12th Apr 2010 07:00
12 April 2010
LSE: VER
Announcement of Results for the year ended 31 December 2009
Vernalis plc today announces its results for the year ended 31 December 2009.
Under the guidance of new executive management, the last 15 months' activities have created a robust platform for growth, supported by two successful equity financings. These were important steps in ensuring that value could be realised from the Group's broad portfolio of assets.
Operationally 2009 was a highly successful year. All three of our partnered clinical stage programmes advanced, and we secured two new discovery collaborations with GSK and Servier. We also progressed two in-house programmes into pre-clinical testing and fully recruited into the V3381 IN-STEP study. Unfortunately, the Phase II IN-STEP study results in patients with diabetic neuropathy, announced in March 2010, were disappointing which reflects the high risk nature of studies in this patient population.
Nonetheless, with a priority development pipeline of eight programmes in clinical and pre-clinical development, 100% of the Menarini frovatriptan royalty stream restored, and the extended cash runway, the Directors believe that they have the resources to create substantial value for Vernalis shareholders.
Operational Highlights
Events in the priority pipeline during 2009 and since the year end
·; Two pre-clinical candidates selected:
o V158866 FAAH inhibitor for pain
o V158411 Chk1 inhibitor for cancer
·; Vipadenant (V2006/BIIB014) (Parkinson's disease):
o Positive headline Phase IIa data from two studies
·; AUY922 (Cancer):
o Publication of interim Phase I data at 2009 ASCO meeting
o Maximum Tolerated Dose achieved (Q3 2009)
o Initiation of Phase II proof-of-concept study, triggering $3 million milestone from Novartis (March 2010)
·; HSP990 (Cancer):
o Entry into Phase I studies July 2009, triggering $1.5m milestone from Novartis
·; Frovatriptan European and Central American royalties:
o Regained 100% of Menarini royalties (March 2010)
o Paul Capital Healthcare royalty agreements terminated
·; V3381 (Neuropathic Pain and Chronic Cough):
o Phase IIb IN-STEP neuropathic pain study recruitment completed ahead of schedule (September 2009)
o Phase II pilot study initiated in Chronic Cough (September 2009)
o Phase IIb IN-STEP negative study results (March 2010)
Events in research during 2009
·; Second cancer research collaboration secured with Servier (May 2009)
·; Research, Option and License Agreement with GSK (August 2009):
o $6 million up-front milestone and equity investment
o Up-to $200 million up-front and total milestones for cancer indications
o Up-to double digit royalties on sales
o Further potential substantial milestones for non-cancer indication
Events in the legacy pipeline during 2009
·; RPL554 (Respiratory):
o Positive Phase II results announced by partner Verona Pharma (September 2009)
·; V1512 (Parkinson's disease):
o Rights being returned to Chiesi following failure to secure a partner (Q2 2010)
Financial Highlights
·; Revenue (pre-exceptional items) of £13.0 million, up 27%
·; Underlying operating costs reduced by £3.5 million in the year
·; Loss from continuing operations (pre-exceptional items) reduced by 47%
·; £22.1 million (net of expenses) equity fundraising (May 2009)
·; £26.4 million of cash resources at 31 December 2009
·; £28.5 million (net of expenses) equity fundraising (March 2010):
o approximately £21.0 million used to terminate the agreements with Paul Capital Healthcare
Expected Newsflow
·; V158411 (cancer): Start of Phase I trials (H2 2010)
·; V158866 (pain): Start of Phase I trials (H2 2010)
·; V3381 (Chronic Cough): Complete Phase II pilot study recruitment (2010 year-end)
·; AUY922 (cancer): Proof-of-concept Phase II study results (Novartis) (2010)
·; V85546 (inflammation): Possible partnering (2010)
·; Vipadenant (Parkinson's disease): Start registrational studies (Biogen Idec) (timing undisclosed)
·; HSP990 (cancer): Establish Maximum Tolerated Dose (Novartis) (timing undisclosed)
Ian Garland, Chief Executive Officer, commented,
"We have accomplished a great deal in 2009, both financially and operationally, and on balance have had a very successful year. Vernalis has been transformed since the start of 2009 and is extremely well positioned to build on that success in 2010."
Presentation & Conference Call
Vernalis management will host a presentation at 09.00am (UK) at Brunswick's offices, 16 Lincoln's Inn Fields, London WC2A 3ED today. It will also be available via webcast at http://www.vernalis.com/investor-centre/presentations-and-webcasts and www.cantos.com and via conference call, which can be joined by dialling +44 (0)20 7906 8509.
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Enquiries:
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Vernalis Contacts
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Ian Garland, Chief Executive Officer |
+44 (0) 118 989 9360 |
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David Mackney, Chief Financial Officer |
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Brunswick Group
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Jon Coles |
+44 (0) 20 7404 5959 |
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Justine McIlroy |
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Will Carnwath |
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Taylor Rafferty
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Rob Newman |
+44 (0) 20 7614 2900 |
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Faisal Kanth |
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Notes to Editors
About Vernalis
Vernalis is a development stage pharmaceutical company with significant expertise in taking promising product candidates along a commercially-focused path to market. The Group has one marketed product, frovatriptan for the acute treatment of migraine, and eleven candidates in development, eight of which are designated priority programmes. Five of these priority programmes are currently unpartnered and three are partnered. Pipeline programmes are derived from both our own research activities where we have significant expertise in fragment and structure based drug discovery, as well as from collaborations. Our technologies, capabilities and products are endorsed by collaborations with Biogen Idec, Chiesi, Endo, GSK, Menarini, Novartis and Servier.
