2nd Mar 2005 07:02
Evolutec Group PLC02 March 2005 For immediate release 2 March 2005 EVOLUTEC GROUP PLC ("Evolutec" or "the Company") FINANCIAL RESULTS FOR THE PERIOD ENDED 31 DECEMBER 2004 Evolutec Group plc (AIM: EVC), a biopharmaceutical company engaged in developingnovel products for the treatment of allergic, inflammatory and autoimmunediseases, is pleased to announce its financial results for the 18 month periodended 31 December 2004. The results cover an 18 month period because the Company changed its year endfrom 30 June to 31 December on admission to AIM last year. Highlights to date Development • rEV131 - Rhinitis clinical programme on-track - Investigational New Drug ("IND") submitted 14 February 2005 - 112 patient dose ranging proof of concept study planned for 2005 - Nasal safety programme completed and device selected • rEV131 - Post-cataract surgery clinical programme on-track - Positive preclinical result confirms potential - IND submission in preparation • rEV131 - Dry eye selected as third indication • Other programmes with rEV576 and rEV598 underway Commercial • Balanced commercial strategy for rEV131 - License marketing rights in respiratory indications - Retain marketing rights in ophthalmic indications • Cambrex Bio Science Baltimore ("Cambrex") selected for current Good Manufacturing Practice ("cGMP") manufacture of rEV131 Financial • AIM listed - raised £5.1m (net of expenses) at 125p in August 2004 • Operating loss for 18 month period £2.5m (12 months to 30 June 2003: operating loss of £1.1m) • Cash and short-term investments of £3.9m at 31 December 2004 (2003: £0.2m) R&D Review Day • The meeting will take place on Wednesday 23 March at Buchanan Communications, 107 Cheapside, London, EC2V 6DN • Focus will be on Evolutec's clinical development programmes Mark Carnegie Brown, Evolutec's Chief Executive, said: "I am pleased to reportthat Evolutec is on track to deliver the strategy outlined when we joined AIMlast year. Our progress to date demonstrates our ability to implement clinicaland manufacturing plans and develop the business model. Clinical trial resultsexpected during 2005 have the potential to drive the Company's growth and tomitigate risk in our portfolio." For further information: Evolutec 01865 784070Mark Carnegie Brown, Chief Executive OfficerNicholas Badman, Chief Financial Officerwww.evolutec.co.uk Collins Stewart 020 7523 8350Chris Howard Buchanan Communications 020 7466 5000Mark Court/Tim Anderson/Mary-Jane Johnson Notes for Editors About Evolutec Evolutec, which is based in Oxford, UK, is a clinical stage biopharmaceuticalcompany with a focus on allergy, inflammation and auto-immune diseases. The Company's lead product, rEV131, is a histamine-binding protein that hasprogressed to phase II trials in allergic conjunctivitis, rhinitis and ocularinflammation. Positive pre-clinical data has also been generated in asthma.rEV131 is understood to be the only product currently in clinical trials thatimpacts the recently discovered H4 receptor, a receptor implicated in many formsof inflammatory disease. The Company intends to carryout proof of concept phaseII clinical trials with rEV131 in allergic rhinitis and post-cataract surgery in2005. The Company has a further two products in pre-clinical development, rEV598 whichis being evaluated in carcinoid syndrome and CINV (chemotherapy-induced nauseaand vomiting), and rEV576, a complement inhibitor. Evolutec was founded in 1998 to exploit research carried out by the NaturalEnvironment Research Council. Evolutec's drugs were first isolated from thesaliva of ticks. The tick remains undetected by its hosts, including humans, byinjecting an array of molecules into the skin that suppresses normal defencemechanisms. These stealth molecules have evolved over millions of years toenable the tick to take a blood meal from its host. Evolutec employs the tick'sevolutionary stealth technology to offer the potential of treating humandiseases. Safe Harbour statement: this news release may contain forward-lookingstatements that reflect the current expectations of the Company regarding futureevents. Forward-looking statements involve risks and uncertainties. Actualevents could differ materially from those projected herein and depend on anumber of factors including the success of the Company's research strategies,the applicability of the discoveries made therein, the successful and timelycompletion of clinical studies, the uncertainties related to the regulatoryprocess, the successful integration of completed mergers and acquisitions andachievement of expected synergies from such transactions, and the ability of theCompany to identify and consummate suitable strategic and business combinationtransactions. Chairman's review I am pleased to produce the first annual report of Evolutec Group plc (the "Company" or "Evolutec") following its listing on the Alternative InvestmentMarket of the London Stock Exchange ("AIM") on 2 August 2004. It is a pleasureto thank both new and existing shareholders for their support of the Company. The Company raised