Interim Results

RNS Number : 0798J

ReNeuron Group plc

28 November 2008

 



Guildford, UK: 28 November 2008

ReNeuron Group plc

Interim Results for the six months ended 30 September 2008

Highlights 

• ReN001 stem cell therapy for stroke

  • Review of UK clinical trial filing well-advanced - further update to be given shortly

  • Clinical trial application filed in Australia

  • Studies in support of US clinical trial filing continue

• UK-based collaboration underway to test lead stem cell line in lower limb ischaemia

• Business restructuring complete, with substantial reduction in underlying cost base

• £2.5 million convertible loan facility secured in the period. Further financing discussions in progress

• Board strengthened with appointment of Bryan Morton as non-executive director

• Loss for the period of £3.1 million (2007: £3.1 million); net cash outflow from operating activities £3.0 million (2007: £3.1 million); cash and cash equivalents at 30 September 2008 of £0.8 million (2007: £5.7 million); undrawn convertible loan finance of £1.5 million at 30 September 2008.

Commenting on the results, Professor Trevor Jones, Chairman, said:

'During the period under review, and subsequently, we have achieved a number of notable goals across the business whilst also completing a significant restructuring and cost-reduction initiative. In order to best position the business for further financing and the future, we have re-focused our efforts on pursuing those programmes which make best use of the resources we have available to us and which offer the fastest route to the clinic. 

'Our stated intention at the time of the Group's preliminary results announcement in June 2008 was to secure regulatory approval for an initial clinical trial with ReN001 within six to nine months. Based on progress made during the period and subsequently, we remain confident of achieving that objective and look forward to providing a further update in this respect shortly.'

Enquiries:

ReNeuron Group plc
Michael Hunt, Chief Executive Officer	[phone]
Financial Dynamics
David Yates
Lara Mott	[phone]
Collins Stewart
Stewart Wallace
Adam Cowen		[phone]

Chairman's and Chief Executive Officer's Joint Statement

Review of Operations

During the six months ended 30 September 2008, and subsequently, we have made good progress in pursuing our strategy to make clinical trial applications for ReN001 in targeted territories with established and recognised regulatory frameworks. We have submitted an application to the UK's Medicines and Healthcare products Regulatory Agency (MHRA) to commence a Phase I dose-ranging clinical study for ReN001 in the UK. We have also very recently submitted an application to the Australian regulatory authorities to commence a similar study in Australia. We hope to be able to give a further update on progress with these applications shortly. In the meantime, we have progressed further studies in support of our earlier US clinical trial application for ReN001 and we intend to continue our dialogue with the FDA in this regard.

Our ReN001 therapy for stroke is based around our lead neural stem cell line, designated 'CTX' by virtue of its origin from the cortex region of the brain. During the period, we have continued to focus on exploring the utility of the CTX cell line in other conditions beyond stroke, as well as seeking to develop enhanced methods of administration for our ReN001 stroke therapy in broader stroke patient populations. We have commenced a UK-based research collaboration with the Bristol Heart Institute to test the CTX cell line in pre-clinical models of peripheral lower limb ischaemia. This is a debilitating condition affecting up to 12 per cent of the adult population, in which reduced blood supply to the limbs causes cramping, chronic pain and in extreme cases, loss of limb. The initial data from this collaboration are encouraging, and we hope to be able to give a more detailed update on positive progress with the collaboration over the coming months. 

We believe that, given the requirement to conserve our financial resources, the most appropriate strategy for the business at the current time is to maintain this principal focus on the lead CTX cell line. The extensive knowledge base and regulatory data package we have built around this cell line over the last few years will assist in accelerating timelines to clinic in other disease settings and methods of administration, where we believe the cell line has broad utility.  

Our therapeutic programmes involving separately-generated cell lines are currently only being pursued where third party collaborations can be secured. For example, we are hoping to extend our collaboration with the Schepens Eye Research Institute at Harvard Medical School to complete pre-clinical development of our retinal cell line as a treatment for retinitis pigmentosa, a leading blindness-causing disease of the retina. During the period, we were also pleased to publish further positive pre-clinical efficacy data regarding our candidate cell lines for Parkinson's disease, where sustained improvements in behavioural outcomes were seen compared to non-cell control groups over the course of six months in a rodent model of Parkinson's disease.

