6th Oct 2005 07:00
Sinclair Pharma PLC06 October 2005 Sinclair Pharma plc Preliminary Results Godalming, 6 October 2005: Sinclair Pharma plc ("Sinclair"), the rapidly growingspecialty pharmaceutical company, today announces its preliminary results forthe year ended 30 June 2005. Operating Highlights • Significant regulatory progress with 6 product approvals o FDA approval for both Aloclair(R) Gel and Aloclair(R) Spray (for mouth ulcers) o FDA and EU approval for Decapinol(R) (for gingivitis) o EU approval for AlogonTM (for sore throats) o EU approval for SebclairTM (for seborrheic dermatitis) o Two further FDA 510(k) filings made for SebclairTM and AlogonTM • Important commercial progress with 34 licensing deals and 27 launches of Sinclair products. Key highlights include: o AtopiclairTM (for atopic and contact dermatitis) licensed in US to Chester Valley Pharmaceuticals and launched in June 2005. o Aloclair(R) products (for mouth ulcers) now on sale in over 24 countries through Sunstar Butler o Decapinol(R) (for gingivitis) launched in May 2005. o XclairTM for radiation dermatitis licensed in US, UK, Germany, Korea & Colombia o SSTTM (for dry mouth syndrome) licensed in US, Korea & Colombia o SalinumTM (for saliva replacement) licensed in US, UK, Germany, Austria & Colombia • Completed fourth acquisition since MBI: Euroderm RDC SpA (now Sinclair Srl) providing direct sales force in Italy • Other Progress o Successful double-blind study demonstrating the efficacy of AtopiclairTM in atopic dermatitis o GelclairTM/Aloclair(R) patent approved in the EU and US o Wal-Mart starts to sell Aloclair(R) Rinse (Rincinol(R) in the US) from April 2005 o Aloclair(R) Rinse received accreditation from the UK Dental Health Foundation • Financial Highlights o Turnover up 174% to £7.0m (2004: £2.5m), on continuing operations o Operating loss of £2.8m (2004: £2.9m loss) o Loss per share of 5.44p (2004: 6.59p loss per share) o Cash balances of £4.9m at 30 June 2005 (2004: £7.8m) • Strong order book • Positive outlook with current Q1 trading strong & substantial growth expected Post period end highlights o Decapinol(R) Toothpaste & Gel receive EU regulatory approval o All three Aloclair(R) presentations licensed in Mexico o SebclairTM licensed to CVP inc in the US o AtopiclairTM launched in Italy and co-promotion there with specialist distributor Michael Flynn, Chief Executive of Sinclair said, "Sinclair has made major progress in the last year in its mission to become aleading specialty pharmaceutical company. The six regulatory approvals in theperiod and 34 licence deals confirm Sinclair's regulatory and commercialexpertise. Sinclair's risk averse strategy, implemented at the time of themanagement buy-in, in 2000, has proved to be successful. In only five yearsSinclair has rapidly acquired and integrated four acquisitions; obtained theapproval for 13 new products in the EU and 9 in the US. It has licensingagreements in place for ten of these products. As these partners havecommenced launching in their territories, our revenues from sales have increasedaccordingly. In short, the Company has achieved a solid platform of approvedproducts, licensing partners and a pipeline of interesting future products whichenable it to anticipate future sustainable growth and profitability withconfidence." Enquiries: Sinclair Pharma plcDr Michael Flynn, CEO Tel: (0)1483 426 644Jerry Randall, CFO John Barrington-Carver (Corp. Office)Tel: (0) 7831 655 630 Financial DynamicsBen Atwell Tel: (0) 207 831 3113 Sinclair Pharma plc: Sinclair Pharma plc, based in Godalming in the UK is quoted on the AlternativeInvestment Market (AIM) on the London Stock Exchange and has focused on theacquisition and development of niche patented pharmaceutical products in thefields of oral health and dermatology, and bringing them to the internationalmarket place via out-licensing partners. The Company combines productevaluation, product development, regulatory and business development expertiseto add value to its acquired and in-house developed products. A key element ofthe Sinclair business model is to minimise risk and exposure by avoidinginvolvement in lengthy R&D programmes and rapidly achieving global distributionthrough a network of marketing partners. The Company has already licensed itsproducts for distribution in over 40 countries around the world.www.sinclairpharma.com Chairman's Statement With the regulatory and commercial progress made this year, Sinclair is amaterially stronger business than it was last year. 3 EU and 3 US productapprovals and 34 licensing deals were struck during the financial year. Revenuesincreased by 174% to £7.0m (2004: £2.5m) on continuing operations. In the last five years, Sinclair has obtained regulatory approval in the EU forthirteen of its products (two post period) and for nine of these in the US. Ithas furthermore achieved the licensing of a total of 10 of these approvedproducts to partners in the US, EU and other countries. In the context of normalpharma industry time-frames, this is a remarkable achievement and lays thegroundwork for substantial future revenue growth and sustainable profitability. The Company has also taken an important step in the evolution of its strategythis year when it acquired Sinclair Srl (formerly Euroderm) and with it, it'sItalian sales force. This important step gives us greater control over themarketing of our products and will lead to substantially improved margins forthose sold by our Italian sales force. The establishment of our own sales andmarketing capability in other major markets is an important future part of ourstrategy. With our clear success in gaining regulatory approvals, we now have alarge portfolio of approved products which we will be able to market ourselvesin selected countries as well as through licensing partners. As indicated in our market update in June, Sinclair has a robust near termpipeline of future potential products. These include five new derma products,five