some £5.1 million net of expenses at listing and thisprovides adequate finance to support two key Phase II clinical trials in 2005 aswell as allowing some continued development of infrastructure. Evolutec is an emerging biopharmaceutical company focused on the development ofbiopharmaceutical products for the treatment of disease. The Company expects todevelop a portfolio of products in a variety of different clinical indications.Depending on analysis of individual product opportunities the Company intends toretain marketing rights to some products in Europe and the USA, but will rely onpartnership to ensure world-wide development and marketing. Analysis of the development of new therapeutic products shows that the greatestvalue is delivered to shareholders by companies that retain direct marketingrights, particularly in the USA the world's largest pharmaceutical market. Thedevelopment of new products to marketing authorisation incurs significant riskspredominantly due to lack of desired efficacy or poor tolerance of novelentities. Evolutec has sought to mitigate these risks in a number of ways. First, and most importantly, Evolutec selects its development candidates frombiological sources (currently blood sucking arthropods, ticks) where thefunction of the novel molecule is closely linked to the evolutionary survival ofthe species. In the case of ticks, they must avoid detec-tion by mammalianimmune systems to take a blood meal in order for the species to survive. Tickshave evolved a system to suppress inflammatory and immune responses (stealthtechnology), both of which are common components of many human diseases.Evolutec utilises modern recombinant production techniques whereby theindividual genes that code the molecules are transferred to bacteria. Thebacteria can be used for large scale commercial production of the productsovercoming the problem of the limited material available directly from ticks. Secondly, Evolutec intends to develop a number of different molecules in diversetherapeutic indications to create a portfolio of opportunities. Currently twodevelopment candidates (a histacalin and a protein derived from tick cementantigen), are undergoing key trials in human and animal diseases and theseresults will be reported in 2005. The Company has identified two furthermolecules (a serocalin and a complement inhibitor) that will be taken intodevelopment as soon as resources allow us to make this investment. Evolutec hasidentified a number of additional recombinant molecules that could producefurther development candidates although this will require additional researchprior to development. Because Evolutec was one of the first companies to exploitticks as a source of therapeutic molecules the Company has the advantage thatits filed patents are amongst the first in the area. Therefore we expect toreceive grants covering broad claims. In the past reporting period we weredelighted that our first patent was granted in the United States and Europe andthe Company received notice of a grant in respect of a second patent. A strongpatent position is an essential asset for an emerging biopharmaceutical company. The Company has now gained considerable clinical and experimental experiencewith its lead clinical candidate, rEV131. The safety profile in clinical trialsof this molecule is good and bears out the prediction that tick derived proteinswould not produce adverse effects because this would negatively impact theirsurvival. In addition, rEV131 has powerful effects on white cell migration into sites ofinflammation both in humans and animals. Since white cells are one of the keymediators of inflammation in human defence and disease, again this result waspredicted as a component of species survival. The Company is planning two PhaseII studies for 2005 involving a total of about 250 patients. The data from thesetrials will determine the future value of the Company. A positive outcome shouldenhance the Company valuation and will present the management with a number ofoptions to continue to enhance share-holder value. The Company has held numerousconfidential discussions with regard to rEV131 with major pharma-ceuticalcompanies and believes that it will be able to enter substantial partneringarrangements for this product once positive clinical data are obtained. Merial Inc ("Merial") has begun the clinical evaluation of a tick derived cementantigen as an anti-tick vaccine in cattle. Initially these studies are beingconducted in South America, probably the most important commercial market forthis type of vaccine. It is expected that these trials will also report in 2005.In the event that the result is positive then it is anticipated that trials willbe expanded to include companion animals (pets) and to block tick bornediseases. The Company will also be able to exploit the asset to develop vaccinesto tick born diseases in humans (e.g. Lyme disease). Evolutec is pleased to beable to collaborate with Merial in this development programme since it is aleading animal health company with expertise in vaccine development