During the period, three further US patent applications covering our platform technologies and cell lines were granted, bringing the total number of issued patents written or exclusively licensed by ReNeuron to over 80, of which over 50 have issued in the key European and US territories.  

More recently, we were delighted to announce the appointment of Bryan Morton to the Board as a non-executive director.  Bryan's contacts in the industry and his impressive track record of successfully growing and financing a number of significant businesses, and subsequently realising value for shareholders, will be invaluable to ReNeuron as it enters its next phase of development. We welcome him to the Company.

Summary of Results

The Group reports under International Financial Reporting Standards (IFRS) in the preparation of these interim financial statements, including prior period comparative information.

In the six months to 30 September 2008, revenues were £6,000 (2007: £4,000), representing royalty income from the Group's non-therapeutic licensing activities.

Net operating expenses were £3.1 million in the period (2007: £3.5 million). Research and development expenditure decreased in the period to £1.9 million (2007: £2.6 million), due principally to the effects of the cost reduction programme instigated in the period, together with a significant reduction in outsourced pre-clinical testing in the ReN001 stroke programme. General and administrative costs increased in the period to £1.2 million (2007: £0.9 million), due principally to both operating and subsequent closure costs associated with the Company's US facility. Full year operating expenses to 31 March 2009 are forecast to be significantly lower than the prior year as a result of the cost reduction programme.

Other operating income dropped to nil in the period (2007: £0.2 million) as a result of the completion of certain projects for which grant income was being received. Interest received also decreased in the period to £45,000 (2007: £0.2 million) as a result of lower average cash balances over the period. Interest costs of £14,000 in the period (2007: nil) relate to interest accrued on amounts drawn down under the convertible loan facility referred to below. The resulting net loss for the period remained at £3.1 million (2007: £3.1 million).

Net cash outflow from operating activities decreased in the period to £3.0 million (2007: £3.1 million). During the period, the Group secured a £2.5 million convertible loan facility from its principal investors, of which £1.0 million had been drawn down as at 30 September 2008. The Group had cash and cash equivalents totalling £0.8 million as at 30 September 2008 (2007: £5.7 million), with the remaining £1.5 million of convertible loan finance expected to be fully drawn down by the end of the calendar year.  

Funding

During the period, we completed the cost-reduction programme announced earlier in the year, including the closure of our US laboratory facility and a significant headcount reduction in the UK. ReNeuron now employs 15 full-time equivalents from its Surrey laboratories and operates a more flexible, semi-virtual business model, with much of its research, development, quality, regulatory and administrative activities undertaken using outsourced providers. We believe ReNeuron is structured appropriately for a business entering its clinical development phase. However, we will continue to look at ways to take further cost out of the business, including, where necessary, the suspension of programmes that do not utilise our lead CTX cell line and where collaborative arrangements cannot be secured to progress those programmes.

As a result of the above measures, together with the availability of the convertible loan facility referred to above, we expect our current financial resources to last into the second quarter of 2009 and our projected financial requirements thereafter have been significantly reduced. We are currently in discussions with our advisers and certain existing, and prospective, investors regarding further financing for the business, predicated on near term progress with our ReN001 programme. Beyond the steps taken above, we will configure the business as appropriate to ensure that such financing can be secured and that it is adequate for the Company's ongoing programmes. Based on this, the directors expect to secure sufficient further financing and consequently, the going concern basis has been adopted in the preparation of these interim financial statements.  

Outlook

During the period under review, and subsequently, we have achieved a number of notable goals across the business whilst also completing a significant restructuring and cost-reduction initiative. In order to best position the business for further financing and the future, we have re-focused our efforts on pursuing those programmes which make best use of the resources we have available to us and which offer the fastest route to the clinic. 

Our stated intention at the time of the Group's preliminary results announcement in June 2008 was to secure regulatory approval for an initial clinical trial with ReN001 within six to nine months. Based on progress made during the period and subsequently, we remain highly confident of achieving that objective and look forward to providing a further update in this respect shortly.

