Interim Results

Alliance Pharma PLC 12 September 2007 For immediate release 12 September 2007 ALLIANCE PHARMA PLC ('Alliance Pharma' or 'Alliance' or 'the Company') Interim results for the six months ended 30 June 2007 Alliance Pharma plc (AIM:APH), an emerging speciality pharmaceutical company, is pleased to announce its interim results for the half year ended 30 June 2007. Highlights in the year to date â€¢ Strategy implemented to increase profitability and cash generation - costs reduced by more than Â£1 million annually with increased focus on trading business and reduced investment in development portfolio â€¢ Half-year sales of Â£7.8 million (H1 2006: Â£7.8m), constrained by temporary supply shortfalls but current trading is buoyant with sales in the three months June to August of Â£4.8 million â€¢ Half-year loss of Â£0.7 million, before reorganisation costs of Â£0.2 million, with action taken to restore profitability in the full year â€¢ Start of Forceval sales in China through new local joint venture â€¢ Successful completion of Phase III trial for Isprelor, with encouraging reaction from potential prescribers Commenting on the results, Michael Gatenby, Alliance Pharma's Chairman, said: 'Sales in recent months have increased significantly after a disappointing sales performance in the first half caused by temporary supply shortfalls, which are being resolved. Taking into account both current sales and the decisive action on costs already taken this year, we are confident that profitability will improve sharply in the second half enabling the Group to return to profit for the full year.' For further information: Alliance Pharma plc + 44 (0) 1249 466966 John Dawson, Chief Executive Richard Wright, Finance Director www.alliancepharma.co.uk Buchanan Communications + 44 (0) 20 7466 5000 Mark Court/Rebecca Skye Dietrich Numis Securities + 44 (0) 20 7260 1000 David Poutney/Michael Meade Chairman's and Chief Executive's statement Demand for our products has continued to grow satisfactorily but short term supply problems constrained sales of three products, costing us around Â£1m in turnover and resulting in disappointing sales performance and a trading loss in the first half. We have taken action to restore supplies of the affected products and return the business to profit for the full year. More fundamentally, we have evolved our strategy to deliver a rapid increase in profitability and cash generation. As a result, we expect to resume profitable growth in 2008 and beyond. Strategy At the start of the year we announced that one of our development products, Posidorm, was affected by a change in regulatory procedures which closed our planned route of obtaining UK registration as the first stage of the full European registration process. As a consequence, completion of the development will take significantly longer and cost substantially more than originally expected. This has prompted a shift in our strategy to maximise short term profitability. We are now seeking a co-development partner for Posidorm, to share the final-stage investment costs. We are making encouraging progress with this, and the product continues to offer the potential for a transformational increase in our revenues. However, we have suspended Posidorm development work until we have a partner in place, though Isprelor development continues. Given the deferral of prospective income from our development portfolio, and the impact of the supply problems in the first half of 2007, we are increasing our focus on profitability and cash generation in the trading business. We have implemented a cost reduction programme involving a reduction in marketing expenditure, rationalisation of our sales forces and a total of 11 redundancies across our operations. Our product acquisition strategy has been to seek out brands that come with established demand and cash flows. This means we are well placed to pursue sales growth for individual brands through distribution-type arrangements as an alternative to direct investment in marketing. We have already agreed one such partnership deal in the UK, where we are working with Pharmexx, Europe's largest contract sales organisation, to develop new sales channels for two of our larger brands, Forceval and Hydromol. This venture is a low-risk way for us to explore the over-the-counter potential of these brands. We are also looking to promote Periostat through distributors in the UK, along the lines that have worked successfully for us overseas. We continue to support products directly, but with a lower level of activity. While this may result in slower sales growth rates, it will immediately and substantially increase profits and cash generation. Financial performance During the first half we saw continued underlying growth in demand for our products, but were frustrated by supply problems that prevented us from meeting the full demand for three products. This cost us an estimated Â£1m of sales. As a result, turnover totalled Â£7.8m, virtually unchanged on the same period in 2006. Periostat grew well and Hydromol sales were up significantly; we also received a modest contribution from the first sales of Forceval through a new joint venture in China. Gross margin rates were adversely affected by a combination of temporary events. The