Interim results

Pre-tax profits up 53% at £9.7m on sales up 86% at £61.0m

27 February 2013 - Burton-on-Trent, UK - Clinigen Group plc (AIM: CLIN, "Clinigen" or "the Group"), the global specialty pharmaceuticals and pharmaceutical services business, has today published its maiden half year results for the six months ended 31 December 2012.

Financial highlights

- Sales growth 86% at £61.0m (H1 11/12: £32.8m)

- Underlying EBITDA up 48% to £10.5m (H1 11/12: £7.1m)

- Underlying profit* before tax 54% higher at £9.7m (H1 11/12: £6.3m)

o Statutory profit before tax of £3.7m (H1 11/12: £4.0m)

- Underlying earnings*per share up 64% to 9.0p (H1 11/12: 5.5p)

o Statutory earnings per share is 3.5 pence (H1 11/12: 5.5p); diluted earnings per share is 2.9 pence (H1 11/12: 3.6p)

- Maiden interim dividend of 0.6p per share

- Cash and cash equivalents of £22.3m at 31 December 2012 (30 June 2012: £5.2m)

- Successful Admission to AIM on 25 September 2012 - raising £43.1m (net) for selling shareholders and £6.8m (net) for the Group

Business highlights

- Clinical Trial Supply ("CTS")

o Sales increased by 113%

o Gross profit up 83%

o Strong sales performance largely driven by sourcing for sizable anti-viral studies

- Global Access Programs ("GAP")

o Significant growth with a 222% increase in sales

o Strong gross profit performance, gross profit up 146%

o Number of programs under management extended to 32, from 26

o Sanofi's Campath and Astellas' MDV3100 early access programs running as planned

- Specialty Pharmaceuticals ("SP")

o Continued growth in Foscavir® sales

o On track to add further products to portfolio

*Underlying PBT and EPS excludes one off costs and share based payments arising wholly as a result of IPO. Underlying EPS is based on the weighted average number of shares in issue post IPO.

Peter George, Chief Executive Officer, said:

"The first half of the financial year has been eventful with the achievement of some key strategic and operational developments. We listed successfully on AIM and saw excellent growth across the three divisions. We also made significant investments in our underlying infrastructure and have continued our evaluation of product acquisitions and in-licensing opportunities.

"The second half of the financial year has started well and we remain confident that the underlying performance of the business will enable us to meet our full year expectations."

-Ends-

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Overview

In the six months to 31 December 2012, the Group has undergone many changes, both financial and strategic. There has been significant organic growth in both revenues and operating profit with contributions from all three operating businesses.

The strongest organic growth has come from CTS which has been the dominant revenue generator historically. This has been driven by the expansion into the US markets and winning new business on the basis of Clinigen's credibility and global distribution network.

GAP has changed its focus over the past two years from a UK to a global business. Now that this change is complete, the business is developing and growing its existing 32 programs, whilst seeking new contracts. The Board expects to expand the customer base further across the large pharmaceutical companies that are already clients of the other operational businesses.

Sales from SP are from the hospital-based, anti-infective Foscavir which the Group acquired from Astra Zeneca in February 2010. The Group's focus, since its acquisition, has been expansion of market coverage, seeking new indications to increase patient exposure and ensure pricing is competitive across all markets. Further progress is expected in the second half of the year. Coupled with the organic growth strategy, additional growth will be driven by acquisition or in-licensing of other hospital-based products which meet the Group's specific criteria. The SP team continues to review various opportunities that arise from Clinigen's connections with the pharma sector and through synergies with the other two businesses to add further products to the portfolio.

A notable highlight in the first half of the financial year was Clinigen's successful admission to AIM, raising £6.8m (net) for the Group and £43.1m (net) for selling shareholders. The rationale for the IPO was to raise funds to support the SP acquisition programme, invest in infrastructure and for working capital. In addition, it enabled the departing Chairman/founder, Andrew Leaver to realise the majority of his investment. The Group successfully maintained operational momentum during the IPO process, a reflection of the strong management team.

Current trading and outlook

The Group had a strong first half, producing solid financial results and making good operational progress. Overall, trading in the second half of the year has started well. The Board expects sales to be ahead of market forecast, largely due to CTS, and profits to be in line with expectations, therefore margin percentages will be reduced.

