10th Nov 2005 07:01
BTG PLC10 November 2005 BTG plc: Interim Results Further increase in revenues and significant reduction in losses Implementation of new strategy progressing well London, UK, 10 November 2005: BTG plc (LSE: BGC), the medical innovationscompany, announces its interim results for the six months ended 30 September2005. Financial highlights • Gross revenues increased 35% to £25.1m (H1 05: £18.6m; FY 05: £38.3m) - Net revenues, being revenues after revenue sharing, up 37% to £14.1m (H1 05: £10.3m; FY 05: £22.6m) • Recurring gross royalties up 21% at £16.8m (H1 05: £13.9m; FY 05: £29.5m) - Net recurring royalties up 22% at £9.4m (H1 05: £7.7m; FY 05: £16.8m) • Zimmer settlement contributed gross revenues of £9.2m - £7.5m recognised in new business and £1.1m in H1 recurring royalties - £0.6m to be recognised in H2 plus additional royalties from Jan 06 • Realisation of physical science portfolio progressing - £0.9m gross revenues plus RFID sale delivered £2.9m proceeds & £1.6m gain • Operating and administrative costs reduced as planned - £10.7m before restructuring costs (H1 05: £14.1m; FY 05: £31.6m) - Restructuring costs of £2.2m incurred (H1 05: £0; FY 05:£11.8m) • Research & development costs of £5.5m (H1 05: £11.9m; FY 05: £16.8m) - reflects reduction in expenditure on Varisolve(R) development • Loss before tax substantially reduced to £1.9m (H1 05: £13.8m; FY 05: £34.8m) - includes £1.1m of charges relating to restatement of results under IFRS from UK GAAP (H1 05: £0.6m; FY 05: £0.5m); £2.7m of Varisolve costs; and £2.2m restructuring costs • Strong cash position: net funds at period end of £46.7m - £34.7m "free cash" and £12.0m held on account of Zimmer-related liabilities Operating highlights • Strategy review completed and implementation well advanced - Savings of £1.5m being delivered as planned and further savings identified - Additional restructuring costs of £2.2m to further rationalise cost base - Clear path to realise optimum value from physical sciences assets • Varisolve(R) allowed to resume US clinical development - Partnering discussions extended to wider group of companies • Pipeline progress - Phase I/II trial of BGC 9331 targeting GI tumours progressing rapid recruitment for Phase II study - BGC20-1259 targeting Alzheimer's Disease completed preclinical development; Phase I planned to commence in early 2006 - 3 drug repositioning opportunities acquired; patient enrolment under way for sleep apnoea clinical proof of concept study Louise Makin, Chief Executive Officer of BTG, commented: "Increasing royaltyrevenues, significantly reduced costs and focused investment in developmenttogether give us confidence that the business is well positioned to reachbreak-even in the near term and then reach profitability. We have also madegood operational progress, with US clinical development of Varisolve(R) allowedto resume and other licensed and unlicensed products moving through development." IFRS The results for the Group for the six months to 30 September 2005 and forcomparative periods have been prepared under International Financial ReportingStandards (IFRS). The impact on the Group's results for the financial year ended 31 March 2005 ofits transition to IFRS was communicated to shareholders on 7 November 2005 byway of a press release and RNS announcement and is available on the website atwww.btgplc.com. Enquiries:BTG Financial DynamicsChristine Soden, Chief Financial Officer Ben Atwell+44 (0)20 7575 1591 +44 (0)20 7831 3113 Andy Burrows, Director of Investor Relations+44 (0)20 7575 1741 BTG will today provide an R&D update on key programmes within the company'sportfolio. Slides will be available on the Company's website (www.btgplc.com)from midday tomorrow. About BTG BTG acquires rights to early stage pharmaceuticals and other medicaltechnologies from a global network of corporations, universities and researchinstitutions. The Group applies resources including finance, intellectualproperty and project management skills to fund and manage outsourced preclinicaland clinical development programmes. BTG then commercialises the technologiesby licensing to pharmaceutical or medical device companies, or by creatingcompanies to exploit them. BTG's pipeline comprises around 50 assets at varyingstages of development, contributing to an increasing range of products marketedby licensees. BTG operates from London, Philadelphia and Tokyo. For furtherinformation visit: www.btgplc.com. Overview In May 2005, BTG announced that its strategy had been reset to focus ondeveloping and commercialising medical innovations. The Company has since madegood progress in implementing the new strategy and driving the business forward.The decision to focus on medical innovations has resulted in: • further cost reduction through restructuring of the business; • the development of a plan to realise revenues from those valuable physical science assets already in the portfolio; and • a reassessment of all of the Company's processes to ensure they fully support the medical innovations