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Product |
Indication |
Pre-Clinical |
Phase I |
Phase II |
Phase III |
Marketed |
Marketing Rights |
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Priority Programmes |
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CNS Programmes |
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Frovatriptan |
Acute Migraine |
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X |
Menarini & Endo Pharma |
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V3381 |
Neuropathic Pain |
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X |
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Worldwide |
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V2006 |
Parkinson's Disease |
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X |
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Biogen Idec |
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V3381 CC |
Chronic Cough |
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X |
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Worldwide |
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V158866 |
Pain |
X |
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Worldwide |
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Oncology Programmes |
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AUY922 |
Cancer |
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X |
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Novartis |
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HSP990 |
Cancer |
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X |
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Novartis |
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V158411 |
Cancer |
X |
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Worldwide |
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Other Therapeutic Areas |
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V85546 |
Inflammatory Disease |
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X |
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Worldwide |
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Legacy programmes |
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V10153 |
Ischaemic Stroke |
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X |
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Worldwide |
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RPL554 |
Asthma/ Allergic Rhinitis |
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X |
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Verona Pharma |
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CHR2797 |
Cancer |
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X |
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Chroma Therapeutics |
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.
Operational Review
The last two years have seen substantial change at Vernalis. During 2008 a far-reaching restructuring was implemented, involving a major headcount reduction and divestment of certain assets. During the subsequent fifteen months a robust platform for growth has been established, supported by two successful refinancings, as initial steps were successfully undertaken to realise value from the Group's broad portfolio of assets.
To provide the leadership and direction required for the restructured Company, we put in place a new executive management team at the start of 2009. In addition, as a result of the progress achieved by the new management team during the past year, we have been able to change the role of Chairman from executive to non-executive.
An important first step in 2009 was to secure sufficient cash both to invest in near term opportunities and to provide a runway to underpin the process of rebuilding value in Vernalis. This was accomplished through a £22.1 million (net of expenses) equity fundraising in May 2009, which provided a cash runway through to mid-2011 and the funds to invest in three in-house priority programmes.
Since the end of the year we have secured additional cash resources through a further £28.5 million (net of expenses) equity fundraising, approximately £21.0 million of which has been used to regain 100% of the Menarini frovatriptan royalties. These growing royalties are expected to amount to in excess of €8.0 million per annum through to patent expiry at the end of 2015. In March 2010 we also earned a $3.0 million milestone from Novartis following first dosing of our cancer product candidate AUY922 in a Phase II proof of concept study. These additional funds, together with the royalty stream, are expected to extend the Company's cash runway into 2013.
The management team remain focused on implementing a highly focused and disciplined strategy to create value for shareholders, underpinned by the Company's expertise in the CNS and oncology therapeutic areas. Under this strategy the Company will invest in in-house programmes where substantial growth in value can be realised with both acceptable risk and modest cash investment. We anticipate partnering programmes to share ongoing risk and to realise the value created for the Group's shareholders. In addition, we will limit investment in discovery programmes, and the size of our discovery efforts will be based upon the funding we can secure from third party collaborations.
Operationally 2009 was a highly successful year. All three of our partnered clinical stage programmes advanced and we secured two new discovery collaborations. We also progressed two in-house programmes into pre-clinical testing. However, the IN-STEP study results, in March 2010, a Phase II trial in patients with diabetic neuropathy, were disappointing. This reflected the high risk attributed to this indication, which was consistently highlighted to the market.
Nonetheless, with a priority development pipeline of eight programmes in clinical and pre-clinical development, 100% of the Menarini frovatriptan royalty stream restored, and the extended cash runway in place, we believe that we have the resources to create substantial new value within Vernalis.
We therefore look forward to further advances from both our in-house and partnered programmes. We also aim to add to the priority programmes by in-licensing and potentially by acquisition. The process of growing shareholder value is underway and we are in a strong position to continue that during the coming year.
Finally, we would like to thank John Slater, Ian Clark and Peter Read, who stepped down during 2009, for their invaluable contributions during their time on the Board.
Financial Review
The Company ended the year with £26.4 million of cash. With a further fundraising approved by shareholders on 1 March 2010 and regaining the EU frovatriptan royalty stream from Paul Capital Healthcare, the Company now has cash to support operations into 2013.
This financial stability will underpin our growth strategy and is in stark contrast to the position at the start of the year when the Company had less than 12 months of cash. The extended cash horizon provides Vernalis with the timeline over which significant progress can be made across the broad pipeline of priority programmes. The £22.1 million fundraising approved by shareholders in May 2009 strengthened the balance sheet and provided a cash runway through to the middle of 2011. Securing further cash resources from new and existing shareholders was key to ensuring the short-term future of Vernalis and provided funding to develop the pipeline over the last 12 months. Several programmes have progressed into the next stage of development including two internal research programmes, which started pre-clinical studies, and HSP990, one of the two programmes out-licensed to Novartis, which commenced human Phase I studies in cancer.
The agreement to regain the EU frovatriptan royalty rights from Paul Capital Healthcare, announced in February 2010, together with the associated £28.5 million fundraising (net of expenses), extends the cash runway into 2013. Vernalis now has a cash runway during which shareholders can benefit from multiple value inflection points across the broad and maturing pipeline of priority development programmes. Following this transaction the Company is debt free and has a sustainable and potentially growing revenue stream.
Income statement
The 2008 financial results included items resulting from the early settlement of a loan in February 2008, which was due for repayment in 2009, and a 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.
Revenues
Revenue from continuing operations for the year was £13.0 million (2008: £10.2 million) which included £7.5 million in respect of European revenues from the supply of frovatriptan to Menarini (2008: £6.3 million) and £5.5 million (2008: £3.9 million) in respect of collaboration royalties and deferred revenue.