Professor Trevor Jones	Michael Hunt
Chairman	Chief Executive Officer

28 November 2008

Unaudited Consolidated Income Statement

for the six months ended 30 September 2008

		Six months ended	Six months ended	Year ended
		30 September	30 September	31 March
		2008	2007	2008
	Note	£'000 ______	£'000 ______	£'000 ______
Revenue		6	4	27
Research and development costs		(1,939)	(2,557)	(5,166)
General and administrative costs		(1,185)	(928)	(2,059)
Other operating income: grants receivable		- ______	184  ______	309  ______
Operating loss		(3,118)	(3,297)	(6,889)
Finance income		45	190	318
Finance costs		(14) ______	- ______	(1) ______
Loss for the period		(3,087) ______	(3,107) ______	(6,572) ______
Loss per ordinary share
Basic and diluted	3	(2.0p) ______	(2.2p) ______	(4.4p) ______

Unaudited Consolidated Balance Sheet

as at 30 September 2008

		30 September	30 September	31 March
		2008	2007	2008
	Note	£'000 ______	£'000 ______	£'000 ______
Non-current assets
Property, plant and equipment		913	1,020	1,003
Intangible assets		3,419	3,419	3,419
Trade and other receivables		135  ______	125  ______	135  ______
		4,467  ______	4,564  ______	4,557  ______
Current assets
Trade and other receivables		432	1,164	411
Cash and cash equivalents		840  ______	5,711  ______	2,791  ______
		1,272	6,875	3,202
Current Liabilities
Trade and other payables		(722)	(1,113)	(765)
Financial liabilities: finance leases		(49) ______	(1) ______	(54) ______
		(771) ______	(1,114) ______	(819) ______
Net current assets		501  ______	5,761  ______	2,383  ______
Non-current liabilities
Convertible loan	7	(828) ______	- ______	- ______
Net assets		4,140  ______	10,325  ______	6,940  ______
Shareholders' equity
Ordinary shares		1,542	1,542	1,542
Share premium		14,358	14,357	14,358
Equity element of convertible loan note		184	-	-
Capital redemption reserve		8,964	8,964	8,964
Merger reserve		2,223	2,223	2,223
Warrant reserve		113	113	113
Share-based credit reserve		432	250	329
Retained deficit		(23,676) ______	(17,124) ______	(20,589) ______
Capital and reserves attributable to the Group's equity shareholders		4,140  ______	10,325  ______	6,940  ______

Unaudited Consolidated Statement of Changes in Equity

for the six months ended 30 September 2008

		Share	Capital
	Share	premium	redemption	Merger	Warrant
	capital	account	reserve	reserve	reserve
	£'000 ______	£'000 ______	£'000 ______	£'000 ______	£'000 ______
As at 1 April 2007	1,377	13,213	8,964	365	113
Shares issued for acquisition	93	-	-	1,858	-
Issue of new ordinary shares	72	1,437	-	-	-
Costs of share issue	-	(292)	-	-	-
Share-based credit	-	-	-	-	-
Loss for the period	- ______	- ______	- ______	- ______	- ______
As at 30 September 2007	1,542	14,358	8,964	2,223	113
Share-based credit	-	-	-	-	-
Loss for the period	- ______	- ______	- ______	- ______	- ______
As at 31 March 2008	1,542	14,358	8,964	2,223	113
Equity element of convertible loan	-	-	-	-	-
Share-based credit	-	-	-	-	-
Loss for the period	- ______	- ______	- ______	- ______	- ______
As at 30 September 2008	1,542	14,358	8,964	2,223	113

(continued from table above)

	Share-	Equity
	based	element of
	credit	convertible	Retained	Total
	reserve	loan note	deficit	Equity
	£'000 ______	£'000 ______	£'000 ______	£'000 ______
As at 1 April 2007	166	-	(14,017)	10,181
Shares issued for acquisition	-	-	-	1,951
Issue of new ordinary shares	-	-	-	1,509
Costs of share issue	-	-	-	(292)
Share-based credit	84	-	-	84
Loss for the period	- ______	- ______	(3,107) ______	(3,107) ______
As at 30 September 2007	250	-	(17,124)	10,326
Share-based credit	79	-	-	79
Loss for the period	- ______	- ______	(3,465) ______	(3,465) ______
As at 31 March 2008	329	-	(20,589)	6,940
Equity element of convertible loan	-	184		184
Share-based credit	103	-	-	103
Loss for the period	- ______	- ______	(3,087) ______	(3,087) ______
As at 30 September 2008	432  ______	184  ______	(23,676) ______	4,140  ______