business. Christine Soden, who joined as Chief Financial Officer in July, undertook thereview of processes and support functions, which has resulted in a number offurther changes within the organisation. This has resulted in one-off costs of£2.2m this period but these changes are geared towards maintaining a reducedcost base while enabling the recruitment of additional key personnel with highquality project management and development capabilities, in line with theCompany's plans to increase the number of preclinical and clinical developmentprogrammes it conducts. To promote the new strategy to medical innovators, BTG has stepped up itsmarketing activities. These include re-branding, a new website and a programmeof activities aimed at reaching key business audiences and establishing BTGfirmly within the life sciences arena. In September, BTG transferred itslisting from the FTSE Business Support Services sub-sector to the Biotechnologysub-sector, reflecting the Company's new focus and enabling comparison of BTG'sbusiness model, revenue streams and product pipeline with those of a range ofother life science companies. BTG's has reduced the number of technologies under active development in orderto focus resources on key assets. The Company has terminated agreements inrespect of technologies that are not viable within the new strategy, returningthe IP to the sources where no value would exist without additional investmentor selling the technology to third parties. Although the overall size of the portfolio has been reduced, BTG has continuedto strengthen its pipeline, through the acquisition of carefully selected assetsin its chosen focus areas - oncology, ageing & neuroscience and drugrepositioning - and by progressing drug candidates through preclinical andclinical development. BTG's networks and reputation underpin the Company'sability to continue to source novel, high quality development opportunities.Increasing the value of each asset prior to commercialisation by investing morein development should provide BTG with greater value in the short to mediumterm. This increased level of investment makes BTG an attractive developmentpartner for the inventive sources. The Company has continued to build value in its pipeline through acquisition anddevelopment activities, and it is realising value from the physical scienceportfolio that will not be the focus going forward. Recurring revenues fromroyalties on marketed products continue to increase, costs have been reduced andhealthy cash balances maintained, so the Company is clearly moving towardsbreak-even and cash self-sufficiency. Financial review BTG currently generates revenues from the commercialisation of technologies intwo principal sectors: medical innovations and physical science technologies. Within the medical innovations arena, BTG earns revenues principally fromlicensing the technologies to other companies after taking them forward inpreclinical or clinical development programmes. Typically BTG receives animmediate upfront payment, additional payments when the licensee achievescertain pre-agreed milestones and a royalty on eventual product sales. Theseroyalty income streams, which are usually payable until patent expiry, providethe foundation upon which BTG's business is built. In the physical science arena, BTG is focusing on the commercialisation of 10-15core technologies believed to have the potential to generate significantrevenues over the medium term. BTG is not, however, seeking to acquire any newphysical science technologies. The revenues earned from licensing thesetechnologies, or selling them outright, are usually fixed amounts payable eitherimmediately or in instalments. They rarely generate recurring royalties. BTG reports its results for the first time in this report in accordance with thenew International Financial Reporting Standards (IFRS), which require segmentalanalysis of the Company's results by business activity. This is presented innote 2 to the accounts, where the results are shown for the core medicalinnovations business and for the physical science, or technologycommercialisation, business. The medical innovations segment is shown to be making an operating profit andthe technology commercialisation segment operating at a loss. There aresignificant overheads relating to ongoing patent litigations and other parts ofthe business included in technology commercialisation, and it is expected thatthis business segment will, over the medium term, show an operating profit asthe technologies are successfully commercialised. Revenues Total revenue was 35% higher than in H1 05 at £25.1m (H1 05: £18.6m). Afterrevenue sharing, averaging 44% of total revenues, net revenues were £14.1m (H105: £10.3m), an increase of 37%. Underlying gross revenues from royalties onmarketed products increased by 21% to £16.8m with net royalty revenues 22%higher at £9.4m (H1 05: £7.7m). The £8.3m gross revenues earned from new revenue sources arose largely from thesettlement with Zimmer Holdings, Inc. in May 2005 relating to the 2-part