Announcement of Interim Results

6th Aug 2009 07:00



6 August 2009

Announcement of Interim results for the six months ended 30 June 2009

Vernalis plc (LSE: VER) today announces its interim results for the six months ended 30 June 2009.

Highlights

Announced today

Collaboration, option and licence agreement with GSK over an oncology target signed with a $6 million up-front payment. Over $200 million potential milestones and up to double digit royalties for oncology indication, with further equivalent milestones and royalties if developed outside oncology. 

Financial

£22.1 million (net of expenses) equity financing

£27.8 million of cash at 30 June 2009

Pipeline news

NVP-HSP990 (Cancer) - Novartis initiated a Phase I study with an oral Hsp90 inhibitor triggering a $1.5 million milestone on first dosing in man

V158411 (Cancer) - development candidate targeting Chk1 entered pre-clinical testing

NVP-AUY922 (Cancer) - Novartis published interim Phase I/II data at ASCO

V158866 (Chronic pain) - development candidate targeting FAAH entered pre-clinical testing

V2006 (Parkinson's) - headline data presented by Biogen Idec from two Phase IIa studies

Frovatriptan approved in South Korea for acute migraine

Partnering

New Servier research collaboration on an undisclosed oncology target

Anticipated Newsflow

V3381 - complete Phase IIb recruitment Q4 2009 

V1512  - possible partnering H2 2009

NVP-AUY922 - start Phase II (Novartis) Undisclosed

V85546 - possible partnering 2009-2010

V3381 - Phase IIb results & possible partnering 2010

V158866 - file IND / start Phase I 2010

V158411 - file IND / start Phase I 2010

V2006 - start registrational studies (Biogen Idec) Undisclosed

Peter Fellner, Chairman, commented, "Vernalis has been transformed during the first half of 2009 following the appointment of Ian Garland as CEO and David Mackney as CFO. The successful equity fundraising, that closed in May provides cash which will enable further advances in Vernalis' broad clinical pipeline. There has already been great progress during the first half of 2009 on both the pipeline and in research where we have secured new external collaborations with GSK and Servier that endorse both the quality of our work and our research capabilities. The Company ended the half year with £27.8 million in cash and has secured a further $7.5 million since the end of the period from Novartis and GSK. The Company is positioned well to continue rebuilding substantial shareholder value."

-- ends --

Enquiries:

Vernalis Contacts

Ian Garland, Chief Executive Officer +44 (0) 118 989 9360

David Mackney, Chief Financial Officer

Brunswick Group

Jon Coles +44 (0) 20 7404 5959

Justine McIlroy

Notes to Editors

About Vernalis

Vernalis is a development stage pharmaceutical company with significant expertise both in de novo fragment and structure-based drug discovery and pre-clinical and clinical development. The Group has seven product candidates in clinical development (three of which are partnered), two programmes in pre-clinical, as well as other competitive research programmes. Our technologies, capabilities and products are endorsed by collaborations with leading, global pharmaceutical companies including GSK, Biogen Idec, Novartis, Servier, Chiesi, Menarini, and Endo.

Product	Indication	Pre-Clinical	Phase I	Phase II	Phase III	Marketing Rights
Priority Programmes
V3381	Neuropathic Pain			X		Worldwide
V2006	Parkinson's Disease			X		Biogen Idec
V85546	Inflammatory Disease		X			Worldwide
NVP-AUY922	Cancer		X			Novartis
NVP-HSP990	Cancer		X			Novartis
V158866	Pain	X				Worldwide
V158411 (Chk1)	Cancer	X				Worldwide
Progress through partnering
V1512	Parkinson's Disease			X		Worldwide (excl. Italy)
V10153	Ischaemic Stroke			X		Worldwide

For further information about Vernalis, please visit www.vernalis.com

Vernalis Forward-Looking Statement

This news release may contain forward-looking statements that reflect the Company's current expectations regarding future events including the clinical development and regulatory clearance of the Company's products, the Company's ability to find partners for the development and commercialisation of its products, as well as the Company's future capital raising activities. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors including the success of the Company's research strategies, the applicability of the discoveries made therein, the successful and timely completion of clinical studies, the uncertainties related to the regulatory process, the ability of the Company to identify and agree beneficial terms with suitable partners for the commercialisation and/or development of its products, as well as the achievement of expected synergies from such transactions, the acceptance of Frova® and other products by consumers and medical professionals, the successful integration of completed mergers and acquisitions and achievement of expected synergies from such transactions, and the ability of the Company to identify and consummate suitable strategic and business combination transactions.