Underlying sales of frovatriptan by Menarini in Europe and Central America were €32.4 million, up 15% compared to 2008. Vernalis receives 25.25% of these sales via a royalty agreement linked to the supply of active pharmaceutical ingredient (API). In 2008 the Company sold 90% of this revenue stream to Paul Capital Healthcare in exchange for €18.4 million. The Company regained the rights to the entire revenue stream in March 2010 after making a one-off payment to Paul Capital Healthcare of US$32.6 million (approximately £21.0 million) and granting Paul Capital Healthcare warrants over 2.1 million ordinary shares priced at a premium to the fund raising price of 76p.
The collaboration and deferred revenue of £5.5 million (2008: £3.9 million) includes both research collaboration income and milestones from both research programmes and already out-licensed development programmes. The collaboration and deferred income increased in the year as a result of adding a second Servier collaboration as well as a collaboration, option and license agreement with GSK. The Company received US$6.0 million upon signing the deal with GSK, US$3.0 million in an equity subscription and US$3.0 million as a non-refundable upfront milestone. The US$3.0 million upfront milestone is being released through the income statement as deferred revenue over a three year period. The Company also recognised a US$1.5 million (£0.9 million) milestone from Novartis in June 2009 triggered by HSP990 moving into Phase I human studies. In 2008 the Company received a research milestone of £0.4 million from Servier.
Total revenue in 2008 of £54.8 million included £44.6 million of exceptional revenue as a result of the Endo loan settlement. £24.2 million of the exceptional revenue was recognised as an advance payment of royalties which discharged the balance of the loan that was still owed to Endo. The remaining £20.4 million related to the release of deferred income from the initial US$60 million payment received from Endo for the rights to Frova®. This deferred income was being recognised in the income statement on a straight-line basis over the life of the patent to 2014.
Cost of sales
Cost of sales from continuing operations for the year amounted to £2.5 million (2008: £2.0 million). In both 2008 and 2009, £1.4 million of the costs related to the amortisation of the European frovatriptan intangible asset. Total cost of sales for 2008 including exceptional items was £15.6 million. The exceptional item of £13.6 million was in respect of the accelerated amortisation of the US Frova® marketing rights as a result of the sale of the rights to Endo.
R&D expenditure
Research and development expenditure from continuing operations reduced to £14.2 million (2008: £16.1 million) and comprised £11.0 million (2008: £14.0 million) of internally funded research and development costs and £3.2 million (2008: £2.1 million) of external costs associated with the development of the product portfolio. The increase in external costs is due to the clinical expenditure on V3381, V158866 and V158411 during the course of the year. The decrease in internally funded R&D represents the full-year effect of the business reorganisation which was completed during 2008 and operational efficiencies in research.
The exceptional charge in 2008 of £11.3 million reflected the write down of the intangible assets relating to V1512 and Pin1 of £9.9 million and £1.4 million of staff related restructuring expenses.
G&A expenditure
General and administrative expenditure from continuing operations for 2009 amounted to £5.6 million (2008: £4.7 million). Included in the 2009 costs was a realised foreign exchange loss of £0.2 million whereas in 2008, the costs were reduced by a foreign exchange gain of £0.4 million, a difference of £0.6 million between the two years. In addition, the 2009 costs include £0.3 million in relation to redundancy as well as a £0.5 million non-cash share-based payment, due to the senior management team volunteering to sacrifice their 2009 cash bonus in exchange for investment awards. This decision was made because of the ongoing cash requirements of the business. Excluding these items the underlying costs decreased by £0.5 million in the year as a result of our tight cost control. Included within the 2009 exceptional item is a £1.0 million adjustment to the existing vacant lease provision. The exceptional credit of £5.3 million in 2008 comprised a release of a deferred consideration liability of £10.3 million in relation to the acquisition of Cita, partially offset by a £3.3 million increase in the vacant lease provision and £1.8 million of staff-related restructuring expenses.
Operating loss
The operating loss for the year from continuing operations before exceptional items was £9.3 million (2008: £12.5 million). The total operating profit for 2008 from continuing operations was £12.4 million reflecting an exceptional profit on the settlement of the Endo loan, together with a release of the deferred consideration on the Cita acquisition of £10.3 million, partially offset by restructuring costs and the £9.9 million write down of V1512 and Pin1.
Finance income increased to £2.0 million (2008: £1.4 million) due to an exchange gain of £1.5 million on the retranslation of the Paul Capital Healthcare loan that is denominated in Euros and offset by a decrease in interest received on cash balances which fell to £0.3 million in 2009 (2008: £0.8 million) as a result of lower interest rates.
In 2008 the Company also benefited from a foreign exchange gain on cash of £0.2 million together with other interest of £0.4 million. Finance cost for the year was £6.0 million (2008: £11.2 million). The decrease is primarily due to 2008 exchange losses on the Paul Capital Healthcare loan (£3.1 million) and contingent deferred consideration (£2.8 million).
The tax credit of £2.1 million (2008: £1.3 million) represents the amount expected to be received under current legislation on research and development tax credits. The increase in 2009 is due to the recovery of additional amounts in respect of prior years.
Discontinued operations
The profit for the year from discontinued operations amounted to £0.4 million (2008: loss of £3.9 million). The discontinued operations for 2009 included a milestone receipt from Ipsen as contingent consideration on the 2008 disposal of the Group's US commercial and development operations.
Balance sheet
Non-current assets decreased to £16.3 million (2008: £17.3 million) largely due to the amortisation of the frovatriptan intangible asset in the year.
Current assets increased to £32.6 million (2008: £23.5 million) primarily due to the increase in cash resources arising from the equity fundraising during the year.
Total liabilities decreased to £28.7 million (2008: £34.1 million). The main movement in the year was a decrease in trade and other liabilities following the settlement of a final milestone payment to GSK on Frova® and a lower trade payables balance as a result of cash payments made prior to the year end. In addition, the Paul Capital Healthcare loan decreased by £2.4 million as a result of capital repayments.