andcommercialisation. This is essential for vaccine development which is aspecialised business. Evolutec's business model is based upon tight control of its cost base in orderto minimise its need to raise equity capital. The Company operates with a smallpermanent work-force and subcontracts virtually all its activities to specialistcontract research organisations. Because Evolutec accesses these services on aworld-wide basis it can obtain competitive prices and this allows clinicaldevelopment to proceed on a cost effective basis compared to the industry whichgenerally has a higher fixed cost base and incurs substantial discovery costs inresearch. Our model places great emphasis on the efforts of a small group ofEvolutec employees both in terms of their expertise and energy. It is a pleasureto be able to thank all the Evolutec staff for their efforts over the pasteighteen months. The Company has built a reward system for them which is closelylinked to increasing shareholder value and feels that this closely allies theinterests of shareholders and management. Evolutec has been well served by itsacademic collaborators over the reporting period and is particularly grateful tothe efforts of scientists at the Natural Environment Research Council, Oxfordand the Centre National de la Recherche Scientifique, France. Under AIM rules, the Group is not required to comply with the Combined Code2003. However, management has taken steps to comply with the Combined Code 2003in so far as it can be applied practically, given the size of the Group. 2005 will be an important year in the evolution of Evolutec because of thegeneration of such important clinical data and for the potential opportunitiesthat this will create. Our workforce approaches these tasks with greatenthusiasm and a commitment to produce the best return for our shareholders. David P BloxhamChairman1 March 2005 Chief Executive's review of operations I was delighted to join Evolutec as Chief Executive in August 2003 and was drawnto the Company by the opportunity to build a substantial biopharmaceuticalbusiness on the basis of novel technology and an outsourced business model. It seemed to me that accessing sufficient funding to prove Evolutec's technologyin the clinic would begin this process. The selection of appropriate clinicalindications and the flotation of the Company on AIM have created a platform forfuture growth. The last eighteen months have seen strong progress in the growth and developmentof your Company. Within this period we have restructured the Board, completedtwo fundraisings - including listing on AIM and partnered our animal vaccines.The product pipeline has developed and clinical progress has been made withrEV131 and early preclinical results generated with rEV576 and rEV598. The Grouphad net cash and short-term investments of £3.9 million as at 31 December 2004.This will fund the Phase II clinical trials in allergic rhinitis andpost-operative cataract surgery and enable investment in the manufac-turingprocess of rEV131, required for Phase III clinical trials and commercialproduction. Strategy The Company's protein technology offers broad utility and development potentialin both major and specialist human therapeutic markets and in animal healthmarkets. While the focus of the Company is in the allergy, inflammation andauto-immune markets the vaccines offer another string to our bow and potentialin the animal health market. To exploit its technology Evolutec will seeklicensing partners after clinical proof of concept in the major markets e.g.respiratory, but intends to retain territorial marketing rights in thespecialist markets e.g. ophthalmology. This will enable Evolutec to generateboth licensing and operational revenues. Partnering is a key element of thestrategy as Evolutec develops its pipeline. Appropriate partners will be soughtto deliver the above goals, to accelerate development and mitigate risk withinthe portfolio. The potential market for licensing partners is currently viewedas strong because the major pharmaceutical companies need to build theirpipeline to meet market expectations. Business model The Evolutec business model is based on a small number of skilled staff who canlead and source preclinical, clinical and manufacturing programmes costeffectively on a global basis. This model enables cost effective drugdevelopment and is focused on preclinical and clinical activities. In thefuture, as the Company grows, this flexible model can be applied to additionalproducts and therapeutic areas. Evolutec has become a publicly listed clinicalstage biopharmaceutical company with its immediate product focus on developmentin the respiratory and ophthalmology arenas. Looking to the future the Companywill retain its focus on biopharmaceuticals, seek to diversify and mitigate riskwithin its portfolio and prime its research pipeline. Product pipeline The three small protein therapeutics in Evolutec's pipeline are sourced fromtick saliva. Since mammalian hosts, including humans, suffer few ill effectsfrom the feeding of these tick