Interim results for six months ended 30 June 2010

RNS Number : 1165Q

Vernalis PLC

29 July 2010

 

29 July 2010 

LSE: VER

Interim results for the six months ended 30 June 2010

 

Vernalis plc, a leading development stage pharmaceutical company with a broad pipeline of clinical and early stage programmes, today announces its interim results for the six months ended 30 June 2010.

 

Highlights

 

Financials

·; £28.5 million (net of expenses) equity financing in March

·; Strong balance sheet with £33.8 million cash resources at 30 June 2010 and debt free

·; Revenue £7.2 million (2009: £5.7 million), up 26%

·; Rigorous attention to cost control reduces underlying operating cost base by 18% to £7.8 million (2009: £9.5 million)

·; Operating loss reduced to £1.1 million (2009: £5.3 million)

·; Underlying cash burn (excluding foreign exchange, tax and interest) reduced to £2.7 million (2009: £8.2 million)

 

Marketed products

·; Regained 100% of Menarini frovatriptan royalty stream with effect from 1 January 2010

·; Underlying Menarini sales through to 30 June 2010 up 9% compared to same period in 2009

 

Pipeline news

·; AUY922 (Cancer) - Novartis initiated Phase II study, triggering $3 million milestone receipt

·; Indantadol (V3381) (Neuropathic pain) - negative data from Phase IIb IN-STEP study

·; Vipadenant (V2006) (Parkinson's disease) - development switched to next generation molecule following vipadenant pre-clinical toxicology findings

·; V158866 (pain) and V158411 (cancer) update - both programmes are now anticipated to enter Phase I in 2011

 

Research

·; Oncology research collaboration with Servier extended after successful completion of initial 3-year term

Anticipated newsflow

 

·; AUY922 - complete Phase II proof of concept (Novartis)	2010
·; V3381 - complete Chronic Cough recruitment	2010
·; V85546 - possible partnering	2010
·; 2nd generation A2A antagonist - enter Phase I (Biogen Idec)	H1 2011
·; HSP990 - establish maximum tolerated dose (Novartis)	Undisclosed
·; V158866, pain - file IND or CTA / start Phase I	2011
·; V158411, cancer - file IND or CTA / start Phase I	2011
·; Secure in-licensing or M&A deal	Undisclosed

 

Ian Garland, Chief Executive Officer, commented: "Vernalis ended the first half of 2010 in a strong financial position having successfully completed an equity financing and regaining all rights to the growing Menarini royalty stream. The key medium term priority is to leverage this financial strength to expand the pipeline through in-licensing or acquisition."

 

-- ends --

 

Enquiries:

 

Vernalis Contacts
Ian Garland, Chief Executive Officer	+44 (0) 118 989 9360
David Mackney, Chief Financial Officer
Brunswick Group
Jon Coles	+44 (0) 20 7404 5959
Justine McIlroy
Will Carnwath
Taylor Rafferty
Rob Newman	+44 (0) 20 7614 2900
Faisal Kanth

 

Notes to Editors

 

About Vernalis

Vernalis is a development stage pharmaceutical company with significant expertise in taking promising product candidates along a commercially-focused path to market. The Group has one marketed product, frovatriptan for the acute treatment of migraine, and ten candidates in development, seven of which are designated priority programmes. Five of these priority programmes are currently unpartnered and three are partnered. Pipeline programmes are derived from both our own research activities where we have significant expertise in fragment and structure based drug discovery, as well as from collaborations. Our technologies, capabilities and products are endorsed by collaborations with Biogen Idec, Chiesi, Endo, GSK, Menarini, Novartis and Servier.

