13th Sep 2007 07:01
Vernalis PLC13 September 2007 13 September 2007 Vernalis Plc: Interim Results for the six months ended 30 June 2007 - Progress across seven clinical programmes- Vernalis plc (LSE: VER) today announced its interim results for the six monthsended 30 June 2007. News Today •Striking weight loss in overweight and mildly obese volunteers treated with V24343 (see separate release) Operational Highlights • Global sales of Frovatriptan from Endo and Menarini increased 23% to $38.6m over the corresponding period in 2006 • Apokyn(R) sales grew 35% to $3.1m. Full year sales estimate reduced by 15% compared with previous mid-point to $8m • FDA confirmed 30 September 2007 as the review date for Endo's sNDA for the use of Frova(R) in the short-term prevention of menstrual migraine • V3381 Phase IIa study completed in Neuropathic pain, trial design for Phase IIb study ongoing • V10153 Phase IIa trial expanded at 5mg/kg cohort • V2006 entered Phase IIa with Biogen Idec • Vernalis entered a 3-year research collaboration with Servier utilising Vernalis' proprietary structure-based design platform • After the end of the period, Novartis paid Vernalis $1.5m as Hsp90 inhibitor entered Phase I Financial Highlights • Revenues increased 60% to £10.6m (2006: H1 £6.6m) • Losses reduced 29% to £13.2m (2006: H1 £18.4m) • Cash resources of £27.0m (31 Dec 2006: £37.6m) Simon Sturge, CEO of Vernalis commented, "In the first six months of 2007,Vernalis has achieved substantial progress across the portfolio from researchthrough development to our marketed products. Global Frovatriptan sales havegrown by 23% and Apokyn sales by 35%. Two pipeline products have successfullyprogressed through their current clinical trials and the first compound from ourHsp90 collaboration with Novartis has recently started Phase I testing. Weeagerly await the outcome of the FDA's review of Endo's sNDA for the use ofFrova(R) in the short-term prevention of menstrual migraine by 30 September." Simon Sturge and Tony Weir, CEO and CFO of Vernalis respectively, will todayhost an analyst / investor presentation and conference call at 11:00 am BST todiscuss the interim results. This may be accessed by dialling: +44 (0) 1452 561 263. -- ends --Enquiries: Vernalis plc +44 (0) 118 977 3133Simon Sturge, Chief Executive OfficerTony Weir, Chief Financial Officer Brunswick Group +44 (0) 20 7404 5959Jon ColesJustine McIlroyAlex Tweed Lazar Partners LtdGregory Gin +1 212-867-1762 Notes to Editors About Vernalis Vernalis is a speciality bio-pharmaceutical company focused on products marketedto specialist neurologists. The company has two marketed products, Frova(R) andApokyn(R), and a development pipeline focused on neurology and central nervoussystem disorders. The company has seven products in clinical development andcollaborations with leading, global pharmaceutical companies including Novartis,Biogen Idec, Serono and Chiesi: Product Indication Phase I Phase Phase Registration Market Marketing Rights II IIIApokyn(R) Parkinson's X North America DiseaseFrova(R) Acute X US Co-promotion Migraine Endo (EU-royalties Menarini)Frova(R) Menstrual X US Co-promotion Migraine Endo Prevention (EU-royalties Menarini)V1512 Parkinson's X World Wide (excl. Disease Italy)V10153 Ischaemic X World Wide StrokeV3381 Neuropathic X World Wide PainV2006 Parkinson's X US Co-promotion Disease Biogen IdecV24343 Obesity X World WideHsp90 Cancer X Royalty (Novartis)MMPI Multiple X Royalty (Serono) Sclerosis Vernalis has established a US commercial operation to promote Apokyn(R) andco-promote Frova(R) alongside its North American licensing partner, EndoPharmaceuticals, propelling the company towards its goal of becoming asustainable, self-funding, R&D-driven, speciality bio-pharmaceutical company.For further information about Vernalis, please visit www.vernalis.com. Forward-Looking Statement This news release may contain forward-looking statements that reflect theCompany's current expectations regarding future events including the clinicaldevelopment and regulatory clearance of the Company's products, the Company'sability to find partners for the development and commercialisation of itsproducts, as well as the Company's future capital raising activities.Forward-looking statements involve risks and uncertainties. Actual events coulddiffer materially from those projected herein and depend on a number of factorsincluding the success of the Company's research strategies, the applicability ofthe discoveries made therein, the successful and timely completion of clinicalstudies, the uncertainties related to the regulatory process, the ability of theCompany to identify and agree beneficial terms with suitable partners for thecommercialisation and/or development of its products, as well as the achievementof expected synergies from such transactions, the acceptance of Frova(R) andApokyn(R) and other products by consumers and medical professionals, thesuccessful integration of completed mergers and acquisitions and achievement ofexpected synergies from such transactions, and the ability of the Company toidentify and consummate suitable strategic and business combinationtransactions. Introduction Vernalis' strategy is to become a sustainable, self-funded, R&D-driven,speciality bio-pharmaceutical company with a focus in neurology. A major step inthis direction will be achieving US regulatory approval of Frova(R) for theintermittent short-term prevention of menstrual migraine (MM). In the first halfof 2007, we have been frustrated by two delays in the review of our application.The FDA has now confirmed that the review will be completed by 30 September2007. There has been no request for additional information and we remain asconfident of approval as we did on the day of submission in July 2006. Marketed Products • Frova(R) - Acute migraine Frova(R) belongs to the triptan class of drugs and is approved in North Americaand Europe as an acute, oral treatment for migraine headache and its associatedsymptoms. Vernalis has licensed North American rights for Frova(R) to EndoPharmaceuticals. In 2007, Endo achieved strong prescription growth resulting ina triptan market share of 2.8%, the highest levels since the product waslaunched. Endo reported net sales for Frova(R) of $24.9 million for H1 2007, a25% increase over the corresponding period last year. From 1 January 2007, Endostarted to pay a royalty to Vernalis on net sales of Frova(R). Vernalis earned aroyalty of £1.9 million from Endo for the period. Vernalis has licensed European and Central American rights for frovatriptan toMenarini. Strong sales growth has also been achieved in Europe with Menarinirecording sales of €9.9m for H1 2007, a 21% increase over the correspondingperiod the previous year. This