Preliminary Results
Fulcrum Pharma PLC
09 November 2005
For immediate release 9 November 2005
FULCRUM PHARMA PLC
('the Group' or 'the Company')
Preliminary Results for the Year Ended 31 August 2005
Fulcrum Pharma plc (AIM: FUL), the drug development and strategic outsourcing
services company, today announces its preliminary results for the year ended 31
August 2005.
Highlights
> Profitable before exceptional items in second half
> Loss before tax of £76,000 (loss of £1.2 million in 2004)
> Strategy to improve performance taking effect
> Business development reorganisation and new clients won
> Group order book strengthening
> FY 2005 operating costs (excluding exceptionals) reduced by more
than £500,000
Commenting on the results, Chairman Prof. Sir Charles George said:
'I am pleased to see that the Group has continued to strengthen its order book
and win new clients. Implementation of our sales and marketing reorganisation
has had a positive impact on the business and, together with improved
performance, a reduced cost base and strong balance sheet, Fulcrum will focus on
taking the business to the next stage of its development. The Group plans to
deepen its expertise in drug substance and formulation management and in
preclinical and regulatory services and is seeking suitable opportunities to
increase scale.'
FOR FURTHER INFORMATION, PLEASE CONTACT:
Fulcrum Pharma PLC Tel: 0870 710 7152
Jon Court, Chief Executive
Buchanan Communications Tel: 020 7466 5000
Mark Court, Mary-Jane Johnson
Fulcrum Pharma PLC
Preliminary Results for the Year Ended 31 August 2005
Chairman's Report
Business Review
Since my report last year, the Group has taken considerable steps to improve its
performance and to grow the core service business. These steps included the
reorganisation of the sales and marketing function, the tailoring of business
development and the continued effort to increase global sales to new clients.
The tailored approach to business development has reduced the Group's reliance
on networked sales and has strengthened the order book, which, together with
effective cost management and the more efficient use of staff, has resulted in
the return to profitability in the second half of the financial year.
Fulcrum's turnover for the year was £12.6m (2004: £11.1m) and the loss before
tax was £76,000 (2004: loss of £1.2 m).
The pharmaceutical services sector is emerging from a number of challenging
years and there are signs that the need for outsourcing is gaining momentum.
Emerging pharma and biotechs continue to operate in a difficult funding
environment and strategic outsourcing is proving to be an important way for them
to improve capital efficiency. In particular there is growth in drug substance
and formulation management and preclinical services, where Fulcrum has
considerable expertise, and in regulatory services where new opportunities are
arising. In addition, our global service model enables companies to operate
outside of their domestic market. For example the orphan drug regulations in
Europe allow US clients to create value and extend exclusivity in the market
place. Additionally, large pharma clients in Japan continue to seek faster to
market solutions by outsourcing development to the US and to Europe.
Results
The results for the year ended 31 August 2005 show a loss before exceptional
items of £315,000 (2004: £862,000).
Operating costs, excluding exceptional credits and charges, are £3.0m compared
to £3.6m in 2004. Included in these costs is an exchange gain of £5,000 (2004:
loss of £114,000).
The exceptional credit of £239,000 represents the income from the surrender of
the lease on the UK office less the costs associated with relocation to new
premises. The agreement to surrender the lease was signed in March 2005. The
exceptional charge in 2004 represents the costs of the subsidiary, Fulcrum
Ventures Limited, which was set up to in-licence rights to mid-to-late oncology
products and develop them.
The retained loss for the year was £89,000 (2004: £1.4m) and the loss per share
was 0.07p (2004: 0.93p).
The Group's balance sheet remains strong overall with net cash at 31 August 2005
of £1.5m (2004: £2.2m).
No interim dividend was paid (2004: 0.2p per share) and no second half dividend
is recommended.
Operating Review
Business Development and Sales
The reorganisation of sales and marketing on a regional basis has had a positive
impact on sales. Fee sales increased in the second half of the year to £3.3m
from £2.9m in the first half year. The Group has won a significant number of new
clients in Europe.
Market research conducted in the US was used to hone our service offerings to
the biotech community. The knowledge gained was used to execute a targeted
campaign to increase client awareness. This campaign included sponsorship of,
and presentations at, major biotechnology and partnering conferences in the US,
Europe and Japan such as ASCO, BECIF, Bio Asia and BioBusiness, and has resulted
in a strengthening of the pipeline of contracts and prospects.
