Final Results

Fulcrum Pharma PLC 14 November 2002 Immediate Release 14 November 2002 Fulcrum Pharma PLC Preliminary Results for the Period Ended 31 August 2002 Fulcrum pharma plc (lse: ful), the independent drug development company, today announces its preliminary results for the period ended 31 august 2002. Highlights: • Core drug development outsourcing business has seen significant progress over past year • PBT and exceptional items increased 68% to £917,000 (2001: £546,000) • Gross profit before exceptionals up 40% on same period last year • Adjusted, diluted EPS 0.62p - 48% increase up on figure for last year • Net funds of £5.1 million at year end • Fulcrum continuing to invest in expansion and extension of global services - US Office established and operational - Japanese office continues to trade well - Recent establishment of legal entities in Japan completed ahead of schedule o FJ KK for design and project management services o Niphix KK for specialist Contract Research Organisation services - Increased global therapeutic and drug development expertise and resources Commenting on the results, professor sir charles george, chairman of fulcrum pharma, said: 'Over the past year Fulcrum has continued to develop its brand as a leading provider of drug development services and has succeeded in growing its core business despite the current economic conditions and we see no reason for this growth to slow. The funds raised in May 2002 and the cash generated from our drug development services is being used to globalise and expand our services and to create further opportunities for revenue generation. The establishment of our first US office plus the expansion programme in Japan enables the Board to view the future with confidence.' For further information, please contact : Fulcrum Pharma PLC Jon Court, Chief Executive Tel: 0870 710 7152 Neil Oughton, Business Development Director Tel: 0870 710 7155 Buchanan Communications Nicola How / Louise Bolton Tel: 0207 466 5000 Mobile: 07771 788 116 Fulcrum Pharma PLC Preliminary Results for the Period Ended 31 August 2002 Overview Over the past year Fulcrum has continued to develop its brand as a leading provider of tailor made drug development services and solutions to small start-up companies through to some of the largest pharmaceutical houses. It remains Fulcrum's aim to be the pharmaceutical industry's first choice for optimal management of drug development. We use our 'pivotal thinking' to offer our clients a unique strategic drug development service that provides customized, cost effective, development programmes. Through these services we can add significant value to our clients' products through early Proof of Concept, efficient registration and ideal positioning of products for rapid market uptake. These kinds of cutting edge services are key to the industry improving productivity and profitability. Fulcrum offers to pharmaceutical companies a range of drug development activities covering initial preclinical development of a lead molecule originating from drug discovery (i.e. from optimised lead candidate), through to approval to market the drug globally. Fulcrum performs these services through the use of our in-house skills and processes in drug development strategy, project leadership and knowledge management and implements them through teams of suppliers brought together for each specific project, the Virtual Project Team. The services we offer include, but are not limited to: 1. Design and execution of all or parts of drug development programmes 2. Strategic and regulatory review and planning services including expert advisory board construction and management 3. Integration of Japanese and Western development programmes, in particular designing bridging strategies for Japanese development to maximise the speed and effectiveness of global drug development 4. Design, management and implementation of preclinical and early phase clinical development in Japan, including bridging studies Due to the flexible team structure and project design around client goals Fulcrum can tailor-make the development solution around the clients' outsourcing needs. Thus either all of the development or some parts of the development activities can be out-sourced to allow maximum application of client knowledge and resources whilst maintaining project transparency and control The Group's core drug development outsourcing business has achieved significant progress over the past 12 months, increasing profits by 68%. Further, management has taken steps to remove barriers to future growth. The Company has reorganised to fully support our expansion in the US and Japan and to drive a successful recruitment campaign to add more drug development skills and resources to our operations. These developments underpin our strategy to build a 'global, scalable, outsourcing Pharma business'. Financial Review Fulcrum is pleased to report a profit before tax and exceptional items of £917,000 (2001: £546,000) for the year ended 31 August 