Half-yearly Report
Avacta Group plc
Interim results for the six months ended 31 January 2010
Solid Trading and Strong Optim Sales Pipeline
Avacta Group plc ("Avacta" or the "Company"), which provides innovative, high
value proprietary technologies and services to the pharmaceutical and
diagnostics markets, is pleased to announce its interim results for the 6
months ended 31 January 2010.
Highlights
* Strong growth in Group revenues; increasing more than fourfold to £0.89m
(2009: £0.20m)
* Operating loss before non-recurring items and share based payment, £1.05m
(2009: £1.04m)
* Loss per share reduced to 0.10p (2009: 0.12p)
* Two Optim units sold during the reporting period and the first unit
installed unit has generated excellent feedback from the customer
* A third Optim unit has been sold since the end of the reporting period and
the validated sales pipeline comprises 20 leads with good likelihood of
conversion
* MIDAS blood diagnostic system on track for launch in 2010; attractive
business model based on an expanding range of tests to run on the platform
* £1.9m net cash raised in November 2009 to sustain the forward product
development pipeline alongside the commercialisation of products and
services
* Acquisition of Reactivlab on 9 March 2010 provides Avacta with
world-leading position in acute phase protein testing in the veterinary
market expanding Avacta Animal Health range; immediate commercialisation
opportunity through services and test kits
Alastair Smith, Chief Executive Officer, commented:
"I am very pleased with Avacta's progress in the last six months with excellent
growth in our Analytical and Animal Health services businesses. Customer
appetite for our first analytical product, Optim, which is aimed at reducing
cost and risk in the drug development process, is very keen indeed, and the
pipeline is strong and continually expanding. We achieved our target of two
orders in the first half of the year and a third order since the end of the
reporting period. Feedback from the first installed unit is excellent and the
volume of test throughput is higher than we anticipated which bodes well for
our recurring consumable revenues as the number of units in the field grows.
Although customers' capital equipment budgets are clearly tight at the present
time, we look forward to a period of sustained order intake in the coming
months. We are also responding to the pressures on customers' budgets in the
global economic downturn by providing alternative purchasing models in the near
term to accelerate the sales pipeline and generate the significant recurring
consumables revenues that we expect. Our first diagnostic product, MIDAS, is on
track for launch this year into the veterinary market. We are very excited
about this product because of the considerable value that can be delivered
through a rapid expansion of its range of tests, and also in the development of
highly valuable human diagnostics applications with partners. I look forward to
reporting further on this product launch and commercialisation in due course. I
am delighted to have brought Reactivlab into the Group - the complementary
range of tests gives Avacta Animal Health a world class capability in the area
of acute phase protein testing which would generate a huge market in veterinary
healthcare if their widespread use in human healthcare is replicated. We are
developing routes to market through Avacta Animal Health and partners for these
tests."
30 April 2010
Enquiries:
Avacta Group plc Tel: 084 4414 0452
Alastair Smith, Chief Executive
Officer
Haggie Financial LLP Tel: 020 7417 8989
Nicholas Nelson / Henny Breakwell
Daniel Stewart & Company plc Tel: 020 7776 6550
Simon Leathers / Emma Earl
CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S REPORT
Business overview
Since joining AIM in late 2006 Avacta has established two operating business
units in two large life science markets: biotech and veterinary diagnostics and
it is developing and commercialising a range of high value products and
services to serve both of these market sectors. The breadth of offering in
these markets provides a wide range of opportunities for continued growth and a
diversified earnings base to the business. Avacta has delivered strong revenue
growth for the last three years which has continued during the period under
review.
During the half year period, Avacta has continued to focus on the
commercialisation of its proprietary technologies and high value expert
services. Moreover, the longer term value of Avacta continues to be driven by
the "razor blade" business model provided by the innovative and IP rich
analytical and diagnostic suite of products. More specifically, this model is
based on one-off hardware sales with recurring revenue streams from consumable
cartridges and support/maintenance contracts.
Avacta operates through two divisions:
* Avacta Analytical, which develops and commercialises world leading
analytical devices and provides specialized analytical services to reduce
the costs and risk of drug development; and
* Avacta Animal Health which develops and commercialises diagnostic and rapid
point of care testing devices and supporting diagnostics services for
veterinary healthcare.