 Strategic and operational review

Following the appointment of Ian Garland as Chief Executive Officer at the end of 2008, Vernalis' strategy to rebuild substantial shareholder value has focussed upon a risk-based approach to investment in potential high value novel medicines while retaining a tight control of costs. The Company will progress programmes of interest to partners and will selectively invest up to proof-of-concept to increase the value of in-house programmes. Programmes will be partnered when they provide a substantial return or the risk of continued investment in-house is too great. The Company will continue to invest in in-house research the size of which will be based upon the level of collaborative partnerships that can be secured.

Strong cash position

The successful implementation of this strategy was dependent upon Vernalis having sufficient cash resources to invest selectively in its in-house programmes whilst also providing a runway during which it can secure new partnerships and benefit from the progression of its already partnered programmes. The Company secured the required cash resources through its £22.1 million (net of expenses) equity financing that closed in May. The Company ended the half year with £27.8 million of cash.  Since the end of the half year a further $7.5 million will be received from up-front and milestone receipts on licensing deals with GSK and Novartis and as a result the Company has a runway to the middle of 2011, excluding any future revenues arising from partnerships. 

Pipeline advances

The first half of this year was not only about securing cash resources for the immediate future. There has also been excellent progress within the in-house and already partnered pipeline. In March Vernalis declared a development candidate (V158866) from its FAAH chronic pain research programme and in July declared a development candidate (V158411) from its Chk1 oncology programme. Both of these programmes will now progress into pre-clinical testing with the goal of filing an IND for each of them during 2010. As set out in the prospectus, published in conjunction with the equity financing, the Company will invest in both of these programmes through to Phase I.

There has also been good progress with our already partnered programmes. In March, Biogen Idec disclosed favourable data from two Phase IIa studies of V2006 (BIIB014) in Parkinson's disease. In May, Novartis published interim data from an ongoing Phase I/II cancer study of the intravenous Hsp90 inhibitor NVP-AUY922 and in July we announced that Novartis had progressed NVP-HSP990, an oral Hsp90 inhibitor, into a Phase I cancer study which triggered a $1.5 million milestone receipt.  At the time that Novartis published interim data on NVP-AUY922 at ASCO, 60 patients had been recruited into the trial at doses ranging from 2 to 54 mg/m2. The maximum tolerated dose had not been reached and recruitment was continuing. Seven patients had received multiple cycles of treatment, including one patient who had received 20 cycles.

Recruitment of patients into the ongoing V3381 neuropathic pain Phase IIb IN-STEP study is strong with over 100 of the required 150 patients having been recruited at the time of releasing our half year results. Neuropathic pain is a challenging and risky area with studies traditionally showing a high placebo response. Clearly these risks are applicable to our development of V3381 although the V3381 IN-STEP study includes an innovative placebo run-in period designed to minimise the confounding effects of any patients who are marked placebo-responders.  Based upon current recruitment rates we expect to beat our goal of full enrolment by the end of the year and now expect full enrolment in Q4. 

 New collaboration, option and licensing deal

As separately announced today we signed a collaboration, option and licence agreement with GSK relating to an undisclosed oncology research programme. The deal is structured as a risk-sharing agreement, with Vernalis responsible for drug discovery activities and GSK for pre-clinical development. Upon IND filing, GSK will have the option to license all collaboration compounds and if this is exercised, will then be responsible for all future development and commercialisation activities. 

Under the terms of the deal, the Company will receive $6 million upon signing (including a $3 million subscription for new equity). In addition to the upfront payments Vernalis is eligible to earn potential milestone payments in excess of $200 million and up to double digit royalties based upon worldwide sales of an oncology product. Further equivalent milestones and royalties could be earned should products against the target be developed for indications outside of oncology.

Research

We set ourselves the goal of underpinning the Company's research operations through external collaborations. In May this year we announced that we had secured a second oncology research collaboration with Servier which together with our existing Servier collaboration and the GSK deal meets our near term goals of substantially financing these operations. The risk based nature of the GSK deal and success based milestone funding that it provides, mean that the Company's cash runway extends through to the middle of 2011 with an upside beyond that point if success based milestones are achieved. We will continue to explore other oncology and structure based drug design collaborations to further enhance the funding of our research infrastructure.

Partnering activities

Significant effort continues to be invested in partnering V1512 and V85546. Discussions with a number of parties are ongoing related to V1512. An active partnering programme for V85546 commenced in April and following initial discussions, potential partners have expressed an encouraging level of interest in the programme.

Outlook and anticipated newsflow

With seven priority development stage programmes, five in clinical development, two in pre-clinical development, and two programmes that we hope to progress through partnering, newsflow in the medium term is expected to be strong. 