2002, achieved on a gross profit before exceptional items of £1,934,000 (2001: £1,384,000). The retained profit for the year was £1,317,000 (2001: loss of £567,000) and diluted earnings per share were 1.42p (2001:: loss per share of 1.04p). Gross profit before exceptionals increased by 40%, with administration costs increasing by only 19%. Adjusted earnings per share were 0.62p, a 48% increase on the figure of 0.42p last year. With an established healthy cash position, aided by the successful £3.25 million fundraising in May 2002, Fulcrum now has net funds of £5.1 million to support its strategy for future growth. It is your Board's intention to pay an interim dividend following the May 2003 half year results - this follows the payment of a maiden dividend in May 2002 of 0.2 p per share. Exceptional Items Reversal of P&L charges from 31 August 2001 accounts due to deferred consideration Fulcrum acquired the share capital of Fulcrum Pharma Developments Ltd (FPD Ltd) in March 2000 by means of a share for share exchange. Due to uncertainties regarding the valuation of FPD Ltd, it was agreed between the company and the vendors that additional shares would be issued by the company by way of deferred consideration, the number of such shares depending on the profits of the company in the year ending 31 August 2001. Although the directors believed that the substance of this arrangement was deferred consideration, they received advice that the appropriate accounting treatment was to charge the profit and loss account in the year ended 31 August 2001 with the fair value of the additional shares to be issued (£950,000). Following advice during the current year from Seymour Pierce Limited, amendments have been made to the share exchange agreement dated 7 March 2000. The changes eliminated certain interpretation issues and clarified the original intention of the agreement, namely that the additional shares were in the nature of deferred consideration. To reflect this amendment the exceptional charge of £950,000 recorded in the profit and loss account in the year ended 31 August 2001 has now been reversed. US and Japan Operations The exceptional charge to administrative expenses represents the initial set up costs for the Company's new subsidiaries in the USA and Japan. Since the year end, these US and Japanese subsidiaries have commenced trading. Operating Review Drug Development Services: Client Update Fulcrum's reputation in the design, project management and execution of drug development programmes in oncology has continued to grow during the last year. The company has conducted Scientific Advisory Boards in Europe and the US on behalf of Japanese and EU clients. In Japan, Fulcrum was selected to manage a new clinical trial to investigate the most appropriate combination chemotherapy for the treatment of Non-Small-Cell Lung Cancer. This study is being conducted in collaboration with the Tokyo Collaborative Oncology Group (TCOG) and will include over 30 leading Japanese clinical oncologists. The programme will run for 3 years and involves cancer medicines provided by premier Pharma companies. Fulcrum has also provided services in a number of therapeutic areas in addition to oncology. Notably, the company was contracted by the Medicines for Malaria Venture ('MMV'), an internationally funded Public Private Partnership, to work on a novel class of antimalarials. Fulcrum is responsible for working with MMV's international team to provide project leadership and problem solving skills to progress the lead molecules through the development process. MMV believe that Fulcrum are natural partners with highly complementary aspects of the virtual drug discovery and development value-chain. Client projects continue to include partial and entire drug development programmes for which Fulcrum provides resources and expertise to design, manage and execute drug development. It is the intention that Fulcrum will continue to build on its reputation for tailored drug development solutions for its clients in oncology and other therapeutic areas through the extension of existing client relationships and through the formation of new local and global contracts. Regional Synergies Fulcrum has actively used the complementary skill sets and expertise in its Japanese and UK offices to provide services to its clients. Thus Fulcrum has enabled leading Japanese Pharmas to execute their drug development strategy in Europe, and European companies to develop their products in Japan. Now, with the establishment of our US Office, the Group has expanded its ability to synergise and cross-sell between the regions. The company uses its resources from its global operations to meet the needs of 'regional' Pharma companies who wish to enter into new markets, and for large Pharma companies to provide global resources. New Products To deepen Fulcrum's skill sets and expertise even further, and therefore to enable us to expand our global offering, highly qualified and experienced drug development personnel have