oral care products including two Decapinol(R) line extensions for which,post period, we already have EU regulatory approval and two products for thetreatment of eye conditions. We are now seeing increasing revenues from our main products as our licensingpartners start to market them. Our AtopiclairTM agreement with Chester ValleyPharmaceuticals Inc. last December has resulted in the product's US launch inJune this year. Similarly, Decapinol(R), our novel oral rinse product forgingivitis, has now been launched in Italy by Dompe. Our other key oral health,and currently largest product, Aloclair(R), is now being sold by theinternational group Sunstar Butler in 24 countries in the EU and North America.The US based retailing giant Wal-Mart is now selling Aloclair(R) Rinse (marketedin the US as Rincinol(R)) in its US stores and superstores. Aloclair(R) is nowSinclair's most widely available products with a total of 34 licensingagreements covering over 50 countries, including the Far East, the USA, Canada,South America, Australia, Europe and the Middle East. Mr Steve Harris, Non-executive Chairman CHIEF EXECUTIVE'S REVIEW OVERVIEW Strategy Sinclair is a rapidly growing specialty pharmaceutical business developing astrong portfolio of niche pharmaceutical products in dermatology and oralhealth. We manage risk by avoiding the heavy cost and long time framesassociated with traditional R&D. Instead, we deploy our expertise inidentifying and acquiring those products that have hit hurdles (developmental orregulatory) in the latter stages of their development. We have a proven abilityto overcome such hurdles and are achieving strong regulatory success. We nowhave 13 products approved in the EU and 9 in the US. The next step in our strategy is to acquire our own marketing infrastructure inselected markets, enabling us to retain greater control over our products andhigher margins. The first such step in this strategy was the acquisition ofEuroderm in Italy in January 2005. Regulatory Progress for Financial Year 30 June 2005 Regulatory progress in the past year has continued to be strong. Since July2004, we have achieved three new US registrations and three in EU. This yearboth Aloclair(R) Gel and Aloclair(R) Spray, for the treatment of mouth ulcersand oral lesions, received US Food & Drug Administration (FDA) approval asmedical devices. These were followed by FDA approval for our novel mouth rinseDecapinol(R) for the treatment of gingivitis. In the EU we received regulatoryapproval (as medical devices) for, Decapinol(R), AlogonTM our Aloclair(R) lineextension for the relief of pharyngitis (sore throat) and lastly for SebclairTMour product for seborrheic dermatitis. Licensing Progress for Financial Year 30 June 2005 Early product approval has facilitated the establishment of numerous licensingagreements. Since we operate in niche markets, it is our strategy to look forthe most suitable licensing partners who we believe will expedite the launch ofour products. Over the last year we have concluded thirty-four agreementscovering eight products. The most significant of these products includeAtopiclairTM, our treatment for atopic and contact dermatitis, and Decapinol(R)as well as the three Aloclair(R) presentations. Aloclair(R) is presentlySinclair's largest selling product and is now licensed to partners covering morethan 50 countries. PRODUCT AREAS Oral Health Aloclair(R) Rinse, Gel & Spray & GelclairTM for mouth ulcers and oral lesions Aloclair(R) is currently Sinclair's largest product in terms of sales anddistribution. Sales of Aloclair(R) to distributors were slightly lower thanlast year due to scheduling of purchase orders in the previous year. However,retail sales continue to increase and with the growing geographical spread ofmarkets covered, Aloclair(R) will continue to be an important revenuecontributor. Aloclair(R) has three presentations (an oral rinse solution, anoral gel and an oral spray). With the Gel and Spray US approvals this year, allthree Aloclair(R) presentations now have regulatory approval in the US allowingthem to be sold over the counter (OTC). TNS market research conducted forSinclair indicates that 16% of the adult population get an oral ulcer over a 12month period and 64% of that population seek pain relief with a medication.That research translates to a user base of over 100 million adults in both theEU and US where all three Aloclair(R) delivery systems are now approved. Theglobal mouth ulcers market is estimated to be worth more than $1 billion perannum Fifteen distribution agreements for Aloclair(R) products (including extensionsof existing agreements) were signed in the past fiscal year. The Sunstar ButlerGroup in particular has significantly increased its Aloclair(R) (Rincinol(R) inthe US) distribution agreements over the past four years and they now cover 23countries in the EU and North America. This year, our Italian distributor Recordati confirmed that it will be sellingall three Aloclair(R) products in Italy under the trade name of 'Alovex'. Also,our licensee in Hungary, Vicis Pharma Co, extended their existing agreement forAloclair(R) Rinse and Gel to include Spray. Further afield we have signed up three more licensees for Aloclair(R) Rinse. Welicensed the Turkish company SSM for the distribution of Aloclair(R) Rinse inthat country and have also signed up Pharmbio Korea and Meditech Int. Pty ofAustralia for distribution of Aloclair(R) Rinse in those countries. This year the EU patent for Aloclair(R) Rinse and GelclairTM was granted.GelclairTM is Sinclair's product for the relief of severe oral ulceration andinflammation from various causes (mucositis). Sinclair was also advised thisyear that the US patent for Aloclair(R) Rinse and GelclairTM had been granted.This triggered a US$500,000 milestone payment under our existing worldwidedistribution agreement with Helsinn Healthcare S.A. A further testimony to the effectiveness of Aloclair(R) was the news that our UKlicensee, Forest