By operating business, the largest proportion of organic growth is expected to continue from CTS, but with a growing influence from GAP, which remains on target to more than treble its sales and profit year on year. SP sales are expected to grow ahead of expectations due to increased US demand for Foscavir in H1. This organic growth is expected to continue steadily, with acquisitions and in-licensing of new products a priority in the second half.

Financial review

Revenues in the half year grew by 86% (H1 11/12: £32.8m) to £61.0m as a result of strong organic growth in all three operating businesses.

Underlying EBITDA increased by 48% to £10.5m (H1 11/12: £7.1m) as a result of gross profit growth, from all three operating businesses, of £4.8m, offset by overhead growth of £1.4m supporting the significant organic growth.

Underlying pre-tax profit, which excludes a non-cash, share based payment charge of £2.1m, associated social security costs of £0.5m and £3.4m from costs arising as a result of the Admission to AIM, jumped by 53% to £9.7m (H1 11/12: £6.3m). The Group reported a statutory profit before tax of £3.7m (H1 11/12: £4.0m).

Allowable UK corporation tax (CT) deductions arise from the exercise, pre IPO, of two equity-settled share based remuneration schemes. This generates a reduction in CT payable in current and future years of £10.0m.

Underlying earnings per share, excluding one off exceptional costs and share based payments arising wholly as a result of IPO and based on the number of shares in issue post IPO, is 9.0p. The reported earnings per share is *3.5p and reported diluted earnings per share is 2.9p. In line with our stated dividend policy, the Board approved the payment of a maiden interim dividend of 0.6p per share. The dividend will be payable on 28 March 2013 to all shareholders on the register at 8 March 2013.

The Group is in a healthy cash position with cash and cash equivalents at £22.3m, up from £5.2m at 30 June 2012. Loans from the pre IPO principal shareholder were paid down in full and the Group is debt free at the period end. The working capital model continues to be self-funding.

The cash increase in the period of £17.1m is generated by cash from operations of £11.0m, net proceeds from share issue of £8.7m, offset by loan repayments of £1.6m and tax payments and investing activities of £1.0m.

Performance by operational businesses

Clinigen CTS

CTS works with 15 of the top 20 pharmaceutical companies providing global procurement and supplies of drugs to meet clinical trial needs from phase ll through IV.

Top-line growth for the Group has been predominantly driven by CTS, which grew by 113% along with gross profit growth of £2.6m (83%). CTS revenue growth was supported by biologic drug studies. As previously reported, 35 of these biologic drugs will come off patent between 2013 and 2020 and Clinigen has now sourced and supplied 20 of these medicines for biosimilar comparator studies.

Sales in CTS can be lumpy. In H1 there have been particularly strong sales for a number of anti-viral comparator studies amounting to £24.0m, 52% (c.£8m) higher than the equivalent sales in the full year 2011/12. These studies have been largely supplied now and this activity is unlikely to continue at this level into H2. £20.0m of these sales came through three large projects with scale-related lower margins, leading to margins on a like-for-like basis on anti-virals being reduced by 8% on the full year 2011/12. Larger projects are typically lower margin contracts by nature, but given the operational gearing within CTS, these contracts are significantly value accretive. This has led to an overall dilution on margin percentage to 13% (FY 2011/12: gross margin of 17%).

Whilst the current pipeline suggests there might not be margin percentage improvements in H2 this year, the Board expects margin improvements in the longer term.

Clinigen GAP

GAP specialises in designing and executing Global Access Programs to allow critically ill patients access to potentially life saving treatments. GAP works with companies to provide early market access to important medicines before obtaining regulatory approval for these drugs or to continue to provide the drug to patients on a named basis after discontinuation or withdrawal.

GAP is showing excellent growth in both sales and profit, having changed its strategy from the supply of UK Specials to 100% Global Access Programs. The Board planned a threefold growth in this operating business in FY13 and remains well on track to deliver this. Programs under management now stand at 32, although one is closing down, 16 are active and a further 15 are in start-up mode and expected to become active during 2013 depending on phase 3 trial outcomes. The two new large early access programs, Campath (Sanofi) and MDV3100 (Astellas), have now started and are running to plan and are close to peak levels. In total 7,800 units of these two drugs have been supplied by the Group in H1, meeting demand for unmet medical need in these oncology treatment areas.