Avacta Analytical
Avacta Analytical is positioned as a world leading provider of equipment and
contract services for the analysis of biopharmaceutical drug compounds (drugs
based on biological molecules such as antibodies rather than chemicals). The
cost of bringing new biopharmaceutical drugs to market, added to the well known
high risks of failure of these compounds in development, has created a hugely
valuable opportunity to provide enabling technology and expert contract
services that help bring drugs to market more quickly and more cheaply. Avacta
Analytical is recognised as a world leading provider of biophysical analysis
services, having worked with approximately 50 pharmaceutical companies
worldwide. Its services business has grown significantly with revenues
increasing by 34% to £272,000 for the half year to 31 January 2010 (2009: £
203,000) despite the global economic downturn.
The launch of Optim, a revolutionary analytical device for biological drug
developers to validate their compounds at the very earliest stages of the drug
development process, has been met with a high degree of interest from the
biopharmaceuticals sector. Utilising proprietary optical technology in
conjunction with a disposable, high throughput sample holder, Optim is capable
of delivering detailed analysis of drug compounds using minute sample volumes.
This capability is critical if these analyses are to be carried out early in
the drug development process when sample volumes are in scarce supply and are
hugely expensive to produce. Optim presents significant advantages over other
known technologies: it provides more information; uses at least 100x less
sample volume and delivers results on a vastly improved timeframe compressing
months of work into days or weeks. Consequently, the return on investment for
Optim users is high, with payback likely to be only a few months in many cases.
The business has strengthened its commercial team in recent months to
accelerate the delivery to market of its suite of analytical services together
with Optim, as a "solution sell". Moreover, distributors in Southern Europe,
the US and Far East are now being sought with a view to launching into these
geographical regions in FY2011. Order intake by analytical services has
increased substantially and awareness of Optim in the market is increasing
rapidly.
Three Optim units have been sold and the first unit installed. The feedback
from the customer is excellent and the system is being utilised at a higher
consumable usage than we anticipated which bodes well for the levels of
recurring consumables revenues from the installed customer base in the future.
We expect follow-on orders from at least one of these first customers. The
pipeline of validated sales opportunities for Optim is considerable and with
compelling return on investment and technical advantages of the device, Avacta
is confident of converting the pipeline into orders in the coming months.
Avacta is developing follow on devices to expand the Optim product range. These
devices will deliver comparable high value solutions to biological drug
developers and we expect the first of these to launch in 2011.
Avacta Animal Health
Avacta Animal Health provides diagnostic testing services to the veterinary
market and is developing rapid point-of-care blood testing technology for
veterinary clinics. This technology, called MIDAS, like Optim is packaged as a
bench-top instrument delivering high value to the veterinarian and is described
in more detail below.
Avacta Animal Health provides a complete allergy testing service to assist in
the diagnosis and treatment of adverse reactions to foods, pollens, insects and
moulds. The business has established itself as a leading animal allergy testing
provider and currently provides its services to around 60% of UK veterinary
clinics. It has a broad reach and sells its proprietary testing kits into
distributors and partners in the EU, Middle East and Far East. Its services
business has grown with revenues increasing by 10% to £622,000 for the half
year to 31 January 2010 (2009: £566,000).
This well established and highly regarded business provides the Group with a
strategically important route to market for its new diagnostic technologies and
testing services beyond allergy testing. As part of this, Avacta recently
acquired Reactivlab which was spun out of the University of Glasgow's world
leading Veterinary School to develop acute phase protein ("APP") tests for
veterinary healthcare. APPs are a class of proteins whose concentrations in the
blood change as part of the immune and inflammatory response to a wide range of
problems such as infections, diabetes, hypertension and cardiovascular
disease. APPs have widespread utility in veterinary diagnostics and are highly
complementary to the current diagnostic offering from Avacta Animal Health. In
human health, the monitoring of APPs (particularly c-reactive protein) is
extensively used and accounts for very high volumes of tests. These important
tests are being adopted in veterinary healthcare and we predict that growth in
this market will accelerate rapidly in the coming years. Avacta Animal Health
now has a world leading position in APP testing and, with the collaboration
with Reactivlab's founder and recognized key opinion leader in the field,
Professor David Eckersall, has the potential to deliver on a pipeline of new
APP based diagnostic tests.
Avacta intends to monetise the acquired APP tests through laboratory based
testing services in the near term to exploit these acquired assets and, in due
course, through the provision of test kits that are in development. These test
kits are designed for very high volume testing in large commercial diagnostic
laboratories; interest is already being shown by the laboratories and this
could represent a significant opportunity for Avacta Animal Health.
Additionally, some of the APP tests are ideal candidates for point-of-care or
cage-side use in the veterinary clinic, and the Avacta intends to develop
disposable APP test cartridges for use on Avacta's forthcoming MIDAS platform
which is due for launch in 2010.