species this source of molecules conveys thepotential advantage of a favourable safety profile. Furthermore, because theseproteins have been conserved by evolution, nature has already selected the mostefficient mechanism for modulating the immune response system. This "stealth"technology enables the tick to remain undetected by its host and complete itsblood meal. rEV131, rEV598 and rEV576 together with the animal vaccines provideEvolutec with an opportunity for multiple therapeutic targets and return onshareholder investment. The Company has a further 12 recombinant proteins whichhave been isolated from the same source. The lead development candidate rEV131 is intended to target theanti-inflammatory and anti-allergy markets with a profile similar to that ofcombining a corticosteroid and an anti-histamine. This would offer patientconvenience and potentially address clinical concerns associated with thelong-term use of steroids. The most promising areas for clinical evaluationinclude rhinitis, post-operative cataract surgery, dry eye, asthma, chronicobstructive pulmonary disease ("COPD") and adult respiratory distress syndrome("ARDS"). Through its binding of histamine the effect of rEV131 is equivalent toa functional antagonist of histamine receptors, of which H1 and H4 are mostimportant to acute and chronic inflammation respectively. However, rEV131 doesnot directly impact the histamine receptors. rEV598 is a preclinical stagemolecule which through its binding of serotonin and histamine offers a potentialtherapy in carcinoid syndrome and chemotherapy induced nausea and vomiting ("CINV"). rEV576 is a preclinical stage molecule which impacts the complementcascade and from this mechanism of action is considered to have potential inrheumatoid arthritis and stroke. Evolutec has pursued comprehensive patent protection for the novel technology itdevelops. The Company holds 14 patents covering all the families of molecules inthe key pharmaceutical territories. Because Evolutec has been one of the firstcompanies to research this area there are no known freedom to operate issuesassociated with its intellectual property. Evolutec's broad patent covering thevaso-amines (6617312) has been granted in the US and Europe and its patentscovering the use of rEV131 in rhinitis (1207899) and conjunctivitis (1207898)have been granted in Europe. In addition Evolutec's screening patent has beenapproved for grant in Europe (application number 00985700.4). Clinical studies with rEV131, conducted under a US FDA approved InvestigationalNew Drug ("IND"), have shown activity in rhinitis, ocular inflammation andconjunctivitis. Over ninety patients have received ocular dosing with the leaddevelopment candidate. Good safety and comfort have been demonstrated withoutincrease in intraocular pressure. There is now substantial evidence to show thatrEV131 impacts the movement of both neutrophils and eosinophils suggestingpotential breadth of utility. These blood cells are important to theinflammatory process and the potential to limit their influx is a significantfeature of potential therapies. Examples of neutrophil mediated diseasesinclude rheumatoid arthritis and COPD and examples of eosinphil medicateddiseases include rhinitis and asthma. In an ocular dosing and challenge regime rEV131 showed an improvement in all therecorded symptoms of rhinitis in the clinic. When data was summed in an overallscoring system, these improvements were statistically significant. The resultsare compelling because the drug was administered to the eye and rhinitissymptoms are in the nose. Clinical results in ocular inflammation have shown adose dependant reduction of neutrophils in the tear fluid. Preclinical studieswhere rEV131 was at least as effective as the corticosteroid prednisolone, havefurther emphasised the potential of rEV131 in ocular inflammation. This study isconsidered an effective surrogate for post-operative cataract surgery andrepresents an important step in Evolutec's development programme in theophthalmic area. While clinical improvement in the symptoms of conjunctivitiswere observed these were not consistent enough across the patients to deliverthe trial endpoint. Further studies would be needed to optimise the dose and,possibly, the formulation for this indication. The effect of rEV131 on acute and chronic allergy/ inflammation is unusual.This is considered to be an unmet medical need in this market. The effects oneosinophils and neutrophils, as well as the clinical efficacy in rhinitis andocular inflammation are considered important in proving Evolutec's technology inthe short-term and establishing a platform for development in longer termindications. On the basis of the encouraging clinical results in rhinitis andocular inflammation the two immediate indications chosen are allergic rhinitisand post-operative cataract surgery. Rhinitis is an eosinophil mediatedcondition and post-operative cataract surgery a neutrophil mediated condition.These indications are not mutually interdependent and mitigate risk since oneindication should not