Clinigen SP

For SP, Clinigen is targeting niche, hospital only, mature, end of lifecycle drugs, typically owned by large pharmaceutical companies that cannot devote the required time, attention and marketing effort to the product. By acquiring or in-licensing products, Clinigen is providing the pharmaceutical industry with a solution to divest of products that are no longer sufficiently profitable for their own business models, but are strategically valid for Clinigen. Clinigen's first product is hospital-based, anti-infective Foscavir. The Group is intending to drive growth through organic sales and acquisition of further products which fit its specific criteria.

Foscavir®

Foscavir® continues to demonstrate steady growth, with sales up 22% on the comparable period for the previous year. There are a number of underlying factors behind this. Following license approval in the US effective 1 July 2012, there was a one-off "pipeline fill" of US approved product estimated at £2.0m and underlying volume growth of £1.1m (10%). This was partially off-set by £0.8m from an expected reduction in Clinigen's US and Japanese selling price due to the shift from direct named patient supply to a distributor model. The US volume growth is higher than expected and is undoubtedly driven by increased market access of the newly licensed product through the distributor. The US-approved product has only been available since 1 July 2012, thus it is too early to estimate where US levels will settle.

SP had made an application to a number of European markets to extend Foscavir's license into a new indication for bone marrow transplant patients. Applications have now been successfully approved in two countries (the Netherlands and Hungary, approval for these two countries was received in January 2013) with further discussions taking place in Germany. A response is awaited from three other markets. The strategy is to build on this, worldwide, and the application process has already started in South Korea, using the European data pack. The US application is being reviewed in light of the European approvals.

Clinigen has commissioned a second API manufacturer on an exclusive supply agreement which will complete its goal of securing and de-risking the supply chain for Foscavir. This project is currently running to schedule and should be complete, following 12 months stability data, in Q2 2014.

Acquisition targets

SP continues to progress well a number of the product acquisition and in-licensing opportunities discussed in the admission document. This is a priority the second half of the financial year. In addition a number of new opportunities have also presented themselves, which the Group is pursuing. Clinigen has also "walked away" from opportunities, where the price expectation went beyond value assessment.

Infrastructure

Clinigen continues its strategy of investing in personnel and infrastructure to support its significant growth. As expected headcount has increased to 90 at the end of H1 2012/13, with logistics, finance, CTS and GAP being the main areas of investment. The cold chain capabilities have been increased by doubling the 2˚c - 8˚c storage facility.

During H1, the Group has successfully completed the upgrading of its IT platform as one of its IPO commitments. During H2, further previously identified IT investments will be made, delivering a GAP software platform that will further support large early access projects for key current and new customers, as well as starting the project to replace the finance and enterprise resource planning (ERP) system.

Clinigen Group plc

Interim consolidated statement of comprehensive income

Clinigen Group plc

Interim consolidated statement of financial position

Clinigen Group plc

Interim consolidated statement of cash flows

Clinigen Group plc

Interim consolidated statement of changes in equity

Included within retained earnings reserve as at 31 December 2012 is £8,796K (30 June 2012: £9,153K, 31 December 2011: £9,707K) that is non-distributable.

Clinigen Group plc

Notes forming part of the interim condensed consolidated financial statements

1 Basis of preparation

The group have elected to prepare the interim consolidated financial statements in accordance with IAS34 Interim Financial Reporting. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the consolidated financial statements of the group for the year ended 30 June 2012.

The comparative figures for the financial year ended 30 June 2012 are not the Group's statutory accounts for that financial year. Those accounts have been reported on by the Group's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention to by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 of the Companies Act 2006.

The condensed consolidated interim financial statements have been prepared on a going concern basis, based on the Directors' opinion, after making reasonable enquiries, that the Group has adequate resources to continue in operational existence for the foreseeable future.

2 Significant accounting policies

The preparation of interim consolidated financial statements in compliance with IAS 34 requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies. The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed in the notes to the Group's statutory consolidated financial statements for the year ended 30 June 2012 and in the notes to these interim condensed consolidated financial statements.

Clinigen Group plc applies the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2012 annual financial statements. None of the new standards, interpretations and amendments, effective for the first time from 1 July 2012, have had a material effect on the financial statements.