growth has been due to the launch in 13 newcountries in 2006 and two new countries, including France, in H1 2007. Vernalisearned revenues of £3.7 million in H1 2007 from Menarini in respect offrovatriptan. • Apokyn(R) - Advanced Parkinson's Disease In April 2004 Apokyn(R) received FDA approval, with orphan drug designation, asan acute intermittent therapy for the treatment of "off" episodes (re-emergenceof Parkinson's disease symptoms) associated with advanced Parkinson's disease.Approximately 112,000 Parkinson's disease patients experience such "off"episodes despite optimal oral therapies. Apokyn(R) is used as an adjunct toother medications and is administered as a sub-cutaneous injection, as needed,by means of an injection pen. Vernalis acquired the North American commercial rights to Apokyn(R) from Mylanin November 2005, relaunched the product in February 2006 and during H2 2006established several marketing initiatives to make physicians and patients awareof the benefits of Apokyn(R) at optimal dosing levels. These initiatives includea comprehensive support programme to assist both physicians and patients throughthe initiation process. Gross sales for Apokyn(R) for the six months ended 30 June 2007 were $3.1million which represents a 35% increase over the corresponding period in 2006.The marketing initiatives referred to above have had the positive impactexpected in the market place however, in the first few months of the year, therewere a significant number of discontinuations due to change in Apokyn(R)coverage from co-pay to co-insurance on many Medicare plans. This is reflectedin the lower than anticipated growth in the H1 2007 sales and in a revised salesestimate for the year of approximately $8 million. Development Portfolio Pain Franchise Frova(R) - short-term prevention of menstrual migraine In July 2006, Endo filed a Supplemental New Drug Application (sNDA) with the FDAaimed at obtaining approval for Frova(R) for the intermittent, short-termprevention of menstrual migraine (MM). The FDA accepted this submission andnotified Endo that it would provide its response by 19 May 2007. This wassubsequently revised by the FDA to 19 August 2007 but, on 16 August 2007, theFDA informed Endo that it would be unable to complete its review of the sNDA by19 August. The FDA has now set 30 September 2007 as the review date for thesNDA. If this application is successful a $40 million milestone is due toVernalis from Endo half of which Vernalis would expect to receive in cash andhalf of which would be applied to reduce the loan outstanding to Endo. The Frova(R) sNDA is supported by data from four clinical studies (twodouble-blind, placebo-controlled efficacy studies, an open-label safety studyand a pharmacokinetic study). The data from the second efficacy study and openlabel safety study were first presented at the meeting of the American HeadacheSociety in Chicago on 9 June 2007. Menarini plans to submit an application, under the mutual recognition procedure,to extend the current indication for frovatriptan to include prevention of MMthroughout Europe. V3381 - Neuropathic pain V3381 has a dual mechanism of action (an NMDA antagonist and MAO-A inhibitor)that gives it the potential to modulate pain at both central and peripheralsites and is being developed for the treatment of neuropathic pain. In July2007, Vernalis successfully completed a Phase IIa trial of V3381 in patientssuffering neuropathic pain from long-standing diabetes. The Phase IIa trial was a randomised, double-blind, placebo-controlled,crossover study evaluating two doses of V3381 (200mg twice daily and 400 mgtwice daily) compared with placebo. The study was conducted in five specialistcentres in North America with 46 patients randomised in to the study and 35patients completing both treatment periods. The full analysis of the trial datawill be completed later this year. Headline data from the trial indicate that V3381 warrants progression into thenext stage of clinical development and demonstrates that the drug was generallywell-tolerated while providing good preliminary indications of efficacy. Neurology Franchise V10153 - Ischaemic Stroke V10153 is a novel thrombolytic protein which is being developed for thetreatment of acute ischaemic stroke. Ischaemic stroke occurs when a blood clotforms and blocks blood flow in an artery supplying blood to part of the brainand accounts for approximately 80 per cent of all strokes. The incidence ofischaemic stroke in the US, EU and Japan is approximately 1.3 million cases peryear. Current therapeutic options for stroke sufferers are limited since theonly current approved therapy, recombinant tissue plasminogen activation(rt-PA), must be administered within three hours of a stroke occurring. Thethree hour limit is due to limited efficacy beyond this time and, as aconsequence, few patients receive therapy. V10153 has the potential to benefitan increased number of stroke sufferers as it is being evaluated in the periodup to nine hours after a stroke occurring. V10153 has been designed to have a more specific activity targeted to clots thanrt-PA and has successfully completed a Phase IIa study in patients who hadsuffered a heart attack as a result of a blood clot in the coronary artery. Thisstudy demonstrated that V10153, at dose levels of 5mg/kg and above, had similarability to dissolve blood clots as other approved thrombolytics, but did notcause more general bleeding in the body. VASTT Study: A second phase IIa safety and tolerability study (VASTT study) isnow under way in patients who have recently suffered an ischaemic stroke. In theVASTT study increasing doses of V10153 are being administered to patientsbetween three and nine hours after their stroke has occurred. The first threedose levels of 1mg/kg, 2.5mg/kg and 5mg/kg have been completed with ten patientsreceiving each dose. While patients in the highest dose tested to date, 5mg/kg,have demonstrated outcomes that are consistent with expectations, two patientshave reported a clinically significant bleed of which one was an intra-cranialhaemorrhage (ICH). This level of bleeding is consistent with the backgroundlevel of spontaneous ICH but also cannot be ruled out as being related totreatment. As a result, in conjunction with the Safety Monitoring Board, it hasbeen decided to expand the 5 mg/kg cohort before moving to a 7.5mg/kg dose. Itis now expected that the study will be completed in 2008. V1512 - Parkinson's disease The cornerstone of Parkinson's disease treatment is the oral administration ofL-dopa. Parkinson's disease sufferers experience impaired functioning of thestomach and small intestine as the disease advances which causes erraticabsorption of L-dopa into the bloodstream. V1512 is the same