Cash flow
Cash resources, comprising held-to-maturity financial assets and cash and cash equivalents increased by £9.2 million to £26.4 million (2008: £17.2 million). The May £22.1 million (net of expenses) fundraising was the main inflow in the year. Other significant inflows were US$6.0 million (£3.6 million) from the collaboration with GSK, and a US$1.5 million (£0.9 million) milestone from the collaboration with Novartis, and a US$0.7 million (£0.4 million) milestone from Ipsen as contingent consideration on the disposal of the Group's US commercial and development operations. The principal non operational cash outflow was US$5.0 million (£3.3 million) paid to GSK as a final milestone on the purchase of frovatriptan. The underlying cash burn for the year was approximately £14.5 million.
Outlook for 2010
On 1 March 2010 the Company successfully raised £28.5 million (net of expenses) from new and existing investors by way of a fully underwritten Placing and Open Offer. US$32.6 million (approximately £21.0 million) was used to regain 100% of the Menarini frovatriptan royalties from Paul Capital Healthcare as well as to settle the debt with Paul Capital Healthcare. This growing frovatriptan revenue stream, together with existing cash resources and the additional £7.5 million from the fundraising, will underpin investment in research and development at similar levels to 2009 over the coming years. As announced previously, AUY922 has entered a Phase II proof-of-concept study which triggered a US$3.0 million milestone from Novartis and this further extends the Company's cash runway. Efficiency and cost control was a key focus in 2009 and will continue to be a key focus for the coming year.
Risks and Uncertainties
Like all businesses the Group faces risks and uncertainties and many are inherent within any pharmaceutical development company. Below are those principal risks and uncertainties that the Group considers could have a material impact on its operational results, financial condition and prospects. These risks are not in any particular order of priority and there may be other risks that are either currently unknown or not considered material which could have a similar impact on the Group's business in the future. Details of the Group's risk management process is outlined in the Corporate Governance report of the annual report.
Clinical and regulatory risk
There are significant inherent risks in developing drugs for commercialisation due to the long and complex development process. Any drug which the Group or its partners wish to offer commercially to the public must be put through extensive research, pre-clinical and clinical development all of which takes several years and is extremely costly. The Group may fail to successfully develop a drug candidate because of:
·; The failure of the drug in pre-clinical studies
·; The inability of clinical trials to demonstrate the drug is safe and effective in humans
·; The failure to find a collaborator to take the drug candidate into expensive later stage studies
·; The failure to manufacture the drug substance in sufficient quantities and at commercially acceptable prices
In addition, the complexity and multijurisdictional nature of the applicable regulatory processes could result in either delays in achieving regulatory approval or non-approval. If a product is approved, the regulators may impose additional requirements, for example, restrictions on the products' indicated uses or the levels of reimbursement receivable, that could impact on the commercial viability of the drug. Once approved, the product and its manufacture will continue to be reviewed by the regulators and may be withdrawn or restricted in the future.
Competition and Intellectual Property
The Group's business faces intense competition from major pharmaceutical companies and specialised biotechnology companies developing drugs for the same market opportunities. This intense competition may impact the commercial success of any drug candidate that obtains regulatory approval. The Group's partnering strategy, where it looks to out-license later stage programmes to pharmaceutical companies with significant commercial expertise in the relevant market, should ensure that commercial products receive the level of investment required to maximise their potential.
Intellectual property protection remains fundamental to the Group's strategy of developing novel drug candidates. The Group's ability to stop others making a drug, using it or selling the invention or proprietary rights by obtaining and maintaining protection is critical to its success. The Group owns a portfolio of patents and patent applications which underpin its research and development programmes. Significant investment is made in maintaining and protecting this intellectual property in order to reduce the risks over validity and enforceability of its patents. However, the patent position is always uncertain and often involves complex legal issues. Therefore there is a risk that intellectual property may become invalid and/or expire before or after commercialisation of a drug product occurs, and we may be blocked by other companies' patents and intellectual property. Manufacturing risk The supply of frovatriptan active pharmaceutical ingredient to Menarini for the EU and Central American markets is a substantial proportion of the Group's income and so its ability to manufacture and supply this product on schedule is also critical. In addition, the Group's ability to successfully scale-up production processes to viable clinical trial or commercial levels is vital to the commercial viability of any product. Availability of raw materials is extremely important to ensure that manufacturing campaigns are performed on schedule and therefore dual sourcing is used where possible. Product manufacture is subject to continual regulatory control and products must be manufactured in accordance with good manufacturing practice. Any changes to the approved process may require further regulatory approval which may incur substantial cost and delays. These potential issues could adversely impact on the results from operations and the Group's cash liquidity.
Financial risks
Cash flow
The Group has a history of operating losses which are anticipated to continue for the near to mid term. As a result we may require further capital to finance development activities. In the last 12 months we have successfully raised £50.6 million through equity fundraisings. Part of this cash raised has been used to regain a growing royalty stream from European sales of frovatriptan to potentially finance the Group's cash burn. Existing cash together with cash generated from this royalty stream is now expected to fund the group into 2013 at current levels of investment. However, the group may need to seek further capital through equity or debt financings in the future and if this is not successful, the financial condition of the group may be adversely affected.
Foreign exchange
The Group records its transactions and prepare its accounts in sterling but almost all of its revenue is from licensing and collaborative agreements and frovatriptan royalties which are received in US dollars or Euros. A proportion of its expenditure is incurred in US dollars and other currencies, relating principally to clinical trials. The Group's cash balances are predominantly held in sterling. To the extent that income and expenditure in currencies other than sterling are not matched, fluctuations in exchange rates between sterling and these currencies, principally US dollars and Euros, may result in realised or unrealised foreign exchange gains and losses. Simple derivative contracts have been used to mitigate the risk of fluctuations in exchange rates where there has been certainty over the amount and timing of the income. Where the timing and/or the amount to be received is uncertain, risk management is more difficult but the Group has used derivatives where possible and will continue to do so. To the extent that derivative instruments are considered too costly, because of the flexibility required or the time over which protection is sought, any fluctuations in foreign exchange movements may have a material adverse impact on the results from operations and the Group's cash liquidity in the future.
