26th Apr 2007 07:01
Verona Pharma PLC26 April 2007 VERONA PHARMA plc ("Verona Pharma" or the "Company") PRELIMINARY UNAUDITED RESULTS for the year ended 31 December 2006 Verona Pharma plc is a life sciences company dedicated to the research,discovery and development of new therapeutic drugs for the treatment of allergicrhinitis (hay fever) and other chronic respiratory diseases such as asthma andchronic obstructive pulmonary disease (COPD), as well as chronic inflammatorydiseases. 2006 OPERATIONAL HIGHLIGHTS 18 September 2006 Reverse takeover of Rhinopharma Limited by Isis Resources plc. 19 September 2006 Re-admission to the AIM as Verona Pharma plc raising £2.04 million. 16 November 2006 Material transfer agreement signed with GlycoMar Limited for supply of polysaccharides derived from starfish for testing under NAIPs programme. 27 November 2006 Engaged MedPharm Ltd to develop a formulation of RPL554 for upcoming preclinical and clinical studies and extended research contract with King's College London for research under RPL554 programme. 15 December 2006 Material transfer agreement signed with Glycores 2000 S.r.l. for supply of synthetic forms of polysaccharide compounds for testing under NAIPs programme. Financial Loss after tax of £0.61 million, which includes a non-cash charge of £0.30 million for the cost of issuing share options. Cash and short term investments at 31 December 2006 of £2.36 million. CHAIRMAN AND CEO'S STATEMENT 2006 was an important year for Verona Pharma as it moved its focus into theexciting area of drug discovery and development. On 18 September 2006, theCompany acquired Rhinopharma Limited, a private company developing newtherapeutic drugs for the treatment of allergic rhinitis (hay fever) and otherchronic respiratory and inflammatory disease. In conjunction with theacquisition, the Company raised £2,043,000 in gross proceeds by issuing51,075,000 ordinary shares at 4 pence each and was readmitted to trading on AIMon 19 September 2006. A new Board and management team was installed to take the Company forward. Thisteam was chosen on the basis of its track record in drug discovery anddevelopment as well as financial and business acumen. We have a strong Boardwith complimentary skills, including Professor Clive Page as Chairman, aninternationally recognized expert in the pharmacology of drugs for the treatmentof respiratory and inflammatory disease, Professor Michael Walker as CEO, withan established track record in drug discovery, Professor Trevor Jones, withextensive experience in the large pharmaceutical industry, Claire Poll, withbroad skills in public company management, and Stuart Bottomley, with a longhistory of financing and investing. This team will provide the Company withexperience, dedication and rational strategic direction. The Company is focusingon the discovery and early development of new drugs in the therapeutic area oflung and nose, and allergic disease in these organs, an area in which we believethe Company is well positioned to succeed. Biotech projects are high risk and project failure is common necessitating amulti-project approach to cover this risk. The scientific team at Verona Pharmais very aware of this, and therefore, operates on the basis that the success orfailure of a project should be determined as early as possible. The Board'spolicy is to take on a number of projects and to promote or terminate themquickly on the basis of clear and defined milestones. Thus, Verona Pharmaintends to have at least three discovery or development projects runningsimultaneously while carefully managing its financial and effort commitments toreflect the stage and potential of each project. The Company is currentlylooking at a number of exciting opportunities in the area of respiratory andinflammatory disease. Currently, the Company has two discovery/development drug projects under way.The first is concerned with the development of a mixed phosphodiesterase enzyme(types 3 & 4) inhibitor and its progress through preclinical toxicity testing toa clinical proof of concept study in man. This drug (RPL554) is intended totreat allergic rhinitis and/or asthma. The necessary supply of the drug and itsformulation is expected to be finished by May 2007, which will allow forpreclinical toxicity testing to commence thereafter at chosen sites. In themeantime, we are identifying the appropriate clinical team and the mostefficient (in terms of time and expense) and scientifically rigorous proof ofthe validity of our initial clinical concept (Clinical Phase 2a) of therapeuticusefulness. In addition to taking all the necessary steps to proving thetherapeutic value of RPL554, we are also discussing with various companiesmethods and devices that might be used to ensure the