active drugsubstances as carbidopa/L-Dopa, the most widely-prescribed form of L-dopatherapy in the US, but is fully soluble in water and therefore should be betterabsorbed by Parkinson's disease sufferers who have impaired gastric motility.V1512 is currently marketed in Italy by Chiesi. V1512 is currently being administered in a pharmacokinetic-pharmacodynamic studyto evaluate the plasma profiles of repeated doses of the drug compared withCarbidopa/L-Dopa. The results of this study are expected later in 2007. Inparallel, discussions are being held with the FDA to agree on a Special ProtocolAssessment (SPA) for the evaluation of V1512 in comparison with Carbidopa/L-Dopain a Phase III programme. V2006 - Parkinson's disease V2006 is an adenosine A2a receptor antagonist in development as a noveltreatment for Parkinson's disease. The development of this product is beingundertaken by Vernalis' partner, Biogen Idec, with Vernalis receiving milestonesas V2006 progresses through development and royalties on commercial sale, whileretaining an option to co-promote. Biogen Idec has started a Phase II programme which is investigating V2006 bothin combination with L-dopa in late-stage Parkinson's disease patients and asmonotherapy in a placebo-controlled study in early stage Parkinson's diseasepatients. Results from the programme are expected in 2008. Other Programmes V24343 - Obesity V24343 is a cannabinoid type 1 receptor (CB1) antagonist which is a potentialtreatment for obesity and related disorders. Vernalis has separately releasedtoday the top level data from a Phase I programme which shows striking weightloss in overweight and mildly obese volunteers following treatment with V24343for 14 days. Hsp90 Inhibitor - Cancer Inhibition of Hsp90 is believed to have significant potential in the treatmentof a broad range of haematological and solid cancers. Vernalis has acollaboration with Novartis which utilises Vernalis' structure-based drugtechnology to identify potent and specific inhibitors of Hsp90 against variouscancers. In August 2007 the first compound from the collaboration, an intra-venousformulation, started Phase I clinical trials in a range of solid tumours andhaematological cancers. This resulted in a milestone payment from Novartis of$1.5 million. Novartis has also selected a second, oral, follow-on compound as aclinical development candidate which is expected to start clinical testing in2008. V1003 - Pain Vernalis' collaborator, Reckitt Benckiser, has notified Vernalis that it is nowfocusing on the development of V1004 and V1005 for pain in preference to V1003which it is not progressing. Rights to V1003 revert to Vernalis. Research Vernalis has a strong research capability focused on the discovery of drugdevelopment candidates to treat CNS disorders and cancer. In May 2007, Vernalisand Servier Research Group entered a joint, three-year, oncology drug discoverycollaboration. The collaboration, on an undisclosed target, utilises Vernalis'proprietary, structure-based design capabilities. Financial Review Income Statement Revenue for the six months ended 30 June 2007 was £10.6 million (2006: £6.6million) and comprised £1.4 million (2006: £1.0 million) in respect of sales ofApokyn(R), £1.9 million (2006: nil) in respect of royalties for sales of Frova(R) in North America, £3.7 million (2006: £1.5 million) in respect of Europeanrevenues for frovatriptan and £3.5 million (2006: £3.8 million) in respect ofrevenue recognised under collaboration agreements. The Apokyn(R) revenues represent gross sales of $3.1 million (2006: $2.3million) less provisions of $0.5 million (2006: $0.5 million) for potentialreturns and rebates. The variable royalty on sales of Frova(R) in North Americafrom Endo commenced on 1 January 2007. The increase in European revenues fromfrovatriptan reflects both increased sales levels by Menarini, on which Vernalisreceives a royalty, and the supply of bulk product to Menarini. Revenue fromcollaboration agreements represents the release of deferred revenue and thefunding from Endo for the co-promotion of Frova(R) in the US. Cost of sales increased to £3.7 million (2006: £3.1 million) and comprised £0.3million (2006: £0.2 million) in respect of Apokyn(R), £1.0 million (2006: £0.5million) in respect of European revenues from frovatriptan and £2.4 million(2006: £2.4 million) in respect of the amortisation of the acquisition costs ofFrova(R) and Apokyn(R). Research and development expenditure decreased to £12.5 million (2006: £15.4million). Expenditure of £8.9 million (2006: £9.4 million) was incurred oninternally funded R&D and £3.6 million (2006: £6.0 million) on clinical trialsand product manufacture. The higher expenditure in 2006 included the Phase III,menstrual migraine clinical trial costs for Frova(R) and product manufacturecosts for V10153. Selling and marketing expenditure increased to £4.6 million (2006: £3.9 million)and reflects the initiatives put in place to promote awareness of Apokyn(R). General and administrative expenditure decreased to £4.3 million (2006: £7.0million) including an exceptional gain of £0.6 million (2006: £1.4 millioncharge) and reduction in external professional fees. The exceptional gain of£0.6 million in 2007 results from a reduction to the provision for vacant leasesas a result of securing a tenant for a vacant property. Excluding exceptionalitems, general and administrative expenditure reduced to £4.9 million (2006:£5.6 million) due to lower professional fees. The operating loss before exceptional items was £15.1 million (2006: £20.9million) and the total operating loss was £14.5 million (2006: £22.3 million). Interest receivable and similar income reduced to £1.9 million (2006: £4.7million) and comprised interest receivable of £0.9 million (2006: £1.3 million)and exchange gains of £1.0 million (2007: £3.3 million). The decrease ininterest receivable reflects lower average cash resources compared with theprior year, partially offset by higher interest rates. The exchange gainsreflect the strengthening of sterling against the US dollar in both the firsthalf of 2006 and 2007. Interest payable and similar charges decreased to £1.3million (2006: £1.8 million) and comprised interest payable of £0.8 million(2006: £0.8 million), an exchange loss of £0.1 million (2006: £0.6 million), andan implicit finance charge of £0.4 million (2006: £0.4 million). The tax credit of £0.7 million (2006: £0.9 million) represents amounts that areexpected to be received under current legislation on research and developmenttax credits for small and medium sized companies. The loss for the six months ended 30 June 2007 was £13.2 million (2006: £18.4million). Balance Sheet Non-current assets at 30 June 2007 were £71.2 million (31 December 2006: £71.6million) with the reduction due to the regular depreciation and amortisationcharge on tangible and intangible assets, respectively offset by exchange gainson intangible assets. Current assets at 30 June 2007 amounted to £37.6 million (31 December 2006:£50.8 million). Inventories were £1.0 million (31 December 2006: £0.9 million)and principally related to Apokyn(R). Trade and other receivables were £6.4million (31 December 2006: £7.3 million). Cash resources, comprising held tomaturity financial assets of £10.8 million (31 December 2006: £16.1 million) andcash and cash equivalents of £16.2 million (31 December 2006: £21.5 million)decreased to £27.0 million (31 December 2006: £37.6 million). The reason for thedecrease is explained in the cash flow section below. Non current liabilities amounted to £47.8 million (31 December 2006: £47.8million). The components of non current liabilities are largely unchanged duringthe period with a small increase in non-current borrowings being offset by asmall decrease to deferred income and vacant property provisions. Currentliabilities amounted to £34.0 million (31 December 2006: £36.8 million) with thedecrease due to the loan repayment (deducted from royalties receivable) of £0.9million, an exchange gain on the loan and a reduction to deferred income. Cash flow Cash resources, comprising held to maturity financial assets and cash and cashequivalents, decreased from £37.6 million at 31 December 2006 to £27.0 millionat 30 June 2006. The decrease of £10.6 million compares with a decrease of £17.4million in the first half of 2006 and results from utilisation of £13.6 million(2006: £20.2 million) in the operations of the business and £0.4 million (2006:£0.1 million) on the purchase of tangible fixed assets offset by net taxreceipts of £2.4 million (2006: £2.0 million) and net interest received of £1.1million (2006: £1.2 million). Outlook Vernalis has two marketed products, Frovatriptan for Acute Migraine and Apokynfor Parkinson's Disease. Both products showed strong growth in sales during thefirst half of 2007. Vernalis also has seven compounds in clinical development,addressing significant markets, either in collaboration with big pharma, orwhere marketing rights are wholly-owned and worldwide. The outcome of the FDAreview of the sNDA application for approval of Frova(R) for the intermittent,short-term prevention of menstrual migraine is the most significant near-termevent for Vernalis. The FDA has now set 30 September 2007 as the date by whichit expects to issue an action letter. If Frova(R) is approved, a milestone of$40 million becomes due to Vernalis from Endo which Vernalis expects to receive$20 million in cash with $20 million being applied to reduce the loanoutstanding to Endo. This will substantially strengthen Vernalis cash resourcesand provide a stronger basis for rapidly advancing the clinical portfolio. However, Vernalis is a research and development based biopharmaceutical companywhich is not yet a sustainable business. It expects to incur further losses ascurrent planned expenditure exceeds its revenues from product sales, royaltiesand collaborative receipts. Vernalis' existing cash balances are unlikely to besufficient to fund its future planned net losses and the company is likely torequire additional equity finance at some point in the future. Future revenues by their nature are uncertain and depend upon the success ofApokyn(R) in the market, the ability of Endo and Menarini to commercialisefrovatriptan, the progress towards collaboration milestones and the ability toenter new collaborations. Of particular significance in the near-term is thepotential to earn a $40 million milestone from Endo described above. If thismilestone does not become due . Vernalis has identified a number of steps thatcould be taken to manage its cash resources and ensure that it can continue inoperation for the foreseeable future. These include: •the delay or cancellation of planned future clinical and preclinical programmes •reductions to the cost base including headcount levels •Further equity financing The options available to the Company will be reviewed by the Board after the FDAhas completed its review of the Frova(R) sNDA following which a decision on theway forward will then be made. Unaudited consolidated income statementfor the six months ended 30 June 2007 Six months ended 30 June 2007 Six months ended 30 June 2006 Note Pre Exceptional TOTAL Pre Exceptional TOTAL Exceptional Items Exceptional Items Items (Note 3) Items (Note 3) £'000 £'000 £'000 £'000 £'000 £'000_________________________________________________________________________________________Revenue 2 10,561 - 10,561 6,619 - 6,619Cost of sales (3,671) - (3,671) (3,137) - (3,137)Other income - - - 621 - 621Research and (12,513) - (12,513) (15,427) - (15,427)developmentexpenditureSelling and (4,601) - (4,601) (3,944) - (3,944)marketingGeneral and (4,925) 635 (4,290) (5,641) (1,356) (6,997)administrativeexpenses_________________________________________________________________________________________Operating loss (15,149) 635 (14,514) (20,909) (1,356) (22,265)Interest 4 1,906 - 1,906 4,703 - 4,703receivable and similar incomeInterest 4 (1,287) - (1,287) (1,793) - (1,793)payable andsimilarcharges_________________________________________________________________________________________Loss on (14,530) 635 (13,895) (17,999) (1,356) (19,355)ordinaryactivitiesbeforetaxationTax credit on 696 - 696 921 - 921loss onordinaryactivities_________________________________________________________________________________________Loss for the (13,834) 635 (13,199) (17,078) (1,356) (18,434)year_________________________________________________________________________________________Loss per share 5 (4.4)p 0.2p (4.2)p (5.5)p (0.4)p (5.9)p(basic anddiluted)_________________________________________________________________________________________ The notes form part of these financial statements Unaudited consolidated balance sheetsas at 30 June 2007 30 June 30 June 31 December 2007 2006 2006 Note £000 £000 £000______________________________________________________________________________AssetsProperty, plant and 1,724 1,998 1,689equipmentIntangible assets 6 69,359 86,833 69,795Available-for-sale financial 107 230 135assets______________________________________________________________________________Non-current assets 71,190 89,061 71,619 Inventories 1,016 526 927Trade and other receivables 6,355 15,876 7,276Tax receivable 3,273 2,897 5,046Held-to-maturity financial 10,835 35,134 16,087assetsCash and cash equivalents 16,154 15,730 21,469______________________________________________________________________________Current assets 37,633 70,163 