Labs, had secured accreditation for Aloclair(R) Rinse from theUK Dental Health Foundation. Aloclair(R) Rinse is the first product to receivesuch accreditation for the pain relief of mouth ulcers in the UK and theaccreditation provides a significant independent validation of Aloclair(R)Rinse's efficacy. AlogonTM for painful throat conditions such as pharyngitis Based on the same technology as Aloclair(R) and GelclairTM, AlogonTM isSinclair's new product for painful throat conditions such as pharyngitis. In Q2it received EU approval as an OTC medical device. The product is presented in the form of a liquid gargle but is also beingdeveloped as a tablet and spray. The registration of AlogonTM as a medicaldevice in the EU was achieved significantly earlier than anticipated andSinclair has now also filed for US 510(k) registration for the product. Decapinol(R) for gingivitis Decapinol(R) is a new oral rinse product for the treatment of gingivitis whichwe believe to have significant potential. Decapinol(R) received regulatoryapproval as a medical device in both the US and the EU during the financialyear. License agreements were put in place in three markets. Following EUapproval for Decapinol(R) at the commencement of the financial year we appointedDompe International S.A as our distributor in Italy and they launched Decapinol(R) in June 2005 utilising their 228 strong sales force. In March 2005 Laboratorios Inibsa SA was appointed as our distributor in Spain.Inibsa promotes the Oralex brand of toothbrush, toothpaste and mouthwashproducts to dentists in Spain and has a staff of 300, 42% of whom are employedin sales and marketing. Inibsa expect to launch Decapinol(R) in Spain in thecoming months. Decapinol(R) has been clinically proven in tests with over 2,000 patients.Decapinol(R) acts by interfering with the attachment of bacteria to the teethand gum surfaces, in contrast to antiseptics and antibiotics such aschlorhexidine, which tend to kill all oral bacteria and adversely affect thenatural balance of oral bacteria. Sinclair believes that Decapinol(R) is thefirst new chemical entity for gingivitis for the past 30 years and that it hasthe potential to grow the existing market since it is well tolerated compared toexisting treatments. We are developing a range of new Decapinol(R) productssuch as toothpaste as announced at our R&D presentation to analysts andinvestors. The combined market for all mouthwashes and toothpastes is estimatedto be worth $12.5 billion of which $10.5 billion is toothpastes. The market forspecific gingivitis products is currently estimated to be worth £1.5 billion. Sinclair is actively engaged in licensing discussions for Decapinol(R) in the USand the remainder of Europe and hopes to reach agreement in the majorterritories over the course of this financial year. SSTTM & SalinumTM for dry mouth syndrome ("xerostomia") Sales for our dry mouth products at £153k (2004 £175k) were down 13% on lastyear. We expect growth again in this financial year with the anticipated USlaunch but, as our revenues increase, these products are likely to represent adecreasing proportion of our future revenues. Both products already have regulatory approval in the EU and the US. Justbefore the year-end SalinumTM and SSTTM agreements were signed for the US withAlign Pharmaceuticals and with Bio Pharma for Colombia. During the yeardistribution agreements for SalinumTM were also signed in the UK with JJS PharmaLtd, in Germany with ORCA Pharm and in Austria with Novopharm Bio. In additionat the end of May an agreement for SSTTM was concluded with Medifocus Co. Ltd.of Korea. Xerostomia occurs when the salivary glands' functions are partially or inextreme cases totally impaired. This may occur in a variety of circumstancesincluding, old age, auto immune disease, a large number of drugs, and surgery orradiation therapy to the head and neck. XclairTM for radiation dermatitis XclairTM is at the start of its commercial life and was introduced in the firstmarkets during the year and achieved sales of £208k. Based on the sametechnology as AtopiclairTM, this product is for the treatment of radiationdermatitis which is an inflammatory condition of the skin afflicting patientsreceiving radiotherapy for cancer. XclairTM has previously received regulatory approval in both the EU and US.Progress on this product was evidenced by five new distribution agreements forXclairTM over the year, in the US, UK, Germany, South Korea and Colombia. Dermatology AtopiclairTM for atopic and contact dermatitis AtopiclairTM, the first prescription medical device authorised by the US FDA torelieve the symptoms of atopic dermatitis and allergic contact dermatitis, waslaunched in the US in June. An important treatment aim in atopic dermatitis is to reduce and control theitch associated with the disease. Proof of its efficacy was reinforced by theannouncement in June of a positive US multicentre double blind trial in atopicdermatitis showing very rapid and highly significant clinical improvement. During the year, AtopiclairTM was licensed in the US to Chester ValleyPharmaceuticals Inc (CVP). CVP is a well financed specialty dermatologycompany, headed by two highly experienced and respected pharma executives eachwith a significant track record in commercialising dermatology products. Thedramatic reductions in itch, as well as other results from the recent US study,lead to CVP's belief that AtopiclairTM will be welcomed by physicians andpatients in the US. Although only launched by CVP in June in the US, AtopiclairTM sales have got off to an encouraging start. The launch of this key productalso triggered a £1.6 million license fee and milestone payment. In the second half, a further three distribution agreements were put in placefor AtopiclairTM in Portugal, Indonesia and Israel. SebclairTM for seborrheic dermatitis SebclairTM received EU regulatory approval as a Class 2a medical device forprescription or OTC distribution in April 