Interim Results

Stem Cell Sciences plc 15 September 2006 Embargoed until 7.00am 15 September 2006 Stem Cell Sciences plc ("Stem Cell Sciences", "SCS", "the Group" or "the Company") INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 Stem Cell Sciences plc, the global biotechnology company focused on the commercialisation of stem cells and stem cell technologies in research and novel cell-based therapies, is pleased to announce its interim results for the six months ended 30 June 2006. Highlights • Successful global launch of first novel SC Proven(R) branded product, ESGRO CompleteTM, following an exclusive marketing and distribution agreement with Chemicon International (part of the Millipore Group) • SC Services agreement with Australian company, Biofill Pty Ltd, to facilitate lot selection for production of high performance serum products delivers maiden revenues for SC Services business unit • Increasing interest in SCS technologies and products from leading pharmaceutical and biotechnology companies • Confirmation of proprietary therapeutic cloning technology as most efficient in class* • Global reach and network of academic partners extended and strengthened. Now includes Edinburgh and Cambridge (UK), Kobe (Japan), Melbourne (Australia), Nice (France) and Milan (Italy) • Cash balance of £3.5m at 30 June 2006 * Blelloch at el; Stem Cells May 2006 Peter Mountford, President and CEO of Stem Cell Sciences, said: "Stem Cell Sciences' growth continues on track, with the first half of 2006 delivering milestones that span the breadth of the Company's business in sourcing, developing and commercialising leading edge stem cell technologies for research and the clinic. "SCS' technologies continue to be widely used and trialled by leading academic researchers. Recent publications in the UK and USA confirm SCS' proprietary Neural Stem cells as the most efficient tissue-derived cell for therapeutic cloning. "In all, it has been another productive six months for SCS and we look forward to an exciting second half to the year." - Ends - For further information, please contact: Stem Cell Sciences plc On 15 September: 020 7067 0700 Michael Dexter, Chairman thereafter: 0131 662 9829 Peter Mountford, Chief Executive Officer Weber Shandwick Square Mile 020 7067 0700 Louise Robson/Rachel Taylor Notes to Editors Stem Cell Sciences plc (SCS, AIM: STEM) is a global biotechnology company providing products in the burgeoning stem cell research and drug discovery markets, in addition to the targeted development of cell-based therapies for neurodegenerative disease and injury. The Company has established a leading intellectual property (IP) and technology portfolio that provides a single platform of stem cells and stem cell technologies for both research and clinical application. Revenue streams and technology development for the scaled production of stem cells in basic research and drug discovery, underpin the company's longer term plans to be a leading provider of cell-based therapeutics. SCS' principal focus is in neurological disease. Total revenues for the global neurotech market, including pharmaceuticals, devices and diagnostics, grew 10% in 2005 to US$110 billion*. SCS operates as a global group with laboratories in Scotland, Japan and Australia, each of which is affiliated with an academic centre of excellence. These include the Institute of Stem Cell Research (ISCR), Edinburgh, UK; RIKEN Centre for Development Biology, Kobe, Japan and the Australian Stem Cell Centre, Melbourne, Australia. SCS has four business units focused on key sustainable business strategies. SC Proven(R) provides cell culture media (liquid formulations) and reagents that enable the growth and differentiation of stem cells. The first commercially available product, a novel, serum free, stem cell growth medium, has been exclusively licensed for manufacture and marketing to Chemicon International (part of the Millipore Group). SC Licensing licenses SCS proprietary technologies, such as Internal Ribosome Entry Site (IRES) and Stem Cell Selection, for application in laboratory-based research and discovery. SCS has licensed technology to major pharmaceutical and biotechnology companies including Pfizer, Sanofi Aventis, GSK, Deltagen Inc and Lexicon Genetics Inc. SC Services provides specialised stem cell production for basic research and drug discovery, including high-throughput applications. SC Therapies goal is to develop safe and effective cell-based therapies for currently incurable diseases. SCS is evaluating proprietary technologies in early stage research for future cell therapy applications. *Neurotech Insights, Volume 2/3 April 30 2006. Chairman's and Chief Executive's Statement During the first half of 2006 we have continued to see a consolidation of Stem Cell Sciences' position in the market with the Company expanding its revenue base through maiden revenues in its SC Services business and its first significant inflow of royalties from existing deals. Revenues for the period were further complemented by additional payments flowing from the successful completion of product development milestones. Our strategy of expanding our product pipeline and accelerating technology development by working with specialist academic and commercial organisations is allowing us to progress on all fronts and providing us with opportunities