hipcup. This generated one-off gross revenues of £7.5m in the first half of thisyear and a further £1.7m of gross revenues will be recognised over the ninemonths to December 05. This settlement also allows for BTG to receive royaltypayments on Zimmer's future sales of this product from January 06. BeneFIX(R), the treatment for haemophilia B, generated gross royalties of £7.5m,an increase of 19% over the first half of the last financial year. Royaltiesfrom sales of Campath(R), the treatment for chronic lymphocytic leukaemia, andother related IP increased by 28% to £2.9m gross. BTG also sold rights to its RFID patents to Zebra Technologies. This transactionresulted in recognition of £2.9m of gross proceeds in the first half and aprofit on sale of £1.6m. This transaction should generate additional proceedsupon satisfaction of certain conditions surrounding the RFID patent portfolio. Expenses Operating and administrative expenses excluding restructuring charges were£10.7m (H1 05: £14.1m, FY 05: £31.6m). Restructuring charges of £2.2m wereincurred following charges of £11.8m in the second half of the prior year. Thisrestructuring is allowing the Company to significantly reduce its ongoingadministrative expense base. Investment in research and development was £5.5m(H1 05: £11.9m, FY 05: £16.8m) and includes £2.7m invested in Varisolve(R) and£0.6m relating to development expenditure in portfolio companies in which BTGowns between 20% and 50% of the equity. The biggest reduction is in expenditureon Varisolve(R). The operating loss at £2.7m and loss for the period at £1.9m show substantialyear on year improvements (H1 05: £14.8m operating loss and £13.8m loss). Cash BTG finished the period with cash and cash equivalents of £46.7m (H1 05: £47.4m,FY 05: £34.5m) although £12.0m of these funds are held on account of liabilitiesrelating to the Zimmer settlement. As such the 'free' cash is £34.7m, with theCompany operating on a cash neutral basis for the first half of the year. Thiscompares to cash burn of £19.1m in the first half of the previous year and£12.9m in the second half. The operating loss for the period included significant non-cash charges foramortisation, depreciation and IAS adjustments. The Company also benefited fromreceipt of £0.6m proceeds from the exercise of options resulting in the issue of0.5m new ordinary shares, taking the issued share capital to 148m shares. Balance Sheet The Group's net assets at 30 September 2005 were £35.6m, a decrease of £3.4m inthe period, being principally the loss for the period of £1.9m and changes infair value of certain investments £2.7m, offset by £0.6m of share optionreceipts. The Group's liability for employee benefits, largely the defined benefit pensionplan, was £9.9m at the period end. Operating review BTG currently has seven principal pharmaceutical programmes in preclinical orclinical development, with eight other products under development by licensees.The main developments during the first half year were: BTG development pipeline Varisolve(R) In July, following the submission of data from a programme of preclinicalstudies, the US Food and Drug Administration (FDA) approved the resumption ofthe US clinical development of Varisolve(R), the novel injectable microfoamtreatment for moderate to severe varicose veins. Clinical development ofVarisolve(R) had been halted by the FDA in November 2003 owing to concerns aboutthe potential consequences of circulating microbubbles following administrationof Varisolve(R) which the preclinical studies aimed to address. At the same time as lifting the clinical hold, the FDA approved the protocol fora Phase II clinical safety study. This study will use intensive monitoringtechniques including magnetic resonance imaging (MRI) scanning to answerdefinitively the FDA's question about circulating microbubbles within theclinical setting. Preparations are under way for the study including sourcingand production of clinical trials materials and appointment of investigators.The study could commence in early 2006 but the exact timing will depend upon thestatus of partnering negotiations. With the FDA lifting the clinical hold and approving the Phase II protocol, BTGtook the decision to re-market Varisolve(R) and widen the search for a globaldevelopment and commercialisation partner. Discussions have now taken placewith a number of major companies and there is significant new interest in theproduct and recognition of the value of Varisolve(R) as a potentiallypractice-changing treatment for varicose veins if it can gain regulatoryapproval. Discussions with potential partners are ongoing. BGC 9331 (Plevitrexed) Plevitrexed is a potent and selective inhibitor of thymidylate synthase (TS)that destroys cancer cells by inhibiting DNA replication within the cells.Plevitrexed has been evaluated in more than 1,000 patients as a single agent andin drug combinations. It has shown promising efficacy as a single agent inpancreatic, gastric and potentially ovarian cancers. BTG is currentlyconducting a Phase I/II trial of