2005. Discussions continue with theFDA and a response is expected in the current financial year. Post period we appointed Chester Valley Pharmaceuticals Inc as our US licensee.We are actively seeking distribution partners for this promising product inother territories and we anticipate the first sales of SebclairTM during thecurrent financial year. Seborrheic dermatitis is a common skin condition characterised by red, flakyskin. It is estimated to occur in 3-5% of the general population. It is commonin young adult men, and in the under-5s, where it may manifest as 'cradle cap'.SebclairTM addresses a market worth more than $500 million. Product Pipeline As revealed in our R&D day in June, Sinclair has a growing product pipelinebehind the portfolio of approved drugs and devices. Of these, the most excitingcompounds include Decapinol(R) Toothpaste. Decapinol(R) Gel (both now approvedin the EU). Decapinol(R) Toothpaste has the potential to take the Decapinol(R)range of products beyond the US $2 billion mouthwash market into the US$10billion toothpaste marketplace. The introduction of our pipeline products forpsoriasis and acne represent a step into this further multi-billion dollarmarket. Acquisition of Euroderm RDC SpA On 31 January we completed the acquisition of Euroderm RDC SpA, aprivately-owned dermatology business. This deal increases Sinclair's productportfolio and during the last 5 months of the financial year Eurodermcontributed £1.07m to overall revenues. Euroderm has its own sales force inItaly giving us greater control over our products and improved margins.Following the completion, the company was renamed Sinclair Srl. Our success in registering new products ahead of expectations has meant that wehave been able to accelerate our strategy to move down the distribution chainand gain higher margins for our products. We will now be able to market ourgrowing portfolio of approved products directly in Italy. In addition, byacquiring a cash generative company that has capacity for further products wewill not incur cash costs in setting up our own sales force in Italy. We intendto continue this strategy across the major territories in Europe. Management We strengthened our senior management this year with the appointment of DerekWilliams as COO of our main operating company and Mario di Majo as head of ournewly acquired company Sinclair Srl. Derek joined Sinclair from Celltech wherehe was most recently European Commercial Director, overseeing the restructuringof commercial operations and the establishment of a Europe-wide secondary carecapability. Derek's primary role will be to lead Sinclair's expansion of its ownsales and marketing capability across Europe and into North America as more ofthe products in the company's pipeline come to market. Mario was for the pastten years with Teva Pharma Italia, latterly as Hospital Business Unit Director.Paul Phull, previously Vice-President of Business Development was appointed asBusiness Development director of the operating company. At the beginning of the year the Board was strengthened by the appointment ofGrahame Cook as non-executive director. Grahame, aged 47, has over 18 yearsexperience in investment banking advising on a wide range of M&A and CapitalMarket transactions in the US and Europe. Post Period Since the year end, Sinclair has received two EU regulatory approvals, struckseven new licensing deals covering six products and launched AtopiclairTM in theEU. In early July both our Decapinol(R) line extensions Decapinol(R) Toothpaste (atoothpaste for treating gingivitis) and Decapinol(R) Gel (a product for theintensive professional treatment of gum infections had obtained EU registrationapproval. These products are based on the technology behind Decapinol(R) and theregistrations significantly increase the addressable market for Decapinol(R).Licensing agreements signed post period include agreements with AnabiosisLimited in Greece for the distribution of SalinumTM and XclairTM. Our USdistributor for AtopiclairTM has also taken SebclairTM in the US. Adding totheir existing agreements, Sunstar Butler's Mexican company John O. Butler(Mexico) has signed distribution agreements for all three Aloclair(R)presentations while Pharmbio Korea Ltd has become our distributor for Decapinol(R) in South Korea. We have also launched AtopiclairTM in Italy through Sinclair Srl (formerlyEuroderm). This is Sinclair's first product launch through our own sales forceand represents a significant step in the evolution of the Company's distributionstrategy which, up to now, has been to appoint licensing partners tocommercialise its products. Announced today AtopiclairTM Sinclair announced today that it's wholly owned Italian subsidiary Sinclair Srl(formerly Euroderm) has signed a one year co-promotion deal in Italy forAtopiclairTM with the Madaus Group's Italian subsidiary, Madaus Srl (Madaus).The Madaus Group focuses on development, marketing and sales of pharmaceuticalproducts. Madaus will promote the product to the Italian paediatric market. Decapinol(R) Sinclair also announced that it signed an agreement with Pharmbio Korea Co Ltdin South Korea for the distribution of Decapinol(R), its novel oral rinse forthe treatment of gingivitis (gum inflammation). In the US, the Food & Drug Administration (FDA) approved Decapinol(R) earlierthis year as a medical device which may be sold on prescription. Followingfurther discussions, the FDA have agreed to an important change to the labellingof the product to include prevention of plaque. Sinclair sees the revised labelling as an important advance and one that willassist in establishing the platform for Decapinol(R). In the US approximately80 per cent of the adult population are estimated to have some degree of guminflammation, resulting in a US prescription market for mouthwashes that mayexceed US$100 million ("Anti-gingivitis markets", a summary of the gingivitismarket. Datamonitor, October 2004). OTC mouthwash brands contribute to