Final Results

Phytopharm PLC 5 December 2001 5 December 2001 Preliminary results for the year ended 31 August 2001 Phytopharm plc today announces its preliminary results for the year ended 31 August 2001. Announced today * Successful completion of proof of principle clinical study of P57 for obesity (see separate press release) Period highlights * Initiation of repeat dose study in age related cognitive impairment (P58) * Extension of neuronal degeneration platform into Parkinson's disease (P63) * Establishment of large scale manufacture for canine eczema (P7v) * Completion of phase IIa study in cancer chemo-prevention (P54) * Completion of phase II study in canine arthritis (P54v) * Initiation of phase II study in inflammatory bowel disease (P54) Dr Richard Dixey, Chief Executive of Phytopharm, said: 'This has been a successful year for Phytopharm. Novel product opportunities are emerging from our drug discovery platforms in obesity, neural and muscular degeneration, dermatitis and inflammation as we continue to make good progress in the clinic, and we are now moving forward to manufacture these products on a commercial scale.' Enquiries: Phytopharm plc Today: 0207 638 4010 Dr Richard Dixey, Chief Executive Thereafter: 01480 437697 Mobile 07867 782000 Financial Dynamics Tel: 0207 831 3113 David Yates / Fiona Noblet A presentation for analysts will take place today at 9.30am at West LB Panmure Limited, Woolgate Exchange, 25 Basinghall Street, London EC4. The presentation will be recorded for a webcast which will be available on Phytopharm's website at www.phytopharm.co.uk later today. Please call Mo Noonan on 020 7831 3113 for further details. Chief Executive's Review Phytopharm's core competence in the development of new molecules discovered from nature is now firmly established, and our business is moving forward vigorously in developing the expertise to manufacture these products on a commercial scale. Running a drug development business is about managing risks, and our portfolio approach gives us multiple opportunities for success. This year we have taken the decision to focus on the products that are generated by our platforms, where we have established novel modes of action and identified active molecules of interest. These platforms cover the major therapeutic categories of obesity and metabolic disease, neural and muscular degeneration, inflammatory disease and dermatology. However, behind these platforms Phytopharm continues to conduct early evaluation programmes across a wide range of therapeutic areas. Operational Review The obesity platform, which encompasses metabolic syndrome, gives rise to product P57 which is focussed on obesity and obese onset diabetes. The platform comprises the patented use of three plant species, their mode of action and 17 related active molecules. Licensed to Pfizer Inc in 1998, we announced today the successful completion of the 'proof of principle' clinical study for this orally administered agent. In this three-stage study the safety, tolerability, pharmacokinetic profile and effects of P57 on daily calorie intake were studied in overweight volunteers. Pharmacokinetic data confirmed the systemic absorption of the active constituents of P57 in the single and repeat dose stages. In the last phase of this controlled study, overweight subjects were dosed for 15 days with P57 or placebo. The results of this study were positive and confirmed proof of principle. We saw a statistically significant reduction in the average daily calorie intake of the P57 group compared with the placebo group (p= 0.014). Data also indicated a statistically significant reduction in body fat content in the P57 group compared with the placebo group at the completion of dosing (p=0.035). No serious adverse effects were experienced by any of the subjects, and the safety data are consistent with a satisfactory emerging safety profile. This study is the fruit of a substantial research programme which we have been conducting in collaboration with Pfizer over the past three years. With predictive drug screens in operation and a clear cut demonstration of the potential of this novel approach to the treatment of obesity, we now have the basis for the substantial body of work required to carry this project forward to commercialisation. The neural and muscular degeneration platform, which includes Alzheimer's disease, involves the patented use of four plant species, their mode of action, drug screens and a library of 7 families of novel semi-synthetic compounds. Several lines of research are now progressing in parallel, including studies at the cutting edge of proteomics. The picture that is emerging is very encouraging. Not only does the research pursued by Phytopharm demonstrate that these novel molecules have the potential to reverse the age related decline in neuronal receptor expression in the brain, but they also produce powerful protective effects on these cells. This work has enabled Phytopharm to develop a series of laboratory based screens that mimic these important observations, and has guided the development of semi-synthetic analogues of the original plant based materials which combine efficacy in the laboratory screening models with the potential