There is a trend towards decentralisation of diagnostics (point-or-care "POC"
or near-patient testing in human health and cage-side or pen-side testing in
veterinary health). The benefits are improved clinical outcomes through faster
decision-making and earlier treatment and improved healthcare economics through
reduced hospitalisation and shorter treatment times. The veterinary healthcare
market is also partially driven by this increased control over the diagnostic/
treatment process but also revenue generation for the veterinary practice by
rapid on-site testing.
MIDAS addresses a specific gap in the POC market that is currently dominated by
disposable test strips which have relatively poor sensitivity and
reproducibility. MIDAS has been designed to be capable of delivering results
with a laboratory standard of quality for the presence of single or multiple
markers of disease in blood. Tests that currently require days or even weeks to
carry out using centralised laboratory facilities can be completed in under an
hour using MIDAS and the potential range of applications is huge. The MIDAS
system comprises a bench-top reader unit plus a menu of disposable, single shot
test cartridges that each use different reagents to deliver a blood test priced
in the range £5-50. Volumes of these recurring test cartridges are clearly
dependent on the number of MIDAS units in the field and the level of usage
within the veterinary practice. This business model represents a highly
attractive recurring revenue stream that will be scaled by providing new tests
to expand the menu. Avacta will initially focus on the rapid commercialisation
of MIDAS with a range of veterinary diagnostics tests through Avacta Animal
Health, In the longer term, Avacta will exploit the technology in the much
larger human healthcare market with partners who have approved diagnostic
tests.
Financial overview
Total revenue grew more than fourfold to £894,000 (2009: £203,000). This
included a contribution from the Avacta Animal Health services business for the
first time of £622,000 but underlying growth in our Analytical services
business was strong, moving forward by 34% to £272,000 (2009: £203,000).
Costs remained tightly controlled and our operating loss before non-recurring
items remained flat at £1,052,000 (2009: £1,041,000). This loss equated to the
cash loss of the Group.
The Group raised funds through a placing of 96,666,662 new Ordinary shares on
21 October 2009 and 36,666,666 new Ordinary shares on 26 November 2009. Total
funds raised were £2.00m gross (£1.88m net of expenses) at a price of 1.5p per
share giving a dilution of approximately 12%.
Outlook
We are very pleased with Avacta's continuing progress with excellent growth in
our Analytical and Animal Health services businesses and this looks set to
continue. Customers are displaying keen interest in our first analytical
product, Optim, which is aimed at reducing cost and risk in the drug
development process. The pipeline of new products and services is strong and
continually expanding and we expect the conversion of these opportunities to
accelerate in the coming months. We are excited about the future potential for
MIDAS due to the considerable value that can be delivered through a rapid
expansion of its range of tests and also, through partnership with others, the
development of highly valuable human diagnostics applications. MIDAS is on
track to launch in 2010. Reactivlab is an excellent addition to Avacta Animal
Health that has the potential to deliver significant value. We have multiple
opportunities to exploit the Reactivlab IP and are looking forward to reporting
on progress in the coming months.
Gwyn Humphreys Alastair Smith
Chairman Chief Executive Officer
30 April 2010Condensed consolidated income statement
for the six months ended 31 January 2010
Unaudited Unaudited Audited
6 months to 6 months to Year ended
31 Jan 2010 31 Jan 2009 31 July 2009
Note £000 £000 £000
Revenue 894 203 944
Operating costs (2,080) (1,270) (3,801)
------------- ------------- -------------
Operating loss before (1,052) (1,041) (1,820)
non-recurring items and share
based payment charges
Non-recurring administrative 1 (123) - (905)
expenses
Share based payment charges (11) (26) (132)
------------- ------------- -------------
Total operating loss (1,186) (1,067) (2,857)
Finance income - 10 25
Finance expenses (1) (2) (3)
------------- ------------- -------------
Loss before taxation (1,187) (1,059) (2,835)
Taxation 14 87 150
------------- ------------- -------------
Loss for the period (1,173) (972) (2,685)
------------- ------------- -------------
Loss per ordinary share :
- Basic and diluted (0.10p) (0.12p) (0.28p)
------------- ------------- -------------
The profit for the period is wholly attributable to equity holders of the
parent Company.