aseveral fold larger total market. We believe that Decapinol(R) has thepotential to become a viable contender in this market since clinical trials haveproved Decapinol(R) to be well tolerated and effective with clear uniqueadvantages. Outlook Since our flotation in December 2003, we have successfully advanced our businessmodel. The acquisition of Euroderm allows us to sell a number of our registeredproducts directly in Italy and is the first step in Sinclair building a Europeandirect sales force for its expanding derma portfolio. Through this we intend toshare in the much larger margins available to distributors. It should berecalled that since our original management buy-in in 2000, we have successfullyintegrated three other acquisitions which have helped us to grow our productportfolio and technology platforms. We plan to make similar acquisitions inother key markets as the Company grows. Our ongoing programme is therefore to find and develop new products viaacquisitions and from technology platforms already acquired and to strengthenour product portfolio with patented products backed by clinical trialprogrammes. We also expect to see further clinical trial results together withproduct registrations, licensing deals and launches over the next twelve months. We now have behind us very significant regulatory successes with 13 productregistrations in the EU and 9 in the US. We have established sales andmarketing agreements in more than 50 countries which have resulted in a growingnumber of international distributors now beginning to launch our products in keymarkets. After a year when the Company met or exceeded the market expectationswe believe we have established a solid base from which we can confidentlyanticipate increasing revenue growth through product sales and increasedmomentum towards profitability. Dr M. FlynnChief Executive Officer FINANCIAL REVIEW Revenue Revenue on continuing operations saw a substantial increase over the previousyear of over 170 per cent, rising to £6.97m (2004: £2.55m). This included thebenefit of both license fees arising from our deal on AtopiclairTM in the USwith Chester Valley Pharmaceuticals Inc., and revenues from our firstacquisition following our IPO, being that of Euroderm RDC SpA, now renamedSinclair Srl. License fees and milestone payments contributed £2.25m (2004:£0.05m) and arose from AtopiclairTM £1.63m (2004: £nil), Decapinol(R) £0.31m(2004: £nil) and GelclairTM £0.31m (2004: £0.02m). The successful completion ofthe AtopiclairTM multicentre trial in the US meant we achieved total licensefees and milestone payments for the financial year of $3.0m. Associated withthis are the costs of the US AtopiclairTM clinical trial. The benefit of thenet additional revenue from the AtopiclairTM license and milestone fees wasabsorbed by lower gross margin than expected, due to product mix, and additionalcosts mainly due to accelerating the growth of our infrastructure. The acquisition of Euroderm was our first acquisition of a business with its owndirect sales force, and this contributed sales of £1.07m of revenue in the fivemonths after acquisition. Product sales and royalties, excluding Euroderm, rose by 45% to £3.64m (2004:£2.51m). This growth was seen across a number of products in the portfolio,with AtopiclairTM and Decapinol(R) generating revenues for the first time:AtopiclairTM from the US and Decapinol(R) from Italy and Spain. Aloclair(R)sales were lower than in 2004 simply due to the timing of some large stockingtowards the end of 2004, however the off-take to consumers continues to grow.We are also very pleased at the continued growth of VisclairTM sales, beingtaken to market through our distributor Ranbaxy. Gross Margin Our product sales at the moment are dominated by our lower margin products,Aloclair(R), VisclairTM and Photofrin. Also overall margin has been influencedby sales of AtopiclairTM in the US at cost plus 10% - we earn an additional 11%royalty on the distributor ex-factory sales, but for the early years we supplythe product also at cost plus a small margin until Chester ValleyPharmaceuticals Inc. takes over manufacture. The early part of the year saw some erosion of margin from the weak US dollar,impacting revenues from the US. However the dollar strengthened towards the endof the year. We continue to work with our manufacturers to improve prices to us and hencemargins. Administrative Expenses Administrative expenses excluding goodwill for the Group for the year were£6.25m (2004: £3.61m). As the Group has expanded, administrative expenses havenaturally grown as we expand the portfolio and begin to have our own salesorganisations. The acquisition of Euroderm added £1.16m of administrativeexpenses for the 5 month period since acquisition. In addition we incurredcosts of £0.6m in order to undertake the AtopiclairTM multicentre trial, tosupport the launch of AtopiclairTM in the US. Of the remaining increase we sawsome price inflation but also accelerated some of our product developmentprograms and the recruitment of some key people. Interest The Group generated interest income of £0.248m (2004: £0.165m) on its cashbalances. Working Capital and Cash Generation During the year the Group had net operating cash outflow of £2.39m (2004:£1.48m) before non-operating items such as the acquisition of Euroderm (£1.2m). Increasing product revenues (from licensing activities and now from directsales ourselves, at much higher margins) will add to the cash generation of thebusiness. This year has seen a period of accelerated investment in our productdevelopment pipeline and infrastructure which has utilised some operating cash.Year end cash balances of £4.9m (2004: £7.7m) were before the receipt of $1.0mfrom Chester Valley Pharmaceuticals Inc. which was received shortly after 30thJune 2005. This cash will be used for the further development of our productpipeline and to continue our acquisition strategy. JAP Randall ACAChief Financial Officer Group Profit and