for manufacture at a large scale. Three separate products coded P58, P59 and P63 are now in development focussed on the reversal of age related cognitive impairment and Alzheimer's disease, neuromuscular degeneration and Parkinson's disease respectively. Manufacture of the lead candidate for age related cognitive impairment and Alzheimer's disease, P58, has been successfully scaled up to kilogram quantities. A series of pre-clinical toxicology studies has now been completed, and we announced the commencement of an extended clinical programme of repeat dosing in the elderly in November 2001. The results of the seven day phase of this study will lead to a one-month placebo controlled study in Q2 2002, and the commencement of a full phase II study in the autumn of that year. In the meantime, the programme for Parkinson's disease (P63) should enter the clinical phase in the second half of the year. Pre-clinical work has demonstrated that P63 is a powerful protective agent against neurodegeneration that is characteristic of Parkinson's disease. The inflammation platform comprises a novel, third generation non steroidal anti- inflammatory drug (NSAID) family characterised by their potent inhibition of the enzyme NFkB, the gene activator for a wide range of enzymes central to chronic inflammation. The lead candidate, a patented formulation with a novel mode of action, is in clinical evaluation for the treatment of inflammatory bowel diseases such as Crohn's disease and ulcerative colitis. The ongoing phase II study to evaluate the safety and efficacy of P54 for the treatment of steroid dependent inflammatory bowel disease is due to complete in Q2 2002. Earlier in the year we also reported the results of a dose escalation study in patients with advanced colorectal cancer. The results of this small study suggest that P54 may possess cancer chemotherapeutic as well as chemopreventive efficacy and confirmed that P54 may have a role in the prevention of colon cancer. There is also potential for the use of compounds that reduce the expression of inflammatory enzymes in the companion animal market. In July 2001 we announced the completion of a double-blind placebo controlled trial using P54v in canine osteoarthritis in which 61 dogs with osteoarthritis of the hip or elbow were recruited by the University of Bristol Veterinary School. At the end of the treatment period the investigator reported that 56% of the dogs were 'better' or 'much better' after being treated with P54 compared to 26% of those treated with placebo (p=0.047). The treatment was generally well tolerated with no serious adverse events recorded. These results have enabled us actively to pursue commercialisation of P54v in the veterinary market. A further programme arising out of this platform, codenamed P61, has continued to generate novel semi-synthetic molecules for the treatment of disorders of the digestive tract. Pre-clinical work has demonstrated that these molecules inhibit intestinal spasm in a model of irritable bowel syndrome. The lead candidate will enter development in the second half of next year. Finally, the dermatology platform comprises the patented use of five plants with a novel mode of action for the treatment of eczema. One product arising from the platform, P7v, has been the subject of Phase II evaluation in companion animals. This is the largest ever published study in canine atopy and the results were reported in Q4 last year. Mode of action work over the year has established that the product has a dual mechanism of action and targets both the allergic and the inflammatory components of eczema to alleviate the condition. Pharmaceutical development of the product has continued through the year and we are now manufacturing tonne quantities of material to GMP standards through a relationship with an experienced botanical manufacturer. Discussions with potential partners are now advancing concerning the further development and commercialisation of this product. Efforts to develop a scalable version of the active compound emerging from this platform, coded P55, are continuing. We hope to be able to announce the final specification of a dosage form during the course of 2002. Early stage product evaluation Phytopharm continues to operate a low cost early evaluation process. This enables the Company to conduct clinical studies on a wide range of products of potential therapeutic and commercial value. Inevitably, some of these studies are not successful. Last year we reported that P45, our product for alopecia androgenica failed to demonstrate a statistically significant improvement in hair re-growth when compared with placebo. We extended the study to examine this potential treatment for autoimmune alopecia, with inconclusive results. The future of our work in alopecia is now under review. Whilst it is disappointing to report early stage failures, there are an additional four projects under investigation in our early stage portfolio and thirty projects currently awaiting review. The further growth of our business arises from this activity, and it continues to play an important role in the development of new opportunities across the business. Financial Review Results of operations Turnover