All results arise from continuing operations.Condensed consolidated statement
of comprehensive income
for the six months ended 31 January 2010
Unaudited Unaudited Audited
6 months to 6 months to Year ended
31 Jan 2010 31 Jan 2009 31 July 2009
£000 £000 £000
Amounts attributable to equity holders of the parent
company
Loss for the period (1,173) (972) (2,685)
------------- ------------- -------------
Total comprehensive income for the (1,173) (972) (2,685)
period
------------- ------------- -------------
Condensed consolidated statement of changes in equity
as at 31 January 2010
Unaudited Unaudited Unaudited Unaudited Unaudited
Share Share premium Other reserve Capital Retained
reserve earnings
capital
£000 £000 £000 £000 £000
At 1 August 2008 900 6,524 (1,729) 1,899 (2,725)
Result for the period - - - - (972)
Shares issued during
the year as
consideration for 20 307 - - -
business combinations
and in settlement of
operating expenses
Shares to be issued as
consideration for - - - 487 -
business combinations
Share based payment - - - - 26
charges
------------- ------------- ------------- ------------- -------------
At 31 January 2009 920 6,831 (1,729) 2,386 (3,671)
Result for the period - - - - (1,713)
Shares issued during
the year as
consideration for 310 4,574 - - -
business combinations
and in settlement of
operating expenses
Shares to be issued as
consideration for - - - 283 -
business combinations
Share based payment - - - - 106
charges
------------- ------------- ------------- ------------- -------------
At 31 July 2009 1,230 11,405 (1,729) 2,669 (5,278)
Result for the period - - - - (1,173)
Shares issued for the 133 1,866 - - -
placing
Shares issued during 1 8 - - -
the period in
settlement of operating
expenses
Share based payment - - - - 11
charges
------------- ------------- ------------- ------------- -------------
At 31 January 2010 1,364 13,279 (1,729) 2,669 (6,440)
------------- ------------- ------------- ------------- -------------
Condensed consolidated balance sheet
as at 31 January 2010
Unaudited Unaudited Audited
As at 31 Jan As at 31 Jan As at 31 July
2009 2009
2010
£000 £000 £000
Non-current assets
Property, plant & equipment 269 300 281
Intangible assets 7,778 3,920 7,378
------------- ------------- -------------
8,047 4,220 7,659
------------- ------------- -------------
Current assets
Inventories 87 - -
Trade and other receivables 511 324 427
Income taxes - - 91
Cash and cash equivalents 1,319 1,403 878
------------- ------------- -------------
1,917 1,727 1,396
------------- ------------- -------------
Total assets 9,964 5,947 9,055
------------- ------------- -------------
Current liabilities
Trade and other payables (702) (925) (587)
Income taxes (54) - (85)
Convertible loan notes - (250) -
Hire purchase agreements (12) (12) (11)
------------- ------------- -------------
(768) (1,187) (683)
------------- ------------- -------------
Non-current liabilities
Hire purchase agreements (10) (23) (18)
Deferred tax (43) - (57)
------------- ------------- -------------
(53) (23) (75)
------------- ------------- -------------
Total liabilities (821) (1,210) (758)
------------- ------------- -------------
Net assets 9,143 4,737 8,297
------------- ------------- -------------
Equity attributable to
equity holders of the
Company
Called up share capital 1,364 920 1,230
Share premium account 13,279 6,831 11,405
Other reserve (1,729) (1,729) (1,729)
Capital reserve 2,669 2,386 2,669
Retained earnings (6,440) (3,671) (5,278)
------------- ------------- -------------
Total equity 9,143 4,737 8,297
------------- ------------- -------------
Total equity is wholly attributable to equity holders of the parent Company.
Condensed consolidated cash flow statement
for the six months ended 31 January 2010
Unaudited Unaudited Audited
6 months to 6 months to Year ended
31 Jan 2010 31 Jan 2009 31 July 2009
£000 £000 £000
Operating activities
Loss for the period (1,173) (972) (2,685)
Amortisation of intangible assets 51 - 9
Depreciation 51 37 87
Net finance expense/(income) 1 (8) (22)
Income tax credit (14) (87) (150)
Share based payment charges to 9 - 39
service providers
Share based payment charges to 11 26 132
employees
------------- ------------- -------------
Operating cash flow before changes
in working capital (1,064) (1,004) (2,590)
Movement in inventories (87) - -
Movement in trade and other (84) (204) (45)
receivables
Movement in trade and other payables 115 367 (407)
------------- ------------- -------------
Operating cash flow from operations (1,120) (841) (3,042)
Interest received - 10 82
Interest paid (1) (2) (3)
Income tax received/(paid) 60 87 316
------------- ------------- -------------
Net cash flow from operating (1,061) (746) (2,647)
activities
------------- ------------- -------------
Investing activities
Purchase of plant and equipment (39) (40) (57)
Development expenditure capitalised (451) - (155)
Acquisition of subsidiaries - 1,098 2,652
------------- ------------- -------------
Net cash flow from investing (490) 1,058 2,440
activities
------------- ------------- -------------
Financing activities
Proceeds from issue of new shares 1,999 - -
Payments to acquire tangible fixed
assets under finance lease (7) (6) (12)
agreements
------------- ------------- -------------
Net cash flow from financing 1,992 (6) (12)
activities
------------- ------------- -------------
Net increase/(decrease) in cash and
cash equivalents 441 306 (219)
Cash and cash equivalents at the
beginning of the period 878 1,097 1,097
------------- ------------- -------------
Cash and cash equivalents at the end
of the period 1,319 1,403 878
------------- ------------- -------------
Unaudited notes
Basis of preparation and accounting policies
Avacta Group plc is a company incorporated in England and Wales under the
Companies Act 2006.