Unaudited Consolidated cash flow statement

for the six months ended 30 September 2008

		Six months ended	Six months ended	Year ended
		30 September	30 September	31 March
		2008	2007	2008
	Note	£'000 ______	£'000 ______	£'000 ______
Cash consumed by operations	4	(2,989)	(3,124)	(6,601)
Interest paid		(14)	-	(1)
Income tax credit received		- ______	- ______	523  ______
Cash outflow from operating activities		(3,003)	(3,124)	(6,079)
Cash flows from investing activities
Capital expenditure		(29)	(29)	(120)
Proceeds from sale of fixed assets		41	-	-
Purchase of business		-	(216)	(217)
Interest received		45  ______	190  ______	318  ______
Net cash generated/(used) in investing activities		57	(55)	(19)
Cash flows from financing activities
Finance lease principal payments		(5)	(1)	(4)
Convertible loan proceeds		1,000	-	-
Proceeds from issuance ordinary shares		- ______	1,215  ______	1,217  ______
Net cash generated by financing activities		995  ______	1,214  ______	1,213  ______
Net decrease in cash and cash equivalents	5	(1,951)	(1,965)	(4,885)
Cash and cash equivalents at the start of period		2,791  ______	7,676  ______	7,676  ______
Cash and cash equivalents at the end of period	6	840  ______	5,711  ______	2,791  ______

Notes to the interim financial statements

for the six months ended 30 September 2008

1.    Accounting policies and basis of preparation

1.1    Basis of preparation

The Group's unaudited interim results for the half year ended 30 September 2008 have been prepared in accordance with International Financial Reporting standards (IFRS). The comparative figures are an abridged version of the Group's full financial statements and, together with other financial information contained in these interim results, do not constitute statutory financial statements of the Group within the meaning of section 240 of the Companies Act 1985.

Statutory financial statements for the year ended 31 March 2008 have been filed with the Registrar of Companies for England and Wales and have been reported on by the Group's auditors. The report of the auditors was not qualified, did not contain a statement under section 273(2) or (3) of the Companies Act 1985, but did contain an emphasis of matter paragraph relating to going concern.

1.2    Accounting policies

The accounting policies used in the preparation of these unaudited interim financial statements are consistent with those used in the preparation of the audited financial statements for the year ending 31 March 2008, with the exception of the new policy below dealing with convertible loan notes.

Convertible loan notes

Convertible loan notes are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non convertible debt. The difference between the proceeds of the issue of the convertible loan notes and the fair value assigned to the liability component, representing the option to convert the liability into the equity of the Company, is included in equity.

The interest expense on the liability component is calculated applying the effective interest rate for the liability component of the instrument. The difference between this amount and the interest payable is added to the carrying amount of the convertible loan note.

1.3    Going concern

The Company is developing its technologies for the marketplace and as such absorbs cash until sufficient funds from either licensing or products sold are generated. The directors estimate that the cash held by the company will not be sufficient to support the current level of activities for the next twelve months. However, the directors are confident of raising further funds by the issue of equity or other financial instruments. Consequently, the directors have adopted the going concern basis in the preparation of the financial statements. If further funds were not to be raised, adjustments would have to be made to revise the balance sheet value of assets to their realisable amounts and to provide for further liabilities that may arise.

2.    Segment information

The Group's principal activity is the research and development of stem cell therapies designed to reverse a range of major diseases. Due to the early stage of development of all of these therapies the Group reports its operations collectively within one business segment. Activities are also reported by geographical segment in the Group's full year financial statements.

3.    Loss per share

The basic and diluted loss per share is calculated by dividing the loss for the financial period of £3,087,000 (September 2007: £3,107,000, March 2008: £6,572,000) by 154,167,534 shares (September 2007: 143,153,064 shares, March 2008: 148,675,471 shares), being the weighted average number of ordinary 10p or 1p shares in issue during the period.

Potential ordinary shares are not treated as dilutive as their conversion to ordinary shares does not increase the net loss per share.