of £1.5m for the year (2000: £2.1m) comprises development income under the licence and development agreement with Pfizer Inc for P57, the Group's appetite suppressant. The reduction in turnover this year arises as the previous year's figure included a milestone of £0.63m for the completion of Phase I dose ranging studies earned under the Pfizer agreement. After allowing for this, the development income has remained consistent for the last two years at £1.5m as the project progressed into a multistage Phase IIa clinical study at the year end. The cost of sales of £0.31m in the previous year represents the proportion of the milestone income from Pfizer due to the CSIR from whom the Group originally licensed the product P57. Overall operating expenses for the year of £5.01m are 19% higher than the previous year, an increase of £0.79m. Within those totals expenditure on research and development rose by 19% (£0.64m) to £4.03m, with administration costs also increasing by 19% to £0.97m. The increase in research and development expenditure is due to increased expenditure across the Group's portfolio of products other than P57 where expenditure remained at a similar level to the previous year. Expenditure on P57 is anticipated to increase in the coming year following the successful completion of the multistage study announced in December 2001. Within the rest of the portfolio, expenditure on P58, the Group's treatment for age related dementias, has increased significantly as the project progresses into the clinic and larger scale manufacturing processes are developed. The increase in administrative overheads arises from a strengthening of the business development and corporate elements of the business introduced during the previous year. Interest income during the year of £0.67m is significantly higher this year (2000: £0.28m) following the fund raising in November 2000 (see below). The tax credit of £0.22m (2000: £nil) arose as the Group has taken advantage of the Research and Development corporation tax credits introduced in the Finance Act 2000 whereby the Group may surrender corporation tax losses incurred on research and development expenditure for a corporation tax refund. The increase in interest income and the tax credit have more than offset the reduction in turnover and enabled the Group to increase operating expenditure by £0.79m or 19%, while limiting the increase in the overall loss for the year by £0.47m or 22% to £2.65m. Balance sheet The net assets at the end of the year of £13.09m show a considerable increase over the previous year end figure of £4.76m due to the proceeds of the share issue in November 2000 which raised net proceeds of £10.8m. The working capital of the Group comprises 98% (2000: 96%) of the net asset value and the bulk of this is held as cash, either on hand or on term deposits. The Group has a small investment in fixed assets of £0.28m at the year end which has not changed significantly over the year. The fixed asset levels are low as the Group contracts out its research requirements and therefore does not need to finance its own laboratory facilities. Short term creditors at the year end were £1.05m and are 23% more than the previous year. This is as expected and is primarily due to higher levels of expenditure in the year ended 31 August 2001 as noted above. Financing Overall, after allowing for the share issue in November 2000 and the exercise of options during the year, the Group utilised £2.71m of working capital during 2001 (2000: £2.22m). This is equivalent to an average of £226,000 per month (2000: £185,000) during the year. Excluding the effects of the tax credit received this year (£18,700 per month) and the net milestone in the previous year (£26,200 per month), the average monthly working capital consumption figure over the current year of £245,000 has increased by £34,000 per month when compared to £211,000 per month for the previous year. The increase in expenditure was planned following the Group's fundraising and is in accordance with the Group's policy of tight control of overheads and careful allocation of resources between projects. The additional working capital raised during the year has strengthened the Group's balance sheet significantly and the directors anticipate this will allow the Group to fully develop the P58 platform to maximise its licensing potential while continuing development within the rest of the portfolio. Dr Richard Dixey Chief Executive 5 December 2001 Consolidated Profit and Loss Account for the year ended 31 August 2001 Notes 2001 2000 Unaudited Audited £'000 £'000 Turnover 2 1,471 2,078 Cost of sales - (314) __________ __________ Gross profit 1,471 1,764 Other operating expenses 3 (5,006) (4,213) __________ __________ Operating loss (3,535) (2,449) Interest receivable and similar income 666 275 Interest payable and similar charges (8) (9) __________ __________ Loss on ordinary activities before taxation (2,877) (2,183) __________ __________ Tax on loss on ordinary activities 4 224 - __________ __________ Loss for the year (2,653) (2,183) ========= ========= Basic fully diluted loss per ordinary share 5 (7.1) (6.3) (pence) IIMR loss per share (pence) 5 (7.1) (6.3) All revenue and expenses