Plevitrexed in patients with advanced and/ormetastatic gastric cancer. The Phase I phase has finished, with 30 patientsgiven three escalating doses. The dose to be used in the Phase II part of thestudy has been selected and enrolment of patients is under way, with around halfof the patients now recruited. BGC 945 BGC 945 is another TS inhibitor but with a unique profile and mechanism that maymake it very potent against certain tumour cells while being relativelynon-toxic to normal cells. Efficacy has been demonstrated in preclinicalstudies, and BTG plans to file an application to commence clinical trials during2006 with a view to the first clinical study commencing in early 2007. BGC20-1259 Acquired from Sankyo Pharmaceuticals of Japan, BGC20-1259 is under developmentfor the treatment of Alzheimer's disease. The compound has a unique tripleaction that seeks to treat cognitive impairment, slow disease progression byacting as a neuroprotectant and treat the symptoms of depression and anxietythat often accompany the disease. BTG has completed preclinical development ofBGC20-1259 and anticipates commencing clinical testing in early 2006. BGC20-0166 In addition to the therapeutic focus areas of oncology and ageing andneuroscience, BTG is seeking opportunities in the drug repositioning field. Newuses of existing drugs, novel formulations and combinations of known drugs togenerate an enhanced or different effect all fall within the scope of drugrepositioning. Target indications will often fall outside the oncology andageing and neuroscience areas and may include niche areas, but there is demandfrom a growing speciality pharmaceuticals industry for such opportunities.Strong IP is at the heart of repositioning opportunities, which is an area ofcompetitive advantage for BTG. There is usually a significant amount of dataalready available that can shorten the time to gain marketing approval for drugrepositioning opportunities. BGC20-0166 is the most advanced technology in the repositioning area and is acombination of two approved compounds that together have shown efficacy inpreclinical studies from treating sleep apnoea, in which breathing isinterrupted during sleep. Sleep apnoea is associated with cardiovasculardisease, depression and daytime sleepiness. There is currently no approvedpharmaceutical treatment. A proprietary product formulation is being producedin association with Collegium Pharmaceutical, and patient enrolment hascommenced for a clinical proof of mechanism study, the results of which are anticipated in late 2006. Products under development by licensees Campath(R) Campath(R) (alemtuzumab) is currently licensed for the treatment of B-cellchronic lymphocytic leukaemia for patients who have been treated with alkylatingagents and have failed fludarabine therapy. It is also under development forother cancer and non-cancer indications. In September, BTG's licensee GenzymeCorporation and its partner Schering AG announced the interim results of a PhaseII trial comparing Campath(R) with Rebif(R) (interferon beta-1a) for thetreatment of multiple sclerosis. The results showed a large treatment effect infavour of Campath(R). The companies plan to initiate a Phase III trial in thefirst half of 2006 and, in association with the investigators and regulator, toestablish a programme to manage patient safety in the ongoing Phase II andplanned Phase III trials. TRX4 TRX4 (ChAglyCD3) is a humanised monoclonal antibody that binds to the CD3receptor on T-cells and is designed to block the function of certain cells thatattack the body and cause autoimmune disease. TolerRx, Inc., BTG's licensee, iscurrently developing TRX4 as a treatment for Type 1 diabetes and psoriasis. In June, TolerRx announced the publication of a study demonstrating that inpatients with Type 1 diabetes, a six day course of therapy with TRX4 preservedthe function of insulin-producing beta cells in the pancreas and reducedsignificantly the amount of administered insulin required to control bloodglucose levels for at least 18 months. TolerRx is now planning further trials. SymadexTM Licensed to Xanthus Life Sciences, SymadexTM (imidazoacrinidone) is an orallyavailable cancer drug with a novel mechanism of action that is currently underinvestigation in two Phase I studies. Xanthus presented data at the 2005American Association for Cancer Research meeting from a preclinical study of thegene expression profile of SymadexTM that suggested it may also be useful intreating autoimmune disorders such as multiple sclerosis. Xanthus plans tofurther investigate this as well as continuing the Phase I cancer studies. Banoxantrone Banoxantrone (AQ4N) is a prodrug designed to be selectively activated in a broadrange of solid tumours. It is licensed to KuDOS Pharmaceuticals, which hassub-licensed North American rights to Novacea Inc. In April, Novacea announcedthe start of a Phase I/II trial in patients with B-cell tumours, includingnon-Hodgkin's lymphoma and chronic lymphocytic leukaemia. Up to 55 patientswill be treated and the trial will