Loss Accountfor the year ended 30 June 2005 2005 2004 Notes £000 £000TURNOVERContinuing operations 2 5,900 2,546 acquisition 1,071 -Discontinued operations 2 - 109 ______ ______ 6,971 2,655Cost of sales (2,616) (1,664) ______ ______ GROSS PROFIT 4,355 991 Administrative expenses excluding National Insurance provision and goodwill amortisation (6,251) (3,613)National Insurance provision on share options - 578Goodwill amortisation (958) (914) ______ ______Total administrative expenses (7,209) (3,949) OPERATING LOSSContinuing operations (2,480) (2,885) acquisition (374) -Discontinued operations - (73) ______ ______ (2,854) (2,958)Profit on sale of discontinued operations - 87 LOSS on ordinary activities before interest and taxation (2,854) (2,871)Interest receivable 248 165Interest payable (18) (14) ______ ______ LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (2,624) (2,720)Tax charge on loss on ordinary activities* (45) (34) ______ ______ LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (2,669) (2,754) MINORITY INTEREST IN RESULT FOR YEAR - - ______ ______ RETAINED LOSS FOR THE FINANCIAL YEAR (2,669) (2,754) ______ ______ Earnings per share per £0.01 Ordinary ShareBasic loss per share 5 (5.44)p (6.59)pDiluted loss per share 5 (5.44)p (6.59)p * Tax charge arises in overseas operations only Group Statement of Total Recognised Gains and Lossesfor the year ended 30 June 2005 2005 2004 £000 £000 Loss for the financial year (2,669) (2,754)Exchange difference on retranslation of net assets of subsidiary undertakings 48 (51) ______ ______ TOTAL RECOGNISED LOSSES RELATING TO THE YEAR (2,621) (2,805) ______ ______ Group Balance Sheetat 30 June 2005 2005 2004 Notes £000 £000fixed assetsIntangible assets 4 18,341 16,928Tangible assets 393 124 ______ ______ 18,734 17,052CURRENT ASSETSStocks 601 109Debtors 4,901 2,061Cash at bank and in hand 4,908 7,753 ______ ______ 10,410 9,923CREDITORS: amounts falling due within one year 4,840 1,860 ______ ______ NET CURRENT ASSETS 5,570 8,063 ______ ______ TOTAL ASSETS LESS CURRENT LIABILITIES 24,304 25,115 ______ ______ CREDITORS: amounts falling due after more than one year 175 - MINORITY INTEREST (4) (4) ______ ______ 24,133 25,119 ______ ______ CAPITAL AND RESERVESCalled up share capital 592 539Share premium account 6 16,171 16,030Shares to be issued 6 - 4,367Merger reserve 6 15,684 10,062Other reserve 6 686 698Profit and loss account 6 (9,000) (6,577) ______ ______ SHAREHOLDERS' FUNDS - EQUITY INTERESTS 24,133 25,119 ______ ______ Group Statement of Cash Flowsfor the year ended 30 June 2005 2005 2004 Notes £000 £000Net cash outflow from operating activities 7(a) (2,385) (1,479) ______ ______Returns on investments and servicing of financeInterest received 248 165Interest paid (18) (14) ______ ______ 230 151 ______ ______TaxationCorporation tax paid (238) -Corporation tax refunded 23 - Capital expenditurePayments to acquire tangible fixed assets (280) (25)Payments to acquire intangible fixed assets - (71) ______ ______ (495) (96) ______ ______ Acquisitions and disposalsPurchase of subsidiary undertaking 3 (1,201) -Net proceeds on sale of operations (discontinued operations) - 339 ______ ______ (1,201) 339 ______ ______ Net cash outflow before financing (3,851) (1,085) ______ ______ FinancingIssue of ordinary share capital - flotation - 10,800Issue of ordinary share capital - ESOT 222 753Share issue costs - (1,807)Issue of ordinary share capital - share options 195 -Repayments of finance lease (1) -Cash outflow from repayment in short term loans 7(b) (70) (450)Cash outflow from decrease in loan stock 7(b) - (587)Cash inflow from increase in long term loans 7(b) 135 - ______ ______ 481 8,709 ______ ______(Decrease)/increase in cash 7(b) (3,370) 7,624 ______ ______ Reconciliation of net cash flow to movement in net funds/(debt) 2005 2004 Notes £000 £000(Decrease)/increase in cash (3,370) 7,624Cash outflow from repayment of short term loans 70 450Cash inflow from increase in long term loans (135) -New finance lease (55) -Cash outflow from decrease in loan stock - 587 ______ ______Change in net debt resulting from cash flows 7(b) (3,490) 8,661Exchange differences 61 1 ______ ______Movement in net funds/(debt) (3,429) 8,662 Net debt at 1 July 7(b) 7,683 (979) ______ ______ Net funds at 30 June 7(b) 4,254 7,683 ______ ______ Notes to the Preliminary Results 1. Basis of preparation The Board approved the preliminary announcement on 5 October 2005. The financialinformation contained in this preliminary announcement does not compromisestatutory accounts within the meaning of section 240 of the Companies Act 1985.The results for the year ended 30 June 2004 are derived from the auditedaccounts for that period which received an unqualified audit report and did notcontain statements under section 237(2) or (3) of the Companies Act 1985 andhave been filed with the registrar of Companies. The statutory accounts for theyear ended 30 June 2005 have been prepared on the basis of the accountingpolicies set out in the statutory accounts for the year ended 30 June 2004 andwill be delivered to the Registrar of Companies in due course together with anunqualified auditors' report. 2. Turnover and segmental analysis Turnover, which is stated net of discounts, rebates and value added tax,represents amounts invoiced to third parties, derived from the provision ofgoods and services which fall within the group's sole ordinary activity, thedevelopment and exploitation of pharmaceutical products, and can be analysed asfollows: 2005 2004 £000 £000Continuing operationsLicence Fees 2,487 50Product Revenue 4,484 2,496Discontinued operationsProduct Revenue - 109 ______ ______Total 6,971 2,655 ______ ______ Discontinued operations in 2004 relate to the Caprin business, which comprised aUK based, telesales and distribution operation. The business was sold on 24September 2003, as the business was considered no longer to be part of the coreactivities of the group. 