V3381 - complete Phase IIb recruitment Q4 2009

V1512 - possible partnering H2 2009

NVP-AUY922 - start Phase II (Novartis) Undisclosed

V85546 - possible partnering 2009-2010

V3381 - Phase IIb results & possible partnering 2010

V158866 - file IND / start Phase I 2010

V158411 - file IND / start Phase I 2010

V2006 - start registrational studies (Biogen Idec) Undisclosed

 Financial Review

Income Statement

The 2008 financial results included exceptional items resulting from the early settlement of a loan due to Endo in February 2008 and the business reorganisation. In order to make the year on year comparison relevant in understanding the performance of the underlying business, references to 2008 will be made on a pre-exceptional basis unless otherwise stated.

Revenue for the 6 months ended 30 June 2009 was £5.7 million (2008: £3.3 million). These revenues comprised income from frovatriptan in Europe of £2.7 million (2008: £1.9 million), reflecting the supply of active pharmaceutical ingredient to Menarini, and collaboration income of £3.0 million (2008: £1.4 million) which included the NVP-HSP990 $1.5 million milestone from Novartis and the new research collaboration agreement with Servier. 

Total revenues including pre-exceptional revenue in 2008, was £47.9 million but included exceptional revenues of £44.6 million as a consequence of the early settlement of the loan due to Endo in February 2008.

Cost of sales for the 6 months ended 30 June 2009 was £1.3 million (2008: £0.9 million) and included supplies of frovatriptan for Europe and the amortisation of frovatriptan intangible asset.

The exceptional cost of sales in 2008 of £13.6 million resulted from the accelerated amortisation of the frovatriptan intangible asset relating to the US rights.

Research and development expenditure for the six months ended 30 June 2009 was £7.2 million (2008: £9.0 million). Expenditure of £6.1 million (2008: £7.8 million) was incurred on internally funded R&D with the reduction due to savings resulting from our cost containment efforts together with a full 6 month impact of the business restructuring announced in February 2008. Expenditure of £1.1 million (2008: £1.2 million) was incurred on clinical trials and manufacture of product candidates, primarily in relation to V3381.

General and administrative expenditure was £2.5 million (2008: £3.0 million) reflecting an increased emphasis on cost management during the period.

The exceptional charge of £4.7 million recognised in 2008 comprised restructuring costs of £2.9 million and a vacant lease provision of £1.8 million, following the decision to vacate a proportion of the Company's premises in Winnersh. 

The operating loss for the six months ended 30 June 2009 was £5.3 million (2008: £9.6 million). 

The operating profit for 2008 including exceptional items was £16.8 million.

Finance income increased to £2.4 million (2008: £0.6 million) due principally to a £2.2 million (2008: £0.1 million) foreign exchange gain on the Paul Capital Healthcare loan. This gain does not represent a reduction in the loan balance payable but arises purely on the retranslation of this Euro denominated loan into sterling. This loan is being repaid in Euros from the EU Frova royalty income stream. Interest received, decreased in the period to £0.1 million (2008: £0.5 million) due to the impact of lower interest rates. There was also £0.1 million foreign exchange gain on the GSK frovatriptan liability that was settled in the period.

Finance expense increased to £3.3 million (2008: £1.7 million) and included a finance charge of £2.8 million (2008: £0.9 million) in respect of the Paul Capital Healthcare loan, exchange losses of £0.4 million (2008: £0.4 million) and an implicit finance charge of £0.1 million (2008: £0.3 million). Also included in 2008 was £0.1 million of interest payable to Endo.

The tax credit of £0.9 million (2008: £0.7 million) represents amounts that are expected to be received under current legislation on research and development tax credits for small and medium sized companies for the six month period.

The loss from continuing operations for the 6 month period to 30 June 2009 was £5.3 million (2008: £10.0 million).

The profit for the 6 months period to 30 June 2008 of £13.0 million but included a loss on discontinued operations on the sale of the US commercial business to Ipsen of £3.3 million and a net exceptional profit of £26.4 million from the early settlement of the Endo loan and other items that resulted from the business reorganisation.

Balance Sheet

Non-current assets at 30 June 2009 amounted to £16.0 million (31 December 2008: £17.3 million) with the reduction due to the accelerated amortisation of the US frovatriptan carrying value referred to above and the decrease in value of intellectual property due to foreign exchange movements.

Current assets at 30 June 2009 amounted to £35.6 million (31 December 2008: £23.5 million). The increase was principally due to the £22.1 million (net of expenses) equity fundraising received in May offset by cash utilised in the period.

Non-current liabilities totalled £19.0 million (31 December 2008: £20.7 million). The reduction principally was due to repayments of the Paul Capital Healthcare loan and a decrease in deferred income.