examine banoxantrone's pharmacokineticprofile, safety and tolerability as well as its anti-tumour activity as measuredby the overall response rate. Summary and outlook Significant progress has been made with products under development by BTG andits licensees, and the Company has continued to strengthen the pipeline. Havingdecided to focus on developing and commercialising medical innovations, BTG hasmoved quickly to restructure the business to ensure it is fully aligned tosupport the new strategy. Costs have been significantly reduced and recurringroyalty revenues are increasing, a trend that gives the Board confidence thatBTG is moving towards break-even and cash self-sufficiency. CONSOLIDATED INCOME STATEMENTfor the six months ended 30 September 2005 Six months ended Year ended 30 September 30 September 31 March Note 2005 2004 2005 £m £m £m ______ ______ ______Revenue 2 25.1 18.6 38.3Revenue sharing (11.0) (8.3) (15.7) ______ ______ ______Revenue net of revenue sharing 14.1 10.3 22.6 ______ ______ ______ Varisolve(R) development (2.7) (8.0) (9.2)Other development (2.2) (3.3) (6.6)Share of results of associates (0.6) (0.6) (1.0) ______ ______ ______Research and development expenses (5.5) (11.9) (16.8) ______ ______ ______ Operating and administrative expenses 3 (10.7) (14.1) (31.6)Restructuring costs (2.2) - (11.8) ______ ______ ______Operating expenses (12.9) (14.1) (43.4) ______ ______ ______ Profit on disposal of other fixed assets 4 1.6 1.2 2.2Amounts written off other fixed assets 5 - (0.3) (1.0) ______ ______ ______ 1.6 0.9 1.2 ______ ______ ______ Operating loss 2 (2.7) (14.8) (36.4) ______ ______ ______ Financial income 0.8 1.0 1.7Financial expenses - - (0.1) ______ ______ ______Net financing income 0.8 1.0 1.6 ______ ______ ______ Loss before tax (1.9) (13.8) (34.8) ______ ______ ______Income tax expense 6 - - (0.2) ______ ______ ______Loss for the period (1.9) (13.8) (35.0) ______ ______ ______ Attributable to:Equity holders of the parent (1.9) (13.6) (34.7)Minority interest - (0.2) (0.3) ______ ______ ______Loss for the period (1.9) (13.8) (35.0) ______ ______ ______ Basic and diluted loss per share 7 (1.3p) (9.3p) (23.8p) ______ ______ ______ Adjusted profit/(loss) before tax and earnings/(loss) per shareLoss before tax (1.9) (13.8) (34.8)Add back restructuring costs 2.2 - 11.8 ______ ______ ______Adjusted profit/(loss) before tax 0.3 (13.8) (23.0)Income tax on ordinary activities - - (0.2)Loss attributable to minorities - 0.2 0.3 ______ ______ ______Adjusted profit/(loss) attributable to parent equityholders 0.3 (13.6) (22.9) ______ ______ ______ Adjusted basic earnings/(loss) per share 0.2p (9.3p) (15.7p) ______ ______ ______ CONSOLIDATED BALANCE SHEETas at 30 September 2005 30 September 30 September 31 March 2005 2004 2005 £m £m £m ______ ______ ______AssetsIntangible assets 8.7 12.9 10.7Property, plant & equipment 10.1 11.5 10.7Investments in associates 3.2 3.8 3.6Other investments 8.0 14.6 9.6 ______ ______ ______Total non-current assets 30.0 42.8 34.6 ______ ______ ______ Trade and other receivables 6.6 6.8 7.4Cash and cash equivalents 46.7 47.4 39.2 ______ ______ ______Total current assets 53.3 54.2 46.6 ______ ______ ______ Total assets 83.3 97.0 81.2 ______ ______ ______ EquityIssued capital 14.8 14.8 14.8Share premium 182.8 182.2 182.2Translation reserve (0.5) 0.1 (0.1)Fair value reserve (0.3) 4.8 2.1Retained earnings (161.3) (139.7) (160.1) ______ ______ ______Total equity attributable to equity holders of the parent 35.5 62.2 38.9Minority interest 0.1 0.2 0.1 ______ ______ ______Total equity 35.6 62.4 39.0 ______ ______ ______ LiabilitiesEmployee benefits 9.9 10.5 10.1Provisions 2.2 2.3 3.0Deferred tax liabilities - 1.4 0.2 ______ ______ ______Total non-current liabilities 12.1 14.2 13.3 ______ ______ ______ Bank overdraft - - 4.7Trade and other payables 31.7 19.8 19.6Provisions 3.9 0.6 4.6 ______ ______ ______Total current liabilities 35.6 20.4 28.9 ______ ______ ______Total liabilities 47.7 34.6 42.2 ______ ______ ______ Total equity and liabilities 83.3 97.0 81.2 ______ ______ ______ CONSOLIDATED CASH FLOW STATEMENTfor the six months ended 30 September 2005 Note 30 September 30 September 31 March 2005 2004 2005 £m £m £m ______ ______ ______Cash flows from operating activitiesCash generated from operations 8 9.8 (16.9) (29.8)Interest received 0.8 1.0 1.7Interest paid - (0.1) (0.1)Income taxes paid - - (0.1) ______ ______ _____Net cash from operating activities 10.6 (16.0) (28.3) ______ ______ ______ Cash flows from investing activitiesPurchase of intangible assets (0.9) (1.2) (2.2)Disposal proceeds from sale of intangibleassets 2.9 0.1 1.9Purchase of property, plant & equipment - (2.2) (3.1) Expenditure on investments (0.7) (0.6) (1.8)Expenditure on associates (0.3) (0.8) (0.9)Disposal proceeds from sale of investments - 1.6 2.4 ______ ______ ______Net cash from investing activities 1.0 (3.1) (3.7) ______ ______ ______ Cash flows from financing activitiesProceeds of share issue 0.6 - - ______ ______ ______Net cash from financing activities 0.6 - - ______ ______ ______ Net increase/(decrease) in cash and cashequivalents 12.2 (19.1) (32.0) ______ ______ ______Cash and cash equivalents at start of period 34.5 66.5 66.5Cash and cash equivalents at end of period 46.7 47.4 34.5 ______ ______ ______ CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the six months ended 30 September 2005 Six months ended Year ended 30 September 30 September 31 March 2005 2004 2005 £m £m £m ______ ______ ______Foreign exchange translation differences (0.4) 0.1 (0.1)Unrealised gain on intangible assets - 0.2 0.2Actuarial gains and losses on pension liabilities 0.2 0.2 0.3Change in fair value of equity securities available forsale (2.7) (3.5) (7.4)Deferred tax due on equity securities available for sale (0.2) 1.0 2.2 ______ ______ ______Net expense recognised directly in equity (3.1) (2.0) (4.8) Loss for the period (1.9) (13.8) (35.0)Total recognised income and expense for the period (5.0) (15.8) (39.8) ______ ______ ______ Attributable to:Equity holders of the parent (5.0) (15.6) (39.5)Minority interest - (0.2) (0.3) ______ ______ ______Total recognised income and expense for the period (5.0) (15.8) (39.8) ______ ______ ______ NOTES TO THE ACCOUNTS 1. Basis of preparation and accounting policies EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of the company, for the year ending 31 March 2006, beprepared in accordance with International Financial Reporting Standards ("IFRS")adopted for use in the EU ("adopted IFRS"). This unaudited interim financial information for the six months ended 30September 2005 has been prepared on the basis of the recognition and measurementrequirements of IFRSs in issue that either are endorsed by the EU and effective(or available for early adoption) at 31 March 2006 or are expected to beendorsed and effective (or available for early adoption) at 31 March 2006, theGroup's first annual reporting date at which it is required to use adoptedIFRSs. In preparing these accounts the directors have assumed that theamendments to IAS 19, "Employee Benefits" will have been adopted by the EU bythe time the first annual IFRS financial statements are prepared for the yearending 31 March 2006. In addition, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 March 2006are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ending 31 March 2006. The financial statements have been prepared under the historical cost conventionexcept that certain investments where the Group holds less than 20% of theequity are held at fair value, as required by IAS 39. 1.1 Changes to accounting policies These financial statements have been prepared in accordance with existing Groupaccounting policies, set out in the Group's 2005 annual report and accounts,with certain amendments required in order to comply with the requirements ofIFRS. Note 9 summarises the impact of the transition to IFRS on the results forthe six months to 30 September 2004 and the year ended 31 March 2005. A detailedexplanation of these changes has been communicated to shareholders on 7 November2005 by way of a press release and RNS announcement, and is available on theGroup's website at www.btgplc.com and is obtainable from the Group CompanySecretary on request. The significant changes in accounting policies, togetherwith the associated transitional arrangements, are set out below. Share based payments The share option and restricted share schemes allow Group employees to acquireshares of the company. The fair value of options granted and restricted sharesawarded is recognised as an employee expense with a corresponding increase inequity. The fair value is measured at grant or award date and spread over theperiod during which the employees become unconditionally entitled to them. Thefair value of the options and awards granted is measured using a binomiallattice model, taking into account the terms and conditions upon which theoptions and awards were granted. The amount recognised as an expense isadjusted to reflect the actual number of share options and awards that vest,except where forfeiture is only due to share prices not achieving the thresholdfor vesting. In accordance with IFRS 2, the Group has recognised a charge to incomerepresenting the fair value of outstanding employee share options and restrictedshare awards. The fair value has been calculated using the binomial latticemodel and is charged to income over the relevant option vesting periods,adjusted to reflect actual and expected levels of vesting. The charge includesall options and awards granted since 7 November 2002 but not vested at 1 January2005, in accordance with IFRS 2. Employee benefits Under IAS 19, the Group is required to recognise the surplus or deficit and costof its pension scheme within the income statement and balance sheet. The Grouphas elected to recognise any variations in actuarial gains and losses in fullimmediately in the statement of recognised gains and losses, as allowed by anIASB exposure draft "Actuarial Gains and Losses, Group Plans and Disclosures"amending IAS 19. The draft, if adopted