50,805______________________________________________________________________________Total assets 108,823 159,224 122,424______________________________________________________________________________LiabilitiesBorrowings 7 (15,046) (17,740) (13,806)Other non-current (6,644) (7,153) (6,564)liabilitiesDeferred income (21,292) (24,037) (21,937)Provisions 8 (4,791) (5,981) (5,540)______________________________________________________________________________Non-current liabilities (47,773) (54,911) (47,847) Borrowings 7 (12,883) (12,119) (15,074)Trade and other liabilities (15,306) (19,203) (15,238)Tax Payable (9) (45) (67)Deferred income (4,601) (5,119) (5,012)Provisions 8 (1,192) (3,051) (1,373)______________________________________________________________________________Current liabilities (33,991) (39,537) (36,764)______________________________________________________________________________Total liabilities (81,764) (94,448) (84,611)______________________________________________________________________________Net assets 27,059 64,776 37,813______________________________________________________________________________Shareholders' equityShare capital 47,372 47,280 47,372Share premium 369,633 369,633 369,633Other reserves 180,386 180,999 177,941Retained deficit (570,332) (533,136) (557,133)______________________________________________________________________________Total shareholders' equity 27,059 64,776 37,813______________________________________________________________________________ The notes form part of these financial statements. Unaudited consolidated statements of changes in shareholders' equity Share Share Other Retained Total capital premium reserves deficit £000 £000 £000 £000 £000________________________________________________________________________________Balance at 1 January 2006 47,280 369,324 180,958 (514,702) 82,860Revaluation of assets available - - (371) - (371)for saleExchange loss on translation of - - (168) - (168)overseas subsidiaries________________________________________________________________________________Net income recognised directly in - - (539) - (539)equityLoss for the year - - - (18,434) (18,434)________________________________________________________________________________Total recognised income and - - (539) (18,434) (18,973)expense for the periodRefunded expenses on issue of - 309 - - 309share capitalEquity share options charge - - 580 - 580________________________________________________________________________________Balance at 30 June 2006 47,280 369,633 180,999 (533,136) 64,776________________________________________________________________________________Revaluation of assets available - - (11) - (11)for saleExchange loss on translation of - - (3,621) - (3,621)overseas subsidiaries________________________________________________________________________________Net income recognised directly in - - (3,632) - (3,632)equityLoss for the year - - - (23,997) (23,997)________________________________________________________________________________Total recognised income and - - (3,632) (23,997) (27,629)expense for the periodIssue of equity share capital 92 - (92) - -Equity share options charge - - 666 - 666________________________________________________________________________________Balance at 31 December 2006 47,372 369,633 177,941 (557,133) 37,813________________________________________________________________________________Revaluation of assets available - - (28) - (28)for saleExchange loss on translation of - - 1,936 - 1,936overseas subsidiaries________________________________________________________________________________Net income recognised directly in - - 1,908 - 1,908equityLoss for the period - - (13,199) (13,199)________________________________________________________________________________Total recognised income and - - 1,908 (13,199) (11,291)expense for the periodEquity share options charge - - 537 - 537________________________________________________________________________________Balance at 30 June 2007 47,372 369,633 180,386 (570,332) 27,059________________________________________________________________________________ The notes form part of the financial statement. Unaudited consolidated cash flow statementsfor the six months ended 30 June 2007 30 June 30 June 2007 2006 £000 £000_________________________________________________________________________Cash flows from operating activitiesLoss for the period (13,199) (18,434)Taxation (696) (921)Depreciation 336 865Loss on disposal of tangible fixed assets - 2Amortisation, impairment and disposal of 2,381 2,381intangible fixed assetsMovement in provision (1,027) (201)Royalty off set against US dollar secured (930) -loanDecrease in deferred income (1,056) (2,448)Option charge 537 580Interest receivable (1,906) (4,703)Interest payable 1,287 1,793Exchange (gain)/loss (51) 5_________________________________________________________________________ (14,324) (21,081)Changes in working capital(Increase)/decrease in inventories (89) 231Decrease in receivables 616 3,610Increase/(decrease) in liabilities 233 (2,993)_________________________________________________________________________Cash used in operations (13,564) (20,233)Taxation received 2,736 2,074Taxation paid (311) (40)Interest paid (20) (27)_________________________________________________________________________Net cash used in operating activities (11,159) (18,226)Cash flows from investing activitiesPurchase of tangible fixed assets (374) (127)Acquisition of subsidiary undertakings net - (418)of cash acquiredInterest received 489 664Interest received on financial assets 676 593held-to-maturity_________________________________________________________________________Net cash generated from investing activities 791 712Cash flows from financing activitiesMovement in held-to-maturity financial 5,252 (7,082)assetsShare issue refunds - 310Capital element of finance lease payments (80) (75)_________________________________________________________________________Net cash generated from financing activities 5,172 (6,847) Foreign exchange loss on cash and cash (119) (152)equivalents_________________________________________________________________________Movements in cash and cash equivalents in (5,315) (24,513)the periodCash and cash equivalents at the beginning 21,469 40,243of the period_________________________________________________________________________Cash and cash equivalents at the end of the 16,154 15,730period_________________________________________________________________________ The notes form part of the financial statement. Notes to the financial statements 1 Accounting policies and basis of preparation These interim financial results do not comprise statutory accounts within themeaning of Section 240 of the Companies Act 1985. Statutory