Return on investment
As already mentioned, the drug development process is inherently risky and is conducted over several years and consequently is extremely costly. Many drug candidates fail in development due to the clinical and regulatory risks, and even in those circumstances where drugs are approved, sales levels can be disappointing due to competition, healthcare regulation and/or intellectual property challenges. As a result the returns achieved may be insufficient to cover the costs incurred. The Group looks to mitigate the development and commercial risk by partnering drug candidates at an appropriate stage. This partnering event crystallises part of the programme's value, with the goal of retaining an attractive proportion of the commercial upside through future milestones and an ongoing royalty interest from commercial sales.
Consolidated income statement
for the year ended 31 December 2009
2009 2008
Exceptional Exceptional
Pre-exceptional items Pre-exceptional items
items (note 3) Total items (note 3) Total
Note £000 £000 £000 £000 £000 £000
Revenue 2 13,019 - 13,019 10,220 44,595 54,815
Cost of sales (2,504) - (2,504) (1,995) (13,562) (15,557)
Research and development expenditure (14,238) - (14,238) (16,056) (11,342) (27,398)
General and administrative expenditure (5,614) (950) (6,564) (4,690) 5,269 579
Operating (loss)/profit (9,337) (950) (10,287) (12,521) 24,960 12,439
Finance income 4 1,950 - 1,950 1,350 - 1,350
Finance expense 4 (6,005) - (6,005) (11,221) - (11,221)
(Loss)/profit on ordinary activities
before taxation (13,392) (950) (14,342) (22,392) 24,960 2,568
Tax credit on loss on ordinary activities 2,108 - 2,108 1,293 - 1,293
(Loss)/profit for the year from
continuing operations (11,284) (950) (12,234) (21,099) 24,960 3,861
Profit/(loss) for the year from
discontinued operations - 427 427 (3,728) (182) (3,910)
(Loss)/profit for the year (11,284) (523) (11,807) (24,827) 24,778 (49)
(Loss)/earnings per share from continuing
operations (basic and diluted) (25.9)p (2.2)p (28.1)p (122.1)p 144.4p 22.3p
(Loss)/earnings per share for
(loss)/profit for the year (basic and diluted) 5 (25.9)p (1.2)p (27.1)p (143.7)p 143.4p (0.3)p
Consolidated statement of comprehensive income
for the year ended 31 December 2009
2009 2008
Exceptional Exceptional
Pre-exceptional items Pre-exceptional items
items (note 3) Total items (note 3) Total
£000 £000 £000 £000 £000 £000
Loss for the year from continuing operations (11,284) (950) (12,234) (21,099) 24,960 3,861
Profit for the year from discontinued operations - 427 427 (3,728) (182) (3,910)
Other comprehensive income:
Revaluation of assets available for sale (7) - (7) (26) - (26)
Exchange gain on translation of overseas subsidiaries 437 - 437 1,810 - 1,810
Total comprehensive income for the year (10,854) (523) (11,377) (23,043) 24,778 1,735
Balance sheet
as at 31 December 2009
2009 2008
Note £000 £000
Assets
Property, plant and equipment 820 818
Intangible assets 6 15,527 16,448
Available-for-sale financial assets - 6
Non-current assets 16,347 17,272
Inventories 511 351
Trade and other receivables 3,962 4,394
Tax receivable 1,704 1,593
Held-to-maturity financial assets 14,364 2,500
Cash and cash equivalents 12,034 14,652
Current assets 32,575 23,490
Total assets 48,922 40,762
Liabilities and shareholders' equity
Liabilities
Borrowings 7 14,090 13,813
Deferred income 1,074 755
Provisions 8 6,481 6,168
Non-current liabilities 21,645 20,736
Borrowings 7 886 3,572
Trade and other liabilities 3,481 7,805
Deferred income 1,836 1,019
Provisions 8 830 955
Derivative financial instruments 32 -
Current liabilities 7,065 13,351
Total liabilities 28,710 34,087
Shareholders' equity
Share capital 9 12,031 49,869
Share premium 385,819 370,390
Other reserves 236,769 189,016
Retained deficit (614,407) (602,600)
Total shareholders' equity 20,212 6,675
Total liabilities and shareholders' equity 48,922 40,762
Statement of changes in shareholders' 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 year from continuing operations - - - 3,861 3,861
Loss for the year from discontinued operations - - - (3,910) (3,910)
Other comprehensive income for the year - - 1,784 - 1,784
Total comprehensive income for the year - - 1,784 (49) 1,735
Transactions with owners:
Issue of equity share capital 1,763 370 - - 2,133
Refunded expenses on issue of share capital - 387 - - 387
Share-based payments charge - - 1,545 - 1,545
Balance at 31 December 2008 49,869 370,390 189,016 (602,600) 6,675
Loss for the year from continuing operations - - - (12,234) (12,234)
Profit for the year from discontinued operations - - - 427 427
Other comprehensive income for the year - - 430 - 430
Total comprehensive income for the year - - 430 (11,807) (11,377)
Transactions with owners:
Issue of equity share capital 8,399 17,349 - - 25,748
Expenses on issue of share capital - (1,920) - - (1,920)
Shares purchased for cancellation (46,237) - 46,237 - -
Share-based payments charge - - 1,086 - 1,086
Balance at 31 December 2009 12,031 385,819 236,769 (614,407) 20,212
Cash flow statement
for the year ended 31 December 2009
2009 2008
£000 £000
Cash flows from operating activities
(Loss)/profit for the year from continuing operations (12,234) 3,861
Profit/(loss) for the year from discontinued operations 427 (3,910)
Loss for the year from continuing and discontinued operations (11,807) (49)
Taxation (2,108) (1,267)
Depreciation 308 317
Loss on disposal of property, plant and equipment - 247
Amortisation, impairment and disposal of intangible fixed assets and investments 1,351 24,829
Movement in provision for loss on sale of discontinued operations (427) 182
Movement in provisions 3 1,795
Increase/(decrease) in deferred income 1,136 (21,761)
Decrease in deferred consideration - (10,332)
Share-based payments charge 1,086 1,545
Finance income (1,950) (1,362)
Finance expense 6,005 11,233
Exchange loss/(gain) 129 (423)
(6,274) 4,954
Changes in working capital
Increase in inventories (160) (178)
Decrease in receivables 148 2,444
Decrease in liabilities (4,082) (1,825)
Cash (used in)/generated from operations (10,368) 5,395
Taxation received 2,052 2,050
Taxation paid (3) (85)
Net cash (used in)/generated from operating activities (8,319) 7,360
