____
Equity
Share capital 430,997 - 430,997
Share premium 38,289,041 - 38,289,041
Other reserves (204,211) - (204,211)
Retained deficit a, b (32,286,637) (15,027) (32,301,664)
_____ _____ _____
Shareholders' funds 6,229,190 (15,027) 6,214,163
_____ _____ _____
Reconciliation of equity at 31 August 2005
UK GAAP IFRS Effect IFRS
note £ £ £
Non-current assets
Property, plant and equipment 146,002 - 146,002
_____ _____ _____
Non-current assets 146,002 - 146,002
Current assets
Inventories 947,221 - 947,221
Trade and other receivables 1,339,430 - 1,339,430
Cash and cash equivalents - 11,640,739 11,640,739
Short term investments e 11,600,359 (11,600,359) -
Cash at bank and in hand e 40,380 (40,380) -
_____ _____ _____
Current assets 13,927,390 - 13,927,390
_____ _____ _____
Current liabilities
Trade and other payables a (2,244,649) (15,018) (2,259,667)
_____ _____ _____
Net current assets 11,682,741 (15,018) 11,667,723
_____ _____ _____
Net assets 11,828,743 (15,018) 11,813,725
_____ _____ _____
Equity
Share capital 511,809 - 511,809
Share premium 47,156,708 - 47,156,708
Other reserves (204,211) - (204,211)
Retained deficit a, b (35,635,563) (15,018) (35,650,581)
_____ _____ _____
Shareholders' funds 11,828,743 (15,018) 11,813,725
_____ _____ _____
Reconciliation of loss for the six months ended 28 February 2005
UK GAAP IFRS Effect IFRS
note £ £ £
Revenue 6,340,644 - 6,340,644
Cost of sales (371,054) - (371,054)
______ ______ ______
Gross profit 5,969,590 - 5,969,590
Research and development expenses b (4,109,707) (207,519) (4,317,226)
Selling, general and administrative a, b (1,146,152) (93,695) (1,239,847)
expenses
______ ______ ______
Operating profit/(loss) 713,731 (301,214) 412,517
Interest receivable and similar income 93,356 - 93,356
Interest payable and similar charges (296) - (296)
______ ______ ______
Profit/(loss) on ordinary activities before 806,791 (301,214) 505,577
taxation
UK tax credit on (loss)/profit on ordinary 328,208 - 328,208
activities
Foreign tax charge (400,000) - (400,000)
______ ______ ______
Profit/(loss) for the period 734,999 (301,214) 433,785
______ ______ ______
Reconciliation of loss for the year ended 31 August 2005
note £ £ £
Revenue 7,378,110 - 7,378,110
Cost of sales (399,842) - (399,842)
_____ _____ _____
Gross profit 6,978,268 - 6,978,268
Research and development expenses b (8,462,098) (447,907) (8,910,005)
Selling, general and administrative a, b (1,808,885) (197,909) (2,006,794)
expenses
_____ _____ _____
Operating profit/(loss) (3,292,715) (645,816) (3,938,531)
Interest receivable and similar income 338,212 - 338,212
Interest payable and similar charges (295) - (295)
_____ _____ _____
Profit/(loss) on ordinary activities before (2,954,798) (645,816) (3,600,614)
taxation
UK tax credit on (loss)/profit on ordinary 674,341 - 674,341
activities
Foreign tax charge (400,000) - (400,000)
_____ _____ _____
Profit/(loss) for the period (2,680,457) (645,816) (3,326,273)
_____ _____ _____
Notes to the reconciliation of equity and loss
a) Holiday pay - under IAS 19 'Employee Benefits' a provision for holiday
to which staff are entitled but have not yet taken is required. This charge was
not conventionally made under UK GAAP.
b) Share-based payments - under IFRS 2 'Share-based Payments' a charge is
required for all share-based payments including share options. The charge in the
income statement is based on the fair value of the awards at grant date. This
charge was not required under UK GAAP.
Explanation of the principal differences between the cash flow statements
presented under UK GAAP and the cash flow statement under IFRS
The cash flow statement has been prepared in conformity with IAS 7 'Cash Flow
Statements'. The principal differences between the 2005 cash flow statements
presented in accordance with UK GAAP and the cash flow statement presented in
accordance with IFRS for the same periods are as follows:
c) Under UK GAAP, net cash flow from operating activities was determined
before considering cash flows from (a) returns on investments and servicing on
finance, and (b) taxes paid. Under IFRS, net cash flow from operating activities
is determined after these items.
d) Under UK GAAP, capital expenditure, financial investments and
acquisitions were classified separately, while under IFRS they are classified as
investing activities.
e) Under UK GAAP, movements in short-term investments were not included in
cash but classified as management of liquid resources. Under IFRS short-term
investments with maturity of 90 days or less at the date of acquisition are
included in cash and cash equivalents.
3. Segmental analysis
Six months Six months Twelve months
ended ended ended
28 February 28 February 31 August
2006 2005 2005
Revenue - by business activity: £ £ £
Licensing and development 840,855 6,266,426 7,248,721
Product sales 38,565 74,128 129,389
_____ _____ _____
879,420 6,340,554 7,378,110
_____ _____ _____
4. Tax on loss on ordinary activities
Foreign tax relates to the 10% Japanese withholding tax suffered in the year
ended 31 August 2005 on the £4 million income from the Yamanouchi milestone.