affect success in the other. Rhinitis, a severeinflammation of the nasal air passage, is a major market with global salesestimated to be $6.6 billion. The target population for rEV131 is the severecongestion segment represented by steroid sales valued in excess of $2 billion.There are some 1.4 million cataract surgery operations performed per annum inthe USA and the market is estimated at $500 million. The overall ophthalmicprescription market is valued at $2.8 billion. The safety profile of rEV131 isin line with that predicted from the origins of the molecule. No abnormalitieshave been observed in a range of preclinical studies including nasal workundertaken for the rhinitis programme. An additional attractive feature of themolecule is that it has proved to be active when delivered by a range ofdifferent routes including inhaled, injected (sub-cutaneous, intravenous,intraperitoneal) and topical. Funding Evolutec was admitted to AIM in August 2004 and raised £5.1 million net. Thissuccess was achieved against a back drop of difficult market conditions. In 2003the Company completed a private funding round and raised £0.7 million net. Thebulk of these proceeds are being invested in rEV131 and will be used to fundclinical studies in rhinitis and post-operative cataract surgery and invest inmanufacturing process development. In addition Evolutec intends to progress thepreclinical programmes with rEV598 and rEV576 during 2005 and select clinicalindications for these development candidates in the next 12-18 months. Partnering In September 2003 the Company partnered its animal vaccines with Merial. Thisdeal was important because it validated Evolutec's technology, provided forpotential milestones and enabled the Company to focus on the development ofhuman therapies. Merial's cattle evaluation programme was initially delayedbecause it took longer than anticipated to demonstrate that the vaccines metBrazilian import requirements. A positive outcome to Merial's evaluation and theresulting milestones will contribute to the cost base of Evolutec going forwardsand trigger work in the substantial companion animal market. Positive resultswould also enable Evolutec to pursue the potential of the same technology in thehuman vaccine area where preclinical work has shown potential against Borreliathe causal agent of Lyme disease and tick borne encephalitis. Management has attended and presented at several bio-partnering conferences toraise Evolutec's profile in Europe and the US. Management has met with a numberof pharma-ceutical companies in order to position the Company for licensingdiscussions following the results of its clinical trials in 2005. The USrepresents the single most important pharmaceutical market and the home of manymajor pharmaceutical and biotechnology companies. Preclinical The preclinical development candidates rEV598 and rEV576 have also movedforwards. rEV598 has shown promising results in its binding of serotonin inhuman carcinoid cell culture. It showed a dose dependant reduction in serotoninlevels and the potential for additive effects when used in combination with thecommercial standard lanreotide. Potential indications for this molecule include CINV and carcinoid syndrome.The latter is considered likely to qualify for orphan drug status and aneffective new treatment would attract regulatory benefits and marketingexclusivity - so reducing the cost of clinical studies and acceleratingpotential timelines. Annual sales of existing therapies into the CINV market arevalued at $1.8 billion. rEV576 acts on the final step of the complement system is associated with theproduction of the membrane attack complex. The complement system is associatedwith the identification of invading micro-organisms and the marshalling ofappropriate defence systems including the attraction of neutrophils andeosinophils. However, in patients with rheumatoid arthritis and certain types ofstroke the membrane attack complex is over stimulated and causes damage to jointsurfaces and heart muscle. rEV576 has shown activity against neutrophils inpreclinical complement models and appears to have a very different profile torEV131. Further preclinical work is planned 2005. Management The Evolutec team has grown and changed over the last 18 months. In April 2004,David Bloxham was appointed as Executive Chairman and Graeme Hart was appointedas a Non-Executive Director. Nicholas Badman joined the Board in July 2004 asChief Financial Officer. Nicholas has 10 years' experience in corporate financeand investment banking. Nicholas was appointed as Company Secretary in November2004. The Company wishes to thank David White for his contribution to this areafor the last 5 years. In 2005, the operational team was strengthened with theappointment of John Hamer as Development Director. John brings with him awealth of experience gained in a career with Upjohn, Fisons, Johnson & Johnsonand INYX pharma. Evolutec has outgrown its current office space and needsimproved connections to airports and the City of London. The Company is movingits operational