Cash flows from investing activities
Purchase of property, plant and equipment (310) (254)
Fees incurred on asset held for sale - (1,178)
Proceeds on disposal of assets held for sale 427 4,548
Cash disposed of within assets held for sale - (305)
Interest received on cash and cash equivalents 328 938
Interest received on financial assets held to maturity 11 261
Net cash generated from investing activities 456 4,010
Cash flows from financing activities
Receipt of funds from Paul Capital - 14,669
Repayment of Paul Capital funding liability (6,413) (3,732)
Repayment of US dollar secured loan - (27,681)
Movement in held-to-maturity financial assets (11,864) (2,381)
Issue of shares 25,747 -
Issue of shares on assets held for sale - 2,133
Share issue (costs)/refunds (1,920) 133
Capital element of finance lease payments - (104)
Net cash generated from/(used in) financing activities 5,550 (16,963)
Foreign exchange (loss)/gain on cash and cash equivalents (305) 169
Movements in cash and cash equivalents in the year (2,618) (5,424)
Cash and cash equivalents at the beginning of the year 14,652 20,076
Cash and cash equivalents at the end of the year 12,034 14,652
Held-to-maturity financial assets 14,364 2,500
Total cash, cash equivalents and held to maturity financial assets 26,398 17,152
Notes to the financial statements
1 Accounting policies and basis of preparation
This financial information for the years ended 31 December 2009 and 31 December 2008 does not comprise statutory accounts but is derived from these accounts. This financial information and announcement was approved for issue on 9 April 2010 and has been extracted from the 31 December 2009 audited statutory accounts that were also approved by the Board on the same date and are available on the Company's website www.vernalis.com. These statutory accounts have not yet been delivered to the Registrar of Companies. 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 auditors have reported on these accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985 in respect of the accounts for 2008 nor a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2009.
The financial statements have been prepared in accordance with EU endorsed International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations and with the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements are prepared in accordance with the historical cost convention as modified by revaluation of available-for-sale financial assets. Whilst the financial information included in this preliminary announcement has been prepared in accordance with IFRSs adopted for use in the European Union, this announcement does not itself contain sufficient information to comply with IFRSs.
The accounting policies applied are consistent with those of the audited financial statements for the year ended 31 December 2009 and 31 December 2008, as described in those annual financial statements.
2 Segmental information
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 Executive Committee.
The Group has only one segment, being the research, development and commercialisation of pharmaceutical products for a range of medical disorders. All costs to acquire property, plant, equipment and intangible assets as well as all related depreciation, impairment and amortisation expense borne by the Group relate to this one segment. In addition, all other non-cash expenses incurred by the Group relate to this one segment.
Revenue analysis
The revenue analysis in the table below is based on the country of registration of the fee-paying party.
Total Continuing Discontinued Total
2009 2008 2008 2008
£000 £000 £000 £000
United Kingdom 56 69 - 69
Rest of Europe 11,045 9,136 - 9,136
North America 1,871 45,598 1,139 46,737
Rest of the World 47 12 - 12
13,019 54,815 1,139 55,954
An analysis of revenue by category is set out in the table below:
Total Continuing Discontinued Total
2009 2008 2008 2008
£000 £000 £000 £000
Product sales 7,533 30,919 967 31,886
Royalties 136 100 - 100
Collaborative 5,350 23,796 172 23,968
13,019 54,815 1,139 55,954
3 Exceptional items
Exceptional items represent significant items of income and expense, which, due to their nature or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance in the year, so as to facilitate comparison with prior periods and to better assess trends in financial performance. Exceptional items include, but are not limited to, impairments of goodwill and intangible assets, restructuring costs and the provision for vacant leases.
2009 2008
Continuing operations £000 £000
Settlement with Endo:
Sale of future US frovatriptan royalties - 24,160
Release of Endo deferred income - 20,435
- 44,595
Accelerated amortisation of related US frovatriptan intangible asset (see note 6) - (13,562)
- 31,033
Restructuring costs in research and development expenditure - (1,424)
Restructuring costs in general and administrative expenditure - (1,783)
Intangible asset impairment (see note 6) - (9,918)
Release of liability for deferred consideration - 10,332
Provision for vacant leases (see note 8) (950) (3,280)
Exceptional items from continuing operations (950) 24,960
Profit/(loss) on sale of discontinued operations 427 (182)
Exceptional items from continuing and discontinued operations (523) 24,778
4 Finance charge
2009 2008
£000 £000
Finance income
Interest on cash, cash equivalents and held-to-maturity assets 315 798
Exchange gains on cash - 169
Exchange gains on royalty buy-out from GSK 103 -
Exchange gains on Paul Capital funding liability 1,511 -
Other interest 21 383
1,950 1,350
Finance expense
Finance costs on the Paul Capital funding liability (note 7) 5,515 3,307
Loans repayable wholly or partly within five years - 123
Exchange loss on cash 305 -
Exchange loss on long-term loan - 37
Exchange loss on royalty buy-out from GSK - 965
Exchange loss on contingent deferred consideration - 2,796
Exchange loss on Paul Capital funding liability - 3,141
Unwinding of discount on contingent deferred consideration on purchase of intangible assets - 553
Unwinding of discount on royalty buy-out from GSK - 24
Unwinding of discount on provision 185 275
6,005 11,221
5 (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 year.