by the IASB and endorsed by the EU, willbe effective from 1 January 2006 with earlier adoption encouraged. Assuming theproposals are adopted, the company's policy will be to apply the revisedstandard as from the transition date. Subsidiaries and associates The Group now consolidates all investments where its holding exceeds 50% asrequired by IAS 27. In the past the Group has elected to apply a true and fairoverride and treat certain such holdings as investments held exclusively with aview for subsequent resale. The Group has elected to equity account all investments where the Group'sholding is between 20% and 50%, recognising the Group's share of profits andlosses and net assets within the Group accounts, in accordance with IAS 28. TheGroup has elected to treat holdings below 20% as available for sale inaccordance with IAS 39, which has been adopted with effect from 1 April 2004.Such investments are adjusted to fair value at each balance sheet date and anymovement in value taken through the statement of equity. IFRS 3 prohibits the amortisation of goodwill generated from businesscombinations. The standard requires that goodwill should be carried at cost andsubject to regular impairment reviews. Under the transitional arrangements,IFRS 1 permits the Group to apply IFRS 3 from the date of transition and doesnot require the restatement of all previous business combinations. The Group hastaken advantage of this option. Income taxes IAS 12 requires the separate disclosure of deferred tax assets and liabilitieson the Group's balance sheet. Deferred tax assets are only recognised to theextent to which they are expected to be realised in the near future. Deferredtax liabilities are recognised on any increase in the fair value of investmentsdirectly in reserves. Intangible assets and property, plant & equipment Under IAS 38, computer software should be capitalised under intangible assetsunless it is part of an actual operating system. Certain assets have beenreclassified accordingly. 1.2 Comparative figures The financial information in this document does not constitute statutoryaccounts as defined in section 240 of the Companies Act 1985. The auditors haveissued an unqualified opinion on the Group's statutory financial statementsunder UK GAAP for the year ended 31 March 2005, which have been filed with theRegistrar of Companies. The interim financial statements for the six monthsended 30 September 2005 were approved by the Board on 9 November 2005. 2. Summary segmental analysis Segmental information is presented in respect of the Group's business andgeographical segments. The primary format, business segments, is based on theGroup's management and internal reporting structure. The Group comprises the following main business segments: Medical innovations: The acquisition, development and commercialisation of pharmaceutical and other medical technologies.Technology commercialisation: The acquisition and licensing of early stage technology outside the medical area. Six months ended Year ended 30 September 30 September 31 March 2005 2004 2005 £m £m £m ______ ______ ______Revenue by business segmentMedical innovations 24.2 16.8 35.7Technology commercialisation 0.9 1.8 2.6 ______ ______ ______Revenue 25.1 18.6 38.3 ______ ______ ______ Operating loss by business segmentMedical innovations 3.5 (8.9) (11.2)Technology commercialisation (2.0) (4.3) (11.0)Restructuring (2.2) - (11.8)Other operating costs (2.0) (1.6) (2.4) ______ ______ ______Operating loss (2.7) (14.8) (36.4) ______ ______ ______ The business is split geographically. Medical innovations and technologycommercialisation segments are managed on a worldwide basis, but operate in fourprincipal geographical areas, USA, UK, Europe (excluding UK) and Japan. Inpresenting information on the basis of geographical segments, revenue is basedon the geographical location of customers. Six months ended Year ended 30 September 30 September 31 March 2005 2004 2005 £m £m £m ______ ______ ______Revenue by geographic segmentUSA 21.9 14.0 29.5UK 2.0 1.8 3.6European Union (excluding UK) 0.5 0.7 2.0Japan - 0.4 0.8Other 0.7 1.7 2.4 ______ ______ ______Revenue 25.1 18.6 38.3 ______ ______ ______ 3. Operating and administrative expenses Six months ended Year ended 30 September 30 September 31 March 2005 2004 2005 £m £m £m ______ ______ ______Amortisation and impairment of intangible assets 1.8 1.5 4.6Patent renewal fees 0.5 0.4 0.8Litigation costs 1.1 0.9 2.6 ______ ______ ______ 3.4 2.8 8.0Administrative expenses 8.7 11.5 23.4 ______ ______ ______ 12.1 14.3 31.4Exchange (gains)/losses (1.4) (0.2) 0.2 ______ ______ ______ 10.7 14.1 31.6 ______ ______ ______ 4. Profit on disposal of other fixed assets Six months ended Year ended 30 September 30 September 31 March 2005 2004 2005 £m £m £m ______ ______ ______Profit on disposal of investments - 1.2 1.3Profit on disposal of intangible assets 1.6 - 0.9 ______ ______ ______ 1.6 1.2 2.2 ______ ______ ______ 5. Amounts written off other fixed assets Six months ended Year ended 30 September 30 September 31 March 