Final Results

25th Sep 2007 07:00

Allergy Therapeutics PLC25 September 2007 25 September 2007 Allergy Therapeutics plc ("Allergy Therapeutics" or "the Company") Preliminary Results Allergy Therapeutics plc (AIM: AGY), the specialist pharmaceutical companyfocused on allergy vaccination, announces preliminary results for the year ended30 June 2007. Financial Highlights • Net sales increased by 9% to £25.7m (2006: £23.6m) • Pollinex(R) Quattro named-patient sales increased by 23% • Core business performance 2007 2006 £m £mOperating loss (26.8) (6.7)Research and development 25.3 9.6Strategic costs developing Pollinex Quattro 3.5 0.7 _____ _____Core business operating profit 2.0 3.6 _____ _____ • Operating profit before R&D and strategic costs was £2.0m (2006: £3.6m), 44% lower, due in part to an increase in German rebates • R&D expenditure increased 165% to £25.3m (2006: £9.6m) as pivotal Phase III programme progressed • €40 million debt facility secured Operational Highlights • Started two pivotal Phase III studies for Pollinex Quattro Grass and Ragweed • The world's first global Phase III allergy vaccine development programme • Promising interim data from Phase I/II study of an oral (sub-lingual) grass allergy vaccine • New UK manufacturing facility opened as part of an extensive manufacturing upgrade • However, all clinical activity put on hold by FDA in July • Impact on timing and potential size of subsequent programmes • Discussions with FDA are ongoing • Allergy Therapeutics remains confident of a positive outcome Keith Carter, Chief Executive of Allergy Therapeutics, said: "Given the wealth of evidence supporting the safety and efficacy of PollinexQuattro we remain confident that the FDA will lift its clinical hold in duecourse. In the meantime, we have created a flexible development programme tomanage the uncertainty around the timing of further clinical activity. Our core business is profitable and sales continue to grow strongly. We haveinvested during the past year to increase sales and margins going forward andexpect to see the first benefits of that investment in the current financialyear. Despite the development programme delay, the core business continues toprovide the Company with a solid base giving us confidence in the future. We look forward to announcing the results of our 1024 patient pivotal Phase IIIPollinex Quattro Grass trial, the world's first global Phase III allergy vaccinestudy, in the first quarter of 2008." A briefing for analysts will be held at 9.30am today at the offices of FinancialDynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. Please callMo Noonan for further details on 020 7269 7116. In addition, the presentationwill be made available on the Company's website at www.allergytherapeutics.com For further information Allergy Therapeutics +44 (0) 1903 844 720Keith Carter, Chief ExecutiveIan Postlethwaite, Finance Directorwww.allergytherapeutics.com Financial Dynamics +44 (0) 207 831 3113David YatesBen Brewerton Chairman's Statement Allergy Therapeutics is an integrated pharmaceutical company with a core salesand marketing operation selling £26 million (€39 million) of allergy vaccinesprimarily in the European Union ("EU") with Germany as its most importantmarket. The Company manufactures all of its own vaccines in facilities based inWorthing on the south coast of England. In addition to this core business,Allergy Therapeutics is developing innovative allergy vaccines built upon anovel patented adjuvant, MPL(R). These new products, branded Pollinex(R)Quattro, offer a very attractive profile combining high efficacy in a convenientultra-short schedule of only four injections. Pollinex Quattro's safety andefficacy has been proven through its use in the treatment of over 100,000patients in Europe. Allergy vaccination has been practiced in Europe and North America for almost acentury; the seminal paper was published in the Lancet in 1911 by Dr LeonardNoon. The treatment described in the Lancet - incremental doses of aqueousallergen extract injected subcutaneously, starting with very low doses andgradually increasing, with injections every few days initially and lastingseveral months, even extending to years, in duration - could almost be usedunaltered to describe the majority of current therapy in the United States andJapan today. While there is efficacy the side effects noted by Noon are stilltoday characteristic of current practice in the United States. These sideeffects can take the form of systemic reactions, including anaphylactic shock,which can be fatal. No existing allergy vaccine in the United States has Foodand Drug Administration ("FDA") approval. Allergy Therapeutics, with Pollinex Quattro, is developing a modern product forall markets which bears little resemblance to the traditional immunotherapy inwidespread use in the United States. The allergens in Pollinex Quattro havebeen chemically modified to reduce their allergenicity and to make rapidupdosing possible. The resulting 'allergoid' is adsorbed onto L-tyrosine whichis a depot adjuvant that assists the safety by releasing the modified allergensslowly. The inclusion of MPL directs the immune system away from the allergic 'Th2 type' response towards the healthy 'Th1 type'. In short, Pollinex Quattrowas developed to offer the many benefits of allergen immunotherapy with moreconvenient dosing and the potential of greatly reduced risk. AllergyTherapeutics' clinical trials programme was approved by the FDA and designed topermit this modern product to be commercialised in the United States under FDAapproval. The readers of this annual report will be aware that Allergy Therapeutics'clinical trials programme was put on hold by the FDA in July 2007. As thegovernment agency charged with public safety in relation to pharmaceuticals inthe United States, the FDA's job is a difficult and complex one. This isespecially true in the context of trials with innovative products where bydefinition clinical experience is limited. Allergy Therapeutics' clinical holdresulted from FDA concerns following a reported adverse event in G301, the PhaseIII study for Pollinex Quattro Grass which is now well into its observationphase. The adverse event at the root of the FDA hold is very rare with abackground incidence of about 1 in 100,000 persons per year. The physiciansassessing the patient believe that a relationship between the event andparticipation in the study is unlikely. In other words, the patient's conditionis more probably due to another cause and occurred on a Pollinex Quattro studyby mere mischance. Strenuous efforts are being directed at addressing the concerns of the FDA andin the opinion of the Board the FDA clinical hold will be lifted in due course.Of Allergy Therapeutics' three main development projects involving PollinexQuattro - Grass, Tree and Ragweed - it is the Ragweed project that has been mostimmediately affected by the clinical hold. The pivotal Pollinex Quattro Ragweedstudy, R301, was compromised as only 379 of the 992 patients recruited at thetime the hold was imposed had received a full course of treatment. As a result,Allergy Therapeutics anticipates the completion of the Pollinex Quattro Ragweeddevelopment will require further studies in the future. This will mean a delayin the Ragweed programme and the United States launch is now expected in 2010/2011 - subject of course to the FDA hold being lifted. The Grass and Treeprogrammes, which are global allergens found across the main markets of Europeand Japan as well as North America, are likely to be less affected partly owingto this geographical picture and partly owing to their clinical status. ThePhase III Grass trial (G301) had already completed the treatment phase when theFDA imposed its hold and continues as planned. The associated safety study canonly begin when the FDA hold is lifted, but this study is conducted outside thepollen season and can, therefore, start soon after the FDA hold is lifted. Treeis in Phase II and the current study (T204) is in an environmental challengechamber in Canada. In the meantime, patients across the EU continue to benefit from PollinexQuattro on a named patient basis and the registration of Pollinex Quattro Grassand Pollinex Quattro Tree in the EU remains a core objective for the Company,enhancing existing markets and entering into new ones. In view of the safety issues inherent in the current treatment practices in theUnited States, the likely resolution of the adverse event at the origin of theclinical hold and the 100,000 patient registry which shows a very strong safetyprofile for Pollinex Quattro, Allergy Therapeutics is confident that thisinnovative, efficacious and safe product will eventually be granted licensureand be widely used in the United States and elsewhere. Ignace GoethalsChairman24th September 2007 Chief Executive's Review During the year to the end of June 2007, Allergy Therapeutics has made greatprogress in executing the plans which will culminate in the launching ontoworldwide markets of our transformational allergy vaccine products. In everyarea of our operations important steps forward were made and pieces of theoverall strategy for globalising the Pollinex Quattro brand were put into place.We faced great challenges in the past few months, especially those related tothe FDA, and we will work to meet these challenges during the coming year. Allergy Therapeutics' core business is a robust £25.7 million annual turnovercommercial operation with sales in Germany, Italy, Spain, Austria, UnitedKingdom and Central Europe and manufacturing based in the United Kingdom. Thiscore business is a solid enterprise with double digit growth rates and pre-taxprofits before development and strategic costs in the region of £2.0 million.In addition to providing valuable cash for strategic investments mainly aimed atthe development and manufacture of Pollinex Quattro - expenditure on these itemstook the overall group result to a loss of £23.8 