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.
On the 19 May 2009 the Group completed a placing and open offer combined with a share capital reorganisation and consolidation (see note 9). The 2008 (loss)/earnings per share has been adjusted to reflect this consolidation.
2009 2008
Attributable loss before exceptional items (£000) (11,284) (24,827)
Exceptional items (£000) (523) 24,778
Attributable loss (£000) (11,807) (49)
Weighted average number of shares in issue (000) 43,645 17,280
Loss per ordinary share before exceptional items (25.9)p (143.7)p
Exceptional items (1.2)p 143.4p
Loss per share (basic and diluted) (27.1)p (0.3)p
6 Intangible assets
Assets Assets not
Goodwill in use yet in use Total
£000 £000 £000 £000
Cost
At 1 January 2009 10,355 37,408 46,830 94,593
Exchange difference - - 1,747 1,747
At 31 December 2009 10,355 37,408 48,577 96,340
Aggregate amortisation and impairment
At 1 January 2009 (10,355) (30,099) (37,691) (78,145)
Amortisation charge in the year - (1,351) - (1,351)
Exchange difference - - (1,317) (1,317)
At 31 December 2009 (10,355) (31,450) (39,008) (80,813)
Net book value at 31 December 2009 - 5,958 9,569 15,527
Cost
At 1 January 2008 10,355 37,408 43,343 91,106
Exchange difference - - 3,487 3,487
At 31 December 2008 10,355 37,408 46,830 94,593
Aggregate amortisation and impairment
At 1 January 2008 (10,355) (15,188) (26,036) (51,579)
Accelerated amortisation on sale of future royalties - (13,562) - (13,562)
Impairment - - (9,918) (9,918)
Amortisation charge in the year - (1,349) - (1,349)
Exchange difference - - (1,737) (1,737)
At 31 December 2008 (10,355) (30,099) (37,691) (78,145)
Net book value at 31 December 2008 - 7,309 9,139 16,448
2009 2008 2009 2008
Assets in use £000 £000 Useful life Useful life
Frova® 5,958 7,309 to 2014 to 2014
2009 2008
Assets not in use £000 £000
V3381 9,269 8,839
Other 300 300
Total assets not in use 9,569 9,139
In accordance with IAS 21 "The effects of changes in foreign exchange rates", goodwill and other intangible assets that are created in relation to the acquisition of a foreign subsidiary are maintained in the functional currency of that subsidiary. During the year, the Group had a net exchange gain of £0.4 million (2008: £1.8 million) on assets not yet in use relating to the acquisition of Cita.
Accelerated amortisation on sale of future royalties
Following the Group's early settlement of the amount due to Endo Pharmaceuticals Inc (Endo) in 2008 under the loan agreement between the two companies, the Group agreed to forego future royalties on US sales of Frova® until annual US net sales exceed a threshold of US$85 million per annum. Based on estimates of future Frova® revenues, an accelerated amortisation of £13.6 million was recorded in 2008.
Impairment
Following the announcement on 24 March 2010, that V3381 Phase IIb IN-STEP study in neuropathic pain had missed the primary end point, the Group will review the carrying value of this asset for impairment. Over the next few months, the data from the study will be reviewed in detail and a decision made as to whether there are other indications for this asset that may be appropriate for further investment. Until that assessment is concluded, it is not possible to quantify the size of any impairment if one is required.
The Group undertook a commercial and regulatory review of V1512 in 2008 and determined that the previously favourable commercial environment for L-dopa-based therapies was no longer present and so a development and commercialisation strategy that required significant investment in further Phase III studies was not viable. Consequently, the decision was taken to partner V1512 and to then progress approval in the US via the 505(B)(2) regulatory filing route which does not require further Phase III studies. The potential economic interest to the Group in this programme was therefore substantially lower than previously expected with royalty and milestone obligations payable to third parties. Taking these factors into account, we concluded that the carrying value of V1512 was impaired and a charge of £9.3 million was recorded during 2008. The deferred consideration payable on this programme of £10.3 million was also released due to the uncertainty over its clinical development path. Partnering has not proved possible and so the rights to the product will be returned to Chiesi in 2010.
7 Borrowings
Paul Capital US dollar
funding liability secured loan
£000 £000
Opening amount as at 1 January 2008 - 27,521
Receipt of funds 14,669 -
Repayment of borrowings (3,732) (27,681)
Finance costs 3,307 123
Exchange loss 3,141 37
Closing balance as at 31 December 2008 17,385 -
Repayment of borrowings (6,413) -
Finance costs on the Paul Capital funding liability 5,515 -
Exchange gain on Paul Capital funding liability (1,511) -
Closing balance as at 31 December 2009 14,976 -
2009 2008
£000 £000
Non-current borrowings 14,090 13,813
Current borrowings 886 3,572
Total borrowings 14,976 17,385
Paul Capital funding liabilities
Under the terms of the transaction, Paul Capital provided €18.4 million to 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 frovatriptan intangible asset.
On 8 March 2010, Vernalis regained the rights to 100 per cent of Menarini royalties (25.25 per cent of net sales) by terminating the Paul Capital Healthcare Agreements in exchange for a one time net payment of US$32.57 million (approximately £21 million) in cash. In addition, Paul Capital Healthcare has subscribed for 2.1 million Vernalis warrants over Ordinary Shares in the Company, 1.1 million priced at 95 pence and 1.0 million at 114 pence.