There is no corporation tax charge because of the incidence of tax losses. The
Company has taken advantage of the Research and Development corporation tax
credits introduced in the Finance Act 2000 whereby a company may surrender
corporation tax losses incurred on research and development expenditure for a
corporation tax refund at the rate of 24 pence on the pound of actual
expenditure.
5 Loss per share
The loss per share is based on losses of £3,637,056 and 51,180,893 ordinary
shares, being the weighted average number of shares in issue during the period.
The diluted earnings per share for the six months ended 28 February 2005 was
based on the weighted average number of ordinary shares in issue diluted to
assume conversion of all dilutive potential ordinary shares. The Group has two
classes of dilutive potential ordinary shares: those share options granted to
employees where the exercise price is less than the average market price of the
Company's ordinary shares during the period and the contingently issuable shares
under the Group's long-term incentive plan.
At 28 February 2005, the performance criteria for the vesting of the awards
under the incentive scheme had not been met and consequently these shares in
question are excluded from the diluted EPS calculation.
As the Group was loss-making in the six months ended 28 February 2006 and the
year ended 31 August 2005, there were no dilutive potential ordinary shares.
6 Inventory
Six months Six months Twelve months
ended Ended ended
28 February 28 February 31 August
2006 2005 2005
£ £ £
Raw materials and consumables 303,335 203,017 525,916
Work in progress 418,923 - 293,025
Finished goods and goods for resale - 144,557 128,280
_____ _____ _____
722,258 347,574 947,221
_____ _____ _____
In the six months ended 28 February 2006, finished goods to the value of £28,500
have been recognised as an expense (six months ended 28 February 2005 - £21,054;
twelve months to 31 August 2005 - £49,842) and provision of £205,837 has been
made against obsolete raw materials, work in progress and finished goods (six
months ended 28 February 2005 - £nil; twelve months to 31 August 2005 - £nil).
7 Trade and other receivables
Six months Six months Twelve months
ended ended ended
28 February 28 February 31 August
2006 2005 2005
£ £ £
Trade debtors 264,795 4,924,933 226,076
R & D tax credit 891,885 958,508 674,341
Other debtors 85,495 173,346 227,743
Prepayments and accrued income 296,537 268,276 211,270
_____ _____ _____
1,538,712 6,325,063 1,339,430
_____ _____ _____
8 Trade and other payables
Six months Six months Twelve months
ended ended ended
28 February 28 February 31 August
2006 2005 2005
£ £ £
Trade creditors 342,487 2,008,605 589,922
Obligations under finance leases - - 1,399
Other creditors 153,222 613,278 77,492
Accruals and deferred income 1,673,474 1,662,721 1,590,854
_____ _____ _____
2,169,183 4,284,604 2,259,667
_____ _____ _____
9 Related party transactions
The Group was obliged, during the financial year ended 31 August 2005, to pay to
the Inland Revenue £157,731 arising in respect of personal tax on the exercise
by the Chief Executive Officer of 288,889 share options on 3 December 2004, near
the end of the exercise period. At 28 February 2005 and 31 August 2005 Dr Dixey
was accordingly obliged to reimburse such amount to the Company including
interest charges at 5%, being the Inland Revenue Approved Rate. Subsequent to 31
August 2005 the Remuneration Committee agreed to waive the repayment of the
amount due from Dr Dixey, who will instead receive no bonus for the 2005 and
2006 financial years. The Group has therefore recognised in the income statement
for the six months ended 28 February 2006 a charge of £314,126 in respect of
this arrangement, being the impairment of the receivable relating to the
original tax on share option gains and the additional tax liability on the
benefit arising from the waiver. At 28 February 2006 there is no outstanding
balance with a related party relating to these arrangements.
10 Performance share award
On 14 December 2005 the Remuneration Committee made a performance share award of
400,000 ordinary shares at par to Dr D D Rees. The Remuneration Committee
considered that there was a considerable risk of Dr Rees leaving the Company as
his existing share option awards were at option prices significantly in excess
of the current share price and this performance share award was granted, as
permitted by Listing Rule 9.4.2 (2) to retain the services of Dr Rees. The award
is subject to performance conditions and the benefits are not pensionable. The
performance conditions are based on Total Shareholder Return (TSR) over a three
year period (with no retesting opportunities) when compared to a peer group
comprising 25 other listed UK biotech and pharmaceutical companies for 266,664
shares and compared to the FTSE SmallCap index for the remaining 133,336 shares.
In each case 25% of the shares awarded will vest for median performance against
the comparator group rising to 100% for upper decile and above performance. None
of the shares awarded will vest for below median performance. TSR is considered
by the Remuneration Committee to be the most robust method of measuring company
performance over the period. The terms of the award will not be amended to the
benefit of Dr Rees without seeking shareholder approval.
11 Post balance sheet events
Phytopharm announced on 10 April 2006 that it had successfully completed the
first stage of the Joint Development Agreement for Hoodia gordonii extract with
Unilever and will now progress to the second stage which includes clinical
safety studies.
Phytopharm announced on 24 April 2006 the UK launch by Schering-Plough Animal
Health (Schering-Plough) of Phytopica(TM), a unique 3 plant extract that offers
an effective aid to the management of canine atopic dermatitis.
Phytopharm announced on 26 April 2006 the appointment of Teather & Greenwood
Limited as joint financial adviser and stockbroker.
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