highest usability of thedrug. The second project is much earlier in the discovery phase and is aimed atinvestigating and applying new synthetic and analytical chemical techniques tothe discovery and development of novel anti-inflammatory polysaccharides (NAIPs)for the treatment of respiratory and, potentially, other inflammatory diseases.The Company has collaborations to obtain both naturally occurring and syntheticpolysaccharide compounds from companies in Scotland, Italy and Australia to bescreened under a service agreement with GlycoMar Limited of Scotland.Compounds found to be active in the basic screens will be further studied inrelevant disease models. We have every expectation that this project willprogress rapidly such that we can look forward to identifying lead compounds bythe end of 2007. The Company adopts a virtual research and development model by outsourcing muchof its R&D. In November 2006, the Company announced an extension of an existingresearch agreement with King's College London for ongoing research related toits drug development programmes. The Company also has an established researchcollaboration with The University of British Columbia in Vancouver, Canada. On behalf of the Board, we would like to take this opportunity to thank ourshareholders for their continued support and we particularly acknowledge theadditional investment received in September 2006 enabling us to pursue our areaof expertise, drug discovery. Professor Clive P. Page Chairman Professor Michael J. A. Walker Chief Executive Officer GROUP INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Notes 2006 2005 £ £ Revenue - -Cost of sales - - ----------- ----------- Gross profit - -Research and development (136,200) -Administration expenses (534,877) (11,380)Other operating income - 3,899 ----------- ------------ Operating loss (671,077) (7,481) Finance revenue 62,686 33,448 ----------- ------------ Profit (loss) before taxation (608,391) 25,967 Taxation 4 - - ----------- ------------Profit (loss) for the period (608,391) 25,967 =========== ============ Loss per ordinary share - basic 2 0.79p 0.06p Diluted loss per ordinary share 2 - 0.05p The 2005 comparative balances represent the period from 24 February 2005 to 31December 2005. GROUP BALANCE SHEETS AS AT 31 DECEMBER 2006 Notes 2006 2005 £ £ASSETS Non current assetsTangible assets 17,362 -Intangible assets 61,686 -Goodwill 10 1,469,112 - ----------- ----------- 1,548,160 - ----------- ----------- Current assetsTrade and other receivables 52,683 8,918Short-term investment 7 1,300,000 -Cash and cash equivalents 6 1,063,249 982,408 ----------- ----------- 2,415,932 991,326 ----------- ----------- Total assets 3,964,092 991,326 =========== =========== EQUITY AND LIABILITIES Capital and Reserves attributable to Equity holdersCalled up share capital 144,275 50,200Other reserves 298,056 -Share premium account 4,038,256 903,412Retained earnings (losses) (582,424) 25,967 ----------- -----------Total equity 3,898,163 979,579 ----------- ----------- Current liabilitiesTrade and other payables 65,929 11,747 ----------- -----------Total liabilities 65,929 11,747 ----------- ----------- Total equity and liabilities 3,964,092 991,326 =========== =========== GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Notes 2006 2005 £ £ Net cash inflow/(outflows) from operating (351,270) 2,173activities ----------- ----------- Cash flows from investing activitiesInterest received 53,684 26,623Purchase of short-term investment (1,300,000) -Purchase of tangible assets (14,949) -Net liabilities assumed from acquisition ofsubsidiary (15,543) ----------- -----------Net cash inflow/(outflows) from investing (1,276,808) 26,623activities ----------- ----------- Cash flows from financing activitiesProceeds from issue of shares 2,043,000 1,004,000Issue costs (334,081) (50,388) ----------- -----------Net cash inflow from financing activities 1,708,919 953,612 ----------- ----------- Net increase in cash and cash equivalents 80,841 982,408 Cash and cash equivalents at the beginningof the 982,408 -year ----------- -----------Cash and cash equivalents at the end of the 6 1,063,249 982,408year =========== =========== GROUP STATEMENT OF CHANGES IN NET EQUITY FOR THE YEAR ENDED 31 DECEMBER 2006 Share Share Other Retained Total capital premium Reserve earnings 2006 £ £ £ £ £ Balance at 24 February - - - - -2005Issue of shares 50,000 950,000 - - 1,000,000Issue costs - (50,388) - - (50,388)Options exercised 200 3,800 - - 4,000Net profit for theperiod - - - 25,967 25,967 -------- ----------- ----------- ----------- ----------Balance at 31 December2005 50,200 903,412 - 25,967 979,579 ======== =========== =========== =========== ========== Issue of shares 94,075 3,668,925 - - 3,763,000Issue costs - (534,081) - - (534,081)Share option charge - 298,056 - 298,056Net loss for the - - - (608,391) (608,391)period --------- ----------- ----------- ----------- -----------Balance at 31 December2006 144,275 4,038,256 298,056 582,424 3,898,163 ========= =========== =========== =========== =========== NOTES TO THE FINANCIAL STATEMENTS 1. Accounting policies A summary of the principal accounting policies, all of which have been appliedconsistently throughout the year, is set out below. 