US dollar secured loan
On 20 February 2008 the Group announced that it had agreed to the early settlement of the amount due to Endo Pharmaceuticals Inc. (Endo) under the loan agreement between the two companies. To give effect to this early settlement, the Group paid Endo US$7 million in cash and agreed to forego future royalties on US sales of Frova® until annual US net sales exceed a threshold of US$85 million per annum. The outstanding balance on the loan together with the accrued interest, which was originally due for repayment in August 2009, was US$56 million.
8 Provisions
Onerous lease provision
£000
At 1 January 2009 7,123
Charged during the year (note 3) 1,028
Reversed during the year (note 3) (78)
Utilised during the year (947)
Amortisation of discount 185
At 31 December 2009 7,311
Provisions have been analysed between current and non-current as follows:
2009 2008
£000 £000
Current 830 955
Non-current 6,481 6,168
7,311 7,123
Onerous lease provision
Where leasehold properties become vacant the Group provides for all costs, net of anticipated income, to the end of the lease or the anticipated date of the disposal or sublease. This provision relates to properties in Winnersh, Oxford and Cambridge and is expected to be utilised over the life of the related leases to 2012, 2015 and 2019 respectively and has been discounted to fair value at the balance sheet date. Included in the onerous lease provision is a dilapidation provision which principally relates to costs associated with the Group's obligation to reinstate leased buildings to their original state.
9 Share capital
Number Number
issued authorised Issued Authorised
'000 '000 Price £000 £000
Ordinary
1 January 2009 363,233 600,000 £0.05 18,162 30,000
Subdivision of ordinary shares - 947,069 (14,530) (14,530)
Shares after subdivision 363,233 1,547,069 £0.01 3,632 15,470
Share consolidation (345,072) (1,469,716) - -
Shares after subdivision and share consolidation 18,161 77,353 £0.20 3,632 15,470
Placing and open offer 39,956 - £0.20 7,991 -
Issued shares 2,041 - £0.20 408 -
31 December 2009 60,158 77,353 £0.20 12,031 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
Repurchase (363,233) - (14,530) -
31 December 2009 - 363,233 - 14,530
Deferred shares
1 January 2009 33,376 33,376 £0.95 31,707 31,707
Repurchase (33,376) - (31,707) -
31 December 2009 - 33,376 - 31,707
Number Number
issued authorised Issued Authorised
'000 '000 Price £000 £000
Ordinary
1 January 2008 327,980 450,858 £0.05 16,399 22,543
Issued shares 35,253 - £0.05 1,763 -
Increase in authorised shares - 149,142 £0.05 - 7,457
31 December 2008 363,233 600,000 18,162 30,000
Deferred shares
1 January and 31 December 2008 33,376 33,376 £0.95 31,707 31,707
Placing and open offer, share capital reorganisation and share consolidation
On the 19 May 2009 the Group completed a placing and open offer combined with a share capital reorganisation and share consolidation.
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).
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. 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.
Share consolidationThe 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.
Rights and restrictions attaching to the ordinary shares
The rights and restrictions attaching to the ordinary shares are set out in the Articles of Association.
Equity subscription
On 5 August 2009, SmithKline Beecham Corporation, a wholly owned subsidiary of GSK, agreed to subscribe for 2,040,542 ordinary shares in the Group for an aggregate subscription price of £1.8 million (US$3 million). The market value at the date of subscription was 83.75 pence.
The subscription was being made in connection with a collaboration, option and license agreement reached between the two companies, relating to a Vernalis research programme in oncology. An upfront payment in cash of US$3 million was also made to Vernalis plc on signing of the agreement.
Placing and open offer and share capital reorganisation
On 2 March 2010 the group issued 39,413,722 New Ordinary Shares in connection with the placing and open offer announced on 11 February 2010. The nominal value of each share was reduced from 20 pence to 1 pence as part of a share capital reorganisation which was approved by shareholders at the same time as the placing and open offer.
10 Related party transactions
Identity of related parties
The Group consists of a parent, Vernalis plc and two wholly owned trading subsidiaries. The main trading company is Vernalis (R&D) Limited. The second trading subsidiary Vernalis Development Limited provided services in the US to Vernalis Pharmaceuticals Incorporated under a transfer pricing agreement. Vernalis Pharmaceuticals Incorporated was sold in July 2008.
The Group had no related party transactions during the year (2008: none).
11 Post-balance sheet events
On the 11 February Vernalis announced a Placing and Open Offer of 39,413,722 New Ordinary Shares at a price of 76 pence per share, raising £30 million (approximately £28.5 million net of expenses), a portion of which was used to regain the rights to 100 per cent of Menarini royalties (25.25 per cent of net sales) by terminating the Paul Capital Healthcare Agreements in exchange for a one time net payment of US$32.57 million (approximately £21 million) in cash. In addition, Paul Capital Healthcare has subscribed for 2.1 million Vernalis warrants, 1.1 million at 25 per cent premium to the Placing and Open Offer price of 76 pence and 1.0 million at a 50 per cent premium. The Placing and Open Offer was approved by Shareholders on 1 March 2010 and the agreements with Paul Capital Healthcare were terminated on 8 March 2010.
On 15 March 2010 Vernalis announced the achievement of a US$3.0 million milestone under the collaboration with Novartis, triggered by the first dosing in a Phase II proof-of-concept clinical trial for AUY922.
Following the announcement on 24 March 2010, that V3381 Phase IIb IN-STEP study in neuropathic pain had missed the primary end point, the Group will review the carrying value of this asset for impairment. Over the next few months, the data from the study will be reviewed in detail and a decision made as to whether there are other indications for this asset that may be appropriate for further investment. Until that assessment is concluded, it is not possible to quantify the size of any impairment if one is required.
Related Shares:
Vernalis PLC