Final Results

Fulcrum Pharma PLC 04 November 2004 For Immediate Release 4 November 2004 Fulcrum Pharma PLC Preliminary Results for the Year Ended 31 August 2004 Fulcrum Pharma plc (AIM: FUL), the drug development and strategic outsourcing services company, today announces its preliminary results for the year ended 31 August 2004. Highlights â€¢ Turnover increased 42% to Â£11.1 million (2003: Â£7.8 million) â€¢ Loss before tax of Â£1.21 million (2003: Â£947,000) including exceptional costs of Â£348,000 (2003: Â£383,000) â€¢ US subsidiary performed ahead of target â€¢ Cross sales from Japan have grown to 13% of Group fee income â€¢ Ratio of overheads to turnover has improved to 35% (2003: 43%) â€¢ Net cash remains strong at Â£2.2 million â€¢ Preferred supplier arrangement signed with BTG â€¢ Partnership arrangements announced with Addex Pharmaceuticals and BioFocus. Commenting on the results, Chairman Prof. Sir Charles George said: 'Fulcrum has had a frustrating year however our strategy has evolved and I believe the business is now well placed for the future. We intend to use our assets and knowledge, together with our global and local reach, to develop the business in the world's strongest pharmaceutical markets. We have a group of experienced scientists representing multiple disciplines and therapeutic areas who can optimise strategic drug development.' For further information, please contact: Fulcrum Pharma PLC Tel: 0870 710 7152 Jon Court, Chief Executive Buchanan Communications Tel: 020 7466 5000 Mary-Jane Johnson Fulcrum Pharma PLC Preliminary Results for the Year Ended 31 August 2004 Chairman's Report Business Review We stated in a trading update in August 2004 that Fulcrum was operating under challenging market conditions, particularly in Europe, and that the Company's future growth strategy would be adjusted in order to take advantage of the stronger market in the US. Fulcrum's turnover for the year was Â£11.1 million (2003: Â£7.81 million), the loss before tax is Â£1.21 million (2003: Â£947,000). The funding climate in Europe, which has caused biotech companies to conserve their cash, and pricing pressures, related to the weak US dollar, which have caused large pharmaceutical companies to reduce or delay decision making on outsourcing and spending, have created challenging market conditions for Fulcrum. Meanwhile other areas of Fulcrum's business are performing well and we are pleased to say that the growth strategy for the future has now been implemented. Positive steps have been taken to drive the core service business forward. These have included reorganisation of the European group which has allowed tailoring of our business development effort on a regional basis. Investment has been concentrated in the US, where growth is fastest. In addition there is continued effort to drive cross sales out of Japan to the US and Europe. The Group is actively addressing operational efficiencies in order to improve the gross profit margin and the ratio of overheads to turnover. In line with the new strategy, the US subsidiary continues to grow ahead of expectations and the Japanese subsidiary signed a major new contract in March 2004. Cross sales from Japan to the US and Europe have increased and the Company's partnership strategy has been successful. The business is now in a good position to build on its knowledge and leverage its assets. Results The results for year ended 31 August 2004 show a loss before tax and exceptional items of Â£862,000 (2003: Â£564,000). The exceptional charges of Â£348,000 (2003: Â£383,000) represent the cost of the Group's enterprise Fulcrum Ventures Limited (formerly JRiCo Ventures Limited), which was set up to in-license rights to mid-to-late clinical stage oncology products and develop them. The retained loss for the year was Â£1.4 million (2003: loss of Â£996,000) and the loss per share was 0.93p (2003: 0.62p). The ratio of overhead costs to turnover has improved to 35% compared with 43% in 2003. Fulcrum retains a healthy cash position with net funds of Â£2.2 million. An interim dividend of 0.2p per share was paid in June 2004 (2003: 0.2p per share). No second half dividend is recommended in accordance with the Company's dividend policy. Achievements During the past year Fulcrum has continued to execute its strategy to build a scaleable outsourcing business providing drug development services with global reach. Fulcrum has grown its turnover by 42% compared to the previous year. Fee income growth has been achieved in all three regions with overall growth driven by the rapid establishment of the US subsidiary, where fee income grew by 148%, and by rising cross sales from our Japan office into the US and Europe. Fulcrum has attracted clients from the key markets namely biotech, regional and large pharma. There has also been an innovative approach to 'partnerships' with clients to deepen relationships and enable the creation of long-term strategies for outsourcing. As a result we have announced agreements with Addex, BTG and BioFocus over the past 12 months. As part of the Fulcrum Ventures initiative, the company has been evaluating anti-cancer drugs under development by US and European biotech companies for registration in the Japanese market. This attractive niche area is