3 Segment information

The Group's reportable segments are operating business units offering products and services into different markets. The operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. There has been no change in the nature of the operating segments or in the accounting policies applicable to these segments during the six months ended 31 December 2012.

All revenues arise from external customers.

4 Non-underlying items

The non-underlying items relate to a charge of £2,061K (H1 11/12: £2,309K) in respect of share based payment schemes, corresponding social security costs of £488K (H1 11/12: nil)on share options that were exercised in the period in respect of 'unapproved' share option schemes and the release of deferred tax asset recognized on the share based payment which were exercised during the period. The share based payment charges are classed as non-underlying as they vested or were granted on the listing of the company on the Alternative Investment Market ("AIM"). 

Non-equity IPO costs of £3,476K (H1 11/12: £nilK) are also disclosed as non-underlying administrative costs.

5 Taxation

The group has recognised a tax charge in the income statement based on the current tax rate. Tax losses of £43m arose as a result of the exercise of share options; these losses will reduce current and future UK corporation tax and US federal tax payable. The deferred tax asset and corporation tax recoverable in respect of these tax losses is recognised within the assets of the group on the statement of financial position.

6 Earnings per share ("EPS")

Earnings per share is calculated based on the share capital of Clinigen Group plc and the earnings of the combined group. The number of shares used for the calculation for the period ended 31 December 2011 and year ended 30 June 2012 have been adjusted, retrospectively, to reflect the bonus issue of shares on 20 August 2012 and subdivision of shares on 29 August 2012.

Diluted earnings per share takes account of the weighted average number of outstanding share options being 13,306,460.

The underlying basic earnings per share, based on the 82,555,585 shares in issue post IPO and the underlying earnings of the group as stated in the income statement for the six month period ended 31 December 2012 is 9.0 pence (2011: 5.5 pence). The underlying diluted earnings per share based on the total number of shares in issue and granted under employee share option schemes at 31 December 2012 of 84,619,475 is 8.8 pence (2011: 5.5 pence).

7 Loans and borrowings

The loan from ADL Healthcare Limited, a company of which Mr. A D Leaver is a director and shareholder, was settled in full in the six month period to 31 December 2012. Mr. A D Leaver is a related party due to his shareholding in the company.

7 Provisions

The provision, which arose in the year ended 30 June 2012, for PAYE and NI payable in respect of payments made to the Remuneration Trust is still payable although the final amount payable is still uncertain. The £912K is the best estimate of the economic outflow.

8 Share capital

On 20 August 2012, a special resolution was passed to issue a bonus issue of shares on the basis of 312 'A' ordinary shares for every 'A' ordinary share of 1p each. The bonus issue of new shares was made fully paid at par by crediting the Company's merger reserve.

On 29 August 2012, the 'A' ordinary shares were subdivided into 50,080,000 'A' ordinary shares of 0.1p each

On 25 September 2012, the following new shares were issued:

Also, on 25 September 2012, all classes of ordinary shares were designated as Ordinary shares of 0.1p each.

9 Share based payment

The company operated three equity-settled share based remuneration schemes: a United Kingdom tax authority approved scheme and two unapproved schemes. The schemes are for executive directors and certain senior management.

The approved and one of the unapproved schemes vested and were exercised during the period. Under the unapproved Long Term Incentive Plan, options vest if the total shareholder return growth is greater than 25% over a three year period ending on 24 September 2015.

If the individual leaves earlier than the earliest vesting date, they may, if certain conditions are met, be still entitled to a proportion of the shares.

The weighted average share price (at the date of exercise) of options exercised during the period was 164p (2011: nil).

The weighted average fair value of each option granted during the year was 48.6p (2011: 0.85p - adjusted for bonus issue and subdivision of shares for comparable basis).

The following information is relevant in the determination of the fair value of options granted during the period under the equity-settled share based remuneration schemes operated by the group.

The share-based remuneration expense comprises of equity-settled schemes of £2,061k.

The group did not enter into any share-based payment transactions with parties other than employees during the current or previous period.

10 Related party transactions

During the period, the group had the following related party transactions with related parties:

The management charges and sales commission were paid in the period up to the IPO on 25 September 2012 at which point they terminated. Loan interest was paid up to the final loan settlement on 31st December 2012 at which point it ended.