3. Acquisition of Euroderm RDC SpA On 31 January 2005 the group acquired Euroderm RDC SpA for a consideration of£3,873,000 (€5,600,000), before expenses, satisfied by the following. (i) Initial consideration of £1,052,000 (€1,500,000) in cash on completion at 31 January 2005. (ii) Initial consideration of £1,035,000 (€1,500,000) in Sinclair Pharma Plc ordinary 1p shares on completion based on an £GBP/• exchange rate of £0.6905 and an ordinary share valued at £1.24. Sinclair Pharma Plc issued 835,283 ordinary 1p shares to the shareholders of Euroderm RDC SpA to satisfy the initial share consideration. (iii) Additional consideration of £1,786,000 (€2,600,000) in Sinclair Pharma Plc ordinary 1p shares payable on the 10th day following the agreement of the Completion Accounts. The Completion Accounts were determined in April 2005 and on 24 April 2005, 1,428,037 ordinary 1p shares in Sinclair Pharma were issued to the shareholders of Euroderm RDC SpA based on an £GBP/• exchange rate of £0.6869 and an ordinary share valued at £1.25. The investment in Sinclair Srl (formerly Euroderm RDC SpA) has been included inthe company's balance sheet at its fair value at the date of acquisition. Book Fair value value Adjustments to group £'000 £'000 £'000Fixed assets- intangible 1,811 (548) (1) 1,263- tangible 41 - 41Stocks 205 - 205Debtors 609 - 609Creditors due within one year (858) - (858) ______ ______ ______Net assets/(liabilities) 1,808 (548) 1,260 ______ ______Goodwill arising on consolidation 2,762 4,022 ______Discharged by:Cash (i) 1,052Fair value of shares issued (ii), (iii) 2,821Costs associated with the acquisition 149 4,022 ______ Cash outflow on acquisition £'000 Net cash acquired with the subsidiary -Cash paid 1,052Costs associated with the acquisition 149 ______Net cash outflow 1,201 ______ (1)As required under FRS 11, the board has conducted an impairment review on theacquisition of Euroderm RDC Spa. The board has assessed the recoverability ofall fixed assets purchased on the acquisition against future cash flows andusing DCF techniques and tested their impairment. According, the board hasadjusted the carrying value of certain intangible fixed assets. Goodwill on acquisition is calculated on a provisional basis. In 5 months to 30 June 2005, Sinclair Srl generated net cash outflows fromoperating activities of £1,001,960 paid £10,501 in respect of net returns oninvestments and servicing of finance, paid £nil in respect of taxation andutilised £52,582 for capital expenditure and financial investment. The acquisition is classified as a substantial acquisition under FRS 6, and assuch the following additional information is provided. Summarised profit and loss account for the period 1 January 2004 to 31 December2004 and 1 January 2005 to 31 January 2005 1 month to 12 months to 31 Jan 31 Dec 2005 2004 £'000 £'000Turnover 96 2,599Operating loss (73) (294)Loss before taxation (76) (294)Taxation - - ______ ______Retained loss for the period (76) (294) ______ ______ Retranslation of Sinclair Srl's net assets resulted in a £8,979 exchange gain inthe groups' statement of recognised gains and losses in the five months to 30June 2005. Euroderm RDC SpA had no other recognised gains and losses in theseven month period to 31 January 2005 other than the retained loss above. 4. Intangible fixed assets Goodwill Licenses Other Total £000 £000 £000 £000Cost:At 1 July 2004 18,173 141 1,225 19,539Contingent consideration adjustment (1,517) - - (1,517)Additions in year - acquisition 2,762 1,263 - 4,025 ______ ______ ______ ______ At 30 June 2005 19,418 1,404 1,225 22,047 ______ ______ ______ ______Amortisation:At 1 July 2004 2,511 32 68 2,611Provided during the year 958 69 68 1,095 ______ ______ ______ ______ At 30 June 2005 3,469 101 136 3,706 ______ ______ ______ ______Net book value:At 30 June 2005 15,949 1,303 1,089 18,341 ______ ______ ______ ______ At 30 June 2004 15,662 109 1,157 16,928 ______ ______ ______ ______ The goodwill arose on the acquisition of four companies in previous years and isbeing amortised over a period of 20 years. Purchased goodwill during the yearof £2,762,000 relates to the acquisition of Euroderm RDC SpA details of whichare outlined in note 3 above. A contingent consideration adjustment has arisen as a result of the reduction inmarket value of the contingent consideration at the point of allotment for the2002 acquisition. o Additional consideration of £2,116,230 was satisfied by the allotment of 1,258,339 (post bonus issue) ordinary shares of £0.01 each in the share capital of Sinclair Pharma plc and having an estimated market value of £1.67 (post bonus issue) at the date of acquisition. The contingent shares were allotted in September 2004 when the mid market value of Sinclair Pharma plc ordinary £0.01 shares was priced at £1.02, a difference of £0.65 per ordinary £0.01 share when compared to the estimate. As a result the cost of acquisition has been reduced by £832,724. o A further contingent consideration adjustment has arisen as a result of the reduction in market value of the contingent consideration satisfied on the release of Decapinol for sale in one of the designated territories. Additional consideration of £2,251,110 was satisfied by the allotment of 1,339,267 (post bonus issue) ordinary shares of £0.01 each in the share capital of Sinclair Pharma plc and having an estimated market value of £1.67 (post bonus issue) at the date of acquisition. The contingent shares were allotted on 2 June 2005 when the mid market value of Sinclair Pharma plc ordinary £0.01 shares was priced at £1.17, a difference of £0.50 per ordinary £0.01 share when compared to the estimate. As a result the cost of acquisition has been adjusted by £684,168. The licences are held in a subsidiary company and comprise product distributionrights that have been capitalised and are being amortised over their usefullife, a period of 10 years. Additions during the year relate to trade licences,trade marks and technical dossiers recognised under UK GAAP purchased with theacquisition of Euroderm RDC SpA. Trade licences, trade marks and technicaldossiers purchased with Euroderm RDC SpA have been amortised over their usefullife, a period of 10 years. The other intangible fixed assets arose on the buy-out of future royaltyobligations on certain of the Group's products. The consideration comprised350,000 £0.01 ordinary shares at a price of £3.50 per ordinary share (prior tothe bonus issue). The directors have determined that the useful economic life ofthe other intangible asset is 18 years. 