headquarters to Green Park, Reading in April 2005. Clinical Plans Clinical trial plans for allergic rhinitis are developing as intended andEvolutec is in dialogue with the FDA on this matter. Evolutec has soughtstatistical and development advice in the design of this study and investigateda number of clinical centres. The Company has submitted for an IND in rhinitisin February 2005 and intends to undertake a 112 patient, dose ranging nasalallergen challenge study. This will be multi-site, to ease patient recruitmentand based in San Antonio, Texas under the direction of Dr. Paul Ratner asprincipal investigator. Paul is a fellow of the American Academy of Allergy anda past president of the Society of Principal Investigators. He has an excellenttrack record in this field, has worked with many of the pharmaceutical companiesactive in this area and is enthusiastic about the prospects for rEV131. The Company also intends to submit an IND in post--operative cataract surgery inthe first half of 2005. Again, this will be a substantial multi-site study.Current thinking is that this will be an enriched population, so increasing thechance of demonstrating a drug effect. Dr. Mark Abelson of Ophthalmic ResearchAssociates, Boston will be the principal investigator. Mark is a leadingclinician in the area of ophthalmology and has undertaken previous work forEvolutec. Cambrex has been selected to manufacture rEV131, Evolutec's lead compound, forPhase III clinical trials and planned marketing. rEV131 has been manufacturedto date according to Good Laboratory Practice ("GLP") standards for the Phase IIclinical trials planned for 2005 in allergic rhinitis and post-operativecataract surgery. The current GLP process produces good yields of rEV131. Theagreement with Cambrex covers process development work, during which Cambrexwill develop a robust, scaleable, current cGMP process for purified rEV131, witha goal of optimising the process yield. The agreement then provides for Cambrexto scale-up the cGMP process. In summary, Evolutec's AIM listing has benefited the Company in terms offunding, capability and profile. The assets of the Company have developed asplanned and partnering remains key to the ongoing strategy. Progress with theimplementation of the business plan and associated clinical programmes is onschedule. Looking to the future, the delivery of positive clinical results in allergicrhinitis and post-operative cataract surgery with rEV131 is intended to drivefurther fund raising, partnering and significant growth at Evolutec. Results inthe eye suggest that several neutrophil related conditions could be pursued withrEV131 in due course. These include dry eye, contact lens associated marginalneutrophil infiltration and vernal keratocon-junctivitis in the specialistophthalmic market. Substantial indications which could be considered for thedevelopment of rEV131 with an appropriate partner include COPD and asthma. Mark Carnegie BrownChief Executive Officer1 March 2005 Financial review The reported results are for the 18 month period to 31 December reflecting theGroup's new financial year end. The Company raised £5.1 million (net) and wasadmitted to AIM in August 2004. The Company also raised £0.7 million (net) in aprivate placing in August 2003. Financial and operating strategy The Group's financial and operating strategy is to maintain a small number ofemployees providing core skills and to sub-contract the clinical and preclinicaldevelopment, research and manufacturing work. As of 1 March 2005, Evolutec had 7full-time employees. This outsourcing strategy means that Evolutec can be moreefficient as it has lower in-house operating costs and is able to leverage worldclass expertise and services at the most competitive market rates globally. Capital structureShare capital The Company had 10.2 million 10p ordinary shares and 48.0 million 10p deferredshares outstanding at 31 December 2004. The deferred shares arose on a shareconsolidation during the preparation for the AIM listing, carry no voting orequity participation rights, and are the subject of a resolution to authorisethe Company to buy back these shares at the Company's AGM on 4 May 2005. Net cash position and funding The Group had net cash and short-term investments of £3.9 million as at 31December 2004 compared with £0.2 million at 30 June 2003. The increase in cashand cash equivalents reflects a £0.7 million (net) private placing in August2003 and a £5.1 million (net) placing upon the Company's admission to AIM inAugust 2004. The net cash outflow before the management of liquid resources andfinancing was £2.1 million (June 2003: £1.4 million) reflecting the Group'sexpenditure for the period. The Group had no borrowings during the period (June 2003: £nil). Treasury As at 31 December 2004 the Group had £3.8 million on treasury deposit. TheGroup's treasury policy is to split its deposits between at least two banks eachwith a minimum credit rating of F1/A. The objective is to derive the maximuminterest consistent with flexibility to undertake ongoing activity andsafeguarding