million - this core businessrepresents a window onto the world of pharmaceutical commercialisation. InEurope it is a base to build upon and launch our new products. In othermarkets, our in-house expertise provides valuable confidence in implementing thefuture commercialisation of Pollinex Quattro. As the Pollinex Quattro launchphase approaches we have made a start at investing in these sales and marketingoperations and have commenced with a sales force optimisation project carriedout by a leading external consultancy firm. As a result of this exercise wehave also strengthened the team in Germany through the appointment of a newGeneral Manager, Peter Keysers, three district managers and several new salesrepresentatives. The strength of our core business was given excellent third party validation inMay when the Royal Bank of Scotland signed a €40m loan facility with AllergyTherapeutics. The funding provided by this facility is earmarked for thestrategic development initiatives of the Company, but the facility is secured onthe cash flows from the core business and we were pleased at this vote ofconfidence from one of the country's highest quality relationship lenders. In preparation for the launch of Pollinex Quattro as a fully registered productin all the major markets world-wide, Allergy Therapeutics has made and continuesto make significant investments in the manufacturing infrastructure in Worthing.In February our new manufacturing facility, the Noon Building, was formallyopened by Professor Tony Frew, President of the European Academy of Allergologyand Clinical Immunology. This facility was inspected by the United Kingdom'sMHRA - the Medicines and Healthcare products Regulatory Agency - and commencedfull operations in March. The opening of the Noon Building allowed us tocommence in earnest the upgrading and refurbishment of our original facility,now called the Freeman Building. We are improving many of our processes alongthe way and are creating a world class sterile manufacturing capability. Ourfacilities are named after Dr Leonard Noon and Dr John Freeman, the joint 'fathers of immunotherapy' whose pioneering work was carried out in London's StMary's Hospital in the early years of the 20th century. In the clinic, we successfully recruited over 2,000 patients into our pivotalPhase III studies. The Pollinex Quattro Ragweed study (R301) and PollinexQuattro Grass study (G301) are the two largest clinical trials ever to beundertaken in the field of allergy vaccination. R301 was targeted to recruit1074 patients and had achieved 992 at the time of the FDA clinical hold. G301 included 1024 patients in total and these patients were recruited in nearly100 centres across North America and Europe. The G301 participants have beenrecording their symptom experience and their intake of symptomatic medicationusing electronic diaries throughout the grass pollen season this year and thetrial is scheduled to produce preliminary results by the end of Q1 2008. USlaunch timing is subject to when the FDA hold is lifted and to meeting the FDArequirements for a safety database. For Pollinex Quattro Tree, Allergy Therapeutics has commenced an interestingPhase II study in an environmental challenge chamber, T204, of similar design toour successful R204 study. 120 patients were included in the first phase ofthis study and a further 180 are required to complete the study. In addition tocompleting the FDA's Phase II requirements and preparing the move of thisproduct into global phase III, T204 was designed to provide importantcross-reactivity data. The study is to explore the efficacy of the product forpatients suffering allergy to oak pollen as well as birch pollen. The vaccinecontains allergoids of birch, alder and hazel pollens, which are of the sametaxonomic order (fagales) as oak and which, in laboratory experiments, displaycommon main allergen components. If this part of the trial is successful itwould potentially expand the commercial potential for Pollinex Quattro Treeconsiderably, especially in North America where allergy to oak pollen is common. FDA clinical holds are unusual but not rare. In our case it has, as is clearfrom the foregoing, had a profound impact upon Allergy Therapeutics' developmentprogrammes. It is hard to predict when, and on what terms, the clinical holdwill be lifted. The ultimate implications, both financial and clinical, for theCompany remain uncertain. The directors remain of the view that - given thestatus of the programme before the imposition of the clinical hold, the imminentavailability of Phase III efficacy data, the ongoing partnering discussions, andthe strength of the core business - there will be multiple funding anddevelopment options for the future once the clinical hold is lifted. Thechallenges imposed by the current FDA position reconfirm the robustness ofAllergy Therapeutics' integrated pharmaceutical company business model. Allergy Therapeutics has broad intellectual property rights to the use of MPL invaccines administered subcutaneously (by injection) and sublingually (under thetongue). We recently completed a Phase I/II study which recorded a number offirsts: it was the first ever examination of oral delivery of MPL in humans andit was the first time that any adjuvant has ever been clinically tested in anoral allergy vaccine. The results were very encouraging, showing a clearbenefit from inclusion of 'high dose' MPL with allergens in an oral allergyvaccine. The potential exists, therefore, to develop a sublingual equivalent ofPollinex Quattro: an oral vaccine with comparable efficacy but far moreconvenient dosing than the currently available products which require manymonths of daily dosing. Further work on this exciting project is definitelyjustified. Finally, a truly heartfelt thank you is owed to the many talented and dedicatedpeople at Allergy Therapeutics who made all the great achievements of this yearhappen and have risen to the challenges created by the FDA's clinical hold. Keith CarterChief Executive Officer24th September 2007 Financial Review The following review should be read in conjunction with the Group's consolidatedfinancial statements and related notes appearing elsewhere in this annualreport. Turnover For the year ended 30 June 2007 turnover was £25.7m (2006: £23.6m), an increaseof 9% over the previous year; before statutory rebates in the German market,gross sales increased by 13% to £27.4 m (2006: £24.4m). Statutory rebates arepayable by pharmacies in Germany on all state-funded pharmaceutical products andthe rebates are refunded by the pharmaceutical companies. Own markets The Group competes directly in 8 European markets, including 3 of Europe's 4most important for allergy vaccination: Germany, Italy and Spain. The Group has the third largest allergy vaccine company in Germany, which is thelargest market in the world for 'finished form' allergy vaccines. The allergyvaccine market in Germany continued to grow at the rate of 9% (2006: 7%) duringthe year. The annual turnover in Germany was £17.1m (2006: £16.2m); gross sales,before statutory rebates, were £18.9m (2006: £17m), an increase of 11%. Therebate on pharmaceutical sales, which is market wide, changed on 1 May 2006 whenit was announced that any price rise since 1 November 2005 would be added to therebate. With approximately 70% of the Group's sales originating in Germany, thecharge for the year increased to £1.6m (2006: £0.8m). Spain demonstrated a solid performance with sales of £1.7m (2006: £1.5m) anincrease of 13% over the previous year. Italy maintained annual sales of £2.3m(2006: £2.3m). New operations in the UK, the Czech and Slovak Republics, Poland and Austria -set up in the previous year - performed well, contributing £1.4m to sales (2006:£0.9m). Licensees The Group also sells through licensees and distributors, accounting for 11% ofgross sales. Total sales for the year were £3.0m (2006: £2.7m), an increase of11% on the previous year. Included in licensee sales are milestone receipts fromthe Company's Canadian licensee for Pollinex Quattro; in the year milestonestotalling £1.2m (2006: £0.8m) were received, triggered by reaching certaindevelopment objectives. Product sales The Group's flagship product, Pollinex Quattro continued to sell well, withgross sales of £9.5m (2006 £7.7m), an increase of 23% over the previous year. Cost of sales and net operating expenses In general, manufacturing costs have increased as a result of higher fuel costsand an increase in compliance with recommended good manufacturing practice(GMP). Costs increased further as the headcount in the manufacturing areaincreased by 31 full time equivalents, an increase of 26% in the year, tosupport the growth of the business and prepare for world-wide market launches ofPollinex Quattro. Moreover, investments in new plant and machinery and a secondmanufacturing facility have led to increased depreciation costs. This investmentwill help provide greater capacity for the current named-patient sales ofPollinex Quattro, whilst at the same time enabling the existing building to beupgraded without interfering with supply. As a consequence of the environmentalcost increases and improvements for the future, cost of goods sold was £10.1m(2006: £6.5m) an increase of 55% over the previous year. Investments in the commercial strategy, including US market analysis, new marketspend and business development, plus continued support for existing markets,increased the marketing and promotion spend - the main component of distributioncosts - by 15% to £11.3m (2006: £9.8m). Administrative expenses have increasedby 28% to £5.9m (2006: £4.6m), due mainly to a benefit in the previous periodfrom foreign currency exchange gains, the release of a bad debt provision andthe inclusion this year of an increased charge in respect of the German pensionscheme. As the development programme for Pollinex Quattro moved forwards intoPhase III in the year, costs have increased by 165% to £25.3m (2006: £9.6m).Most of the activity relates to the extensive Phase III programme for Grass andRagweed. Results of operation As a consequence of investment in the development programmes in preparation forthe launch of Pollinex Quattro on a world-wide basis, the Group recorded anoperating loss on ordinary activities of £26.8m (2006: loss £6.7m). However,before development costs and strategic costs (defined as costs associated withthe objective of launching Pollinex Quattro) of £28.8m (2006: £10.3m), theoperating profit including milestones was £2.0m (2006: £3.6m), which allows fora more reasonable appreciation of the core business performance this year. Thisoperating profit is down on the previous year due to the increase in rebates inGermany and the benefits outlined in the administration costs taken in theprevious year. Taxation As a result of its investment in research and development, the Company hasbenefited from making R&D claims. These claims have given the Company enhanceddeductions for tax purposes and the possibility of benefiting from the receiptof R&D tax credits. An R&D tax credit of £2.5m has been received for the yearsending 2005 and 2006. The Budget announcement in April 2006 put forwardproposals to revise the definition for small and medium sized entities regardingthe number of employees, the number being increased from 250 to 500. The Group'saverage headcount for this year is below the 500 threshold, so allowing it tomake an R&D tax credit claim for the year under the new proposals. However, theBudget proposals have yet to be approved by the European Commission and anyclaim will remain outstanding until approval is granted. The Group in total has tax losses to carry forward of £39m. As the lossescarried forward by the German company are lower than for other entities in theGroup and will probably be utilised earlier, it is likely that corporation taxwill fall due in Germany sooner than elsewhere. Net assets Net assets at 30 June 2007 were £8.4m (2006: £32.7m), a decrease of £24.3m dueprimarily to investments in R&D. Intangible assets comprise goodwill and know-how and continue to be amortisedover 15 years. Capital expenditure on tangible fixed assets in the year was £3.2m (2006:£2.2m); contributing to the increase in the value of tangible fixed assets to£5.9m from £3.6m. The main components of this spend were: £1.3m on plant andmachinery, including a cold store for the Noon building and a new MATAprocessing system; £0.6m on further refurbishment costs for both the Freeman andNoon buildings; £0.4m on other fixtures and fittings; and £0.9m on computerequipment and software, including compliance software. Stock value increased by 34% during the year to £4.9m (2006: £3.7m). Thestrategy initiated last year to invest in manufacturing and ensure supply togrowing markets has resulted in higher levels of key stock items being held. Creditors falling due within 1 year were higher at the year end by 117% at£10.7m (2006: £4.9m), primarily due to an increase in accruals and tradecreditors relating to development activities at the end of the year. Excludingthese development-related items, creditors at the end of June 2007 were £5.3m. In prior years the pension scheme in Germany has been accounted for as a definedcontribution scheme. Since further information has become available the natureof the scheme in Germany has been reassessed; based on the new evidence thepension has been reclassified as a defined benefit scheme. We do not considerthis to be a fundamental error and therefore a prior period adjustment is notappropriate. The pension charge of £0.3m for the year has been taken to theprofit and loss account for the first time while cumulative actuarial gains andlosses relating to the current and previous years have been reported in thestatement of recognised gains and losses. The scheme liability is valued at£2.9m, with planned assets of £0.7m giving a net liability of £2.2m. Non pledgedassets, valued at £1.0m are shown as investments. The net effect of includingthe pension scheme on the balance sheet is to reduce net assets by £1.2m Capital structure The Group finances its operations through cash generated from its core business,the net proceeds raised from the placing of shares in May 2006 and bank lines.The Group arranged a new senior debt facility with its bank, RBS, in May 2007for Euro 40m, to fund the development programme and strategic initiatives of theGroup. The loan is to be drawn down over a 2 year period conditional upon theoperating business performance. The Group's funding requirements depend on a number of factors, including theGroup's product development programmes, which increased further in activity thisyear and are set to continue further in the next financial year. Cash flows As at the 30 June 2007 cash totalled £5.7m, a decrease of £18.2m from £23.9m at30 June 2006, due primarily to the significant investment in the year in thedevelopment programme of £25.3m (2006: £9.6m). Net cash outflow from operatingactivities in the year amounted to £20.3m (2006: £8.1m). Ian PostlethwaiteFinance Director24th September 2007 Consolidated Profit and Loss Accountfor the year ended 30 June 2007 Year ended Year ended Year ended Year ended 30 June 2007 30 June 2007 30 June 2006 30 June 2006 (restated*) (restated*) Note £'000 £'000 £'000 £'000 Turnover 2 25,742 23,558 Cost of sales (10,068) (6,513) _____ _____Gross profit 15,674 17,045 Distribution costs (11,312) (9,833) Administrative expenses - other (5,887) (4,626) Research and development costs (25,343) (9,560) _____ _____Administrative expenses (31,230) (14,186)Other operating income 32 260 _____ _____Operating loss (26,836) (6,714) Interest receivable and similar income 647 545Interest payable on loans and overdrafts (29) (4)Other finance costs 6 (102) - _____ _____ 516 541 _____ _____Loss on ordinary activities before tax 3 (26,320) (6,173) Tax on loss on ordinary activities 8 2,503 - Retained loss for the financial year 20,22 (23,817) (6,173) _____ _____Basic and diluted loss per share 10 (29.1p) (9.3p) *Restated for adoption of FRS 20 All amounts relate to continuing activities Consolidated Balance Sheetat 30 June 2007 Note 30 June 2007 30 June 2006 £'000 £'000 (restated*)Fixed assetsIntangible assets 11 Goodwill 1,967 2,326 Other intangible assets 714 829 _____ _____ 2,681 3,155Tangible assets 12 5,931 3,637 Investments 13 1,011 - _____ _____ 9,623 6,792Current assetsStocks 14 4,911 3,651Debtors 15 3,373 3,577Cash at bank and in hand 5,696 23,860 _____ _____ 13,980 31,088Creditors: amounts falling due within one year 16 (10,714) (4,939) _____ _____Net current assets 3,266 26,149 _____ _____Total assets less current liabilities 12,889 32,941 Creditors: amounts falling due after one year 17 (2,352) (239) _____ _____Net assets excluding pension liability 10,537 32,702 Retirement benefit obligation 6 (2,182) - _____ _____Net assets 8,355 32,702 _____ _____Capital and reservesCalled up share capital 19 92 92Share premium account 20 33,173 33,173Other reserves - shares issued by subsidiary 20 40,128 40,128Other reserves - shares held in EBT 20 (36) (60)Other reserves - share based payments 20 675 306Revaluation reserve 20 226 -Profit and loss account 20 (65,903) (40,937) _____ _____Shareholders' funds 22 8,355 32,702 _____ _____ *Restated for adoption of FRS 20 These financial statements were approved by the board of directors on 24thSeptember 2007 and were signed on its behalf by: K Carter I PostlethwaiteChief Executive Officer Finance Director Company Balance Sheetat 30 June 2007 30 June 2007 30 June 2006 Note £'000 £'000 (restated*)Fixed assetsInvestments 13 51 51 Current assetsDebtors: amounts falling due within one year 15 203 14 Creditors: amounts falling due within one year 16 (76) (312) _____ _____Net current assets/(liabilities) 127 (298) Total assets less current assets/(liabilities) 178 (247) _____ _____Net assets/(liabilities) 178 (247) _____ _____Capital and reservesCalled up share capital 19 92 92Share premium 20 33,173 33,173Other reserves - shares held in EBT 20 (36) (60)Other reserves - share based payments 20 675 306Profit and loss account 20 (33,726) (33,758) _____ _____Shareholders' funds/(deficiency) 22 178 (247) _____ _____ *Restated for adoption of FRS 20 These financial statements were approved by the board of directors on 24thSeptember 2007 and were signed on its behalf by: K Carter I PostlethwaiteChief Executive Officer Finance Director Consolidated Cash Flow Statementfor the year ended 30 June 2007 Year to Year to Year to Year to 30 June 2007 30 June 2007 30 June 2006 30 June 2006 Note £'000 £'000 £'000 £'000 Cash outflow from operating activities 23 (20,303) (8,099) Returns on investment and servicing of finance Interest received 647 545 Interest paid (29) (4) _____ _____ 618 541Taxation 8 2,503 - Capital expenditure and financial investment Purchase of tangible fixed assets 12 (3,167) (2,192) _____ _____ Cash outflow before financing (20,349) (9,750) Financing 24 Gross funds raised on issue of shares - 19,000 Net funds from bank loan 2,664 - Issue of shares from EBT 24 262 Expenses paid in connection with issue of shares - (732) _____ _____ 2,688 18,530 _____ _____(Decrease)/increase in cash in year (17,661) 8,780 _____ _____ Reconciliation of Net Cash Flow to Movement in Net Funds Year to Year to 30 June 2007 30 June 2006 £'000 £'000 (Decrease)/increase in cash in year (17,661) 8,780Net loans advanced (2,664) - _____ _____Movement in net funds in year 25 (20,325) 8,780Net funds at beginning of year 23,860 15,080 _____ _____Net funds at end of year 25 3,535 23,860 _____ _____ Consolidated Statement of Total Recognised Gains and Lossesfor the year ended 30 June 2007 Year to Year to 30 June 2007 30 June 2006 £'000 £'000 (restated*) Loss for the financial year (23,817) (6,173) Currency translation differences on foreign currency net investment (48) 29Actuarial loss arising on pension schemes (1,101) -Gain on revaluation of investments 226 - _____ _____Total recognised gains and losses relating to the year (24,740) (6,144) _____ _____ *Restated for adoption of FRS 20 Notes to the Financial Statements 1 Accounting policies Change in accounting policies In preparing the financial statements for the current year, the Company hasadopted the following Financial Reporting Standard: - FRS 20 'Share Based Payments' (IFRS2) FRS 20 'Share Based Payments' The Group has adopted FRS 20 with effect from 1 July 2006. FRS 20 requires therecognition of a charge to the profit and loss account for all applicable sharebased payments, including share options, SAYE schemes and share based Long TermIncentive Plans. The Group has equity-settled share based payments but no cash-settled sharebased payments. All share based payment awards granted after 7 November 2002which had not vested prior to 1 July 2006 are recognised in the financialstatements. All goods and services received in exchange for the grant of any share-basedpayment are measured at their fair values. Where employees are rewarded usingshare-based payments, the fair values of employees' services are determinedindirectly by reference to the fair value of the instrument granted to theemployee. This fair value is appraised at the grant date and excludes the impactof non-market vesting conditions (for example, profitability and sales growthtargets). If vesting periods or non-market based vesting conditions apply, the expense isallocated over the vesting period, based on the best available estimate of shareoptions expected to vest. Estimates are revised subsequently if there is anyindication that the number of share options expected to vest differs fromprevious estimates. Any cumulative adjustment prior to vesting is recognised inthe current period. If market based vesting conditions apply, the expense is allocated over therelevant period, usually the period over which performance is measured. Vestingassumptions and resulting expenses are fixed at the date of grant, regardless ofwhether market conditions are actually met. Any adjustment for options whichlapse prior to vesting is recognised in the current period. All equity-settled share based payments are ultimately recognised as an expensein the profit and loss account with a corresponding credit to 'other reserves'. The adoption of FRS 20 requires a prior period adjustment to be made for awardsgranted before 1 July 2006. This has created a reserve for share based paymentsat 30 June 2007 of £675,000. Of this amount £369,000 relates to the year ended30 June 2007, £232,000 relates to the year ended 30 June 2006 and £74,000relates to earlier years. The share based payments reserve replaces the Long Term Incentive Plan reserveof £178,000 held at 30 June 2006 and recognised under UITF17. The profit andloss reserve account has been adjusted as follows: Previously reported Restated £'000 £'000Profit and loss reserve at 1 July 2005 (34,719) (34,793)Profit and loss reserve at 30 June 2006 (40,809) (40,937) Basis of preparation The financial statements have been prepared in accordance with applicable UnitedKingdom accounting standards and under the historical cost convention exceptthat they have been modified to include the revaluation of certain fixed assetinvestments. The accounts are prepared on a going concern basis. After makingappropriate enquiries, which included a review of the annual budget, byconsidering the cash flow requirements for the foreseeable future and theeffects of sales sensitivity on the Company's funding plans, the directorscontinue to believe that the Group will have adequate resources to continue inoperational existence for the foreseeable future and accordingly have appliedthe going concern principle in drawing up the financial statements. In reachingthis view the directors have taken account of the actions that could be taken tooffset the impact of any shortfall in operating performance and the availabilityof funding under the €40 million loan facility provided by RBS. Basis of consolidation The consolidated financial statements have been prepared using merger accountingprinciples and include the financial statements of the Company and itssubsidiary undertakings made up to 30 June 2007. 'Other reserves - shares issued by subsidiary' relates to the premium on sharespreviously issued by Allergy Therapeutics (Holdings) Ltd. The profit and loss reserve includes all profits and losses for the Groupformerly headed by Allergy Therapeutics (Holdings) Ltd prior to its merger withthe Company in October 2004. Goodwill Purchased goodwill (representing the excess of the fair value of theconsideration given over the fair value of the separable net assets acquired)arising on consolidation in respect of acquisitions is capitalised. Positivegoodwill is amortised to nil by equal instalments over its estimated useful life(15 years). Intangible fixed assets and amortisation Intangible fixed assets are valued at cost. Non-competing know-how is amortisedover four years reflecting its estimated useful life to the Group. Acquiredtrademarks, licences, patents and manufacturing know-how are capitalised andamortised over their estimated useful economic lives (15 years). Anydevelopment costs which are incurred by the Group and are associated with anacquired trademark, licence, patent and know-how are written off to the profitand loss account when incurred. Depreciation Tangible fixed assets are recognised at cost less deprecation. All assets exceptland are depreciated. Depreciation has been provided on a straight line basis inorder to write off the cost less the estimated residual value of depreciablefixed assets over their estimated useful lives. The rates applicable are:Plant and machinery 5-10 yearsFixtures and fittings 5 yearsMotor vehicles 4 yearsComputer equipment 3-7 yearsBuildings 10 years Operating leases Costs in respect of operating leases are charged on a straight line basis overthe lease term. Retirement benefits Defined Contribution Pension Scheme The pension costs for the group personal pension scheme charged againstoperating profits are the contributions payable to the scheme in respect of theaccounting period. Defined Benefit Pension Scheme Scheme assets are measured at fair values. Scheme liabilities are measured onan actuarial basis using the projected unit method and are discounted atappropriate high quality corporate bond rates. The net surplus or deficit,adjusted for deferred tax, is presented separately from other net assets on thebalance sheet. A net surplus is recognised only to the extent that it isrecoverable by the group. The current service cost and costs from settlements and curtailments are chargedagainst operating profit. Past service costs are spread over the period untilthe benefit increases vest. Interest on the scheme liabilities and the expectedreturn on scheme assets are included in other finance costs. Actuarial gainsand losses are reported in the statement of total recognised gains and losses. Retirement benefits other than pensions are accounted for in the same way. Stock valuation Stocks have been valued at the lower of cost and net realisable value. Costsinclude materials, direct labour and an appropriate proportion of manufacturingoverheads based on normal levels of activity. Research and development Laboratory equipment used for research and development is capitalised as plantand equipment and written off in accordance with the Group's depreciationpolicy. Other research and development expenditures are written off in the yearthey occur. Foreign currencies Transactions in foreign currencies, including those covered by forward exchangecontracts, are recorded using the rate of exchange ruling at the precedingmonth-end. Monetary assets and liabilities denominated in foreign currenciesare translated using the rate of exchange ruling at the balance sheet date andthe gains or losses on translation are included in the profit and loss account. The assets and liabilities of overseas subsidiary undertakings are translated atthe closing exchange rates. Profit and loss accounts of such undertakings areconsolidated at the average rates of exchange during the period. Gains andlosses arising on these translations are taken to reserves. Deferred taxation Deferred tax is recognised without discounting in respect of all timingdifferences, in the following year, between the treatment of certain items fortaxation and accounting purposes, which have arisen but not reversed by thebalance sheet date except as otherwise required by FRS 19. Investments Investments in shares in subsidiary undertakings are included at cost lessamounts written off. Investments in long term insurance policies are included at market value. Turnover Turnover represents the amounts (excluding value added tax) derived from theprovision of goods and services to third party customers, net of statutoryrebates paid in Germany, and milestone payments received from third parties. Statutory rebates are payable by pharmacies in Germany on all state-fundedpharmaceutical products and the rebates are refunded by the pharmaceuticalcompanies. They do not apply to prescriptions to patients of private sickfunds.The effective rate is currently 6% of the gross sales price plus 100% of anyprice increase applied since November 2005. The rebates are reduced by theapplicable rate of VAT in Germany. Milestone payments are amounts received from our licensee in Canada, whichbecome due when certain development activities are reached. Revenue recognition Revenue is recognised when contractual obligations are met and a right toconsideration is earned. Where a right to consideration is dependent on theoccurrence of a critical event (i.e. when the Group has fulfilled all relevantconditions to be entitled to the revenue), such as for milestone payments,revenue is not recognised until that event occurs. Cash and liquid resources Cash, for the purpose of the cash flow statement, comprises cash in hand anddeposits repayable on demand, less