Establishing long term business relationships
A core of long term relationships has been established in Europe, which has
contributed more than 60% of European sales in the current financial year. In
May 2005 we announced a long term agreement with Syngenta Biopharma under which
Fulcrum continues to provide drug development expertise and is embedding
critical tools and processes from Fulcrum's 'Document Driven Drug Development'
platform into the client organisation. In addition, Fulcrum's partnership with
Addex Pharmaceuticals S.A. continues to support the delivery of Addex's
portfolio of products to treat disease of the Central Nervous System. We were
delighted that Addex were able to announce that ADX10059 had started clinical
studies in France. This achievement of getting a drug from discovery into the
clinic in less than 3 years is a strong validation of the executional
capabilities of the partnership.
Sales from Japan
Our investment in business development in Japan continues to generate sales from
Japan into Europe and the US. Japan has contributed 12% of fee sales in Europe
and the US. Our Japanese clients include large pharma and emerging biotechs such
as NanoCarriers Co., Ltd. These companies utilise our skillsets and resources in
the European and US subsidiaries. Fulcrum has also won contracts from emerging
European companies seeking the opportunity to create value in the Japanese
market.
Regional Performance
Europe
The sales pipeline and order book strengthened throughout the year.
Encouragingly our business development team has won a significant number of new
clients in the second half year and has delivered cross sales to the US office
and Japan. Whilst sales in Europe have decreased by 10% over the previous year
as a result of the weak order book at the start of the year, the performance in
the second half has been good.
Significant cost savings have been achieved in this financial year. This
includes £230,000 of permanent annual savings, the majority of which relate to
the reorganisation of sales and marketing and the remainder to the rent
differential on relocation of the UK office.
US
The US subsidiary has continued to grow through its domestic customer base, from
cross sales from Japan and from the provision of resources to the European
subsidiary. The latter has allowed efficient use of global resources. Overall US
fee sales have grown by circa 20% compared with the same period last year.
Japan
The Japanese Group has matured into a specialist oncology CRO and regulatory
group to meet the needs of the local market. Japan had a slow start to the year
but made a substantial recovery in the second half. Our specialist oncology CRO
has gained significant orders for the next 2 years including a phase II study
with a major US biotech (unnamed) which was won as a result of delivering a
successful pilot project.
Board changes
The resignation of Dr Bruce McCreedy was announced in September 2005. To drive
the Company's global service model further forward, it is intended to strengthen
the Board during the coming year with more expertise from the service sector.
Future Strategy
Having returned to profitability in the second half, Fulcrum is continuing to
deepen its expertise in key drug development areas and grow the business to the
next stage. The cornerstones of the Group's strategy remain:
1. Grow the service business in 3 regions and develop the global service
model
2. Increase scale
- Regulatory, preclinical, drug substance and formulation
3. Add further value through
- Long term relationships
- Risk sharing
Prospects & Outlook
The pharma and biotech outsourcing market remains competitive. However,
companies increasingly need to demonstrate efficient use of capital and improved
productivity. These factors are driving drug developers towards outsourcing as a
core strategy. With stronger order books over last year the Group looks to
improve profitability further.
Conclusion
Fulcrum continues to concentrate on strengthening its order book and now intends
to improve performance and focus on taking the business to the next stage of its
development. With a reduced cost base and strong balance sheet, Fulcrum plans to
deepen its expertise in drug substance and formulation management and in
preclinical and regulatory services and is seeking suitable opportunities to
increase scale.