the asset. The Group does not engage in speculative transactions or derivatives trading inrespect of cash balances held. The Group is exposed to US dollar and Euro currency exchange rate movements.The Group monitors these exposures on a frequent basis and has taken appropriatesteps to mitigate large exposures. Evolutec has benefited from the increase inthe value of sterling versus the US dollar in recent months as a significantportion of the development and manufacturing expenditure is US dollar dominated. Cash flow Net cash outflow from operating activities in the period was £2.3 million (June2003: £1.6 million). This included a milestone payment of £0.2 million to theNatural Environment Research Council, the originator of certain of the Group'sintellectual property and technology. The other significant cash flow item during the period was the cash expensesrelating to the two share issues which totalled £0.6 million. The cash inflowfrom interest and the research and development tax credit was £0.2 million. Profit & loss Revenue Evolutec is a clinical stage biopharmaceutical company and as such has no sourceof direct revenue. The revenue for the period of £28,000 (June 2003: £nil)relates to payments for materials supplied for testing under an option agreementwith Merial over rights to the animal vaccine uses of proteins derived from tickcement antigen. Research and development Research and development expenditure of £1.0 million (June 2003: £0.7 million)is up on a like for like basis due to the increased level of developmentactivity, including the rhinitis and post-operative cataract surgery developmentprogrammes as well as the commencement of work on developing a cGMPmanufacturing process with Cambrex. Administrative expenses Administrative expenses of £1.5 million (June 2003: £0.5 million) are up on alike for like basis primarily due to the recruitment of additional staff and theincreased professional fees resulting from the Company's admission to AIM. Taxation The Group's research and development tax credit of £0.2 million (June 2003: £0.1million) is higher on a like for like basis reflecting the increased level ofqualifying research and development expenditure. International Financial Reporting Standards International Financial Reporting Standards ("IFRS") are mandatory for all fullylisted companies within the European Union for years commencing on or after 1January 2005. As an AIM listed company, this requirement does not currentlyapply to Evolutec until the financial year ended 31 December 2007 at theearliest. However, the Group will consider early adoption once there is greater clarityand guidance in relation to the practical application of IFRS and, in particularfrom the Inland Revenue as to the tax treatment of research and developmentexpenditure under IFRS and subsequent effect on research and development taxcredits. Re-location to Green Park The Group is relocating its operational headquarters to Green Park, a businesspark close to Reading and Junction 11 of the M4. The move reflects the Group's strategy to . expand headcount in key areas . take advantage of Green Park's excellent communication links via road and rail as well as its proximity to Heathrow Airport; and . emphasise the increasing importance of the commercial side of Evolutec's business The Group negotiated attractive terms for the new office facility and the addedspace provides flexibility for expansion. Nicholas BadmanChief Financial Officer1 March 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNTFor eighteen-month period ended 31 December 2004 Notes Eighteen months ended 31 December 2004 Year ended 30 June 2003 £000 £000 Turnover 28 -Cost of sales - - Gross profit 28 - Research and development expenditure (993) (660)Other administrative costs (1,543) (453) Total administrative costs (2,536) (1,113) Operating loss on ordinary activities before (2,508) (1,113)interest and taxationInterest receivable and similar income 94 19 Loss on ordinary activities before taxation (2,414) (1,094)Tax credit on loss on ordinary activities 177 89 Loss for period (2,237) (1,005) Basic and diluted loss per share - pence 2 (33.6) (21.6) Continuing operations All the activities of the Group are classed as continuing operations. Statement of recognised gains and losses There are no recognised gains and losses other than the losses above, andtherefore no separate statement of total recognised gains and losses has beenpresented. BALANCE SHEETSAs at 31 December 2004 Notes Group Group 31 December 2004 30 June 2003 £000 £000Fixed assetsTangible assets 11 14Investments - - 11 14 Current assetsDebtors 255 95Short-term deposits and investments 3,761 175Cash 113 52 4,129 322 Current liabilitiesCreditors: amounts falling due within one year (367) (106) Net current assets 3,762 216 Net assets 3,773 230 Capital and reservesShare capital 3 5,824 4,826Share premium account 3 4,622 2,034Other reserves 3 3,734 1,540Profit and loss account 3 (10,407) 8,170 Total shareholders' funds 3 3,773 230 Evolutec Group plc was incorporated on 9 March 2004, therefore