been recruited over the course of the past year. In particular we have strengthened our expertise in therapeutic areas such as anti-infective and CNS plus resources in manufacturing and preclinical. These additional resources are used by our Project Directors to deliver more client drug development programmes and also to enable Fulcrum to provide new 'Strategic Services'. The latter includes Drug Safety Advisory Boards, product manufacture and compliance and technical due diligence. Preferred Supplier Arrangements ('PSA') Fulcrum has continued to use Preferred Supplier Arrangements as an effective selling tool for its core drug development services. The PSA concept is where Fulcrum makes an equity or other capital investment into a client company in return for preferred supplier status to manage the development of a number of that client's products. This basic PSA concept has to date enabled the company to access clients at Board level and win fee for service business. PSA's and will continue to be used as part of the company's business development strategy. Going forward new targets for PSA's are under consideration. In the past year opportunities to create Preferred Supplier Arrangements have arisen where Fulcrum considered making investments in target companies. However at this time none of these opportunities has satisfied the necessary criteria to enable progression. In particular, it is the opinion of the Board that the volatility in the wider biotechnology and Pharma industries has made it difficult to reach a fair value assessment for a product portfolio that might be suitable for a PSA with Fulcrum. The Board is convinced that a PSA should only be established in conjunction with a fairly valued portfolio, even at the expense of a reduction in short term profits. Japan office Our Japanese office, set up in 2000 and, has continued to deliver services to leading European and Japanese Pharma companies. In order to grow the business in Japan, new, larger offices have been established in Tokyo. These new premises are helping the Company to expand the number of Project Directors and the provision of existing and new services - it will also provide enough space for our specialist CRO to be established in the next calendar year. This is another example of the Group removing barriers to business growth. US Office The US market represents over one third of the global outsourcing market and without a local presence Fulcrum was finding it difficult to make an impact. To address this issue, in June 2002 we recruited Dr Bruce McCreedy as Chief Executive Officer of our US Office in Research Triangle Park, North Carolina. It is anticipated that the core team of experienced drug developers, will be in place by the end of this calendar year and we have already begun targeting customers and developing client relationships. Further Dr McCreedy and his team have brought important new skill sets (anti-infectives and developing drugs in multi-drug resistance settings), which are being used to enhance the Fulcrum Group's overall services. European Office A successful recruitment plan has enabled fulcrum to attract further high quality experienced staff both from the UK and mainland EU. This supports the scaling up of the European operation and is a key pillar of fulcrum's strategy to build a global, scalable outsourcing pharma business. Future Strategy Fulcrum has drawn up a strategy for future growth and expansion. The essential elements of this strategy are as follows: 1. The scaling up of the UK/European operation to win and provide services for more clients. 2. Expansion of the global business development and service capacity of the Group by establishing an operational office in the US and growing our business in Japan. 3. Accessing portfolios of contracts from clients through Partnership/ Preferred Supplier Arrangements. 4. Providing new products in the development process in the EU, US and Japan through the establishment of Strategic Services Prospects With the establishment of the US Office, expansion in Japan and successful recruitment in the UK, Fulcrum is strongly placed to win and execute larger numbers of contracts of higher value and increasing duration. Fulcrum's global capabilities and unique position in Japan should translate into revenue streams that enable the Board to view the future with confidence. The Board anticipates another successful year of contract wins and international expansion and looks forward to reporting on further developments during the course of 2003. Professor Sir C F George Dr J P Court Chairman Chief Executive Officer 14 November 2002 Consolidated profit and loss account for the year ended 31 August 2002 Year ended 31 August 2002 Year ended 31 August 2001 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total Notes (Note 2) (Note 5a) £'000 £'000 £'000 £'000 £'000 £'000 Turnover 1 5,742 - 5,742 6,026 - 6,026 Cost of sales (3,808) 554 (3,254) (4,642) (554) (5,196) Gross profit 1,934 554 2,488 1,384 (554) 830 Selling expenses (275) 