Current liabilities totalled £9.6 million (31 December 2008: £13.4 million). The reduction is due to the $5 million final milestone payment to GSK in respect of frovatriptan.

At 30 June 2009 the Group had net assets of £23.1 million (31 December 2008: £6.7 million).

During the period and as part of the equity fundraising, there was a share capital reorganisation, together with a share consolidation. The result of these activities, is that the company now has 58.1 million ordinary shares in issue at a nominal value of 20 pence per share, after issuing 40 million shares in the equity fundraising.

Cash Flow

Cash resources, comprising held to maturity financial assets and cash and cash equivalents, at 30 June 2009 amounted to £27.8 million (31 December 2008: £17.2 million).

During the period the Group received £22.1 million net of expenses from an equity fundraising and paid a $5 million final milestone payment to GSK in respect of frovatriptan.

The cash burn of the underlying business was approximately £8 million for the first 6 months of the year.

Outlook

Following the successful fundraising earlier this year the Group is now on a much firmer financial footing which will allow the execution of its business strategy over the next 2 years. With the upfront income from the GSK collaboration, together with the NVP-HSP990 milestone of $1.5 million, we expect our cash resources will take us to the middle of 2011.

Principal Risks

Vernalis considers strategic, operational and financial risks and identifies actions to mitigate risks. The principal risks and uncertainties for the remaining six months of the financial year are discussed below. Further details of the Group's risk profile can be found in the Annual Report for the year ended 31 December 2008, available on the website www.vernalis.com.

Vernalis is a development stage pharmaceutical company with a portfolio of research programmes and several product candidates in the clinic. Across the pharmaceutical industry as a whole, more product candidates fail in clinical studies than produce successful marketed products. Success or failure with Vernalis' product candidates will have a significant impact on the Company's prospects including the ability to secure licensing agreements on existing products, to successfully execute on M&A, and to secure further finance in the future.

Related Parties

Related party disclosures are given in note 9.

 

Independent review report to Vernalis plc

Introduction

We have been engaged by the company to review the condensed consolidated financial information in the half-yearly financial report for the six months ended 30 June 2009, which comprises the unaudited condensed consolidated balance sheet, unaudited condensed consolidated income statement, unaudited condensed statement of comprehensive income, unaudited condensed statement of changes in equity, unaudited condensed statement of cash flows and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial information of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed consolidated financial information in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed financial information in the half-yearly financial report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP Chartered Accountants 6 August 2009 Reading 

  Unaudited condensed consolidated balance sheet

As at 30 June 2009

		30 June	31 December
		2009	2008
	Note	£000	£000
Assets
Property, plant and equipment	5	879	818
Intangible assets		15,137	16,448
Available-for-sale financial assets		-	6
Non-current assets		16,016	17,272
Inventories		500	351
Trade and other receivables		5,049	4,394
Tax receivable		2,248	1,593
Held-to-maturity financial assets		19,003	2,500
Cash and cash equivalents		8,822	14,652
Current assets		35,622	23,490
Total assets		51,638	40,762
Liabilities and shareholders' equity
Liabilities
Paul Capital funding liability	6	12,803	13,813
Deferred income		344	755
Provisions		5,833	6,168
Non-current liabilities		18,980	20,736
Paul Capital funding liability	6	3,015	3,572
Trade and other liabilities		4,391	7,805
Deferred income		1,309	1,019
Provisions		881	955
Current liabilities		9,596	13,351
Total liabilities		28,576	34,087
Shareholders' equity
Share capital	7	11,623	49,869
Share premium		384,452	370,390
Other reserves	8	234,934	189,016
Retained deficit		(607,947)	(602,600)
Total shareholders' equity		23,062	6,675
Total liabilities and shareholders' equity		51,638	40,762

The notes form part of this condensed financial information.  Unaudited condensed consolidated income statement

For the six months ended 30 June 2009

		Six months ended 30 June 2009	Six months ended 30 June 2008
	Note		Pre-exceptional items	Exceptional items	Total
		£000	£000	£000	£000
Revenue		5,682	3,324	44,595	47,919
Cost of sales		(1,283)	(882)	(13,562)	(14,444)
Research and development expenditure		(7,178)	(8,996)	-	(8,996)
General and administrative expenditure		(2,521)	(3,040)	(4,683)	(7,723)
Operating (loss)/profit		(5,300)	(9,594)	26,350	16,756
Finance income	3	2,371	623	-	623
Finance expense	3	(3,298)	(1,733)	-	(1,733)
(Loss)/profit on ordinary activities before taxation		(6,227)	(10,704)	26,350	15,646
Tax credit on loss on ordinary activities		880	718	-	718
(Loss)/profit for the period from continuing operations		(5,347)	(9,986)	26,350	16,364
(Loss)/profit for the period from discontinued operations		-	(3,531)	200	(3,331)
(Loss)/profit for the period		(5,347)	(13,517)	26,550	13,033
(Loss)/earnings per share (basic and diluted)	4	(19.5)p	(82.4)p	161.9p	79.5p