shown above were generated from continuing operations. The Group has no recognised gains or losses for the financial year other than those disclosed above. Consolidated Balance Sheet at 31 August 2001 Notes 2001 2000 Unaudited Audited £'000 £'000 Fixed assets Tangible assets 247 255 Investments 30 30 __________ __________ 277 285 Current assets Debtors 369 103 Cash held on deposit as short term investments 12,668 4,528 Cash at bank and in hand 854 792 __________ __________ 13,891 5,423 Creditors: amounts falling due within one year (1,046) (853) __________ __________ Net current assets 12,845 4,570 __________ __________ Total assets less current liabilities 13,122 4,855 __________ __________ Creditors: amounts falling due after more than one (14) (64) year Provisions for liabilities and charges (16) (31) __________ __________ Net assets 13,092 4,760 ========= ========= Capital and reserves Called up share capital 382 361 Share premium account 6 31,252 20,288 Merger reserve 6 (204) (204) Profit and loss account 6 (18,338) (15,685) __________ __________ Equity shareholders' funds 13,092 4,760 ========= ========= Consolidated Cash Flow Statement for the year ended 31 August 2001 Notes 2001 2000 Unaudited Audited £'000 £'000 Net cash outflow from continuing operating 7 (3,273) (2,458) activities _________ _________ Returns on investment and servicing of finance Interest received 666 264 Interest paid on finance leases (8) (9) _________ _________ 658 255 _________ _________ Taxation UK corporation tax paid - - _________ _________ Capital expenditure and financial investment Purchase of fixed asset investments - (30) Purchase of tangible fixed assets (128) (102) Proceeds on sale of tangible fixed assets 13 13 _________ _________ (115) (119) _________ _________ Cash outflow before use of liquid resources (2,730) (2,322) and financing _________ _________ Management of liquid resources Increase in cash held on short term deposit (8,140) (2,519) Financing Proceeds from exercise of share options 183 611 Proceeds from issue of share capital 11,030 4,387 Expenses of issue of share capital (229) (116) Repayment of principal under finance leases (52) (67) _________ _________ Net cash inflow from financing 10,932 4,815 _____________ _____________ Increase/(decrease) in cash in the year 62 (26) ======== ======== Notes to the preliminary announcement 1. Basis of preparation These financial statements have been prepared in accordance with the accounting policies set out in the annual report of the Group for the year ended 31 August 2000, together with the following: Basis of extraction The figures shown for the year to 31 August 2001 represent unaudited abridged financial statements and have not as yet been delivered to the Registrar of Companies. The comparative figures for the year to 31 August 2000 have been taken from, but do not constitute, the Group's financial statements for that financial year. Those financial statements have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under s237 (2) or (3) of the Companies Act 1985. 2. Turnover 2001 2000 Unaudited Audited £'000 £'000 By business activity Licensing and development 1,471 2,078 ======= ======= All turnover arose in the United Kingdom. 3. Other operating expenses Other operating expenses comprise: 2001 2000 Unaudited Audited £'000 £'000 Continuing operations Research and development 4,033 3,394 Administrative expenses 973 819 _________ _________ 5,006 4,213 ======== ======== 4. Tax on loss on ordinary activities 2001 2000 Unaudited Audited £'000 £'000 United Kingdom Corporation tax credit at 24% 224 - ======= ======= The Group has taken advantage of the Research and Development corporation tax credits introduced in the Finance Act 2000 whereby the Group may surrender corporation tax losses incurred on research and development expenditure for a corporation tax refund at the rate of 24 pence in the pound. 5. Loss per share The basic undiluted loss per share is based on losses of £2,653,147 (2000: loss of £2,183,222) and ordinary shares of 37,609,090 (2000: 34,923,482), being the weighted average number of shares in issue during the period. The IIMR earnings per share figure excludes gains and losses on disposals of fixed assets during the year. 6. Share premium account and reserves Share Profit premium Merger and loss account Reserve account Unaudited Unaudited Unaudited £'000 £'000 £'000 At 1 September 2000 20,288 (204) (15,685) Premium on issue of shares 11,193 - - Expenses of share issue (229) - - Loss for the year - - (2,653) __________ _________ ___________ At 31 August 2001 31,252 (204) (18,338) ========= ======== ========== 7. Reconciliation of operating loss to net cash outflow from operating activities 2001 2000 Unaudited Audited £'000 £'000 Continuing activities Operating loss (3,535) (2,449) Depreciation on tangible fixed assets 132 119 Profit on disposal of fixed assets (9) (9) (Increase)/decrease in debtors (41) 70 Increase/(decrease) in creditors 195 (220) (Decrease)/increase in provision for employer's national (15) 31 insurance on share option gains __________ __________ Net cash outflow from continuing activities (3,273) (2,458) ========= =========

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