2005 2004 2005 £m £m £m ______ ______ ______Amounts written off investments - 0.3 1.0 - 0.3 1.0 ______ ______ ______ 6. Taxation Taxation for each six-month period has been provided on the basis of theanticipated effective rate for the full year. 7. Loss per share Six months ended Year ended 30 September 30 September 31 March 2005 2004 2005 ______ ______ ______Loss for the financial period attributable to ordinaryshareholders £1.9m £13.6m £34.7mBasic and diluted loss per ordinary shares 1.3p 9.3p 23.8pBasic and diluted weighted average number of shares 146.0m 145.4m 145.5m ______ ______ ______ The weighted average number of ordinary shares in issue excludes the shares heldby the BTG Employee Share Trust. Losses and weighted average number of sharesare the same in the calculation of the basic and diluted loss per share. 8. Reconciliation of loss before tax to cash flows from operating activities Six months ended Year ended 30 September 30 September 31 March 2005 2004 2005 £m £m £m ______ ______ ______Loss before tax (1.9) (13.8) (34.8)Profit on disposal of other fixed assets (1.6) (1.2) (2.2)Amounts written off other fixed assets - 0.3 1.0Investment income (0.8) (1.0) (1.7)Interest expense - - 0.1Amortisation and impairment of intangible assets 1.8 1.5 4.6Depreciation 0.5 1.0 2.0Pension and share based movements 0.5 - 0.3Decrease/(increase) in debtors 0.9 (0.2) (0.3)Increase/(decrease) in creditors 11.9 (4.9) (5.4)(Decrease)/increase in provisions (1.5) 0.8 5.6Share of associates losses 0.6 0.6 1.0Other (0.6) - - ______ ______ ______Cash flows from operating activities 9.8 (16.9) (29.8) ______ ______ ______ 9. Summary of impact of transition to IFRS on prior year results Six months to Six months to Year to Year to 30 September 30 September 31 March 31 March 2004 2004 2005 2005 UK GAAP IFRS UK GAAP IFRS £m £m £m £m ______ ______ ______ ______ Revenue 18.6 18.6 38.3 38.3Operating loss: Adjusted* (14.1) (14.8) (23.3) (25.8) Reported (14.1) (14.8) (35.9) (36.4) Basic loss per share: Adjusted* (8.9p) (9.3p) (14.8p) (16.5p) Reported (8.9p) (9.3p) (23.5p) (23.8p) ______ ______ ______ ______ £m £m £m £m ______ ______ ______ ______Net cash 47.2 47.4 34.4 34.5 Employee benefits liability 0.3 10.5 - 10.1 Shareholders' equity 69.3 62.2 47.9 38.9 ______ ______ ______ ______ * The 'Adjusted' loss excludes certain items described as exceptional in the UKGAAP accounts for the year ended 31 March 2005 The major contributors to the increase in losses under IFRS from UK GAAP for theyear ended 31 March 2005 of £0.5m were the ongoing impact of expensingshare-based payments (£0.6m), equity-accounting for certain investmentspreviously carried at cost (£1.0m), changes in the scope of consolidation(£0.4m), goodwill impairment (£0.4m), exchange differences (£0.2m) offset by theremoval of equity write-downs (£2.0m credit) and pension & other benefits (£0.1mcredit). The major contributors to the decrease of £9.0m in shareholders' equity at 31March 2005 were the introduction of the defined benefit pension scheme deficit(£10.1m) offset by the balance sheet impacts of equity accounting orconsolidating certain investments and fair value of available for saleinvestments. Independent review report to BTG plc Introduction We have been engaged by the company to review the financial information set outon pages 9 to 17 and we have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other than the companyfor our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules which require that the accounting policies and presentation applied to theinterim figures should be consistent with those applied in preparing thepreceding annual financial statements except where any changes, and the reasonsfor them, are disclosed. As disclosed in note 1 to the financial information, the next annual financialstatements of the group will be prepared in accordance with IFRSs adopted foruse in the European Union. The accounting policies that have been adopted in preparing the financialinformation are consistent with those that the directors currently intend to usein the next annual financial statements. There is, however, a possibility thatthe directors may determine that some changes to these policies are necessarywhen preparing the full annual financial statements for the first time inaccordance with those IFRSs adopted for use by the European Union. This isbecause, as disclosed in note 1, the directors have anticipated that certainstandards, which have yet to be formally adopted for use in the EU, will be soadopted in time to be applicable to the next annual financial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4Review of interim financial information issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review is substantially lessin scope than an audit performed in accordance with Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2005. KPMG Audit Plc Chartered Accountants 8 Salisbury Square London ECY4 8BB 9 November 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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