accounts for theyear ended 31 December 2006 were approved by the Board of directors on 10 April2007 and delivered to the Registrar of Companies. The report of the auditors onthose accounts was unqualified, did not contain an emphasis of matter paragraphand did not contain any statement under Section 237 of the Companies Act 1985. This condensed consolidated half-yearly financial information for the half yearended 30 June 2007 has been prepared in accordance with the listing rules of thefinancial services authority and IAS 34, 'Interim financial reporting' asadopted by the European Union. The half-yearly condensed consolidated financialreport should be read in conjunction with the annual financial statements forthe year ended 31 December 2006, which have been prepared in accordance withIFRSs as adopted by the European Union. Going concern Vernalis is a research and development based biopharmaceutical company which isnot yet a sustainable business. It expects to incur further losses as currentplanned expenditure exceeds its revenues from product sales, royalties andcollaborative receipts. Vernalis' existing cash balances are unlikely to besufficient to fund its future planned net losses and the company is likely torequire additional equity finance at some point in the future. The interim financial information has been prepared on a going concern basiswhich assumes that the Company will continue in operational existence for theforeseeable future. The Directors have reviewed the working capital requirementsof the Group over the next twelve months. The Group's working capitalrequirements are sensitive to future revenues which by their nature areuncertain and depend upon the success of Apokyn(R) in the market, the ability ofEndo and Menarini to commercialise frovatriptan, the progress towardscollaboration milestones and the ability to enter new collaborations. Ofparticular significance in the near-term is the potential to earn a $40 millionmilestone from Endo if the FDA approves Frova(R) as a short-term preventativetreatment for women with menstrual migraine. If this milestone becomes due,Vernalis expects to receive $20 million in cash with $20 million being appliedto reduce the loan outstanding to Endo. As at 30 June 2007, Vernalis had cash resources of £27.0 million. The Directorshave identified a number of steps that could be taken to manage its cashresources and thereby ensure that it can continue in operation for theforeseeable future. These include: •the delay or cancellation of planned future clinical and preclinical programmes •reductions to the cost base including headcount levels •further equity financing The options available to the Group will be reviewed by the Board after the FDAhas completed its review of the Frova(R) sNDA. Critical accounting policies and estimates - Intangible assets The Group has significant intangible assets arising as a result of acquisitionsof businesses and purchases of assets such as product development and marketingrights. Under IFRS, intangible assets, other than goodwill, that are in use areamortised over their estimated useful life and charged to cost of sales in theincome statement and are only tested for impairment when there is an indicationof the balance sheet carrying value not being recoverable. Intangible assetsthat are not yet in use, and goodwill, are not amortised, but are testedannually for impairment. The impairment analysis is principally based uponestimated discounted future cash flows. Actual outcomes could vary significantlyfrom such estimates of discounted future cash flows, due to the highly sensitiveassumptions used, such as: •Outcome of research & development activities (compound efficacy, results of clinical trials, etc). •Probability of obtaining regulatory approval •Long-term sales forecast period of up to 20 years •Selling price erosion rates after the end of patent protection due to generic competition •Behaviour of competitors (launch of competing products, marketing initiatives etc •The availability of sufficient funding to develop the programme in-house The determination of these underlying assumptions relating to the recoverabilityof intangible assets is subjective and requires the exercise of considerablejudgement. Any changes in key assumptions about our business and prospects,including those arising from measures taken by the Directors to conserve cashresources, or changes in market conditions, could result in a future impairmentcharge. Accounting Policies The accounting policies adopted are consistent with those of the annualfinancial statements for the year ended 31 December 2006, as described in thoseannual financial statements. The following new standards, amendments to standards or interpretations aremandatory for the first time for the financial year ending 31 December 2007. •IFRIC 7, 'Applying the restatement approach under IAS 29', effective for annual periods beginning on or after 1 March 2006. This interpretation is not relevant for the group. •IFRIC 8, 'Scope of IFRS 2', effective for annual periods beginning on or after 1 May 2006. This interpretation has not had any impact on the recognition of share-based payments in the group. •IFRIC 9, 'Reassessment of embedded derivatives', effective for annual periods beginning on or after 1 June 2006. This interpretation has not had a significant impact on the reassessment of embedded derivatives as the group already assessed if embedded derivative should be separated using principles consistent with IFRIC 9. •IFRIC 10, 'Interims and impairment', effective for annual periods beginning on or after 1 November 2006. This interpretation has not had any impact on the timing or recognition of impairment losses as the group already accounted for such amounts using principles consistent with IFRIC 10. •IFRS 7, 'Financial instruments: Disclosures', effective for annual periods beginning on or after 1 January 2007. IAS 1, 'Amendments to capital disclosures', effective for annual periods beginning on or after 1 January 2007. IFRS 4, 'Insurance contracts', revised implementation guidance, effective when an entity adopts IFRS 7. As this interim report contains only condensed financial statements, and as there are no material financial instrument related transactions in the period, full IFRS 7 disclosures are not required at this stage. The full IFRS 7 disclosures, including the sensitivity analysis to market risk and capital disclosures required by the amendment of IAS 1, will be given in the annual financial statements. The following new standards, amendments to standards and interpretations havebeen issued, but are not effective for the financial year ending 31 December2007 and have not been early adopted: •IFRIC 11, 'IFRS 2 - Group and treasury share transactions', effective for annual periods beginning on or after 1 March 2007. Management do not expect this interpretation to be relevant for the group. •IFRIC 12, 'Service concession arrangements', effective for annual periods beginning on or after 1 January 2008. Management do not expect this interpretation to be relevant for the group. •IFRS 8, 'Operating segments', effective for annual periods beginning on or after 1 January 2009, subject to EU endorsement. Management are currently gathering information to make a revision to the group's geographical segments. Management do not currently foresee any changes to the group's business segments. 