 

Product	Indication	Pre-Clinical	Phase I	Phase II	Phase III	Marketed	Marketing Rights
Priority Programmes
CNS Programmes
Frovatriptan	Acute Migraine					X	Menarini & Endo Pharma
V3381	Neuropathic Pain			X			Worldwide
V3381 CC	Chronic Cough			X			Worldwide
2nd generation A2A antagonist	Parkinson's Disease	X					Biogen Idec
V158866	Pain	X					Worldwide
Oncology Programmes
AUY922	Cancer			X			Novartis
HSP990	Cancer		X				Novartis
V158411	Cancer	X					Worldwide
Other Therapeutic Areas
V85546	Inflammatory Disease		X				Worldwide
Legacy programmes
V10153	Ischaemic Stroke			X			Worldwide
RPL554	Asthma/ Allergic Rhinitis			X			Verona Pharma
CHR2797	Cancer			X			Chroma Therapeutics

 

For further information about Vernalis, please visit www.vernalis.com

 

Vernalis Forward-Looking Statement

This news release may contain forward-looking statements that reflect the Company's current expectations regarding future events including the clinical development and regulatory clearance of the Company's products, the Company's ability to find partners for the development and commercialisation of its products, as well as the Company's future capital raising activities. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors including the success of the Company's research strategies, the applicability of the discoveries made therein, the successful and timely completion of clinical studies, the uncertainties related to the regulatory process, the ability of the Company to identify and agree beneficial terms with suitable partners for the commercialisation and/or development of its products, as well as the achievement of expected synergies from such transactions, the acceptance of Frova® and other products by consumers and medical professionals, the successful integration of completed mergers and acquisitions and achievement of expected synergies from such transactions, and the ability of the Company to identify and consummate suitable strategic and business combination transactions.

Strategic and operational review

 

A key focus over the last 18 months has been to substantially strengthen the Company's financial position to provide a robust platform on which to re-build shareholder value. Having achieved this, Vernalis' focus is now on executing a three-tiered strategy to re-build value for shareholders. The three components of that strategy are to:

·; Realise value from the Company's broad pipeline;

·; Expand the pipeline through in-licensing and acquisition; and

·; Maintain a balanced investment in research.

Robust financial position

Building on the strong financial performance in 2009 which resulted in year end total cash resources of £26.4 million, during the first quarter 2010 the Company successfully completed a £28.5 million (net of expenses) equity financing, of which £21.6 million was used to settle the Paul Capital Healthcare Agreements and regain the entire rights to the Menarini frovatriptan royalty stream.

Regaining the Menarini royalty stream has structurally changed Vernalis' cash profile, providing a sustainable revenue stream and substantially cutting annual cash burn. The half year cash resources of £33.8 million together with the continuing royalty stream provide the Company with the cash to sustain development spend at 2009 levels into 2013, without any reliance on future milestone income.

Vernalis has eight active collaborations under which it can earn milestones. During the first half of 2010 it earned a $3 million milestone from Novartis following first dosing of AUY922 in a Phase II proof of concept study in cancer. Further research and development stage milestones could be earned from these eight collaborations over the next 18 months.

Marketed product

Menarini continues to grow sales of frovatriptan in the EU and Central American markets in which it is sold. In the six months to 30 June 2010, underlying sales were €16.2 million, up 9% on the same period in 2009. Recently announced price cuts in Germany that come into effect from October and result from a new reference price for all triptans will reduce this rate of growth for 2010 as a whole. New launches are planned within BRIC markets over the medium term.

Realising value from the pipeline

Vernalis has seven priority compounds in pre-clinical and clinical development, three of which are partnered with Novartis and Biogen Idec.

During the first half of 2010, as indicated above, Novartis progressed the novel Hsp90 inhibitor, AUY922, into Phase II proof of concept studies that it has indicated it aims to complete in 2010.

There have been two disappointments in the priority pipeline during the first half of 2010. In March the IN-STEP Phase IIb study of indantadol (V3381) failed to achieve its primary endpoint in patients with diabetic peripheral neuropathic pain. Management has always highlighted the high risk nature of diabetic neuropathy studies. In July, following pre-clinical safety issues with vipadenant, the adenosine A2A Parkinson's disease programme with Biogen Idec was re-focused on a next generation compound that is currently in pre-clinical testing and is expected to enter Phase I clinical studies in early 2011.