overdrafts payable on demand. Liquid resources are current asset investments which are disposable withoutcurtailing or disrupting the business and are either readily convertible intoknown amounts of cash at or close to their carrying values or traded in anactive market. Employee Benefit Trust (EBT) The financial statements include the assets and liabilities of a trust, set upfor the benefit of the Group's employees. The Employee Benefit Trust has acquired shares in the Company and these arededucted from shareholders funds on the balance sheet within 'Other reserves'initially at the cost that the shares were acquired. The net proceeds receivedfrom the issue of these shares through the exercise of options are recognisedthrough this reserve Financial instruments Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. A financial liability exists where there is a contractual obligation to delivercash or another financial asset to another entity, or to exchange financialassets or financial liabilities under potentially unfavourable conditions. Inaddition, contracts which result in the entity delivering a variable number ofits own equity instruments are financial liabilities. Shares containing suchobligations are classified as financial liabilities. Finance costs and gains or losses relating to financial liabilities are includedin the profit and loss account. The carrying amount of the liability isincreased by the finance cost and reduced by payments made in respect of thatliability. Finance costs are calculated so as to produce a constant rate ofcharge on the outstanding liability. An equity instrument is any contract that evidences a residual interest in theassets of the Group after deducting all of its financial liabilities. Dividendsand distributions relating to equity instruments are debited direct to equity. Compound instruments comprise both a liability and an equity component. Theelements of a compound instrument are classified in accordance with theircontractual provisions. At the date of issue, the liability component isrecorded at fair value, which is estimated using the prevailing market interestrate for a similar debt instrument without the equity feature. Thereafter, theliability component is accounted for as a financial liability in accordance withthe accounting policy set out above. The residual is the equity component, which is accounted for as an equityinstrument. Research and development tax credits Research and development tax credits are recognised in the profit and lossaccount when received. 2 Segmental analysis Turnover is attributable to the principle activities of the Group, as defined inthe Directors' Report. An analysis of turnover by geographical destination andcountry of origin, and operating loss and net assets by country of origin isgiven below. Year to Year to 30 June 2007 30 June 2006 £'000 £'000Turnover by geographical destinationGermany 17,069 16,155Rest of Europe 6,505 5,666North America 1,845 1,430Asia 323 307 _____ _____ 25,742 23,558 _____ _____Turnover by country of originGermany 17,281 16,155Rest of Europe 4,176 3,823UK 4,285 3,580 _____ _____ 25,742 23,558 _____ _____(Loss)/profit before tax by country of originGermany (435) (21)Rest of Europe (71) 180UK (25,814) (6,332) _____ _____ (26,320) (6,173) _____ _____Net assets /(liabilities) by country of originGermany (583) 771Rest of Europe 82 185UK 8,856 31,746 _____ _____ 8,355 32,702 _____ _____ Turnover by country of origin for the UK is net of inter segment sales of£20,825,000 (2006: £19,206,000) 3 Loss on ordinary activities before tax Loss on ordinary activities before tax is stated after charging: Year to Year to 30 June 2007 30 June 2006 £'000 £'000 (restated) Fees payable to the Company's auditor for the audit of the financial 13 7Fees payable to the Company's auditor and its associates for other services:Audit of the financial statements of the Company's subsidiaries pursuant to legislation 79 89Other services relating to taxation 17 31All other services 60 41Depreciation of tangible assets 840 668Amortisation of intangible assets 448 450Research and development 25,343 9,560Operating lease rentals - land & buildings 350 235 - other 382 364Foreign currency exchange loss/(gain) 27 (350) Equity-settled share-based payments 369 232 4 Prior year adjustment As disclosed in the accounting policies section, a new accounting standard FRS20 (IFRS 2) 'Share-based Payments' was adopted in the year. The financial effectof this has been analysed below. In the prior year equity-settled share-based payment arrangements were accountedfor under UITF Abstract 17. Under that Abstract, the intrinsic value of theoptions granted, measured at the date of grant, was expensed to the profit andloss account. Charges under UITF Abstract 17 were £178,000. FRS 20 has beenadopted for the first time during the current year. FRS 20 has been appliedretrospectively to all equity instruments granted after 7 November 2002 thatwere unvested as at 1 July 2006. For the year ended 30 June 2006, the change in accounting policy has resulted ina net increase in the loss for the year of £54,000. The balance sheet at 30 June2006 has been restated to reflect a share options reserve of £306,000. For the year ended 30 June 2007 the change in accounting policy has resulted ina charge to the profit and loss account of £369,000. At June 2007 the shareoptions reserve amounted to £675,000. 5 Remuneration of directors Year to Year to 30 June 2007 30 June 2006 £'000 £'000 Directors' emoluments 775 789Pension contributions 73 74 _____ _____ 848 863 _____ _____ Emoluments of highest paid director (£'000) 201 189 Group contribution to pension plan:Pension contributions paid by the Group for highest paid director (£'000) 21 20 The number of directors for whom pension payments are made 4 5 Gains made by directors on exercise of options (£'000) - 2,395 6 Pension costs Defined Contribution Scheme The Group operates a defined-contribution personal pension scheme for certainemployees in the UK. The assets of the scheme are held separately from those ofthe Group in an independently administered fund. The amount charged againstprofits represents the contributions payable to the scheme in respect of theaccounting period. Defined benefit scheme In prior years the pension scheme in Germany has been accounted for as a definedcontribution scheme. Since further information has become available the natureof the scheme in Germany has been reassessed; based on the new evidence thepension has been reclassified as a defined benefit scheme. We do not considerthis to be a fundamental error and therefore a prior period adjustment is notappropriate. The pension charge of £0.3m for the year has been taken to theprofit and loss account for the first time while cumulative actuarial gains andlosses relating to the current and previous years have been reported in thestatement of recognised gains and losses. The scheme liability is valued at£2.9m, with planned assets of £0.7m giving a net liability of £2.2m. Non pledgedassets, valued at £1.0m are shown as investments. The net effect of includingthe pension scheme on the balance sheet is to reduce net assets by £1.2m An actuarial valuation for the purposes of FRS 17 was carried out at 30 June2007 by Swiss Life Pensions Management GmbH. The major assumptions used by SwissLife were: At 30 June 2007 At 30 June 2006 Retail Price Inflation 2.0% 2.0%Salary increases 3.5% 3.5%Pension increases in payment 2.0% 2.0%Discount rate at beginning of year 4.6% 4.0%Discount rate at end of year 5.0% 4.6%Expected return on assets 4.1% 4.1%Increase of Social Security Contribution ceiling 3.25% per annum 3.25% per annum Information for year ended 30 June 2007The assets in the scheme and the expected rates of return were: 2007 2007 Expected return Fair value % p.a. £'000 Insurance policies 4.1% 718 _____Total market value of assets 718 Present value of scheme liabilities (2,900) _____ Deficit in the scheme (2,182)Related deferred tax asset * - _____Net pension liability (2,182) _____ * The pension charge generates an unrecognised deferred tax asset of £546,000,however this is unrecognised in the Group accounts as there is uncertainty overthe recoverability. Analysis of the amount charged to operating loss 2007 £'000 Current service cost 194 _____ Analysis of the amount included in other finance costs 2007 £'000 Expected return on pension scheme assets (27)Interest on pension scheme liabilities 129 _____ Net charge 102 _____ Analysis of the amount recognised in the statement of totalrecognised gains and losses (STRGL) 2007 £'000 Actual return less expected return on pension scheme assets (11)Experience gains and losses arising on scheme liabilities (30)Changes in assumptions underlying the present value of scheme liabilities 174 _____Total amount relating to year 133 Opening cumulative gains & (losses) recognised in 2007 (1,234) _____ Actuarial loss recognised in STRGL (1,101)Movement in related deferred tax asset - _____ Net movement recognised in STRGL (1,101) _____ Movement in deficit during the year 2007 £'000 Deficit in scheme at beginning of year (2,210)Foreign currency differences 127Current service cost & finance cost (296)Contributions 54Benefits paid 10Actuarial gain 133 _____ Deficit in scheme at end of year (2,182) _____ Illustrative information for year ended 30 June 2006 The actuaries have provided illustrative information for the scheme for the yearended 30 June 2006 on the basis that the Group had always adopted the revisedaccounting treatment. 