1.1. Basis of preparation The financial statements have been prepared using the historical costconvention. In addition, the financial statements have been prepared inaccordance with the International Financial Reporting Standards ("IFRSs"). 1.2. Basis of consolidation These group financial statements include the accounts of Verona Pharma plc andits wholly-owned subsidiary Rhinopharma Limited. The purchase method ofaccounting is used to account for the acquisition of Rhinopharma Limited, andfull consolidation of the subsidiary started from 18 September 2006 when controlwas established. The cost of an acquisition is measured as the fair value of theassets given, equity instruments issued and liabilities incurred or assumed atthe date of exchange, plus costs directly attributable to the acquisition.Identifiable assets acquired and liabilities and contingent liabilities assumedin a business combination are measured initially at their fair values at theacquisition date, irrespective of the extent of any minority interest. Theexcess of the cost of acquisition over the fair value of the Group's share ofthe identifiable net assets acquired is recorded as goodwill.Goodwill arising on acquisitions is capitalised and subject to an impairmentreview, both annually and when there are indications that the carrying value maynot be recoverable. Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated. Rhinopharma Limited adopts the same accounting policies as the Company. 2. Earnings per share Basic loss per share of (0.79p) (2005: earnings of 0.06p) for the Group iscalculated by dividing the loss for the year by the weighted average number ofordinary shares in issue of 77,262,671 (2005: 44,754,194). Diluted loss per share for the current year has not been presented since theCompany's stock options are anti-dilutive. Diluted earnings per share of 0.05pfor 2005 is calculated by dividing the profit for the period by the dilutedweighted average number of ordinary shares of 54,611,613, being the number ofordinary shares in issue and allowing for the exercise of options outstanding. 3. Segmental information The primary segmental reporting is determined to be geographical segmentaccording to the location of the assets. The Directors do not believe that thereis a secondary segment that could be reported. There are two geographical reporting segments. Geographical segment (Group) United Kingdom Canada Total £ £ £ Research and development (88,580) (47,620) (136,200)Administration expenses (529,553) (5,324) (534,877)Finance revenue 62,686 - 62,686 ----------- ----------- -----------Loss before taxation (555,447) (52,944) (608,391) ----------- ----------- ----------- Tangible assets 17,362 - 17,362Intangible assets 61,686 - 61,686Trade and other receivables 48,690 3,993 52,683Cash and cash equivalents 1,061,036 2,213 1,063,249Short-term investment 1,300,000 - 1,300,000Goodwill 1,469,112 - 1,469,112Trade and other payables (42,502) (23,427) (65,929) ----------- ----------- -----------Net assets 3,915,384 (17,221) 3,898,163 ----------- ----------- ----------- At the end of the financial year, the Group was still in early development stageand therefore had no turnover in the year. 2006 2005 £ £4. Taxation Factors affecting the tax charge for theperiod Profit (Loss) on ordinary activities (608,391) 25,967before taxation ========== ========== Profit (Loss) on ordinary activitiesbefore taxationmultiplied by standard rate ofcorporationtax of 30.00% (182,517) 7,790 ---------- ---------- Effects of:Non deductible expenses 94,466 -Depreciation and amortisation 700Capital allowances (1,756)Other tax adjustments - (7,790)Tax losses carried forward 89,107 - ---------- ---------- Current tax charge - - ========== ========== Factors that may affect future tax charges At the balance sheet date, the Group has unused United Kingdom tax lossesavailable for offset against suitable future profits in the United Kingdom. Adeferred tax asset has not been recognised in respect of such losses due touncertainty of future profit streams. The contingent deferred tax asset isestimated to be £70,000. 5. Subsidiary entities The Company currently has one wholly owned subsidiary, Rhinopharma Limited.Rhinopharma Limited is registered in the Province of British Columbia, Canada. 