Following findings during pre-clinical development of both the V158866 (pain) and V158411 (cancer) programmes, entry for both into Phase I has been pushed out to 2011. Work continues on both of these exciting novel programmes with lead and back-up compounds.

Recruitment into the V3381 Phase II open label chronic cough study being undertaken with the University of Manchester, continues, with the aim of completing recruitment by the end of the year and having results available in 2011.

Partnering discussions with our Phase II-ready selective MMP12 inhibitor, V85546, continue in parallel with evaluation of potential in-house development of both V85546 and the back-up compound in a range of inflammatory diseases.

Expanding the pipeline through in-licensing and acquisition

The Company is evaluating multiple opportunities for both in-licensing and acquisition. Further details will be provided upon conclusion of a deal. The Company's aim is to secure a deal in the medium term.

Maintaining a balanced investment in research

Vernalis continues to adopt a balanced approach to investment in in-house research and continues to substantially fund its research operations through external collaborations. In April the Company secured an extension to one of its oncology research collaborations with Servier following successful completion of the initial 3-year term. Good progress is being made under all three ongoing oncology research collaborations, the two with Servier and one with GSK, and multiple milestones can be earned over the medium term.

The Company maintains an in-house proprietary oncology research initiative and also continues to explore further collaborations.

Outlook and anticipated newsflow

Expected newsflow over the remainder of 2010 and in 2011 is as follows:

·; AUY922 - complete Phase II proof of concept (Novartis) 2010

·; V3381 - complete Chronic Cough recruitment 2010

·; V85546 - possible partnering 2010

·; 2nd generation A2A antagonist - enter Phase I (Biogen Idec) H1 2011

·; HSP990 - establish maximum tolerated dose (Novartis) Undisclosed

·; V158866, pain - file IND / start Phase I 2011

·; V158411, cancer - file IND / start Phase I 2011

·; Secure in-licensing or M&A deal Undisclosed

Financial Review

 

Income Statement

Revenue for the six months ended 30 June 2010 was £7.2 million (2009: £5.7 million). These revenues comprised income from frovatriptan of £2.7 million (2009: £2.7 million), reflecting the supply of active pharmaceutical ingredient to Menarini, and collaboration income and the release of deferred income of £4.5 million (2009: £3.0 million). Collaboration income and deferred income included the AUY922 $3.0 million milestone from Novartis for first dosing in a phase II study, the full six month impact of the second collaboration with Servier, secured in Q2 last year and the release of deferred income from the GSK collaboration. In 2009 a $1.5 million milestone was received from Novartis for HSP990 progressing into phase I.

Cost of sales for the six months ended 30 June 2010 was £1.5 million (2009: £1.3 million) and included supplies of frovatriptan and the amortisation of the frovatriptan intangible asset.

 

Research and development expenditure for the six months ended 30 June 2010 was £5.8 million (2009: £7.2 million). External expenditure of £1.1 million (2009: £1.1 million) was incurred in relation to the completion of the V3381 IN-STEP trial together with pre-clinical work on V158866 and V158411. Expenditure of £4.7 million (2009: £6.1 million) was incurred on internal research and development activities with the 23% reduction due to savings resulting from our further cost containment efforts. We do not expect this same level of saving to continue for the remainder of 2010 but are very actively managing costs across the business.

 

General and administrative expenditure was £0.9 million for the six months to 30 June 2010 (2009: £2.5 million). Included within these costs for 2010 was a foreign exchange gain of £1.1 million on hedging instruments (2009: foreign exchange loss of £0.2 million). Adjusting for these foreign exchange gains and losses the underlying costs are £2.0 million for the first six months of 2010 compared to £2.3 million for the first six months of 2009, a saving of 13%, again reflecting our cost containment efforts.

 

The operating loss for the six months ended 30 June 2010 was £1.1 million (2009: £5.3 million).

 

Finance income decreased to £0.2 million (2009: £2.4 million) due principally to the recognition in 2009 of a £2.2 million foreign exchange gain on the Paul Capital Healthcare advance, arising on the retranslation of the Euro denominated advance into sterling. Interest received increased in the period to £0.2 million (2009: £0.1 million) due to the higher average cash balances held. In 2009 there was also a £0.1 million foreign exchange gain on a GSK frovatriptan liability that was settled.