The notes form part of this condensed financial information.  Unaudited condensed statement of comprehensive income

	Six months ended 30 June 2009	Six months ended 30 June 2008
	£000	£000
(Loss)/profit for the period from continuing operations	(5,347)	16,364
Loss for the period from discontinued operations	-	(3,331)
Other comprehensive income:
Revaluation of assets available for sale	(7)	2
Exchange loss on translation of overseas subsidiaries	(658)	(562)
Total comprehensive income	(6,012)	12,473

The notes form part of this condensed financial information.  Unaudited condensed statement of changes in equity

	Share capital	Share premium	Other reserves	Retained deficit	Total
	£000	£000	£000	£000	£000
Balance at 1 January 2008	48,106	369,633	185,687	(602,551)	875
Profit for the period from continuing operations	-	-	-	16,364	16,364
Loss for the period from discontinued operations	-	-	-	(3,331)	(3,331)
Other comprehensive income:
Revaluation of assets available for sale	-	-	2	-	2
Exchange loss on translation of overseas subsidiaries	-	-	(562)	-	(562)
Total comprehensive income for the period ended 30 June 2008	-	-	(560)	13,033	12,473
Transactions with owners:
Share-based payments charge	-	-	1,434	-	1,434
	-	-	1,434	-	1,434
Balance at 30 June 2008	48,106	369,633	186,561	(589,518)	14,782
Balance at 1 January 2009	49,869	370,390	189,016	(602,600)	6,675
Loss for the period from continuing operations	-	-	-	(5,347)	(5,347)
Other comprehensive income:
Revaluation of assets available for sale	-	-	(7)	-	(7)
Exchange loss on translation of overseas subsidiaries	-	-	(658)	-	(658)
Total comprehensive income for the period ended 30 June 2009	-	-	(665)	(5,347)	(6,012)
Transactions with owners:
Issue of equity share capital	7,991	15,982	-	-	23,973
Expenses on issue of share capital	-	(1,920)	-	-	(1,920)
Shares purchased for cancellation	(46,237)		46,237	-	-
Share-based payments charge	-	-	346	-	346
	(38,246)	14,062	46,583	-	22,399
Balance at 30 June 2009	11,623	384,452	234,934	(607,947)	23,062

  Unaudited condensed statement of cash flows

	30 June	30 June
	2009	2008
	£000	£000
Cash flows from operating activities
(Loss)/profit  for the period from continuing operations	(5,347)	16,364
Loss for the period from discontinued operations	-	(3,331)
(Loss)/profit for the period from continuing and discontinued operations	(5,347)	13,033
Taxation	(880)	(692)
Depreciation	148	177
Loss on disposal of property plant and equipment	-	178
Amortisation, impairment and disposal of intangible fixed assets	676	14,237
Movement in provision for loss on sale of discontinued operations	-	(200)
Movement in provisions	(508)	1,688
Decrease in deferred income	(121)	(21,346)
Share-based payments charge	346	1,434
Finance income	(2,371)	(635)
Finance expense	3,298	1,745
Exchange loss/(gain)	246	(3)
	(4,513)	9,616
Changes in working capital
Increase in inventories	(149)	(247)
(Increase)/decrease in receivables	(1,114)	4,300
Decrease in liabilities	(3,219)	(1,225)
Cash (used in)/generated from operations	(8,995)	12,444
Taxation received	296	-
Taxation paid	-	(85)
Interest paid	-	(890)
Net cash (used in)/generated from operating activities	(8,699)	11,469
Cash flows from investing activities
Purchase of property, plant and equipment	(209)	(12)
Fees incurred on asset held for sale	-	(942)
Interest received on cash and cash equivalents	107	516
Interest received on financial assets held to maturity	46	5
Net cash used in investing activities	(56)	(433)
Cash flows from financing activities
Receipt of funds from Paul Capital	-	14,670
Repayment of Paul Capital funding liability	(2,261)	(773)
Repayment of US dollar secured loan	-	(27,681)
Movement in held-to-maturity financial assets	(16,503)	(7,677)
Issue of shares	23,973	-
Share issue costs	(1,920)	-
Capital element of finance lease payments	-	(104)
Net cash generated from/(used in) financing activities	3,289	(21,565)
Foreign exchange loss on cash and cash equivalents	(364)	(323)
Movements in cash and cash equivalents in the period	(5,830)	(10,852)
Cash and cash equivalents at the beginning of the period	14,652	20,076
Cash and cash equivalents at the end of the period	8,822	9,224
Cash and cash equivalents	8,822	9,224
Held-to-maturity financial assets	19,003	2,500
Total cash, cash equivalents and held-to-maturity financial assets	27,825	11,724

