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
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