no comparativefigure is shown for the Company's balance sheet. CONSOLIDATED CASHFLOW STATEMENTFor the eighteen-month period ended 31 December 2004 Eighteen months Year ended ended Notes 31 December 30 June 2004 2003 £000 £000 Reconciliation of operating loss to operating cash flows (2,508) (1,113)Operating lossDepreciation 16 81Loss on disposal of intangible fixed assets - 7(Increase)/decrease in debtors (69) 25Increase/(decrease) in creditors 261 (605) Net cash outflow from operating activities (2,300) (1,605) Cash flow statement (2,300) (1,605)Net cash outflow from operating activities Returns on investments and servicing of finance 94 19Interest received Net cash inflow from investments and servicing of finance 94 19 Taxation 86 157Research and development tax credit received Net cash inflow from taxation 86 157 Capital expenditure (13) -Purchase of tangible fixed assets Net cash outflow from capital expenditure (13) - Net cash outflow before management of liquid resourcesand financing (2,133) (1,429) Management of liquid resources Increase in short-term deposits with bank (3,586) (175) Net cash outflow from management of liquid resources 4 (3,586) (175) Financing 6,067 1,318Issue of shares Conversion of warrants 300 -New loans - 400Costs of share issue (587) (104) Net cash inflow from financing 5,780 1,614 Increase in cash in the period 4 61 10 Reconciliation of net cash flow to movement in net cash /(debt) Increase in cash in the period 61 10Cash outflow from decrease/(inflow from increase) in debtand lease financing - (400)Conversion of debt to equity - 750 Movement in net funds in the period 61 360 Net cash/(debt) at start of the period 52 (308) Net cash at end of the period 113 52 Notes 1 Financial information The financial information set out in the preliminary statement does not comprisethe Company's statutory accounts within the meaning of section 240(5) of theCompanies Act 1985. The preliminary statement is prepared on the basis of the accounting policies asstated in the financial statements for the period ended 31 December 2004. The financial information for 2004 has been extracted from the statutoryaccounts of the Company for the period ended 31 December 2004 which have beenaudited by the Company's auditors Grant Thornton UK LLP and whose report thereonis unqualified and did not contain any statement under section 237 of theCompanies Act 1985. The Company's statutory accounts will be delivered to theRegistrar of Companies for England and Wales in due course and will also be sentto shareholders. The financial information for 2003 has been extracted from the statutoryaccounts for the year ended 31 June 2003, which have been delivered to theRegistrar of Companies. The auditors' report on those accounts was unqualifiedand did not contain any statement under section 237 of the Companies Act 1985. The preliminary statement was approved by the Board on 1 March 2005. 2 Loss per ordinary share Eighteen months ended 31 Year Ended December 2004 30 June 2003 £000 £000 Attributable loss (2,237) (1,005)Weighted average number of shares in issue (000) 6,660 4,654Loss per share (basic and diluted) pence (33.6) (21.6) The calculation of loss per share is based on the weighted average number ofordinary shares in issue during the period. The calculation of the weightedaverage number of shares has been adjusted to take account of the one for tenshare consolidation which took place on 17 June 2004 as part of the preparationfor the Company's admission to AIM. 3 Reconciliation of movements in shareholders' funds Share Profit and premium loss Called-up account Other account share reserves capital Total £000 £000 £000 £000 £000GroupBalance at 1 July 2003 4,826 2,034 1,540 (8,170) 230Issue of ordinary shares on 8 August 2003 512 205 - - 717Expenses of issue of ordinary shares on 8 August 2003 - (45) - - (45) 5,338 2,194 1,540 (8,170) 902 Restatement for pre-AIM listing and restructuring - (2,194) 2,194 - -AIM listing 456 5,244 - - 5,700Conversion of warrants 30 270 - - 300Costs of share issues - AIM listing and warrants - (892) - - (892)Loss for the period - - - (2,237) (2,237) Balance at 31 December 2004 5,824 4,622 3,734 (10,407) 3,773 CompanyBalance at 9 March 2004 (date of incorporation) - - - - -Pre-AIM listing restructuring - share for share 5,338 - - - 5,338exchangeAIM listing 456 5,244 - - 5,700Conversion of warrants 30 270 - - 300Costs of share issues - AIM listing and warrants - (892) - - (892)Loss for the period - - - - - Balance at 31 December 2004 5,824 4,622 - - 10,446 4 Analysis of movement in net funds At 30 June 2003 Cash flows At 31 December 2004 £000 £000 £000Analysis of net fundsCash 52 61 113Liquid resources 175 3,586 3,761Net funds 227 3,647 3,874 Liquid resources comprised short-term deposits with banks which mature within 12months of the date of deposition. 5 Notice of Annual General Meeting The Annual General Meeting of the Company will be held at 100 Longwater Avenue,Green Park, Reading RG2 6GP, on Wednesday 4 May 2005, at 11am. 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Nanoco