  Notes to the unaudited condensed financial information for the six months ended 30 June 2009

1 Accounting policies and basis of preparation

This condensed consolidated financial information for the six months ended 30 June 2009 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2008, which have been prepared in accordance with IFRSs as adopted by the European Union.

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2008, as described in those annual financial statements.

This condensed consolidated financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2008 were approved by the Board of directors on 29 April 2009 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 237 of the Companies Act 1985.

This condensed consolidated financial information has been reviewed but not audited and was approved for issue on 6 August 2009.

The Company is a public limited liability company incorporated and domiciled in the UK. The address of its registered office is Oakdene Court, 613 Reading Road, Winnersh, Berkshire, RG41 5UA and its primary listing is on the London Stock Exchange.

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2009.

IAS 1 (revised), 'Presentation of financial statements'. The revised standard prohibits the presentation of items of income and expenses (that is 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity. All 'non-owner changes in equity' are required to be shown in a performance statement.

 

Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income).

The Group has elected to present two statements: an income statement and a statement of comprehensive income. The financial statements have been prepared under the revised disclosure requirements. 

IFRS 8, 'Operating segments'. IFRS 8 replaces IAS 14, 'Segment reporting'. It requires a 'management approach' under which segment information is presented on the same basis as that used for internal reporting purposes. This has not resulted in a change in the number of reportable segments presented.

Operating segments are reported in a manner consistent with the internal reporting provided to the 

chief operating decision-maker. The chief operating decision-maker has been identified as the

Board that makes strategic decisions.

The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2009, but are not currently relevant for the Group.

IFRIC 13, 'Customer loyalty programmes'.

IFRIC 15, 'Agreements for the construction of real estate'.

IFRIC 16, 'Hedges of a net investment in a foreign operation'.

IAS 39 (amendment), 'Financial instruments: Recognition and measurement'.

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2009 and have not been adopted early:

IFRS 3 (revised), 'Business combinations' and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates' and IAS 31, 'Interests in joint ventures', effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. 

The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the statement of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the minority interest in the acquiree either at fair value or at the minority interest's proportionate share of the acquiree's net assets. All acquisition-related costs should be expensed. The Group will apply IFRS 3 (revised) to all business combinations from 1 January 2010, subject to endorsement by the EU.

IFRIC 17, 'Distributions of non-cash assets to owners', effective for annual periods beginning on or after 1 July 2009. This is not currently applicable to the Group, as it has not made any non-cash distributions. 

 

IFRIC 18, 'Transfers of assets from customers', effective for transfers of assets received on or after 1 July 2009. This is not relevant to the Group, as it has not received any assets from customers. 

 

2 Segmental information

 

After the sale and closure of the Group's North American operations there is only one reporting segment.

 

During 2008 the Group's primary segmental reporting was by geographical location of assets.

Geographical segments

During 2008 the Group's operations were split into two geographical areas based on the selling entity location. The UK is the home country of the parent.

	Continuing			Discontinued			Total
	Six months to 30 June 2008			Six months to 30 June 2008			Six months to 30 June 2008
	UK	North America	Total	UK	North America	Total	UK	North America	Total
Primary reporting format - geographic	£000	£000	£000	£000	£000	£000	£000	£000	£000
Revenue	47,919	-	47,919	171	968	1,139	48,090	968	49,058
Segmental operating profit/(loss) before intercompany allocations	17,459	(703)	16,756	(477)	(3,028)	(3,505)	16,982	(3,731)	13,251
Intercompany allocations	-	-	-	(2,673)	2,673	-	(2,673)	2,673	-
Segmental operating profit/(loss)	17,459	(703)	16,756	(3,150)	(355)	(3,505)	14,309	(1,058)	13,251
Loss recognised on measurement to fair value less costs to sell	-	-	-	200	-	200	200	-	200
Finance income	623	-	623	-	12	12	623	12	635
Finance expense	(1,733)	-	(1,733)	-	(12)	(12)	(1,733)	(12)	(1,745)
Profit/(loss) on ordinary activities before taxation	16,349	(703)	15,646	(2,950)	(355)	(3,305)	13,399	(1,058)	12,341
Tax credit/(charge) on loss on ordinary activities	718	-	718	-	(26)	(26)	718	(26)	692
Profit/(loss) for the year	17,067	(703)	16,364	(2,950)	(381)	(3,331)	14,117	(1,084)	13,033