2006 2006 Expected return Fair value % p.a. £'000 Insurance policies 4.1% 697 _____Total market value of assets 697 Present value of scheme liabilities (2,907) _____ Deficit in the scheme (2,210)Related deferred tax asset - _____Net pension liability (2,210) _____Analysis of the amount charged to operating loss 2006 £'000 Current service cost 194 _____Analysis of the amount included in other finance costs 2006 £'000 Expected return on pension scheme assets (26)Interest on pension scheme liabilities 112 _____ Net charge 86 _____Analysis of the amount recognised in the statement of totalrecognised gains and losses (STRGL) 2006 £'000 Actual return less expected return on pension scheme assets (1)Experience gains and losses arising on scheme liabilities (47)Changes in assumptions underlying the present value of scheme liabilities 242 _____Total amount relating to year 194 Opening cumulative gains & (losses) - _____ Actuarial gain recognised in STRGL 194Movement in related deferred tax asset - _____ Net movement recognised in STRGL 194 _____Movement in deficit during the year 2006 £'000 Deficit in scheme at beginning of year (2,113)Foreign currency differences (74)Current service cost & finance cost (280)Contributions 53Benefits paid 10Actuarial gain 194 _____ Deficit in scheme at end of year (2,210) _____ History of experience gains and losses 2007 2006 £'000 £'000Difference between the expected and actual return on scheme assets- amount (£'000) (11) (1)- percentage of scheme assets 1.5% 0.1% Experience gains and losses on scheme liabilities- amount (£'000) (30) (47)- percentage of scheme liabilities 1.0% 1.6% Changes in assumptions underlying the present value of scheme liabilities- amount (£'000) 174 242 Total amount recognised in STRGL- amount (£'000) 133 194- percentage of scheme liabilities 4.6% 6.6% 7 Staff numbers and costs The average number of full-time equivalent persons employed by the Group(including directors) during the year, analysed by geographical location was asfollows: Number of employees Year to Year to 30 June 2007 30 June 2006 UK 209 163Germany 75 70Rest of Europe 50 42 _____ _____ 334 275 _____ _____ The aggregate payroll costs for these persons were as follows: Year to Year to 30 June 2007 30 June 2006 £'000 £'000 Aggregate wages and salaries 10,015 8,605Social security costs 1,553 1,394Other pension costs 420 378 _____ _____ 11,988 10,377 _____ _____ The average number of employees involved in pension schemes across the Group for2007 was 193 (2006: 193). 8 Tax on loss on ordinary activities Year to Year to 30 June 2007 30 June 2006 £'000 £'000 (restated)The taxation credit is made up as follows: UK corporation tax at 30% - -Adjustment in respect of prior years 2,503 - _____ _____ 2,503 - _____ _____Current tax reconciliation: Loss before tax (26,320) (6,173) _______ _______Tax at standard rate of 30% on loss for year (7,896) (1,852)Expenses not deductible for tax purposes 227 49Capital allowances in excess of depreciation (139) (177)Other adjustments not taxable - -Overseas adjustments not taxable - -Utilisation of tax losses (215) (47)Tax losses not utilised 8,110 3,796Allowances for R&D expenditure (75) (1,036)Relief for shares acquired by employees & directors (12) (733)Tax loss surrendered to R&D tax credit 2,503 - ______ _______Current tax credit arising in the UK 2,503 - _____ _____ Unrelieved group tax losses of £39 million (2006: £23 million) remain availableto offset against future taxable trading profits. These comprise UK tradinglosses of £34 million, UK non-trading losses of £3 million, losses in Germany of£0.5 million and losses in Italy and Spain of £1.5 million. 9 Loss for the financial period The parent company has taken advantage of s.230 of the Companies Act 1985 andhas not included its own profit and loss account in these financial statements.The parent company's profit for the period was £32,000. 10 Loss per share Year to Year to 30 June 2007 30 June 2006 Loss for the year (£'000) (23,817) (6,173) Weighted number of shares in issue 81,950,632 66,117,299Diluted weighted number of shares in issue n/a n/a Basic and diluted loss per share (pence) (29.1) (9.3) 11 Intangible fixed assets - Group Goodwill Manufacturing Non- Other Total at know-how competing intangibles 30 June 2007 know-how £'000 £'000 £'000 £'000 £'000CostCost brought forward 4,977 1,000 3,046 960 9,983Exchange difference (58) - (68) (6) (132) _____ _____ _____ _____ _____Balance carried forward 4,919 1,000 2,978 954 9,851 _____ _____ _____ _____ _____AmortisationBalance brought forward 2,651 537 3,046 594 6,828Charge for year 333 63 - 52 448Exchange difference (32) - (68) (6) (106) _____ _____ _____ _____ _____Balance carried forward 2,952 600 2,978 640 7,170 _____ _____ _____ _____ _____Net book valueAt 30 June 2007 1,967 400 - 314 2,681 _____ _____ _____ _____ _____At 30 June 2006 2,326 463 - 366 3,155 _____ _____ _____ _____ _____ The fair values of intangible assets acquired as part of a business aredetermined by the realisable market value. The directors consider eachacquisition separately for the purpose of determining the amortisation period ofany goodwill and other intangible assets that arise. The following sets out theperiods over which intangible assets are amortised and reasons for the periodschosen: • Goodwill, manufacturing know-how and other intangible assets arising on the acquisition of Allergy Therapeutics Limited and Bencard Allergie GmbH in June 1998 have been amortised over 15 years. The directors have estimated that this is the useful economic life of the assets, reflecting the expected financial benefits. 'Other intangibles' comprises trademarks and associated acquisition costs. 12 Tangible fixed assets - Group Plant & Fixtures & Motor Machinery Fittings Vehicles £'000 £'000 £'000Cost Balance brought forward 2,941 1,960 8Additions 1,300 972 12Disposals (60) (2) (4)Exchange difference (2) (10) - _____ _____ _____Balance carried forward 4,179 2,920 16 _____ _____ _____DepreciationBalance brought forward 1,383 563 7Charge for period 272 292 2Disposals (38) (2) (4)Exchange difference (1) (5) - _____ _____ _____Balance carried forward 1,616 848 5 _____ _____ _____Net book valueAt 30 June 2007 2,563 2,072 11 _____ _____ _____At 30 June 2006 1,558 1,397 1 _____ _____ _____ Tangible fixed assets - Group (continued from table above) Computer Freehold Equipment Land & Total at Buildings 30 June 2007 £'000 £'000 £'000Cost Balance brought forward 3,090 270 8,269Additions 883 - 3,167Disposals (1,318) - (1,384)Exchange difference (18) (7) (37) _____ _____ _____Balance carried forward 2,637 263 10,015 _____ _____ _____DepreciationBalance brought forward 2,464 215 4,632Charge for period 243 31 840Disposals (1,317) - (1,361)Exchange difference (15) (6) (27) _____ _____ _____Balance carried forward 1,375 240 4,084 _____ _____ _____Net book valueAt 30 June 2007 1,262 23 5,931 _____ _____ _____At 30 June 2006 626 55 3,637 _____ _____ _____ 13 Investments Investments - Group Group Insurance policies £'000At 1 July 2006 -Additions 1,034Investment loss (23) _____At 30 June 2007 1,011 _____ This insurance policy is designed to contribute towards the obligation inrespect of the defined benefit pension scheme (note 6). Investments - Company Company Shares in subsidiary undertaking £'000CostInvestment brought forward and carried forward 51 _____ProvisionProvision brought forward and carried forward - _____Net book valueAt 30 June 2007 51 _____ At 30 June 2007 the Company's subsidiary undertakings were: Subsidiary undertaking Country of Principal activity Percentage of Class of incorporation shares held shares held Allergy Therapeutics (Holdings) Ltd UK Holding company 100% ordinary and deferred Allergy Therapeutics (UK) Ltd UK Manufacture and sale of pharmaceutical products 100% ordinary Allergy Therapeutics Development Ltd UK Dormant 100% ordinary Bencard Allergie GmbH Germany Sale of pharmaceutical products 100% ordinary Bencard Allergie (Austria) GmbH Austria Sale of pharmaceutical products 100% ordinary Allergy Therapeutics Italia s.r.l. Italy Sale of pharmaceutical products 100% ordinary Allergy Therapeutics Iberica S.L. Spain Sale of pharmaceutical products 100% ordinary Allergy Therapeutics (Canada) Ltd, a former subsidiary of Allergy Therapeutics(Holdings) Ltd, was liquidated before 30 June 2007. Allergy Therapeutics (Holdings) Ltd is fully owned by Allergy Therapeutics plc.All other subsidiary undertakings except Bencard Allergie (Austria) GmbH, arefully owned by Allergy Therapeutics (Holdings) Ltd. Bencard Allergie (Austria)GmbH is fully owned by Bencard Allergie GmbH. 14 Stocks Group 30 June 2007 30 June 2006 £'000 £'000 Raw materials and consumables 1,706 1,081Work in progress 2,452 2,029Finished goods 753 541 _____ _____ 4,911 3,651 _____ _____ There is no material difference between the value of stock above and itsreplacement cost. 15 Debtors Group Company 30 June 2007 30 June 2006 30 June 2007 30 June 2006 £'000 £'000 £'000 £'000Amounts falling due within one yearTrade debtors 1,802 1,777 - -Amounts owed by subsidiary undertakings - - 199 -Taxation and social security 718 435 - -Prepayments and accrued income 722 1,095 - 14Other debtors 131 270 4 - _____ _____ _____ _____ 3,373 3,577 203 14 _____ _____ _____ _____ 16 Creditors: amounts falling due within one year Group Company 30 June 2007 30 June 2006 30 June 2007 30 June 2006 £'000 £'000 £'000 £'000 Trade creditors 4,612 1,671 - -Taxation and social security 446 893 66 93Accruals and deferred income 5,499 2,225 10 219Other creditors 157 150 - - _____ _____ _____ _____ 10,714 4,939 76 312 _____ _____ _____ _____ 17 Creditors: amounts falling due after more than one year Group 30 June 2007 30 June 2006 £'000 £'000 Bank loan 2,161 -Other long term creditors 191 239 _____ _____ 2,352 239 _____ _____ In May 2007 the Company entered into a loan agreement with the Royal Bank ofScotland. The facility consists of a seven year term loan of €40,000,000(£26,896,000). The loan can be drawn down in variable amounts on variable datesduring the first 2 years of the agreement against agreed costs, providedspecific financial covenants are met. Repayment of the principal is byinstalments and commences after completion of the R&D programme, after the fullamount of the loan has been drawn down or from the end of June 2009, whicheveris sooner. At the end of June 2007 €4,970,000 (£3,342,000) had been drawn down. Interest on