 

Finance expense before exceptional items decreased to £1.4 million (2009: £3.3 million) and included a finance charge of £1.0 million (2009: £2.8 million) in respect of the Paul Capital Healthcare loan up to 8 March 2010 when the loan was repaid, exchange losses of £0.2 million (2009: £0.4 million), an exchange loss of £0.1 million on the retranslation of cash into sterling and a finance charge of £0.1 million (2009: £0.1 million) on the unwinding of the discount on the onerous lease provision. The exceptional charge of £6.6 million in the six months to 30 June 2010 relates to the termination of the Paul Capital Healthcare Agreements and comprises the difference between the cash payment of $32.57 million (£21.6 million) together with the fair value of the warrants issued (£1.1 million) and the carrying value of the Paul Capital Healthcare loan on 8 March 2010 when the loan was repaid.

 

The tax credit of £1.6 million (2009: £0.9 million) represents amounts that are expected to be received under current legislation on research and development tax credits for small and medium sized companies. The tax credit for the six month period to 30 June 2010 was £0.7 million (2009: £0.7 million) and the balance represents amounts receivable for prior years following new guidance received from HMRC on interpretation of the current legislation. In 2009 £0.2 million of the tax receivable related to overseas subsidiaries for prior years.

 

The loss before exceptional items for the six month period to 30 June 2010 was £0.7 million (2009: £5.3 million).

 

The loss after exceptional items for the six month period to 30 June 2010 was £7.3 million.

 

Balance Sheet

 

Non-current assets at 30 June 2010 amounted to £16.3 million (31 December 2009: £16.3 million). The reduction in value of the intangible assets due to the amortisation of the frovatriptan carrying value was offset by the increase in value of intellectual property due to foreign exchange movements together with a small amount of fixed asset additions within our research facility.

 

Current assets at 30 June 2010 amounted to £38.8 million (31 December 2009: £32.6 million). The increase was principally due to the surplus of funds received after the £28.5 million (net of expenses) equity fundraising and settlement of the Paul Capital Healthcare Agreements, the milestone receipt from Novartis for AUY922, less the cash utilised in the period. During the first half of 2010, the Group also put in place a number of hedging instruments to protect frovatriptan and Servier cash receipts against exchange rate volatility. These instruments had a fair value of £0.6 million at the 30 June 2010.

Non-current liabilities totalled £6.9 million (31 December 2009: £21.6 million). The reduction was due to the repayment of the Paul Capital Healthcare loan in the period and a decrease in deferred income.

 

Current liabilities totalled £4.9 million (31 December 2009: £7.1 million). The reduction is due to the repayment of the Paul Capital Healthcare loan in the period, lower trade, other liabilities and deferred income.

 

At 30 June 2010 the Group had net assets of £43.3 million (31 December 2009: £20.2 million).

 

During the period the Group raised £28.5 million (net of expenses) through an equity issue of 39,413,722 ordinary shares. The nominal value of the Company's ordinary shares was adjusted from 20 pence per ordinary share to 1 pence per ordinary share as part of the issue.

 

Cash Flow

 

Cash resources, comprising held to maturity financial assets and cash and cash equivalents, at 30 June 2010 amounted to £33.8 million (31 December 2009: £26.4 million).

 

During the period the Group received £28.5 million (net of expenses) from an equity fundraising and paid $32.57 million (£21.6 million) to settle the Paul Capital Healthcare Agreements. In addition the Group received a $3 million milestone from Novartis in relation to AUY922.

 

The cash burn of the underlying business (excluding tax, interest and foreign exchange) following the settlement of the Paul Capital Healthcare Agreements was approximately £2.7 million for the first 6 months of the year compared to £8.2 million for the same period in 2009. The 2010 six month cash burn included the cash receipt of 2 shipments of active pharmaceutical ingredient to Menarini.