 

3 Finance charge

	Six months ended 30 June 2009	Six months ended 30 June 2008
Continuing operations	£000	£000
Finance income
Interest on cash, cash equivalents and held-to-maturity assets	105	421
Exchange gains on royalty buy-out from GSK	103	-
Exchange gains on Paul Capital funding liability	2,141	108
Other interest	22	94
	2,371	623
Finance expense
Finance costs on the Paul Capital funding liability	2,835	878
Loans repayable wholly or partly within five years	-	124
Exchange loss on cash	364	323
Exchange loss on long-term loan	-	36
Unwinding of discount on contingent deferred consideration on purchase of intangible assets	-	234
Unwinding of discount on royalty buy-out from GSK	-	12
Unwinding of discount on provision	99	126
	3,298	1,733

 

4 (Loss)/earnings per share

Basic (loss)/earnings per share is calculated by dividing the (loss)/profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

For diluted (loss)/earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion for all dilutive potential ordinary shares.

For diluted (loss)/earnings per share, all potential ordinary shares including options and deferred shares are antidilutive.

	Six months ended 30 June	Six months ended 30 June
	2009	2008
Attributable loss before exceptional items (£000)	(5,347)	(13,517)
Exceptional items (£000)	-	26,550
Attributable (loss)/profit (£000)	(5,347)	13,033
Weighted average number of shares in issue (000)	27,433	16,399
Loss per ordinary share before exceptional items	(19.5)p	(82.4)p
Earnings per ordinary share on exceptional items	-	161.9p
(Loss)/earnings per share (basic and diluted)	(19.5)p	79.5p

5 Property, plant and equipment

Additions of £209k were purchased during the six months ended 30 June 2009.

There are no capital commitments at 30 June 2009 or 30 June 2008.

6 Borrowings

	£000
Opening amount as at 1 January 2009	17,385
Repayments of borrowings	(2,261)
Finance costs on the Paul Capital funding liability	2,835
Exchange gains on Paul Capital funding liability	(2,141)
Closing balance as at 30 June 2009	15,818

Paul Capital funding liabilities

Under the terms of the transaction Paul Capital provided €18.4 million which will be repaid out of the potential future revenue stream under the licence agreement with Menarini to market frovatriptan in Europe. 

Royalties paid to Paul Capital are treated as repayments of the liability and notional interest is charged on the liability using the effective interest rate at inception of the agreement. The effective interest rate is 42.5 per cent. Any change in the estimated future payments to Paul Capital is recognised as income or expense in the income statement. The future amount payable to Paul Capital is secured on the Frova® intangible asset. 

 

7 Share capital

Ordinary	Issued	Unissued	Authorised	Price	Issued	Unissued	Authorised
	Number '000	Number '000	Number '000		£000	£000	£000
1 January 2009	363,233	236,767	600,000	£0.05	18,162	11,838	30,000
Subdivision of ordinary shares	-	947,069	947,069		(14,530)	-	(14,530)
Shares after subdivision	363,233	1,183,836	1,547,069	£0.01	3,632	11,838	15,470
Share consolidation	(345,072)	(1,124,644)	(1,469,716)		-	-	-
Shares after subdivision and share consolidation	18,161	59,192	77,353	£0.20	3,632	11,838	15,470
Placing and open offer	39,956	(39,956)	-		7,991	(7,991)	-
30 June 2009	58,117	19,236	77,353	£0.20	11,623	3,847	15,470
A Deferred shares
1 January 2009	-	-	-		-	-	-
Subdivision of ordinary shares	363,233	-	363,233		14,530	-	14,530
Shares after subdivision	363,233	-	363,233	£0.04	14,530	-	14,530
Cancellation	(363,233)	-	(363,233)		(14,530)	-	(14,530)
30 June 2009	-	-	-		-	-	-
Deferred shares
1 January 2009	33,376	-	33,376	£0.95	31,707	-	31,707
Cancellation	(33,376)	-	(33,376)		(31,707)	-	(31,707)
30 June 2009	-	-	-		-	-	-

On the 19 May the Group completed a placing and open offer combined with a share capital reorganisation and consolidation.