185 (90) (201) (185) (386) Administrative expenses (817) 196 (621) (686) (211) (897) Exceptional administrative 2 expenses related to new subsidiaries - (181) (181) - - - Total administrative expenses (817) 15 (802) (686) (211) (897) Operating profit/(loss) 842 754 1,596 497 (950) (453) Interest receivable and similar income 75 - 75 49 - 49 Profit /(loss) on ordinary activities before taxation 917 754 1,671 546 (950) (404) Tax on profit/(loss) on ordinary activities (286) 55 (231) (163) - (163) Profit /(loss) on ordinary activities after taxation 631 809 1,440 383 (950) (567) Dividends 3 (123) - (123) - - - Retained profit/(loss) for the period 5 508 809 1,317 383 (950) (567) Earnings per share (pence) (Note 4) Basic 1.44p (1.04p) Diluted 1.42p (1.04p) Adjusted basic 0.63p 0.70p Adjusted diluted 0.62p 0.42p Balance sheets at 31 August 2002 Note Group Group Company Company 2002 2001 2002 2001 £'000 £'000 £'000 £'000 Fixed assets Tangible assets 24 42 - - Investments in subsidiaries 53 - 507 133 77 42 507 133 Current assets Debtors 1,982 985 2997 2001 Short term investments 4,520 - 2168 - Cash at bank and in hand 582 1,980 23 58 7,084 2,965 5188 2059 Creditors: amounts falling due within one year (1,249) (572) (54) (23) Net current assets 5,835 2,393 5134 2036 Total assets less current liabilities 5,912 2,435 5641 2169 Provisions for liabilities and charges (5) (10) - - Net assets 5,907 2,425 5641 2169 Capital and reserves Called up share capital 1,219 615 1219 615 Share premium account 4,370 1,543 4370 1543 Merger reserve 17 (454) (133) - - Profit and loss account 17 772 400 52 11 Equity shareholders' funds 17 5,907 2,425 5641 2169 Jon Court Geoffrey Smith Director Director 14th November 2002 Consolidated cash flow statement for the year ended 31 August 2002 Note 2002 2001 £'000 £'000 Net cash inflow from operating activities 6 228 15 Returns on investment and servicing of finance Interest received 75 49 Taxation paid (145) (7) Capital expenditure and financial investment Purchase of tangible fixed assets (23) (63) Equity dividends paid to shareholders 3 (123) - Net cash inflow/(outflow) before management of liquid resources and financing 12 (6) Management of liquid resources (Increase) in short term investments (4,520) Financing Issue of ordinary share capital 3,250 1,320 Share issue costs (140) (50) 3,110 1,270 (Decrease)/increase in cash (1,398) 1,264 Reconciliation of net cash flow to movement in net funds Note 2002 2001 £'000 £'000 (Decrease)/increase in cash (1,398) 1,264 Cash flow from increase in short term investments 4,520 - Change in net funds from cash flows 3,122 1,264 Net funds at 1 September 2001 1,980 716 Net funds at 31 August 2002 6 5,102 1,980 Notes To The Accounts For the year ended 31 August 2002 1. Turnover and long term contracts Turnover, which is stated net of value added tax, represents amounts invoiced to third parties, except in respect of long-term contracts where turnover represents the sales value of work done in the year, including estimates in respect of amounts not invoiced. Turnover in respect of long-term contracts is calculated as that proportion of total contract value which costs incurred to date bear to total expected costs for that contract. Profit on long-term contracts is taken as the work is carried out if the final outcome can be assessed with reasonable certainty. The profit included is calculated on a prudent basis to reflect the proportion of the work carried out at the year end, on a contract by contract basis by recording turnover and related costs as contract activity progresses. Revenues derived from variations on contracts is recognised only when they have been accepted by the customer. Full provision is made for losses on all contracts in the year in which they are first foreseen. Milestone payments due under contractual relationships are recorded to revenue when all work related to the milestone is completed. Geographical Analysis by Region 2002 2001 £'000 £'000 United Kingdom 4,363 3,519 Rest of Europe 619 148 United States of America and Canada 109 1,528 Japan 651 831 5,742 6,026 2. Exceptional items The Group has reported a profit before tax and exceptional items of £917,000 (2001: £546,000). As set out in the paragraphs below, the Company has recorded an exceptional credit of £935,000 and an exceptional charge of £181,000 in the current year. a) Exceptional credit of £935,000 Fulcrum acquired the share capital of Fulcrum Pharma Developments Ltd (FPD Ltd) in March 2000 by means of a share for share exchange. Due to uncertainties regarding the valuation of FPD Ltd, it was agreed between the company and the vendors that additional shares would be issued by the company by way of deferred consideration, the number of such shares depending on the profits of the company in the year ending 31 August 2001. Although the directors believed that the substance of this arrangement was deferred consideration, they received advice that the appropriate accounting treatment was to charge the profit and loss account