Consolidated Profit & Loss Account for the year ended 31 August 2005
Year Ended Year Ended
31 August 31 August
2005 2004
Unaudited Audited
Note £'000 £'000
Turnover 2 12,626 11,085
Cost of sales (10,014) (8,434)
Gross profit 2,612 2,651
Selling expenses (654) (810)
Administrative expenses (2,320) (2,752)
Exceptional administrative credit/(expenses) 3 239 (348)
Total administrative expenses (2,081) (3,100)
Operating loss (123) (1,259)
Interest receivable and similar income 56 58
Interest payable and similar charges (9) (9)
Loss on ordinary activities before taxation (76) (1,210)
Tax on loss on ordinary activities 4 (13) 88
Loss on ordinary activities after taxation (89) (1,122)
Dividends 5 - (244)
Loss for the year transferred to reserves (89) (1,366)
Loss per share (pence) 6
Basic and diluted (0.07p) (0.93p)
Adjusted basic and diluted (0.23p) (0.69p)
Statement of Total Group Recognised Gains and Losses for the year ended 31
August 2005
2005 2004
£'000 £'000
Unaudited Audited
Loss on ordinary activities after taxation (89) (1,122)
Exchange adjustments offset in reserves (8) (82)
Adjustment in respect of employee share schemes (8) 16
Total recognised gains and losses since last annual report (105) (1,188)
Consolidated Balance Sheet as at 31 August 2005
2005 2004
Unaudited Audited
£'000 £'000
Fixed assets
Tangible assets 460 584
Investments 172 85
632 669
Current assets
Debtors 3,335 3,351
Short term investments 1,193 1,423
Cash at bank and in hand 678 1,045
5,206 5,819
Creditors: amounts falling due within one year (2,481) (2,831)
Net current assets 2,725 2,988
Total assets less current liabilities 3,357 3,657
Creditors: amounts falling due after more than one year (31) (226)
Net assets 3,326 3,431
Capital and reserves
Called up share capital 1,219 1,219
Share premium account 4,370 4,370
Merger reserve (454) (454)
Profit and loss account (1,809) (1,704)
Equity shareholders' funds 3,326 3,431
Consolidated Cash Flow Statement for the year ended 31 August 2005
Note 2005 2004
£'000 £'000
Unaudited Audited
Net cash outflow from operating activities 7 (492) (843)
Returns on investment and servicing of finance
Interest received 56 58
Interest paid (9) (9)
Net cash inflow from returns on investments and servicing of 47 49
finance
Taxation
Corporation tax (paid)/received (3) 176
Capital expenditure and financial investment
Purchase of own shares for employee share options and awards (29) (43)
Purchase of equity investments (87) (85)
Purchase of tangible fixed assets (69) (293)
Net cash ouflow from capital expenditure and financial investment (185) (421)
Dividends
Equity dividends paid to shareholders 5 - (244)
Net cash outflow before management of liquid resources and (633) (1,283)
financing
Management of liquid resources
Decrease in short term investments 230 1,402
Financing
New finance leases - 58
Increase in borrowings 100 152
Capital element of finance lease payments (37) (32)
Bank loan repayments (26) (23)
37 155
(Decrease)/increase in cash 7 (366) 274
Reconciliation of net cash flow to movement in net funds
Note 2005 2004
£'000 £'000
Unaudited Audited
(Decrease)/increase in cash (366) 274
Increase in bank loans (74) (129)
Decrease in short term investments (230) (1,402)
Increase/(decrease) in finance leases 30 (26)
Change in net funds from cash flows (640) (1,283)
Net funds at 1 September 2,179 3,462
Net funds at 31 August 7 1,539 2,179
1 Financial Information
The results for the year ended 31 August 2005 are unaudited and do not
constitute statutory accounts within the meaning of section 240 of the Companies
Act 1985. They have been drawn up using accounting policies and principles
consistent with those applied in the preparation of the audited accounts for the
year ended 31 August 2004. The comparative information contained in the report
for the year ended 31 August 2004 does not constitute the statutory accounts for
the financial period. Those accounts have been reported on by the Company's
Auditors, PricewaterhouseCoopers LLP, and delivered to the Registrar of
Companies. The report of the Auditors was unqualified and did not contain a
statement under section 237(2) or (3) of the Companies Act.
2 Turnover
Turnover represents sales to third parties including fee income and pass through
costs.
Geographical analysis by origin
2005 2004
£'000 £'000
Unaudited Audited
Europe 3,082 3,414
USA 1,524 1,305
Japan 1,571 1,192
Total Fee Income 6,177 5,911
Pass through costs 6,449 5,174
Turnover 12,626 11,085
Geographical analysis by destination
2005 2004
£'000 £'000
Unaudited Audited
United Kingdom 3,245 4,218
Rest of Europe 3,290 1,448
North America 3,380 2,904
Japan 2,698 2,515
Rest of the World 13 -
Turnover 12,626 11,085
3 Exceptional items
The Group has reported a loss before tax and exceptional items of £315,000
(2004: £862,000).