The condensed financial statements are unaudited and were approved by the Board
of Directors on 30 April 2010.
The interim financial information for the six months ended 31 January 2010,
including comparative financial information, has been prepared on the basis of
the accounting policies set out in the last annual report and accounts, with
the exception of the amendment to IAS 1 (Presentation of Financial Statements)
referred to below, and in accordance with International Financial Reporting
Standards ("IFRS"), including IAS 34 (Interim Financial Reporting), as issued
by the International Accounting Standards Board and adopted by the European
Union.
The preparation of the interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expense.
Actual results may subsequently differ from those estimates.
In preparing the interim financial statements, the significant judgements made
by management in applying the Group's accounting policies and key sources of
estimation uncertainty were the same, in all material respects, as those
applied to the consolidated financial statements for the year ended 31 July
2009, with the exception of the change in accounting policy in respect of
Amendments to IAS 1 (Presentation of Financial Statements)where the Group is
now required to produce a statement of comprehensive income setting out all
items of income and expense relating to non-owner changes in equity. This
replaces the statement of recognised income and expense.
There is a choice between presenting comprehensive income in one statement or
in two statements comprising an income statement and a separate statement of
comprehensive income. The Group has elected to present comprehensive income in
two statements.
Going concern assumption
The Group manages its cash requirements through a combination of operating cash
flows and long term borrowings.
The Group's forecasts and projections, taking account of reasonably possible
changes in trading performance, show that the Group should be able to operate
within the level of its current lending facilities.
Consequently, after making enquires, the Directors have a reasonable
expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis of accounting in preparing the interim financial
statements.
Information extracted from 2009 Annual Report
The financial figures for the year ended 31 July 2009, as set out in this
report, do not constitute statutory accounts but are derived from the statutory
accounts for that financial year.
The statutory accounts for the year ended 31 July 2009 were prepared under IFRS
and have been delivered to the Registrar of Companies. The auditors reported on
those accounts. Their report was unqualified, did not draw attention to any
matters by way of emphasis and did not include a statement under Section 498(2)
or 498(3) of the Companies Act 2006.
The Board confirms that to the best of its knowledge:
* The condensed set of financial statements has been prepared in accordance
with IAS34 `Interim Financial Reporting' as adopted by the EU;
* The interim management report includes a fair review of the information
required by :
* DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial
statements, and a description of the principal risks and uncertainties for
the remaining six months of the year; and
* DTR4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the
related party transactions described in the last annual report that could
do so.
1. Non-recurring administrative expenses
2.
Unaudited Unaudited Audited
6 months to 6 months to Year ended
31 Jan 2010 31 Jan 2009 31 July 2009
£000 £000 £000
Expenses related to the placing 123 - -
Non-recurring research projects - - 565
Non-recurring administrative - - 242
expenses
Non-recurring employment expenses - - 98
------------- ------------- -------------
123 - 905
------------- ------------- -------------
2. Acquisition
On 9 March 2010, the Company acquired the entire issued share capital of
Reactivlab Limited. The Company issued 4,432,133 Ordinary shares as initial
consideration and is committed to issue a further 471,731 Ordinary shares as
additional consideration following agreement of the value of free cash at
completion. The Company is committed to issue further Ordinary shares (or cash
at the Company's option) as deferred consideration dependent upon future
performance of Reactivlab Limited. The Directors are considering the potential
fair value of this deferred consideration which is capped at £5 million.
By Order of the Board
Alastair Smith Tim Sykes
Chief Executive Officer Chief Financial Officer
30 April 2010
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