to grow the business in line with expectations. SCS remains uniquely positioned as a stem cell company active in all four of its chosen business sectors: • SC Proven(R) - research products business • SC Services - contract research and cell production • SC Licensing - out-licensing of SCS technologies • SC Therapies - stem cell-based regenerative therapies Review of Operations Increasing Government commitments and medical research charity investment in stem cell research are expected to fuel further growth for SC Proven(R) products as well as expanding our overall product pipeline through our network of collaborating research institutions. Within our SC Services business unit, our automated cell production facility, which will allow customers to buy stem cells direct, is due to open in Cambridge (UK) later this year. While the specialist nature of the fit out has required more time to complete than originally expected, technology transfer from bench scale to trial systems has run smoothly with no unforeseen problems. The Company believes the effect of the slightly delayed commissioning will mean that some revenues forecast for the second half of 2006 will be delayed into early 2007. SCS' wholly owned Australian operations have emerged as a centre for excellence in the derivation of new human embryonic stem cell lines. The success enjoyed by the local team has resulted in an extension to its collaborative research and development programme with the Australian Stem Cell Centre and fuelled additional plans to expand the range of human stem cell types to be derived by the Group. With the fit out of its Californian offices, the Company has established its foundation for US development. The transfer of SCS proprietary Neural Stem ("NS") cell technology under a sponsored research programme has been completed. During the period the Company's joint venture, SCS KK (Kobe), completed the first stage of the hMADS cell technology transfer from the University of Nice and successfully completed the second stage of its 2005 financing round in February this year. Further venture capital investment in SCS KK diluted SCS plc ownership to 24.8% (from 26.2%) of the company and marginally increased the value of SCS plc shareholding to approximately £3m as at the time of closure compared with a balance sheet carrying value of £0.6m. In line with the development and validation of platform technologies in the Company's research product and services businesses is an emerging opportunity to evaluate SCS' proprietary cell types for therapeutic application in animal models of human disease. The Company has identified leading academic groups offering specialist expertise in a number of different therapeutic fields and has commenced discussions with them. In February this year we launched the first product bearing the Company's SC Proven(R) trademark with our manufacturing and distribution partner, Chemicon, and are progressing well in the development of a range of additional SC Proven (R) products that the Company expects will also be marketed by Chemicon. SC Services entered a new agreement with BioFill Pty Ltd (Australia) to utilise the Company's screening technology for the identification of premium quality serum products for the biomedical research industry. This alliance is expected to build on Australia's privileged position as one of a few nations that are free of diseases such as foot and mouth disease and bovine spongiform encephalopathy ("BSE"). Financial Review For the six months ended 30 June 2006, the Company received revenues of £0.5m (2005: £0.7m), which comprised of £0.2m for SC Services and £0.3m for royalty and milestones, evidencing the broadening of our revenue base. Deals signed in 2005 have already delivered positive royalty flow in the current reporting period. Other operating income of £0.2m (2005: £0.06m), represented grant income from UK and European research consortia. Total income was unchanged when compared to the second half of the year ending 31 December 2005. Administrative expenses have reduced by 20% to £1.0m (2005: £1.3m) whilst research and development costs increased to £0.5m (2005: £0.3m), reflecting increased headcount and associated research expenditure to support planned expansion activities. Capital expenditure for the period included an investment of £0.3m, primarily for development of the new Cambridge facility and associated SC Services business. Cash balances at 30 June 2006 were £3.5m (31 December 2005: £5.2m). Share Based Payments During the period the Company has implemented FRS20 Share Based Payments, which increased administrative expenses by £32,000 in the current period, a notional charge in respect of employee and director share options (see Note 1 for restated comparative figures). The notional charge has no impact on net assets, since the charge in the profit and loss account is balanced by a credit in reserves. Group cash flow is also unaffected. Post Period-End Developments Since the half year end, we have had a number of significant developments within our business. On 26 July 2006 we were delighted to announce the appointment of Jeremy Scudamore as a Non-executive Director. Jeremy was CEO and later Chairman of Avecia Group (formerly part of Zeneca) and previously held senior management positions in the UK and overseas with ICI and Zeneca. His extensive business