most significant of which was a 20% price reduction that was imposed on Nu-Seals in the Republic of Ireland. We have successfully appealed against the price reduction and it has been reversed from July. As a result we expect margins to recover in the second half. Costs were well controlled, and were already running below last year's level when we instigated our cost reduction programme. This programme will help to offset the losses resulting from the supply shortfalls, but its main purpose is to drive the Group's profitability over the longer term. It is making us a slimmer, stronger business with overheads at a level that allows us to continue exploiting our markets successfully. The benefits will start to flow in the second half, enabling us to return the business to profitability for 2007 as a whole and reducing our costs by at least Â£1m a year from 2008 onwards. The reorganisation has already been completed, and has resulted in an exceptional charge of Â£0.2m to the first-half accounts. The trading loss for the period before the exceptional charge was Â£0.7m. Trading business The supply shortfalls affected three products: Deltacortil, Atarax and Forceval. Deltacortril, a product acquired in late 2006, experienced technical problems in the process of being transferred from Pfizer to Alliance, despite extensive cooperation between the technical staff of Pfizer and our own contract manufacturer. These problems are now resolved and, as production rates increase, we expect to meet demand in full from the start of 2008. Atarax was affected by a fire in March 2007 at the plant that supplies the active ingredient. Production will not restart there until the beginning of 2008. We have located an alternative source of supply, but this requires a reformulation of the product. We are seeking the necessary regulatory clearance, and production of this alternative source is also expected to begin at the start of 2008. At present we are pursuing both options and rationing supplies of our existing stocks to support key customers. A third product, Forceval, was affected when suppliers stopped producing three key ingredients without adequate warning. We had to ration deliveries while arranging regulatory approvals for alternative supplies. Approvals were granted in July and production is now meeting demand again. In the light of these events we have reviewed our supply management and enhanced our procedures to minimise the risk and impact of similar issues arising in the future. In 2004 we acquired the rights to sell Forceval everywhere except China. Through a new joint venture with Forceval's existing Chinese distributor, we acquired the Chinese rights in March this year and despatched our first shipments in April. This arrangement enables us to retain the distributor's experience and market knowledge, and provides a platform with wider future potential. In July the Government announced that it plans to reopen discussions with the industry over the Pharmaceutical Price Regulation Scheme (PPRS), despite having agreed a five year deal only two years ago. It is unclear yet how the Government will approach this, but if they adopt the value-based approach recommended by the Office of Fair Trading, the impact of any price reductions could fall mainly on in-patent brands, as opposed to the patent-expired brands that Alliance holds. Development brands Our development portfolio currently consists of two products: Isprelor, for induction of labour, and Posidorm, our melatonin treatment for sleep disorders. Our investment in progressing these products has been significantly lower this year than in 2006. We are in substantive discussions with several potential partners for Posidorm's final phases of development. Until these are complete, which may take some time, no further development is taking place. The final stages of development will take about three years, once we have a partner. In July we announced that Isprelor had successfully completed Phase III clinical trials involving more than 600 women. As we expected, these showed that Isprelor is as effective as the current standard treatment, dinoprostone. Importantly, it is also less likely to cause nausea - a well known side effect of dinoprostone. In other respects it is as well tolerated as the standard treatment, and it has the advantage of not requiring refrigerated storage. The potential market for Isprelor is significant - induced labour is required in about one in five pregnancies. Isprelor is a vaginal formulation of misoprostol: the Royal College of Obstetricians and Gynaecologists and other obstetricians worldwide have been calling for such a formulation to be marketed because there is growing unlicensed use of oral misoprostol tablets, which are officially approved only for treating stomach ulcers. These positive results add impetus to our negotiations to outlicense Isprelor, and we are on track with our plans to file for European registration of the product in the second half of 2008. People Two directors stepped down at the AGM in May. Our Director of Acquisition Integration, Sam Madden, left as part of a long planned succession; and Finance Director Maddy Scott left for a new opportunity in the biotechnology sector. In January we appointed Mark Tomlinson, a highly experienced