the loan is at 2.75% above Euribor. An interest rate swap has beenentered into starting 2 July 2007 to convert 60% of the notional interestpayable from a floating to fixed rate of 4.95% plus margin. A commitment fee of0.65% is payable from the date of the agreement on the undrawn amount of theloan. Interest and commitment fees are payable quarterly in arrears. An arrangement fee of €1,250,000 (£840,000) is payable in two tranches: thefirst tranche of €750,000 (£509,000) was paid on 25 May 2007; the second trancheof €500,000 (£336,000) is payable on 18 June 2009. A further fee of €1,350,000(£908,000) is payable in two tranches: the first tranche of €600,000 (£404,000)on 31 December 2009; the second tranche of €750,000 (£504,000) on 18 June 2010.The arrangement fee paid in May and issue costs of £672,000 relating to the loanhave been offset against the loan balance and are amortised at a constant rateon the carrying amount of the loan over the seven year term. The loan is secured by a debenture over the Group's assets; a pledge of sharesof the subsidiaries Bencard Allergie GmbH, Allergy Therapeutics Italia s.r.l.and Allergy Therapeutics Iberica S.L.; and an Intellectual Property Rightsagreement with Bencard Allergie GmbH. 18 Financial instruments and derivatives The Group uses financial instruments comprising borrowings, cash and variousitems, such as trade debtors and trade creditors that arise directly from itsoperations. The main purpose of these financial instruments is to raise financefor the Group's operations. The Group also enters into derivatives transactions such as interest rate swapsand forward foreign currency contracts. The purpose of such transactions is tomanage the interest rate and currency risks arising from the Group's operationsand its sources of finance. The main risks arising from the Group financial instruments are interest raterisk, liquidity risk and foreign currency risk. The Board reviews and agreespolicies for managing each of these risks and they are summarised below. It is Group policy that no trading in financial instruments shall be undertaken. Short-term debtors and creditors Short-term debtors and creditors have been excluded from all the followingdisclosures, other than the currency risk disclosures. Interest rate risk The Group finances its operations through a mixture of cash reserves, short-termbank borrowings and long-term loan. The Group borrows at both fixed and floatingrates of interest and uses interest rate swaps to generate the desired interestprofile and to manage the Group's exposure to interest rate fluctuations. Atthe year end the Group's borrowings related solely to the loan entered into inMay 2007 and were at floating rates of interest. Interest rate swaps have beencontracted to start from the beginning of July 2007 and will convert 60% of theloan borrowings from floating to fixed rates. After taking these into account,approximately 52% of the Group's total committed borrowings are at fixed ratesof interest. Interest rate risk profile of financial liabilities The interest rate profile of the Group's financial liabilities at 30 June 2007was: Floating rate financial Fixed rate financial Financial liabilities on liabilities liabilities which no interest is paid £'000 £'000 £'000CurrencyEuros 3,342 - - The floating rate financial liabilities comprise Euro denominated bankborrowings that bear interest rates based on 3 month Euribor (EuropeanInter-Bank Offer Rate). Currency risk The Group does not hedge its exposure of foreign investments held in foreigncurrencies. The Group is exposed to translation and transaction foreign exchange risk. Inrelation to translation risk the repatriation of assets is insignificant and theonly exposure is revaluation of the assets at year end for accounting purposes.Therefore, Group policy does not deem it necessary to cover this risk. Transaction exposures are hedged, mainly using the forward hedge market. TheGroup seeks to hedge its exposures using a variety of financial instruments,with the objective of minimising fluctuations in exchange rates on futuretransactions and cash flows. The majority of the Group's revenue is denominated in Euros. A large part of themanufacturing cost base is denominated in Sterling but some R&D and other costsare denominated in US Dollars, Canadian Dollars and Euros. The Group policy isto eliminate approximately 50% of currency exposures on a rolling 12 month basisthrough the use of forward currency contracts. Maturity of financial liabilities The maturity profile of the Group's financial liabilities at 30 June was asfollows: 30 June 2007 30 June 2006 £'000 £'000 In one year or less, or on demand - -In more than one year but not more than two years 1,345 -In more than two years but not more than five years 1,997 -In more than five years - - _____ _____ 3,342 - _____ _____ Borrowing facilities The Group has undrawn committed facilities at 30 June 2007 of €35,392,000 (2006:€362,000) and £4,000,000 (2006: nil). Fair values of financial assets and financial liabilities A comparison by category of fair values and book values of the Group's financialliabilities at 30 June was as follows: Book value Fair value Book value Fair value 30 June 2007 30 June 2007 30 June 2006 30 June 2006 £'000 £'000 £'000 £'000 Primary financial instruments held or issued tofinance the Group's operations:Long-term borrowing 3,342 3,342 - - Derivative financial instruments held to manage theinterest rate and currency profile:Forward foreign currency contracts - 1 - 6 Gains and losses on hedges The Group policy is to hedge exposures to currency risk. The table below showsthe extent to which the Group has unrecognised and/or deferred gains and lossesin respect of financial instruments used as hedges at the beginning and end ofthe year. The table also shows the amount of gains and losses that are expectedto be recognised in future profit and loss accounts. Gains Losses Total net gains/(losses) £'000 £'000 £'000 Unrecognised gains and losses on hedges at 1 July 2006 6 - 6Gains and losses arising in previous years that were recognised in 2006/07 6 - 6Gains and losses arising before 1 July 2006 that were not recognised in 2006/07 - - -Gains and losses arising in 2006/07 that were not recognised in 2006/07 63 (62) 1Unrecognised gains and losses on hedges at 30 June 2007 63 (62) 1 Of which:Gains and losses expected to be recognised in 2007/08 63 (62) 1 Liquidity risk The Group seeks to manage financial risk by ensuring sufficient funds orcommitted borrowing facilities are available to meet foreseeable needs and toinvest cash assets safely and profitably. Surplus cash is invested in variousdeposit accounts to spread the risk and to generate a higher return of interest. The table below shows the monetary assets held by the Group in currencies otherthan Sterling. GroupCurrency 30 June 2007 30 June 2006 £'000 £'000 Euro 1,114 1,446US Dollar 2,199 52Canadian Dollar 1,895 29Slovak Koruna 5 3Polish Zloty 6 1 _____ _____ 5,219 1,531 _____ _____ 19 Called up share capital 30 June 2007 30 June 2006 £'000 £'000AuthorisedEquity: 790,151,667 ordinary shares of 0.1p each 790 790Equity: 9,848,333 deferred shares of 0.1p each 10 10 _____ _____ 800 800 _____ _____Allotted, called up and fully paidEquity: 81,950,632 ordinary shares of 0.1p each 82 82Equity: 9,848,333 deferred shares of 0.1p each 10 10 _____ _____ 92 92 _____ _____ The deferred shares have no voting rights, dividend rights or value attached tothem. Share options Details of the share options over the Company's ordinary shares are as follows: At start of Granted in Exercised in Lapsed in At end of Exercise Exercise date Exercise date year year year year year price from to 4,800 - 600 100 4,100 0.1p 04/10/04 22/12/08 20,312 - 1,650 200 18,462 0.1p 04/10/04 01/10/09 25,038 - 1,750 - 23,288 0.1p 04/10/04 01/10/10 13,950 - 700 - 13,250 0.1p 04/10/04 20/10/10 200,000 - - - 200,000 0.1p 04/10/04 02/01/11 987,350 - - 9,100 978,250 120p 31/07/02(1) 31/07/11 400,000 - - - 400,000 30p 03/06/02 03/06/12 1,000,000 - - - 1,000,000 0.1p 02/10/02 02/10/12 1,500,000 - - - 1,500,000 5p 17/12/02(1) 17/12/12 69,334 - 5,334 - 64,000 5p 17/12/03(1) 17/12/12 4,000,000 - - - 4,000,000 5p 18/12/02(1) 18/12/12 171,300 - 21,683 750 148,867 5p 04/10/04 25/01/13 100,000 - - - 100,000 45p 15/12/03(2) 15/12/13 1,880,681 - 49,013 - 1,831,668 45p 26/02/05(1) 26/02/14 230,000 - - - 230,000 45p 02/08/05(1) 02/08/14 1,900,001 - - - 1,900,001 100.4p 08/03/08 08/03/15 497,507 - 1,953 20,137 475,417 64p 01/03/09 01/09/09 - *179,358 - 1,900 177,458 99.45p 01/05/10 01/11/10 13,000,273 179,358 82,683 32,187 13,064,761 *Shares granted under the SAYE 2005 share plan (1)One third of share options granted were exercisable from this date, one thirdfrom 12 months after this date and one third from 24 months after this date. (2)30,000 share options granted were exercisable from this date and 10,000 wereexercisable from 1st of each subsequent month until 01/12/2004. Long Term Incentive Plan Details of the shares provisionally awarded under the Plan are as follows: At start of Awarded in Vested in Lapsed in At end of Vesting price Plan cycle Plan cycle year year year year year starts ends 1,205,871 - 3,187 31,245 1,171,439 - 01/07/05 30/06/08 - 999,995 - 13,744 986,251 - 01/07/06 30/06/09 1,205,871 999,995 3,187 44,989 *2,157,690 \* This is the maximum contingent number of shares that could vest under the termsof the Plan. 20 Reserves Group Company Profit and loss account Profit and loss account £'000 £'000 At 30 June 2006 (40,809) (33,630)Re-stated for FRS 20 (128) (128)Retained (loss)/profit for the year (23,817) 32Currency translation profit on foreign currency investments (48) -Actuarial losses (1,101) - _____ _____At 30 June 2007 (65,903) (33,726) _____ _____ Group Company Investment revaluation Investment revaluation reserve reserve £'000 £'000 At 1 July 2006 - - Revaluation of insurance investment 226 - _____ _____ At 30 June 2007 226 - _____ _____ Group and Company Group Share premium account Shares issued by subsidiary £'000 £'000 At 30 June 2006 33,173 40,128 _____ _____ At 30 June 2007 33,173 40,128 _____ _____ Group and Company Group and Company Other reserve - share based Other reserve - EBT payments £'000 £'000 At 30 June 2006 178 (60) Re-stated for FRS 20 128 - Sale of shares by EBT - 24 Provision in year for share based payments 369 - _____ _____ At 30 June 2007 675 (36) _____ _____ 'Shares issued by subsidiary' relates to the share premium account of AllergyTherapeutics (Holdings) Ltd. At 30 June 2007 there were 2,084,212 shares in the Employee Benefit Trust withan aggregate cost of £36,000 which reduced the shareholders' funds accordingly.The shares will be allotted as employees exercise share options. The marketvalue of the shares at 30 June 2007 was £2,490,633. 