characterised by faster development timelines and earlier returns. Whilst funding of the Fulcrum Ventures vehicle was not achieved, the company is now using the know-how developed to negotiate risk-sharing partnerships in US, Europe and Japan, involving geographic arbitrage and ownership opportunities for niche products. The Fulcrum Strategy Fulcrum continues to provide a tailored and integrated drug development offering to clients via a team of specialists and endeavours to enable its partners and clients to reach their goals more efficiently. Fulcrum intends to continue to attract and retain highly experienced individuals so that the quality of its services can be continuously improved. The cornerstones of the Group's strategy are: 1. Grow the core service business in all 3 regions and in particular the US where fees are anticipated to reach 50% of Group fee income 2. Underpin Group performance by driving cross sales from Japan 3. Further develop risk-sharing and partnership strategies in Europe, Japan and the US Board changes As announced in September, Sales & Marketing was reorganised on a regional basis. The cost of the reorganisation has been included in the results for the year ended 31 August 2004. As a consequence, there was no longer a need for a global Commercial Director. Neil Oughton, who filled this role as well as the role of Company Secretary since Fulcrum floated on AIM in 2000, left the Company at the end of September and resigned from the Board. Lesley Wotherspoon, Financial Controller, has taken over as Company Secretary. Outlook The weakness of the US dollar and the cash constraints faced by the European biotech sector will restrict order intake in the first half of the current year. However, there are indications that our strategy will result in orders picking up in the second half of the year and beyond. Your board continues to believe that long-term, sustainable shareholder value can be generated from our business. Our desire to improve performance, together with the ability to control costs and develop the cornerstones of Fulcrum's future strategy, should enable us to deliver this value. (A1) Consolidated Profit & Loss Account for the year ended 31 August 2004 Year Ended Year Ended 31 August 31 August 2004 2003 Unaudited Audited Note Â£'000 Â£'000 Turnover 2 11,085 7,809 Cost of sales (8,434) (5,554) Gross profit 2,651 2,255 Selling expenses (810) (513) Administrative expenses (2,752) (2,424) Exceptional administrative expenses 3 (348) (383) Total administrative expenses (3,100) (2,807) Operating loss (1,259) (1,065) Interest receivable and similar income 58 120 Interest payable and similar charges (9) (2) Loss on ordinary activities before taxation (1,210) (947) Tax on loss on ordinary activities 4 88 195 Loss on ordinary activities after taxation (1,122) (752) Dividends 5 (244) (244) Loss for the year transferred to reserves (1,366) (996) Loss per share (pence) 6 Basic and diluted (0.93) (0.62p) Adjusted basic and diluted (0.69) (0.30p) Statement of Total Group Recognised Gains and Losses for the year ended 31 August 2004 2004 2003 Â£'000 Â£'000 Loss on ordinary activities after taxation (1,122) (752) Exchange adjustments offset in reserves (82) 5 Total recognised gains and losses since last annual report (1,204) (747) Consolidated Balance Sheet as at 31 August 2004 Note 2004 2003 As restated Unaudited Audited Â£'000 Â£'000 Fixed assets Tangible assets 584 541 Investments 85 - 669 541 Current assets Debtors 3,351 2,930 Short term investments 1,423 2,825 Cash at bank and in hand 1,045 771 5,819 6,526 Creditors: amounts falling due within one year (2,831) (2,075) Net current assets 2,988 4,451 Total assets less current liabilities 3,657 4,992 Creditors: amounts falling due after more than one year (226) (86) Provisions for liabilities and charges - (43) Net assets 3,431 4,863 Capital and reserves Called up share capital 1,219 1,219 Share premium account 4,370 4,370 Merger reserve (454) (454) Profit and loss account (1,667) (219) Employee Share Option Trust (37) (53) Equity shareholders' funds 3,431 4,863 Consolidated Cash Flow Statement for the year ended 31 August 2004 Note 2004 2003 Â£'000 Â£'000 Net cash outflow from operating activities 8 (842) (691) Returns on investment and servicing of finance Interest received 58 120 Interest paid (9) (2) Net cash inflow from returns on investments and servicing of 49 118 finance Taxation Corporation tax 175 (209) Capital expenditure and financial investment Purchase of own shares for employee share options and awards (43) - Purchase of equity investments (85) - Purchase of tangible fixed assets (293) (614) Net cash ouflow form capital expenditure and financial investment (421) (614) Dividends Equity dividends paid to shareholders 5 (244) (244) Net cash outflow before management of liquid resources and (1,283) (1,640) financing Management of liquid resources Decrease in short term investments 1,402 1,695 Financing New finance leases 58 75 Bank loan received 152 75 Capital element of finance lease payments (32) (8) Bank loan repayments (23) (8) 155 134 Increase in cash 7 274 189 Reconciliation of net cash flow to movement in net funds Note 2004 2003 Â£'000 Â£'000 Increase in cash 274 189 Increase in bank loans (129) (67) Cash flow from decrease in