5. Earnings per share Basic and diluted loss per share The basic loss per share has been calculated by dividing the loss for the year,after exceptional costs, by the weighted average number of shares in existencefor the year. Shares held by the Employee's Share Trust, including shares over which optionshave been granted to Directors and staff, have been excluded from the weightedaverage number of shares for the purposes of calculation of the basic loss pershare. The loss and weighted average number of shares for the purpose of calculatingthe diluted loss per share are identical to those used for the basic loss pershare at 30 June 2005, as the exercise of share options would have the effect ofreducing the loss per share and is therefore not dilutive under the terms of FRS14. 2005 2004 £000 £000Loss attributable to equity shareholders (2,669) (2,754) Number NumberWeighted average number of shares 49,055,798 41,819,756Dilutive share options - -Dilutive share warrants - - ______ ______Diluted weighted average number of shares 49,055,798 41,819,756 ______ ______ Basic loss per share (5.44)p (6.59)pDiluted loss per share (5.44)p (6.59)p 6. Reconciliation of shareholders' funds and movement on reserves Share Capital Share premium Shares to be Merger reserve account issued £'000 £'000 £'000 £'000 At 1 July 2004 539 16,030 4,367 10,062Warrants and options exercised 4 141 - -Biosurface acquisition 26 - (4,367) 2,824Euroderm RDC acquisition 23 - - 2,798Loss for the period - - - -Exchange difference - - - - ______ ______ ______ ______At 30 June 2005 592 16,171 - 15,684 ______ ______ ______ ______ 6. Reconciliation of shareholders' funds and movement on reserves (continued) Other reserve Profit & loss Total Account £'000 £'000 £'000 At 1 July 2004 698 (6,577) 25,119Warrants and options exercised (12) 198 331Biosurface acquisition - - (1,517)Euroderm RDC acquisition - - 2,821Loss for the period - (2,669) (2,669)Exchange difference - 48 48At 30 June 2005 686 (9,000) 24,133 Relief under s131 of the Companies Act has been taken for the Biosurface PharmaAB and Euroderm RDC SpA acquisitions. Warrant reserve Other reserves arose on the grant of 784,875 warrants in settlement of theNational Insurance liability on certain warrants and unapproved share optionsthat were issued by the Company. During the twelve months ended 30 June 2004, the Company entered into a jointelection with the holders of certain warrants for the transfer of the employer'sNational Insurance liability arising on the exercise of the warrants. Inconsideration for the transfer of this liability, the Company granted additionalwarrants over units to subscribe for shares, which, as at the date of grant,provided the warrant holders with a right to subscribe for 784,875 shares. The warrants were granted at the same exercise price as the warrants thatattracted the National Insurance liability, which was less than market value onthe date of grant reflecting the value of the National Insurance liabilitytransferred to the holders. Accordingly, the intrinsic value (the differencebetween market price and the grant price) was transferred from the NationalInsurance provision and is included in the other reserve. The other reserve isreleased to the profit and loss account reserve as the underlying warrants areexercised. Issue of ordinary share capital As at 30 June 2005, the Company had 972,059 approved EMI share options and1,570,187 unapproved EMI share options to subscribe for the Company's ordinary£0.01 shares, granted to certain employees, granted at option prices between£0.33 and £1.15 each. As at 30 June 2005, the Company also had 7,085,272warrants and interests in shares over ordinary £0.01 shares, to be exercised atbetween £0.01 and £1.33 each. As at 30 June 2005 the Sinclair Pharma plcEmployee's Share Trust holds 6,431,457 shares in respect of certain of thesewarrants. During the year 145,000 share options and 568,570 share warrants were exercised. 7. Notes to the statement of cash flows (a) Reconciliation of operating loss to net cash outflow from operating activities 2005 2004 £000 £000Operating loss (2,854) (2,958)Depreciation of tangible fixed assets 99 65Amortisation of intangible fixed assets 1,095 993(Increase)/decrease in debtors (2,267) 2,579(Increase)/decrease in stocks (287) 151Increase/(decrease) in creditors 1,867 (1,697)Increase/(decrease) in provisions 23 (611)Exchange losses/(gains) (61) (1) ______ ______Net cash outflow from operating activities (2,385) (1,479) ______ ______ (b) Analysis of net funds/(debt) At At 1 July Cash Non-cash Exchange 30 June 2004 flow movements differences 2005 £000 £000 £000 £000 £000Cash at bank and in hand 7,753 (2,906) - 61 4,908Bank overdrafts - (464) - - (464) ______ ______ ______ ______ ______Cash 7,753 (3,370) 61 4,444Short term loans (70) 70 - - -Long term loans - (135) - - (135)Finance leases - - (55) - (55) ______ ______ ______ ______ ______Net funds 7,683 (3,435) (55) 61 4,254 ______ ______ ______ ______ ______ (c) Major non-cash transactions (i) During the year, 2,313,812 ordinary 1p shares in Sinclair Pharma plc wereissued as consideration on completion of the acquisition of Euroderm RDC SpA. (ii) Conditions regarding the contingent consideration of the acquisition ofBiosurface Pharma AB were satisfied during the year and subsequently 2,597,606ordinary 1p shares in Sinclair Pharma plc were allotted. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Sinclair Pharma