 

Outlook

 

The financial performance over the first half of the year has been extremely strong with an equity financing, settlement of the Paul Capital Healthcare Agreements and good cost containment.

 

The Group is now well positioned to leverage this financial strength through the expansion of its development pipeline via in-licensing and acquisition.

 

 

Principal Risks

 

Vernalis considers strategic, operational and financial risks and identifies actions to mitigate risks. The principal risks and uncertainties for the remaining six months of the financial year are discussed below. Further details of the Group's risk profile can be found in the Annual Report for the year ended 31 December 2009, available on the website www.vernalis.com.

 

Vernalis is a development stage pharmaceutical company with a portfolio of research programmes and several product candidates in the clinic. Across the pharmaceutical industry as a whole, more product candidates fail in clinical studies than produce successful marketed products. Success or failure with Vernalis' product candidates will have a significant impact on the Company's prospects including the ability to secure licensing agreements on existing products, to successfully execute on M&A, and to secure further finance in the future.

 

Related Parties

 

Related party disclosures are given in note 9.

 

Independent review report to Vernalis plc

 

Introduction

 

We have been engaged by the company to review the condensed consolidated financial information in the half-yearly financial report for the six months ended 30 June 2010, which comprises the unaudited condensed consolidated balance sheet, unaudited condensed consolidated income statement, unaudited condensed statement of comprehensive income, unaudited condensed statement of changes in equity, unaudited condensed statement of cash flows and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

 

 

 

PricewaterhouseCoopers LLP Chartered Accountants Reading

28 July 2010

Unaudited condensed consolidated balance sheet

As at 30 June 2010

 

		30 June	31 December
		2010	2009
	Note	£000	£000
Assets
Property, plant and equipment	5	877	820
Intangible assets		15,454	15,527
Non-current assets		16,331	16,347
Inventories		499	511
Trade and other receivables		2,257	3,962
Tax receivable		1,554	1,704
Derivative financial instruments		611	-
Held-to-maturity financial assets		26,928	14,364
Cash and cash equivalents		6,910	12,034
Current assets		38,759	32,575
Total assets		55,090	48,922
Liabilities and shareholders' equity
Liabilities
Borrowings	6	-	14,090
Deferred income		731	1,074
Provisions		6,157	6,481
Non-current liabilities		6,888	21,645
Borrowings	6	-	886
Trade and other liabilities		2,530	3,481
Deferred income		1,484	1,836
Provisions		843	830
Derivative financial instruments		-	32
Current liabilities		4,857	7,065
Total liabilities		11,745	28,710
Shareholders' equity
Share capital	7	996	12,031
Share premium		413,875	385,819
Other reserves	8	250,178	236,769
Retained deficit		(621,704)	(614,407)
Total shareholders' equity		43,345	20,212
Total liabilities and shareholders' equity		55,090	48,922

 

The notes form part of this condensed financial information. Unaudited condensed consolidated income statement

For the six months ended 30 June 2010

 

 

		Six months ended 30 June 2010			Six months ended 30 June 2009
	Note	Pre-exceptional items	Exceptional items	Total
		£000	£000	£000	£000
Revenue	2	7,206	-	7,206	5,682
Cost of sales		(1,536)	-	(1,536)	(1,283)
Research and development expenditure		(5,848)	-	(5,848)	(7,178)
General and administrative expenditure		(925)	-	(925)	(2,521)
Operating loss		(1,103)	-	(1,103)	(5,300)
Finance income	3	181	-	181	2,371
Finance expense	3	(1,429)	(6,559)	(7,988)	(3,298)
Loss on ordinary activities before taxation		(2,351)	(6,559)	(8,910)	(6,227)
Tax credit on loss on ordinary activities		1,613	-	1,613	880
Loss for the period		(738)	(6,559)	(7,297)	(5,347)
Loss per share (basic and diluted)	4	(0.9)p	(7.6)p	(8.5)p	(19.5)p

 

The notes form part of this condensed financial information. Unaudited condensed statement of comprehensive income

For the six months ended 30 June 2010

 

 

	Six months ended 30 June 2010	Six months ended 30 June 2009
	£000	£000
Loss for the period from continuing operations	(7,297)	(5,347)
Other comprehensive income:
Revaluation of assets available for sale	-	(7)
Exchange gain / (loss) on translation of overseas subsidiaries	600	(658)
Total comprehensive income	(6,697)	(6,012)

 

The notes form part of this condensed financial information.