The Group has recorded an exceptional credit to administrative expenses of
£239,000 (2004: a charge of £348,000). The exceptional credit represents the
income from the surrender of the lease on the UK office less the costs
associated with the relocation to new premises. The agreement to surrender was
signed in March 2005.
The charge in 2004 represents the cost of the Group's enterprise, Fulcrum
Ventures Limited, which was set up to in-licence rights to mid-to-late clinical
stage oncology products and develop them.
2005 2004
£'000 £'000
Unaudited Audited
Loss on ordinary activities before tax (76) (1,210)
Exceptional administrative (credit)/expenses (239) 348
Loss on ordinary activities before taxation and exceptional items (315) (862)
4 Tax on loss on ordinary activities
2005 2004
£'000 £'000
Unaudited Audited
UK taxation
UK corporation tax at 30% - (63)
Adjustment in respect of prior year - 18
- (45)
13 -
Overseas taxation
Corporation taxes
Total current taxation 13 (45)
Deferred taxation
Origination and reversal of timing differences - (43)
Tax on loss on ordinary activities 13 (88)
No UK tax charge has arisen due to losses carried forward. The tax on the
exceptional gain is set off against tax losses arising in the year.
5 Dividends
No interim dividend was declared or paid during the year (2004: £244,000,
representing 0.2p per share). The dividend was paid from the distributable
reserves of Fulcrum Pharma plc. No final dividend has been proposed (2004:
£nil).
6 Loss per share
2005 2004
Unaudited Audited
Basic loss per share (0.07)p (0.93)p
Adjustment for exceptional costs 0.16p 0.24p
Adjusted loss per share (0.23)p (0.69)p
2005 2004
Profit before Exceptional Total Profit Exceptional Total
exceptional items before items
items exceptional
items
£'000 £'000 £'000 £'000 £'000 £'000
Unaudited Unaudited Unaudited Audited Audited Audited
Loss before taxation (315) 239 (76) (862) (348) (1,210)
Tax on loss 35 (48) (13) 25 63 88
Loss after taxation (280) 191 (89) (837) (285) (1,122)
2005 2004
Number Number
Unaudited Audited
Weighted average number of shares for basic and fully diluted EPS 121,185,914 121,151,541
The basic loss per ordinary share is based on the Group's loss for the year of
£89,000 (2004: £1,122,000) divided by the weighted average number of ordinary
shares in issue, excluding those shares held by the Employee Share Ownership
Trust ('ESOT').
In 2005 and in 2004, the number of shares used in the calculation of diluted
loss per share was the same as that used in the calculation of basic loss per
share as the Group incurred a loss.
Exceptional items within operating profit and exceptional tax charges or credits
do not relate to the results of the Group on an ongoing basis. Therefore an
adjusted loss per ordinary share is presented based on the Group's loss before
exceptional items of £280,000 (2004: £837,000), divided by the weighted average
number of ordinary shares in issue, excluding those shares held by the ESOT.
7 Notes to the consolidated cash flow statement
Reconciliation of the operating loss to net cash outflow from operating
activities:
2005 2004
£'000 £'000
Unaudited Audited
Operating loss (123) (1,259)
Depreciation 197 238
Disposal of shares in ESOT 20 59
Loss on disposal of fixed assets 1 -
Exchange loss (7) (82)
Decrease/(increase) in debtors 17 (549)
(Decrease)/increase in creditors (597) 750
Net cash outflow from operating activities (492) (843)
Analysis of net funds
As at As at
1 September 31 August
2004 Cash flow 2005
£'000 £'000 £'000
Audited Unaudited Unaudited
Cash at bank and in hand 1,045 (366) 679
Bank loan (196) (74) (270)
Short term investment 1,423 (230) 1,193
Finance lease (93) 30 (63)
2,179 (640) 1,539
8 Copies of Annual Report
Copies of the Annual Report are being sent to the shareholders and will be
available to the public at the registered office of Fulcrum Pharma plc, 5th
Floor, Kodak House, Station Road, Hemel Hempstead, Hertfordshire, HP1 1JY.
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