2 Segmental information The Group's primary segmental reporting is by geographical location of assets. Geographical segments The Group's operations are split into two geographical areas and are based onthe selling entity location. The UK is the home country of the parent. Six Six Six Six Six Six months months months months months months ended 30 ended 30 ended 30 ended 30 ended 30 ended 30 June June June June June June 2007 2007 2007 2006 2006 2006 UK North Total UK North Total America AmericaPrimary reporting format - £000 £000 £000 £000 £000 £000geographic___________________________________________________________________________________Revenue 9,206 1,355 10,561 6,016 603 6,619___________________________________________________________________________________Segmental operating loss (12,747) (1,767) (14,514) (20,412) (1,853) (22,265)Interest receivable and 1,852 54 1,906 4,674 29 4,703similar incomeInterest payable and similar (1,267) (20) (1,287) (1,766) (27) (1,793)charges___________________________________________________________________________________Loss on ordinary activities (12,162) (1,733) (13,895) (17,504) (1,851) (19,355)before taxation___________________________________________________________________________________Tax credit/(charge) on loss 950 (254) 696 921 - 921on ordinary activities___________________________________________________________________________________Loss for the period (11,212) (1,987) (13,199) (16,583) (1,851) (18,434) Other segmental items in the income statement Primary reporting format -geographic___________________________________________________________________________________Depreciation 223 113 336 697 168 865Loss on disposal of property, - - - 2 - 2plant and equipmentAmortisation and write offs 2,381 - 2,381 2,381 - 2,381of intangible assets (seenote 6)Employee share-based payments 421 116 537 522 58 580___________________________________________________________________________________ Revenue Analysis The revenue analysis in the table below is based on the country of registrationof the fee-paying party Six Six months months ended 30 ended 30 June 2007 June 2006 £000 £000United Kingdom 27 29Rest of Europe 3,977 1,513North America 6,550 5,070Rest of the World 7 7_________________________________________________________________________________ 10,561 6,619_________________________________________________________________________________ An analysis of revenue by category is set out in the table below: Six Six months months ended 30 ended 30 June 2007 June 2006 £000 £000___________________________________________________________________________________Product sales 5,119 2,777Royalties 1,910 29Collaborative 3,532 3,813___________________________________________________________________________________ 10,561 6,619___________________________________________________________________________________ 3 Exceptional Items Exceptional items represent significant items of income and expense which due totheir nature or the expected infrequency of the events giving rise to them, arepresented separately on the face of the income statement to give a betterunderstanding to shareholders of the elements of financial performance in theyear, so as to facilitate comparison with prior periods and to better assesstrends in financial performance. Exceptional items include, but are not limitedto, impairments of goodwill and intangible assets, and provision for vacantleases. Six months Six months ended 30 ended 30 June 2007 June 2006 £000 £000 _______________________________________________________________________________Provision for vacant 635 (1,356)leases_______________________________________________________________________________ 4 Finance credit (net) Six months Six months ended 30 ended 30 June 2007 June 2006________________________________________________________________________________ £000 £000Interest receivable and similar incomeInterest on cash, cash equivalents and 804 1,326held-to-maturity assetsExchange gains on other payables 62 202Exchange gains on long-term loan 715 2,263Exchange gains on contingent deferred 250 839considerationUnwinding of discount on other receivable - 69Other interest 75 4________________________________________________________________________________ 1,906 4,703________________________________________________________________________________ Interest payable and similar chargesLoans repayable wholly or partly within five 773 787yearsFinance leases 20 27Exchange loss on cash 120 -Exchange loss on other receivables 19 625Unwinding of discount on contingent deferred 234 250consideration on purchase of intangible assetsUnwinding of discount on royalty buy-out from 12 34GSKUnwinding of discount on provision 109 70________________________________________________________________________________ 1,287 1,793________________________________________________________________________________Net finance credit 619 2,910________________________________________________________________________________ 5 Loss per share Basic loss per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the year. For diluted loss per share, the weighted average number of ordinary shares inissue is adjusted to assume conversion of all dilutive potential ordinaryshares. Since the Group is loss-making there is no such dilutive impact. Six months Six months ended 30 ended 30 June 2007 June 2006________________________________________________________________________________Attributable loss before exceptional items 13,834 17,078(£'000)Exceptional items (£'000) (635) 1,356Attributable loss (£000) 13,199 18,434Weighted average number of shares in issue 313,301 311,464(000)________________________________________________________________________________Loss per ordinary share before exceptional (4.4)p (5.5)pitems________________________________________________________________________________Exceptional items 0.2p (0.4)p________________________________________________________________________________Loss per share (basic and diluted) (4.2)p (5.9)p________________________________________________________________________________ All potential ordinary shares including options and deferred shares areanti-dilutive. 