 

Unaudited condensed statement of changes in equity

For the six months ended 30 June 2010

 

 

	Share capital	Share premium	Other reserves	Retained deficit	Total
	£000	£000	£000	£000	£000
Balance at 1 January 2009	49,869	370,390	189,016	(602,600)	6,675
Loss for the period	-	-	-	(5,347)	(5,347)
Other comprehensive income:
Revaluation of assets available for sale	-	-	(7)	-	(7)
Exchange loss on translation of overseas subsidiaries	-	-	(658)	-	(658)
Total comprehensive income for the period ended 30 June 2009	-	-	(665)	(5,347)	(6,012)
Transactions with owners:
Issue of equity share capital	7,991	15,982	-	-	23,973
Expenses on issue of share capital	-	(1,920)	-	-	(1,920)
Shares purchased for cancellation	(46,237)	-	46,237	-	-
Share-based payments charge	-	-	346	-	346
	(38,246)	14,062	46,583	-	22,399
Balance at 30 June 2009	11,623	384,452	234,934	(607,947)	23,062
Balance at 1 January 2010	12,031	385,819	236,769	(614,407)	20,212
Loss for the period	-	-	-	(7,297)	(7,297)
Other comprehensive income:
Exchange loss on translation of overseas subsidiaries	-	-	600	-	600
Total comprehensive income for the period ended 30 June 2010	-	-	600	(7,297)	(6,697)
Transactions with owners:
Issue of equity share capital	394	29,561	-	-	29,955
Expenses on issue of share capital	-	(1,505)	-	-	(1,505)
Shares purchased for cancellation	(11,429)	-	11,429	-	-
Issue of warrants	-	-	1,155	-	1,155
Share-based payments charge	-	-	225	-	225
Balance at 30 June 2010	996	413,875	250,178	(621,704)	43,345

 

Unaudited condensed statement of cash flows

For the six months ended 30 June 2010

 

	30 June	30 June
	2010	2009
	£000	£000
Cash flows from operating activities
Loss for the period	(7,297)	(5,347)
Taxation	(1,613)	(880)
Depreciation	151	148
Amortisation, impairment and disposal of intangible fixed assets	675	676
Movement in provisions	(414)	(508)
Decrease in deferred income	(695)	(121)
Share-based payments charge	225	346
Movement in derivative financial instruments	(643)	-
Net finance expense	1,248	927
Loss on settlement of Paul Capital Healthcare agreement	6,559	-
Exchange loss	217	246
	(1,587)	(4,513)
Changes in working capital
Decrease/(increase) in inventories	12	(149)
Decrease/(increase) in receivables	1,520	(1,114)
Decrease in liabilities	(960)	(3,219)
Cash used in operations	(1,015)	(8,995)
Taxation received	1,765	296
Net cash generated from/(used in) operating activities	750	(8,699)
Cash flows from investing activities
Purchase of property, plant and equipment	(208)	(209)
Interest received on cash and cash equivalents	74	107
Interest received on financial assets held to maturity	80	46
Net cash used in investing activities	(54)	(56)
Cash flows from financing activities
Termination payment of Paul Capital Healthcare agreement	(21,626)	-
Repayment of Paul Capital Healthcare funding liability	-	(2,261)
Movement in held-to-maturity financial assets	(12,564)	(16,503)
Net proceeds from the issue of shares	28,450	22,053
Net cash (used in)/generated from financing activities	(5,740)	3,289
Foreign exchange loss on cash and cash equivalents	(80)	(364)
Movements in cash and cash equivalents in the period	(5,124)	(5,830)
Cash and cash equivalents at the beginning of the period	12,034	14,652
Cash and cash equivalents at the end of the period	6,910	8,822
Cash and cash equivalents	6,910	8,822
Held-to-maturity financial assets	26,928	19,003
Total cash, cash equivalents and held-to-maturity financial assets	33,838	27,825

Notes to the unaudited condensed financial statements for the six months ended 30 June 2010

 

1 Accounting policies and basis of preparation

 

This condensed consolidated financial information for the six months ended 30 June 2010 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2009, which have been prepared in accordance with IFRSs as adopted by the European Union.