21 Share-based payments Equity-settled share-based payments The Company has a Savings Related Share Option Plan which has been offered toall employees and executive directors with 12 months continuous service. Optionsgranted in 2006 and 2007 are exercisable at a 15% discount to the average marketshare price on the date of grant. The vesting period is 3 years. The options aresettled in equity once exercised. If the options remain unexercised after aperiod of six months from the start of the vesting period, the options expire.Options are forfeited if the employee leaves the Company before the optionsvest. The Company has a Long Term Incentive Plan under which directors and senioremployees may receive annual provisional awards of performance vesting shares.The number of shares that may vest depends on the Company's performance duringthe Plan cycle in terms of total shareholder return (TSR) compared to the TSRperformance of the companies in the Plan's peer group. If the Company's positionin the peer group at the end of the Plan cycle is at or above the 75thpercentile, 100% of the shares provisionally awarded may vest; between the 75thand 50th percentile the percentage of shares that may vest will be calculated ona straight-line basis between 100% and 33.33%; below the 50th percentile noshares will vest. Each Plan cycle will comprise not less than three consecutivefinancial years. Awards are forfeited if the employee leaves the Company beforethe shares vest. Share options were granted to employees and directors under earlier schemes. Thevesting periods are usually from 1 to 3 years. The vesting of some options isdependent on the Company's TSR performance as for the Long Term Incentive Plandetailed above. The options are settled in equity once exercised. If the optionsremain unexercised after a period of 10 years from the date of grant, theoptions expire. Options are forfeited if the employee leaves the Company beforethe options vest. For the following disclosure, Long Term Incentive Plan awards with a nilexercise price have been disclosed separately to avoid distorting the weightedaverage exercise prices. (a) Share options Year to 30 June 2007 Year to 30 June 2006 Weighted average Weighted average exercise price exercise price Number £ Number £ Outstanding at the beginning of the 13,000,273 0.37 16,243,606 0.33yearGranted during the year 179,358 0.99 497,507 0.64Exercised during the year (82,683) 0.30 (3,090,840) 0.09Forfeited during the year (32,187) 0.80 (650,000) 0.94 _____ _____ _____ _____Outstanding at the end of the year 13,064,761 0.38 13,000,273 0.37 _____ _____ _____ _____Exercisable at the year end 10,435,218 0.24 9,799,764 0.23 _____ _____ _____ _____ Included in the above numbers outstanding at 30 June 2007 are 9,751,897 (2006:9,799,764) share options granted before 7 November 2002 which have been excludedfrom the share-based payments charge in accordance with the FRS 20 'Share-basedPayments' transitional provisions. Options exercised during the year had a weighted average share price at date ofexercise of 112p. The share options outstanding at the end of the year have a weighted averageremaining contractual life of 5.7 years (2006: 5.9 years) and have the followingrange of exercise prices: Exercise price (p) 30 June 2007 30 June 2006 Number Number 0.1 - 5 6,971,967 7,004,7346 - 45 2,561,668 2,610,68146 - 120 3,531,126 3,384,858 _____ _____ 13,064,761 13,000,273 _____ _____ The fair values of options granted under the Savings Related Share Option Planduring the year were determined using the Black-Scholes Pricing Model. Expectedvolatility was based on historic volatility at the date of grant. Theassumptions made to value options granted during the years ended 30 June 2006and 30 June 2007 were as follows: 30 June 2007 30 June 2006 Weighted average fair value 41.3p 26.4pWeighted average share price 117.0p 75.0pWeighted average exercise price 99.5p 64.0pExpected volatility 30% 30%Expected dividend yield 0% 0%Risk free interest rate 5% 5% The share-based payment charge assumes an expected option life of 3.25 years, anemployee attrition rate of 10% and an early surrender risk of 10%. (b) Long Term Incentive Plan awards 30 June 2007 30 June 2006 Number Number Outstanding at the beginning of the year 1,205,871 -Granted during the year 999,995 1,205,871Vested during the year (3,187) -Forfeited during the year (44,989) - _____ _____Outstanding at the end of the year 2,157,690 1,205,871 _____ _____ Awards granted under the Long Term Incentive Plan have a nil exercise price andare valued at the market price at the date of grant, 100.0p (2006: 69.5p). Theshare-based payment charge assumes an employee attrition rate of 10% and avesting probability of 41.5%. 22 Reconciliation of movement in shareholders funds Group Company Year to Year to Year to Year to 30 June 2007 30 June 2006 30 June 2007 30 June 2006 £'000 £'000 £'000 £'000 (Loss)/profit for the financial year (23,817) (6,173) 32 (18,776)Other recognised gains and losses relating to (48) 29 - -the period (net)Issue of shares - 19,000 - 19,000Issue of shares from EBT 24 262 24 262Share based payments 369 232 369 232Expenses paid in connection with share issue - (732) - (732)Actuarial losses (1,101) - - -Revaluation of investments 226 - - - _____ _____ _____ _____Net (deduction from)/addition to shareholders' funds (24,347) 12,618 425 (14) Opening shareholders' funds 32,702 20,084 (247) (233) _____ _____ _____ _____Closing shareholders' funds 8,355 32,702 178 (247) _____ _____ _____ _____ 23 Reconciliation of operating loss to operating cash flow Year to Year to 30 June 2007 30 June 2006 £'000 £'000 (restated) Operating loss (26,836) (6,714)Depreciation 840 668Amortisation of intangibles 448 450Loss on disposal of fixed assets 20 10Effect of foreign exchange rate changes (9) (20)Charge for share based payments 369 232Increase in stocks (1,260) (910)Decrease/(increase) in debtors 204 (416)Increase/(decrease) in creditors 5,727 (1,399)Other non-cash differences 194 - _____ _____Net cash outflow from operating activities (20,303) (8,099) _____ _____ 24 Analysis of financing Year to Year to 30 June 2007 30 June 2006 £'000 £'000 Funds drawn on new loan facility 3,342 -Issue costs and finance costs relating to loan (678) -Issue of ordinary shares (net of expenses) - 18,268Issue of shares from EBT 24 262 _____ _____ 2,688 18,530 _____ _____ 25 Analysis of change in net funds At beginning of Cash flow Other non-cash At end of period period changes £'000 £'000 £'000 £'000 Cash at bank and in hand 23,860 (18,164) - 5,696Debt due - (2,664) 503 (2,161) _____ _____ _____ _____ 23,860 (20,828) 503 3,535 _____ _____ _____ _____ Non-cash changes relate to issue costs not paid at 30 June 2007 26 Capital commitments Capital commitments at the end of the financial period, for which no provisionhas been made, are as follows: Group Group 30 June 2007 30 June 2006 £'000 £'000 Total capital commitments 1,311 1,191 _____ _____ Included in the above is £280,000 for ongoing factory refurbishments in the UK(2006: £809,000); £854,000 for new plant and machinery (2006:£382,000); and£177,000 for IT equipment and systems upgrades. Other commitments: Between November 2006 and May 2007, 22 separate forward foreign exchangecontracts were arranged for the sale of €17,407,000 (£11,705,000) at futuredates from July 2007 to February 2008. 27 Leasing commitments Operating lease payments amounting to £602,000 (2006: £600,000) are due withinone year. The leases to which these amounts relate expire as follows: Land and buildings Other 30 June 2007 30 June 2006 30 June 2007 30 June 2006 £'000 £'000 £'000 £'000In one year or less 29 17 99 2Between one and five years 155 170 209 301In five years or more 110 110 - - _____ _____ _____ _____ 294 297 308 303 _____ _____ _____ _____ 28 Contingent liabilities Allergy Therapeutics (UK) Ltd., a subsidiary of Allergy Therapeutics plc, hasguaranteed the deposits required for leases on company cars and rented officespace occupied by a fellow subsidiary, Bencard Allergie GmbH. The amount as at30 June 2007 was €78,000; £52,000 (2006: €78,000; £54,000). A cross-guarantee exists between Allergy Therapeutics plc, Allergy Therapeutics(Holdings) Ltd, Allergy Therapeutics (UK) Ltd, Bencard Allergie GmbH, AllergyTherapeutics Italia s.r.l and Allergy Therapeutics Iberica S.L. in which theliabilities of each entity under the RBS loan agreement are guaranteed by allthe others. Publication Of Non-Statutory Accounts The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The summarised balance sheet at 30 June 2007 and the summarised profit and lossaccount, summarised cash flow statement and associated notes for the year thenended have been extracted from the Group's 2007 statutory financial statementsupon which the auditors opinion is unqualified and does not include anystatement under Section 237 of the Companies Act 1985. Those financial statements have not yet been delivered to the Registrar ofCompanies for England and Wales. This information is provided by RNS The company news service from the London Stock Exchange

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Allergy Thera.