4.    Reconciliation of operating loss to net cash outflow from operating activities

	Six months ended	Six months  ended	Year ended
	30 September	30 September	31 March
	2008	2007	2008
	£'000 ______	£'000 ______	£'000 ______
Operating loss	(3,118) ______	(3,297) ______	(6,889) ______
Depreciation of tangible fixed assets	117	82	181
Provisions	-	-	53
Share-based credit	103	84	163
(Profit)/loss on disposal of assets	(39)	-	1
Increase in receivables	(21)	(285)	(117)
(Decrease)/increase in payables	(31) ______	292  ______	7  ______
Cash consumed by operations	(2,989) ______	(3,124) ______	(6,601) ______

5.    Reconciliation of net cash flow to movement in net debt

	Six months ended	Six months  ended	Year ended
	30 September	30 September	31 March
	2008	2007	2008
	£'000 ______	£'000 ______	£'000 ______
Net funds at start of period	2,737	7,674	7,674
Decrease in cash in the period	(1,951)	(1,965)	(4,885)
Non cash movement	172	-	-
Cash inflow from (increase)/decrease in debt	(995) ______	1  ______	(52) ______
Net (debt)/funds at end of period	(37) ______	5,710  ______	2,737  ______

6.    Analysis of net debt

	Six months ended	Six months  ended	Year ended
	30 September	30 September	31 March
	2008	2007	2008
	£'000 ______	£'000 ______	£'000 ______
Cash at bank and in hand	840	5,711	2,791
Finance leases	(49)	(1)	(54)
Convertible loan	(828) ______	- ______	- ______
	(37) ______	5,710  ______	2,737  ______

7.    Convertible Loan

In June 2008, the company secured £2.5m of financing from its principal existing investors by way of a subscription for a series of new Secured Loan notes constituted by the company. As at 30 September 2008, a total of £1.0 million had been drawn down with the balance of £1.5m million due to be fully subscribed for by the end of the calendar year.

The Secured Loan Notes will be repayable (if not converted) on 23 June 2011. Interest accrues on drawn down Secured Loan Notes at a rate of LIBOR plus 2%. The Loan Notes are convertible into Ordinary Shares at the then prevailing market share price, capped at 8.25p and with appropriate regulatory approval. No conversion is permitted unless, amongst other conditions, the approval of the Panel has been obtained in accordance with the whitewash procedure set out in Appendix 1 to the Takeover Code (save where such conversion would not result in any person being required to make an offer under Rule 9 of the Takeover Code in any event). In addition, Loan Notes may not be subscribed, nor may Loan Notes be converted into Ordinary Shares, if a third party (together with persons acting in concern with him) acquires 50% or more of the issued share capital of the Company. The Loan Notes are secured by the interests of ReNeuron Limited and ReNeuron Inc. in certain selected, non-licensed patents.

About ReNeuron

ReNeuron is a leading, UK-based stem cell company. Its primary objective is the development of stem cell therapies targeting areas of significant unmet or poorly met medical need.  

ReNeuron has filed for approval to commence clinical studies with its lead ReN001 stem cell therapy for disabled stroke patients in the UK, USA and Australia. There are an estimated 50 million stroke survivors worldwide, approximately one half of which are left with permanent disabilities. The annual health and social costs of caring for these patients is estimated to be in excess of £5 billion in the UK and in excess of US$50 billion in the USA. In addition to its stroke programme, ReNeuron is developing stem cell therapies for a number of other conditions, including peripheral ischaemia, Type 1 diabetes and diseases of the retina.

ReNeuron has also developed a range of stem cell lines for non-therapeutic applications - its ReNcell® products for use in academic and commercial research. The Company's ReNcell®CX and ReNcell®VM neural cell lines are marketed worldwide under license by USA-based Millipore Corporation.

ReNeuron's shares are traded on the London AIM market under the symbol RENE.L. Further information on ReNeuron and its products can be found at www.reneuron.com.

Data sources: UK Stroke Association; American Stroke Association

The terms 'ReNeuron', 'the Company' or 'the Group' used in this statement refer to ReNeuron Group plc and/or its subsidiary undertakings, depending on the context.

 

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