pharmaceutical physician with an international track record in clinical R&D and medical affairs, as Medical Director. He has joined the board as an Executive Director and takes over Sam Madden's role as part of his responsibilities. As Maddy Scott's successor we appointed Richard Wright in June. He brings considerable experience of quoted and private businesses across a variety of sectors. He was previously Finance Director of Great Western Trains and Group Finance Director and Company Secretary of Parragon Books, the world's largest non-fiction publisher. Outlook Sales in recent months have increased significantly, with Â£4.8m recorded in the three months June to August, aided by resolution of the Forceval supply issues. Taking into account both this and the decisive action on costs already taken this year, we are confident that profitability will improve sharply in the second half - enabling the Group to return to profit for the full year. In 2008 we expect profits to grow to a fundamentally higher level as the last of our supply issues are resolved, delivering higher sales on a much reduced cost base. Michael Gatenby Chairman John Dawson Chief Executive 11 September 2007 Consolidated Income Statement For the six months ended 30 June 2007 6 months to 6 months to Year to 30 June 2007 30 June 2006 31 December 2006 Note Â£ 000s Â£ 000s Â£ 000s Revenue 7,751 7,801 17,253 Cost of sales (4,105) (3,658) (8,022) Gross profit 3,646 4,143 9,231 Operating expenses Administration and marketing (2,945) (3,282) (6,629) expense Non-recurring items (212) - - (3,157) (3,282) (6,629) Operating profit before 701 861 2,602 non-recurring items Non-recurring items (212) - - Operating profit after 489 861 2,602 non-recurring items Finance costs Interest paid (1,380) (1,068) (2,171) Interest received 43 10 16 Other finance costs (70) (59) (65) Change in fair value of derivative 8 75 110 financial instruments (1,399) (1,042) (2,110) (Loss)/profit on ordinary (910) (181) 492 activities before taxation Taxation - 11 11 (Loss)/profit for the period (910) (170) 503 attributable to equity shareholders Earnings per share Basic (pence) 6 (0.56) (0.11) 0.32 Diluted (pence) 6 (0.56) (0.11) 0.32 Consolidated balance sheet At 30 June 2007 30 June 2007 30 June 2006 31 December 2006 Note Â£ 000s Â£ 000s Â£ 000s Assets Non-current assets Goodwill 1,129 1,129 1,129 Intangible fixed assets - Product licences 35,439 29,140 33,316 - Development costs 5,418 3,856 5,017 Property, plant and equipment 291 256 297 42,277 34,381 39,759 Current assets Inventories 2,595 2,537 2,852 Trade and other receivables 4 3,901 3,015 5,224 6,496 5,552 8,076 Total assets 48,773 39,933 47,835 Equity Ordinary share capital 1,621 1,621 1,621 Share premium account 11,275 11,285 11,275 Share option reserve 80 46 65 Reverse takeover reserve (329) (329) (329) Retained earnings (3,110) (2,872) (2,200) Total equity 9,537 9,751 10,432 Liabilities Non-current Long-term financial 22,393 16,011 18,452 liabilities Convertible debt 7,230 7,188 7,209 Other liabilities 919 179 940 30,542 23,378 26,601 Current liabilities Cash and cash equivalents 3,451 688 2,607 Financial liabilities 771 3,391 3,031 Trade and other payables and 5 4,472 2,725 5,164 provisions 8,694 6,804 10,802 Total liabilities 39,236 30,182 37,403 Total equity and liabilities 48,773 39,933 47,835 Consolidated Statement of Cash Flows For the six months ended 30 June 2007 6 months to 6 months to Year to 30 June 2007 30 June 2006 31 December 2006 Â£ 000s Â£ 000s Â£ 000s Operating activities Result for the period before 489 861 2,602 tax and finance costs Depreciation of property, 67 56 112 plant and equipment Change in inventories 257 212 (112) Change in trade and other 1,352 48 (2,189) receivables Change in trade and other (688) (1,602) 675 payables Profit on disposal of - (11) property, plant and equipment - Tax received/(paid) - 11 11 Share options charges 15 15 34 Cash flows from operating 1,492 (399) 1,122 activities Investing activities Interest received 9 10 17 Payment of deferred (20) - (20) consideration Development costs capitalised (401) (781) (1,941) Purchase of tangible assets (62) (32) (129) Investment in subsidaries - (254) - Proceeds from sales of - - 12 property, plant and equipment Purchase of other intangible (2,122) (3,378) (6,815) assets Net cash used in investing (2,596) (4,435) (8,876) activities Financing activities Net proceeds from the issue of - 2,401 2,391 shares Interest paid and similar (1,431) (1,149) (2,165) charges Other finance charges paid (255) - (1) Net receipt from borrowings 1,950 3,800 6,536 Repayment of borrowings - - (704) Finance lease payments (4) (7) (11) Net cash used in financing 260 5,045 6,046 activities Net movement in cash and cash (844) 211 (1,708) equivalents Cash and cash equivalents at 1 (2,607) (899) (899) January 2006 Cash and cash equivalents at (3,451) (688) (2,607) 30 June 2006 Consolidated Statement of Changes in Equity At 30 June 2007 Share Share Shares to Retained Total capital premium be issued Reserves earnings equity Â£ 000s Â£ 000s Â£ 000s Â£ 000s Â£ 000s Â£ 000s Balance 1 1,474 9,031 31 (329) (2,702) 7,505 January 2006 Issue of 147 - - - - 147 shares Premium on - 2,254 - - - 2,254 shares issued Employee - - 15 - - 15 benefits Profit for - - - - (170) (170) the period