6 Intangible assets Goodwill Assets in Assets Total use not yet in use £000 £000 £000 £000________________________________________________________________________CostAt 1 January 2007 10,703 50,400 39,026 100,129Exchange 55 - 1,890 1,945________________________________________________________________________At 30 June 2007 10,758 50,400 40,916 102,074________________________________________________________________________ Aggregate amortisationAt 1 January 2007 7,311 13,242 9,781 30,334Amortisation charge in the - 2,381 - 2,381period________________________________________________________________________At 30 June 2007 7,311 15,623 9,781 32,715________________________________________________________________________ Net book value at 30 June 3,447 34,777 31,135 69,3592007________________________________________________________________________ CostAt 1 January 2006 20,431 50,400 42,425 113,256Disposals - - - -Adjustments 18 - - 18Exchange - - -________________________________________________________________________At 30 June 2006 20,449 50,400 42,425 113,274________________________________________________________________________ Aggregate amortisationAt 1 January 2006 15,580 8,480 - 24,060Impairment - - - -Amortisation charge in the - 2,381 - 2,381yearDisposals - - - -________________________________________________________________________At 30 June 2006 15,580 10,861 - 26,441________________________________________________________________________ Net book value at 30 June 4,869 39,539 42,425 86,8332006________________________________________________________________________ CostAt 1 July 2006 20,449 50,400 42,425 113,274Disposals (8,269) - - (8,269)Adjustments (1,229) - - (1,229)Exchange (248) - (3,399) (3,647)________________________________________________________________________At 31 December 2006 10,703 50,400 39,026 100,129________________________________________________________________________ Aggregate amortisationAt 1 July 2006 15,580 10,861 - 26,441Impairment - - 9,781 9,781Amortisation charge in the - 2,381 - 2,381yearDisposals (8,269) - - (8,269)________________________________________________________________________At 31 December 2006 7,311 13,242 9,781 30,334________________________________________________________________________ Net book value at 31 December 3,392 37,158 29,245 69,7952006________________________________________________________________________ 7 Borrowings 30 June 30 June 31 December 2007 2006 2006 £000 £000 £000______________________________________________________________________________US dollar secured loan 14,858 17,391 13,544Obligations under finance 188 349 262leases______________________________________________________________________________Non-current borrowings 15,046 17,740 13,806 US dollar secured loan 12,739 11,970 14,927Obligations under finance 144 149 147leases______________________________________________________________________________Current borrowings 12,883 12,119 15,074______________________________________________________________________________Total borrowings 27,929 29,859 28,880______________________________________________________________________________ The US dollar secured loan relates to $54.5 million (£27.6 million) borrowedfrom Endo, net of the finance charges of $0.3 million (£0.2 million). Thisincludes interest payable of $7.6 million (£3.8 million). The Group can elect toroll up interest into the loan at January and July each year. The Group haselected to roll up $6.4 million (£3.2 million) into the loan at January 2007.The loan is secured against all royalty and milestone income receivable byVernalis in respect of the licence deal with Endo. Endo have the right to offsethalf the royalty payments and milestones payable to Vernalis against the loanfrom 2007. During 2007 Endo has elected to offset royalties payable to Vernalisof $1.9 million (£0.9 million) against the loan. This is a material non cashtransaction. The weighted average interest rate is 5 per cent fixed for the termof the loan. 8 Provisions Onerous lease Returns and Total provision rebates £000 £000 £000______________________________________________________________________________ At 1 January 2007 6,088 825 6,913Charged for the year - 233 233Reversed during the (635) - (635)yearUtilised during the (267) (358) (625)yearAmortisation of 109 - 109discountMovements on exchange - (12) (12)______________________________________________________________________________At 30 June 2007 5,295 688 5,983______________________________________________________________________________ Provisions have been analysed between current and non-current asfollows: 30 June 31 December 2007 2006 £000 £000______________________________________________________________________________Current 1,192 1,373Non-current 4,791 5,540______________________________________________________________________________ 5,983 6,913______________________________________________________________________________ Onerous lease provision Where leasehold properties become vacant the Group provides for all costs, netof anticipated income, to the end of the lease or the anticipated date of thedisposal or subletting of the property. This provision relates to properties inOxford and Cambridge and is expected to be utilised over the life of the relatedleases to 2014 and 2020 respectively and has been discounted to fair value atthe balance sheet date. Included in the onerous lease provision is a dilapidation provision whichprincipally relates to costs associated with the Group's obligation to reinstateleased buildings to their original state. The provision is expected to beutilised on vacation of the properties by 2014 and 2020 respectively and hasbeen discounted to fair value at the balance sheet date Returns and rebates provision On acquiring the rights from Elan the Group took on an obligation for certainproduct returns, estimated at £1.9 million. In addition the Group is responsiblefor product returns, rebates and chargebacks from the date it re-acquired therights from Elan through to the date of the outlicence to Endo. There are nofurther obligations to the Company in respect of these for sales made after theCompany outlicensed the rights to Frova(R) to Endo. The provision is to beutilised within a four-year period. Following the acquisition of Apokyn(R) in November 2005 a provision has beenmade in respect of product returns and rebates in relation to sales made by theGroup, which should be utilised within the next year. 9 Related party transactions Group The group had no related party transactions This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Vernalis PLC