in the year ended 31 August 2001 with the fair value of the additional shares to be issued (£950,000). This charge has now been reversed. Consequently, there is an exceptional credit in the current year to reverse the prior year entry. The credit has been allocated to the same cost centres to which the exceptional charge was allocated last year, as follows: 2002 2001 £'000 £'000 Cost of sales (554) 554 Selling expenses (185) 185 Administrative expenses (196) 211 (935) 950 As disclosed in the document dated 8 March 2000, produced by the Company in connection with its admission to AIM and in the Company's annual accounts for the year ended 31 August 2000, certain shareholders, including directors, of the Company were entitled under a share exchange agreement dated 7 March 2000 to be allotted up to a maximum of 56,666,666 additional 1p ordinary shares in the Company by reference to the consolidated profits before tax of the Group for the twelve months ended 31 August 2001. Based on the profit before tax for that year, of £546,000, the Company issued 31,666,666 additional ordinary shares for no cash consideration on 11 June 2002. b) Exceptional charge £181,000 The exceptional charge to administrative expenses represents the initial set up and related costs for the Group's new subsidiaries in the USA and Japan. These subsidiaries will commence to trade in the early part of the next financial year. 3. Dividends An interim dividend of £123,000 (2001: £Nil), representing 0.2p per share, was declared and paid during the year. No final dividend has been proposed (2001: £Nil). 4. Earnings Per Share The basic earnings per ordinary share is based on the Group's profit for the year of £1,440,000 (2001: loss of £567,000) divided by the weighted average number of ordinary shares in issue, excluding those shares held by the Employee Share Ownership Plan ('ESOP'), which are treated as cancelled. In 2001, the number of shares used in the calculation of diluted earnings per share was the same as that used in the calculation of basic earnings per share as the effect of options and shares to be issued was anti-dilutive. Adjusted basic earnings per ordinary share is based on the Group's profit before exceptional items of £631,000 (2001: £383,000), divided by the weighted average number of ordinary shares in issue, excluding those shares held by the ESOP, which are treated as cancelled. The adjusted diluted earnings per share is based on the Group's profit for the year before exceptional items of £631,000 (2001: £383,000), and on 101,527,928 (2001: 90,672,904) ordinary shares calculated as follows: 2002 2001 Number Number Basic weighted average number of shares 99,846,929 54,547,619 Dilutive potential ordinary shares: - employee share options 1,680,999 2,613,023 - warrants - 1,845,596 - shares to be issued under share exchange agreement - 31,666,666 101,527,928 90,672,904 5. Reconciliation Of Movements On Reserves And Shareholders' Funds Group Called up Share Profit and share premium Merger loss capital account reserve account Total £'000 £'000 £'000 £'000 £'000 At 1 September 2001 615 1,543 (133) 400 2,425 Issue of share capital 604 2,967 - - 3,571 Issue costs - (140) - - (140) Profit for the year - - - 1,317 1,317 Unrealised exchange loss on subsidiary consolidation - - - (10) (10) Equity elimination in consolidation - - (321) - (321) Reversal of discount on shares and share options (Note 5) - - - (935) (935) At 31 August 2002 1,219 4,370 (454) 772 5,907 6. Notes To The Statement Of Cash Flows Reconciliation of the operating profit/(loss) to net cash inflow from operating activities: 2002 2001 £'000 £'000 Operating profit/(loss) 1,596 (453) Depreciation 41 34 Exchange gain (10) - Non cash exceptional item (935) 950 (Increase) in debtors (298) (93) (Decrease) in creditors (166) (423) Net cash inflow from operating activities 228 15 Analysis of net funds Cash at bank Short term and in hand investments Total £'000 £'000 £'000 At 1 September 2001 1,980 - 1,980 Cash flow (1,398) 4,520 3,122 At 31 August 2002 582 4,520 5,102 7. Announcement based on draft accounts The financial information set out in the announcement does not constitute the Company's statutory accounts for the periods ended 31 August 2002 or 2001. The financial information for the year ended 31 August 2001 is derived from the statutory accounts for that period, which have been delivered to the Registrar of Companies. The auditors reported on these accounts; their report was unqualified and did not contain a statement under s237(2) or (3) Companies Act 1985. The statutory accounts for the year ended 31 August 2002 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting. Copies of the accounts are being sent to shareholders and are also available to the public at the registered office of the Company, Hamilton House, 111 Marlowes, Hemel Hempstead, Hertfordshire HP1 1BB. This information is provided by RNS The company news service from the London Stock Exchange
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