experience and as a member of many industry bodies, including the UK Chemicals Innovation team for the DTI, the Chemical Industry Association, Chemical and Engineering News (Washington USA), European Chemical News, will be of great benefit to Stem Cell Sciences over the coming years. SCS has expanded its access to specialist expertise with the completion of our agreement with NeuroSolutions Limited, NeuroDiscovery Limited's 100% UK owned subsidiary. NeuroSolutions, as a leading provider of electrophysiology services to the biopharmaceutical industry, will add value to the Company's SC Services and SC Licensing businesses by functionally characterising the electrical properties of neurones derived from SCS' NS cells. At the end of July we were pleased to announce the in-licencing of a novel human stem cell, called the human multi-potent adipocyte-derived stem (hMADS) cell. Discovered in fat tissue and easily grown, hMADS show great promise as biologically relevant cells to improve drug discovery for diseases such as obesity and osteoporosis. The timing of this licence, which follows on a previous licence to develop the therapeutic potential of these cells (programme under development at SCS KK), will mesh well with the planned commissioning of the Company's automated cell production facilities later this year, and expand the range of cell types available under the SC Services business unit. On 29 August, we announced that SCS will participate in the European Commission approved "ESTOOLS" programme, a world leading €12m stem cell research programme involving both academic and commercial researchers. SCS is one of three commercial partners taking part in this Framework Programme VI initiative, which is being led by the University of Sheffield. Outlook Stem Cell Sciences continues to build on its core competency in the growth and manipulation of stem cells and we will continue to deliver improvements in reliability and scale of cell supply needed for industrial and academic research applications. At the same time, the products bring the potential clinical use of stem cells steadily closer to reality. Our new Cambridge cell production facility and Californian office complete our global footprint, giving us operations and alliances in the UK, Australia, Japan and the US, and position SCS for further growth in a rapidly developing market. SCS will continue to develop its multi-tiered business strategy of accessing, developing and commercialising stem cells and stem cell technologies through a network of specialist academic and commercial organisations. This "ground-up" approach is fundamental to maintaining our position at the cutting edge of the stem cell industry and remains a core component to the Company's overall business strategy. In line with our strategy, we will look for new opportunities to expand the business through additional in-licensing of new stem cell types; and to improve the over all performance and prospects of the Company through further strengthening of its Board of Directors in the coming six months. At a recent ceremony sponsored by Deal:Dealmakers, SCS were awarded 'Small/Mid Size Company Deal of the Year'. This award acknowledged the sound business principles, team effort and enduring commitment of SCS management and its advisers in achieving a successful IPO in a challenging business sector when challenging market conditions prevailed. Having met essentially all of the key milestones for the Company's first year on AIM, the Board of Directors looks forward to further strengthening the Company's position within the industry and building greater awareness of the Company's on-going development in the market. Michael Dexter Peter Mountford Chairman Chief Executive 15 September 2006 Consolidated profit and loss account for the six months ended 30 June 2006 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited Restated Restated £'000 £'000 £'000 Turnover 494 681 847 Cost of Sales (159) - - _____ _____ _____ 335 681 847 Administrative expenses (1,031) (1,304) (2,481) Research and development costs (544) (325) (836) Other operating income 235 56 194 _____ _____ _____ Group operating loss (1,005) (892) (2,276) Share of operating loss of associate (215) (202) (512) _____ _____ _____ Total operating loss (1,220) (1,094) (2,788) Other interest receivable and similar income 100 15 130 _______ ______ ______ Loss on ordinary activities before taxation (1,120) (1,079) (2,658) Tax credit on loss on ordinary activities - - 139 _______ ______ ______ Loss for the financial period (1,120) (1,079) (2,519) ======= ====== ====== Loss per ordinary share Basic and diluted loss per share (5.0)p (7.0)p (13.6)p ======= ======= ======= Turnover and loss on ordinary activities before taxation for the current and previous year relate wholly to continuing activities. Consolidated statement of total recognised gains and losses for the six months ended 30 June 2006 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited Restated Restated Note £'000 £'000 £'000 Loss for the financial period Group (905) (877) (2,007) Share of loss of associate (215) (202) (512) _______ ______ ______ Total loss for the financial period (1,120) (1,079) (2,519) Net exchange differences on the retranslation of overseas investments (18) (5) (11) Unrealised gain on dilution of interest in associate 135 338 776 _______ ______ ______ Total recognised gains and losses relating to the financial period (1,003) (746) (1,754) ______ ______ Prior year adjustment 1 (138) _______ Total recognised gains and losses recognised since last annual report (1,141) ======= Consolidated balance sheet at 30 June 2006 As at At at As at 30 June 30 June 31 Dec 2006 2005 2005 Unaudited Unaudited Audited £'000 £'000 £'000 Fixed assets Tangible assets 410 102 115 Investment in associate 545 606 710 _____ _____ _____ 955 707 825 Current assets Debtors 448 122 322 Cash at bank and in hand 3,500 498 5,227 _____ _____ _____ 3,948 620 5,549 Creditors: amounts falling due within one year (325) (522) (737) _____ _____ _____ Net current assets 3,623 98 4,812 _____ _____ _____ Total assets less current liabilities 4,578 805 5,637 _____ _____ _____ Net assets 4,578 805 5,637 ===== ===== ===== Capital and reserves Called up share capital 11,151 7,657 11,151 Share premium account 2,297 - 2,297 Foreign exchange reserve (131) 9 (25) Merger reserve (1,248) (1,248) (1,248) Profit and loss account (7,491) (5,613) (6,538) ______ ______ ______ Total shareholders' funds - equity 4,578 805 5,637 ====== ====== ====== Consolidated cash flow statement for the six months ended 30 June 2006 Note 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited £'000 £'000 £'000 Cash flow statement Cash outflow from operating activities 4 (1,477) (496) (1,797) Returns on investments and servicing of finance 5 100 15 130 Taxation - - 102 Capital expenditure and financial investment 5 (332) (18) (34) ______ ______ _______ Cash outflow before financing (1,709) (499) (1,599) Financing 5 - - 5,809 ______ ______ _______ Increase/(decrease) in cash in the period (1,709) (499) 4,210 ====== ====== ======= Reconciliation of net cash flow to movement in net funds Increase/(decrease) in cash in the period (1,709) (499) 4,210 Foreign exchange movements (18) (17) 3 _______ _______ ______ Movement in net funds in the period (1,727) (516) 4,213 Net funds at the start of the period 5,227 1,014 1,014 _______ _______ ______ Net funds at the end of the period 3,500 498 5,227 ======= ======= ====== Notes to the Interim Results Announcement 1 BASIS OF PREPARATION The interim financial information has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated accounts for the year ended 31 December 2005 except for the implementation of FRS20 (Share Based Payment). The financial information is unaudited. The comparative figures for the financial year ended 31 December 2005 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. FRS20 (Share-based Payment) has been adopted in the current period. As a result of the introduction of FRS20, a prior year adjustment has been made in respect of the share based charge in the loss for the financial period of £32,000 (June 2005; £106,000; December 2005 £138,000). There is a corresponding credit to the profit and loss reserves, and accordingly there is no net effect on net assets at the end of any of the periods. This interim report was approved by the board of directors on 14 September 2006. 2 TAXATION At 30 June 2006, the Group has significant tax losses that will be carried forward for utilisation against future taxable profits. 3 LOSS PER SHARE Loss per share is calculated as follows: 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited £'000 £'000 £'000 Basic (1,120) (1,079) (2,519) ======= ======= ======= Diluted (1,120) (1,079) (2,519) ======= ======= ======= The weighted average number of shares used in each calculation is as follows: 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited Average number of shares in issue during the period 22,301,194 15,315,000 18,470,017 ========== ========== ========== Basic and diluted loss per share (5.0)p (7.0)p (13.6)p ========== ========== ========== The loss attributable to ordinary shares and the number of ordinary shares for the purposes of calculating the diluted earnings per share are identical to those used for basic earnings per share. The exercise of share options would have the effect of reducing the loss per share and consequently is not taken into account in the calculation for diluted loss per share. 4 RECONCILIATION OF OPERATING LOSS TO OPERATING CASH FLOWS 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited £'000 £'000 £'000 Group operating loss (1,005) (892) (2,276) Depreciation 34 15 30 (Increase)/decrease in debtors (126) 8 (171) Increase/(decrease) in creditors (412) 267 482 Charge in respect of share-based payments 32 106 138 _______ ______ _______ Net cash outflow from operating activities (1,477) (496) (1,797) ======= ====== ======= 5 ANALYSIS OF CASH FLOWS 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited £'000 £'000 £'000 Net cash inflow from returns on investments and servicing of finance Interest received 100 15 130 ====== ====== ====== Net cash outflow from capital expenditure and financial investment Purchase of tangible fixed assets 332 18 34 ====== ====== ====== Net cash inflow from financing Issue of ordinary share capital - - 5,809 ====== ====== ====== 6 ANALYSIS OF NET FUNDS At beginning Cash flow At end of period of period £'000 £'000 £'000 Cash in hand and at bank 5,227 (1,727) 3,500 ====== ====== ====== This information is provided by RNS The company news service from the London Stock Exchange

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