short term investments (1,402) (1,695) Increase in finance leases (26) (67) Change in net funds from cash flows (1,283) (1,640) Net funds at 1 September 3,462 5,102 Net funds at 31 August 8 2,179 3,462 1 Financial Information The results for the year ended 31 August 2004 are unaudited and do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. They have been drawn up using accounting policies and principles consistent with those applied in the preparation of the audited accounts for the year ended 31 August 2003, with the exception of the Employee Share Option Trust, which has been accounted for in accordance with UITF 38 (note 7). The comparative information contained in the report for the year ended 31 August 2003 does not constitute the statutory accounts for the financial period. Those accounts have been reported on by the Company's Auditors, PricewaterhouseCoopers, and delivered to the Registrar of Companies. The report of the Auditors was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act. 2 Turnover Turnover represents sales to third parties including fee income and pass through costs. Geographical analysis by region 2004 2003 Â£'000 Â£'000 Europe 3,414 2,447 USA 1,305 526 Japan 1,192 928 Total Fee Income 5,911 3,901 Passthrough costs 5,174 3,908 Turnover 11,085 7,809 Geographical analysis by customer 2004 2003 Â£'000 Â£'000 United Kingdom 4,218 3,935 Rest of Europe 1,448 655 North America 2,904 1,845 Japan 2,515 1,374 Turnover 11,085 7,809 3 Exceptional items The Group has reported a loss before tax and exceptional items of Â£862,000 (2003: 564,000). The Group has recorded an exceptional charge in respect of administrative expenses of Â£348,000(2003: Â£383,000). The charges represent the cost of the Group's enterprise, Fulcrum Ventures Limited (formerly JRiCo Ventures Limited), which was set up to in-licence rights to mid-to-late clinical stage oncology products and develop them. 2004 2003 Â£'000 Â£'000 Loss on ordinary activities before tax (1,210) (947) Exceptional administrative expenses 348 383 Loss on ordinary activities before taxation and exceptional items (862) (564) 4 Tax on loss on ordinary activities 2004 2003 Â£'000 Â£'000 Current taxation UK corporation tax at 30% (63) (190) Adjustment in respect of prior period 18 (43) (45) (233) Deferred taxation Origination and reversal of timing differences (43) 38 (88) (195) The tax credit includes a Research & Development tax credit of Â£63,000 (2003: Â£nil), which relates to the exceptional costs. 5 Dividends An interim dividend of Â£244,000 (2003: Â£244,000), representing 0.2p per share (2003: 0.2p per share), was declared and paid during the year. The dividend was paid from the distributable reserves of Fulcrum Pharma plc. No final dividend has been proposed (2003: Â£nil). 6 Loss per share 2004 2003 Basic loss per share (0.93)p (0.62)p Adjustment for exceptional costs 0.24p 0.32p Adjusted loss per share (0.69)p (0.30)p The basic loss per ordinary share is based on the Group's loss for the year of Â£1,122,000 (2003: Â£752,000) divided by the weighted average number of ordinary shares in issue, excluding those shares held by the Employee Share Ownership Trust ('ESOT'). 6 Loss per share (continued) In 2004 and in 2003, the number of shares used in the calculation of diluted loss per share was the same as that used in the calculation of basic loss per share as the Group incurred a loss. Exceptional costs charged against operating profit and exceptional tax credits do not relate to the results of the Group on an ongoing basis. Therefore an adjusted loss per ordinary share is presented based on the Group's loss before exceptional items of Â£837,000 (2003: Â£369,000), divided by the weighted average number of ordinary shares in issue, excluding those shares held by the ESOT. 2004 2003 Number Number Weighted average number of shares for basic and fully diluted EPS 121,151,541 121,401,451 7 Employee Share Option Trust In accordance with UITF 38 the balance sheet has been restated to disclose the Employee Share Option Trust as a deduction from Capital and Reserves. It was previously accounted for as a fixed asset investment. 8 Notes to the consolidated cash flow statement Reconciliation of the operating loss to net cash outflow from operating activities: 2004 2003 Â£'000 Â£'000 Operating loss (1,259) (1,065) Depreciation 236 97 Shares in ESOP written down or sold 59 - Exchange (loss)/gain (82) 4 Increase in debtors (547) (740) Increase in creditors 751 1,013 Net cash outflow from operating activities (842) (691) 8 Notes to the consolidated cash flow statement (continued) Analysis of net funds As at As at 1 September 31 August 2003 Cash flow 2004 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 771 274 1,045 Bank loan (67) (129) (196) Short term investment 2,825 (1,402) 1,423 Finance lease (67) (26) (93) 3,462 (1,283) 2,179 9 Copies of Annual Report Copies of the Annual Report are being sent to the shareholders and will be available to the public at the registered office of Fulcrum Pharma plc, 5th Floor, Kodak House, Station Road, Hemel Hempstead, Hertfordshire, HP1 1JY. -------------------------- (A1) This information is provided by RNS The company news service from the London Stock Exchange

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