2006 2005 £ £6. Cash and cash equivalents GroupCash at bank and in hand 263,249 982,408Term deposits 800,000 - ---------- ---------- 1,063,249 982,408 ========== ========== 7. Short-term investment Short-term investment comprises a term deposit with an interest rate of 4.92%maturing in April 2007. Due to the nature and term of the investment theCompany does not feel it is subject to fair value of cash flow interest raterisk. 8. Cost of issuing share options Included within administration expenses is a charge for issuing share options.The Company granted 13,885,500 (2005: 11,000,000) stock options during thecurrent year with fair value using the Black-Scholes option-pricing model of£193,772. Of the 11,000,000 stock options that were granted in 2005, 200,000 wereexercised in 2005, leaving a balance of 10,800,000. These 10,800,000 stockoptions were ascribed a Nil value and no expense was recorded in 2005, as theCompany was without an identified investment target. With the acquisition ofRhinopharma Limited in September 2006, these options were valued at £104,284using the Black-Scholes option-pricing model. The total value of share optionsof £298,056 was charged in the current year. This amount was also recorded as ashare premium on the balance sheet. Of the 10,800,000 stock options carried over from 2005, 1,000,000 options areexercisable at 2.5 pence per option and 9,800,000 options are exercisable at 2pence per option. The expiry date for these stock options is 30 June 2008. The following assumptions were used for the Black-Scholes valuation of stockoptions and broker's options: Year/Type 2005 Directors 2006 2006 2006 and Consultants Directors Consultant Broker Options granted 10,800,000 10,000,000 1,000,000 2,885,500Risk-free interest 4.56% 4.56% 4.80% 4.80%rateExpected life of 3 years 5 years 5 years 5 yearsoptionsAnnualised 10.58% 31.08% 31.08% 32.74%volatilityDividend rate 0.00% 0.00% 0.00% 0.00% 9. Related parties transactions The Company was charged £13,659 by Magic Bullets Enterprises Limited, a companyof which Prof. Michael Walker is a Director. The Company was charged £6,490 by Gryon Consulting Limited, a company of whichProf. Clive Page is a Director. The Company paid £7,889 (2005:£Nil) to Verona Capital Pty Ltd, a company ofwhich Craig Burton is a director, for corporate services. In addition, rent andcorporate services charge of £1,407 (2005:£Nil) was paid to Mirabela Nickel, acompany of which Craig Burton is also a director. The Company paid £20,000 (2005: £Nil) to the Directors Stuart Bottomley andClaire Poll for consulting services incurred for the readmission. The chief financial officer received fees of £9,454 (2005: Nil) for accountingand management services rendered during the year. 10. Acquisition of subsidiary On 18 September 2006, the Company acquired 100 per cent. of the issued sharecapital of Rhinopharma Limited for consideration of 38,000,000 0.1 pence fullypaid ordinary shares of the Company. Rhinopharma Limited is a private companydeveloping new therapeutic drugs for the treatment of allergic rhinitis (hayfever) and other chronic respiratory and inflammatory disease. This transactionhas been accounted for by the purchase method of accounting. Book value Fair value Fair value adjustment £ £ £Net assets acquired - Tangible assets 3,163 - 3,163Intangible assets 63,267 - 63,267Trade and other 4,660 - 4,660receivablesCash and equivalents 12,612 - 12,612Trade and other payables (32,814) - (32,814) ------------- ------------- ----------- 50,888 - 50,888 Goodwill 1,469,112 ----------- -----------Consideration - 38,000,000 0.1 pence ordinary sharesof the Company at 4 pence each 1,520,000 =========== On 19 September 2006, the trade of Rhinopharma Limited was transferred to theCompany. 11. Subsequent events On 22 January 2007, the Company signed a contract with Onyx Scientific Ltd tosynthesise the required amounts of RPL554 for projected preclinical toxicologyand clinical studies. 12. Financial information The financial information set out in this announcement does not constitute theCompany's statutory accounts for the years ended 31 December 2006 or 2005. Thestatutory accounts for the year ended 31 December 2006 will be finalised on thebasis of the financial information presented by the Directors in thispreliminary announcement and will be delivered to the Registrar of Companies. 13. Directors' report and accounts Copies of the full report and accounts will be posted to shareholders in May2007. A copy is available on the Company's website. ENDS For further information please visit www.veronapharma.com or contact: Prof. Clive Page Verona Pharma Plc Tel: +44 (0)20 7863 3300 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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