Balance 30 1,621 11,285 46 (329) (2,872) 9,751 June 2006 Balance 1 1,474 9,031 31 (329) (2,702) 7,505 January 2006 Issue of 147 - - - - 147 shares Premium on - 2,244 - - - 2,244 shares issued Employee - - 34 - - 34 benefits Profit for - - - - 502 502 the period Balance 31 1,621 11,275 65 (329) (2,200) 10,432 December 2006 Balance 1 1,621 11,275 65 (329) (2,200) 10,432 January 2007 Employee - - 15 - - 15 benefits Loss for the - - - - (910) (910) period Balance 30 1,621 11,275 80 (329) (3,110) 9,537 June 2007 Notes to the interim report For the six months ended 30 June 2007 1 Nature of operations Alliance Pharma plc ('the Company') and its subsidiaries (together 'the Group') develop, market and distribute pharmaceutical products. The company is a public limited company incorporated and domiciled in England. The address of its registered office is Avonbridge House, Bath Road, Chippenham, Wiltshire, SN15 2BB. The company is listed on the AIM exchange 2 General information The information in these financial statements does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. A copy of the statutory accounts for the period ended 31 December 2006, prepared under International Financial Reporting Standards, has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified. The interim financial report for the six month period ended 30 June 2007 (including comparatives for the six months ended 30 June 2006) were approved by the board of directors on 11 September 2007. 3 Accounting policies The interim financial report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting The same accounting policies and methods of computation are followed in the interim financial report as published by the company in its 31 December 2006 Annual Report which is available on the company's website at www.alliancepharma.co.uk. 4 Trade and other receivables 30 June 2007 30 June 2006 31 December 2006 Â£ 000s Â£ 000s Â£ 000s Trade receivables 3,379 2,796 4,670 Amounts owed by joint 54 - - venture Other receivables 83 72 105 Prepayments and accrued 385 147 449 income 3,901 3,015 5,224 Notes to the interim report (continued) For the six months ended 30 June 2007 5 Trade and other payables 30 June 2007 30 June 2006 31 December 2006 Â£ 000s Â£ 000s Â£ 000s Trade payables 2,862 2,017 3,298 Other taxes and social 393 136 496 security costs Accruals and deferred 997 572 1,150 income Other payables 220 220 4,472 2,725 5,164 6 Earnings per share Basic earning per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversation of all dilutive potential shares. The group has two categories of dilutive potential ordinary shares: share options granted to directors and employees and convertible unsecured loan stock. For employee share options a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. The convertible unsecured loan stock is convertible into ordinary shares at any time between the date of issue and 30 November 2013, unconditionally and at the option of the note holder. The conversion rate is Â£4.7619 nominal of Ordinary share capital for every Â£100 nominal of loan stock. These could potentially dilute the earnings per share into the future, but were not included in the calculation of diluted earnings per share because they are anti-dilutive for the periods presented. 6 months to 6 months to Year ended 30 June 2007 30 June 2006 31 December 2006 Weighted Weighted Weighted average average average number number of number of of shares 000s shares 000s shares 000s For basic earnings per 162,062 151,114 156,663 share Exercise of options 156 210 35 For diluted earnings per 162,218 151,324 156,698 share 6 months to 6 months to Year ended 30 June 2007 30 June 2006 31 December 2006 Â£ 000s Â£ 000s Â£ 000s Basic (loss)/profit (910) (170) 503 For diluted earnings per (910) (170) 503 share Basic earning per share (0.56) (0.11) 0.32 (pence) Diluted earnings per (0.56) (0.11) 0.32 share (pence) Notes to the interim report (continued) For the six months ended 30 June 2007 7 Joint Venture Name Principal Activity Country of % Owned Incorporation Unigreg Ltd Distribution of British 60.0 pharmaceutical Virgin products Islands The Group considered the existence of substantive participating rights held by the minority shareholder which provide that shareholder with a veto right over the significant financial and operating policies of Unigreg Ltd and determined that, as a result of these rights, the Group does not have control over the financial and operating policies of Unigreg Ltd, despite the Group's 60% ownership interest. The company is integrated with proportionate consolidation. The following amounts are included in the balance sheet and the profit and loss account of the Group, being the Group's share of those items. Inter-company transactions are also eliminated proportionally. 30 June 2007 Â£ 000s Intangible fixed assets 1,950 Current assets 219 Non-current liabilities 1,463 Current liabilities 183 Net assets 523 6 months to 30 June 2007 Income 219 Cost of sales 120 Administration and marketing 33 expense Interest paid 30 Profit on ordinary activities 36 before taxation This information is provided by RNS The company news service from the London Stock Exchange

Companies

Alliance Pharma (APH)

Full Archive

UK 100

Latest directors dealings

All directors dealings today