Share Capital reorganisation

Under the share capital reorganisation each issued Existing Ordinary Share of 5 pence in nominal value was subdivided into one Interim Ordinary Share of 1 pence in nominal value and one "A" Deferred Share of 4 pence in nominal value. In relation to the unissued Existing Ordinary Shares of 5 pence each in nominal value, each was subdivided into 5 Interim Ordinary Shares of 1 pence each in nominal value. 

The Interim Ordinary Shares of 1 pence each continue to carry the same rights as attach to the Existing Ordinary Shares of 5 pence each (save for the reduction in nominal value). 

The "A" Deferred Shares and the existing Deferred Shares in issue were re-purchased by the Company for 1 pence in aggregate for all "A" Deferred Shares and 1 pence in aggregate for all Deferred Shares and following the repurchase were cancelled. The repurchase of the "A" Deferred Shares and the existing Deferred Shares in issue was financed out of the proceeds of the issue of two new Ordinary Shares to an existing Shareholder at a subscription price equal to the nominal value of these shares. This has resulted in the creation of a capital redemption reserve to maintain capital (see note 8).

Share Consolidation

The Company consolidated the Interim Ordinary Shares on the basis of 1 Consolidated Ordinary Share for every 20 Interim Ordinary Shares held. The impact of this consolidation was that the number of shares held by Shareholders was reduced by a factor of 20 times compared to that held prior to the share issue, but that each share has a higher nominal value.

Placing and open offer

The Group issued 39,955,606 new ordinary shares fully paid at a price of 60 pence per share after consolidation (799,112,129 old shares at 3 pence per share).

8 Other reserves

	Merger reserve	Other reserve	Revaluation reserve	Options reserve	Translation reserve	Capital redemption reserve	Total
	£000	£000	£000	£000	£000	£000	£000
At 1 January 2008	101,985	78,125	33	4,778	766	-	185,687
Revaluation of assets available for sale	-	-	1	-	-	-	1
Share-based payments charge	-	-	-	1,434	-	-	1,434
Exchange loss on translation of overseas subsidiaries	-	-	-	-	(561)	-	(561)
At 30 June 2008	101,985	78,125	34	6,212	205	-	186,561
At 1 January 2009	101,985	78,125	7	6,323	2,576	-	189,016
Revaluation of assets available for sale	-	-	(7)		-	-	(7)
Share-based payments charge	-	-	-	346	-	-	346
Shares purchased for cancellation	-	-	-	-	-	46,237	46,237
Exchange loss on translation of overseas subsidiaries	-	-	-	-	(658)	-	(658)
At 30 June 2009	101,985	78,125	-	6,669	1,918	46,237	234,934

9 Related party transactions

Key management compensation amounted to £1,293k for the six months ended 30 June 2009 (30 June 2008: £1,742k).

 

10 Post balance sheet events

On 16 July 2009 the Group announced the achievement of a milestone under the company's collaboration with Novartis on the oncology target Hsp90. The $1.5 million milestone was triggered by the start of Phase I clinical trials of an oral Hsp90 inhibitor in a range of solid tumours. The revenue has been recognised in the 30 June 2009 numbers based on the date at which the milestone became payable.

On the 21 July 2009 the Group announced it has selected a development candidate, V158411 from its Checkpoint Kinase 1 (Chk1) research programme in oncology.

On 6 August the Group announced that it had signed a collaboration, option and licence agreement with GSK relating to an undisclosed oncology research programme. The deal is structured as a risk-sharing agreement, with Vernalis responsible for drug discovery activities and GSK for pre-clinical development. Upon IND filing, GSK will have the option to license all collaboration compounds and if this is exercised, will then be responsible for all future development and commercialisation activities. Under the terms of the deal, the Group will receive $6 million upon signing (including a $3 million subscription for new equity). In addition to the upfront payments Vernalis is eligible to earn potential milestone payments in excess of $200 million and up to double digit royalties based upon worldwide sales of an oncology product. Further equivalent milestones and royalties could be earned should products against the target be developed for indications outside of oncology.

11 Seasonality

The Group's financial results have not historically been subject to significant seasonal trends. However the revenue recognised in relation to royalties received for the supply of product to Menarini is dependant upon the timing of when orders are received. In addition milestone revenue is dependent upon progression of the related out-licensed clinical trials.

Statement of directors' responsibilities

The directors confirm that the condensed consolidated financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

An indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principle risks and uncertainties for the remaining six months of the financial year; and

Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The directors of Vernalis plc are listed in the Vernalis plc annual report for 31 December 2008. A list of current directors is maintained on the Vernalis plc website: www.vernalis.com.

The directors are responsible for the maintenance and the integrity of the Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

By order of the Board

David Mackney

Chief Financial Officer

6 August 2009

 

ENDIR SSSSIMSUSELA

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Vernalis PLC