 

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2009, as described in those annual financial statements.

 

This condensed consolidated financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2009 were approved by the Board of directors on 9 April 2010 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

 

This condensed consolidated financial information has been reviewed but not audited and was approved for issue on 28 July 2010.

 

The Company is a public limited liability company incorporated and domiciled in the UK. The address of its registered office is Oakdene Court, 613 Reading Road, Winnersh, Berkshire, RG41 5UA and its primary listing is on the London Stock Exchange.

 

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010 or have been issued and early adopted.

 

·; IFRS 3 (revised), 'Business combinations', and consequential amendments to IAS 27,

'Consolidated and separate financial statements', IAS 28, 'Investments in associates',

and IAS 31, 'Interests in joint ventures', are effective prospectively to business

combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.

 

·; The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related costs are expensed.

 

·; As the Group has adopted IFRS 3 (revised), it is required to adopt IAS 27 (revised),

'consolidated and separate financial statements', at the same time. IAS 27 (revised)

requires the effects of all transactions with non-controlling interests to be recorded in

equity if there is no change in control and these transactions will no longer result in

Notes to the unaudited condensed financial statements for the six months ended 30 June 2010 (continued)

 

1 Accounting policies and basis of preparation (continued)

 

goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. There has been no impact of IAS 27 (revised) on the current period, as there are no non-controlling interests.

 

·; 'Share-based payments' on group cash-settled transactions, Amendments to IFRS 2. These amendments provide a clear basis to determine the classification of share based payment awards in both consolidated and separate financial statements. The amendments incorporated IFRIC 8 and IFRIC 11 into the standard, expands on the guidance given in IFRIC 11 to address plans that were not considered in the interpretation and provides some useful tidying up to the definitions section of IFRS 2. The amended definitions remove inconsistencies between Appendix A, defined terms, and the main body of the standard. The original wording was inconsistent regarding the treatment of equity instruments of other entities in the group. There has been no impact on the current period.

 

·; IFRIC 19, 'Extinguishing financial liabilities with equity instruments'. This clarifies the requirements of IFRSs when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity's shares or other equity instruments to settle the financial liability fully or partially. The interpretation is effective for annual periods beginning on or after 1 July 2010, however the Group has elected to early adopt this interpretation and apply it to the settlement of the Paul Capital Healthcare Agreements.

 

The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2010, but are not currently relevant for the Group.

 

 

·; IFRIC 17, 'Distributions of non-cash assets to owners', effective for annual periods

beginning on or after 1 July 2009. This is not currently applicable to the Group, as it

has not made any non-cash distributions.

 

·; IFRIC 18, 'Transfers of assets from customers', effective for transfer of assets

received on or after 1 July 2009. This is not relevant to the Group, as it has not

received any assets from customers.

 

·; 'Additional exemptions for first-time adopters' (Amendment to IFRS 1) was issued in

July 2009. The amendments are required to be applied for annual periods beginning

on or after 1 January 2010. This is not relevant to the Group, as it is an existing IFRS

preparer.

 

·; 'Financial Instruments: Recognition and measurement' on 'Eligible hedged items' (Amendment to IAS 39) effective for accounting periods beginning on or after 1 July 2009. This amendment makes two significant changes. It prohibits designating inflation as a hedgeable component of a fixed rate debt. It also prohibits including time value in the one-sided hedged risk when designating options as hedges. This is not relevant to the Group as it does not hold such 'Eligible hedged items'.

 

Notes to the unaudited condensed financial statements for the six months ended 30 June 2010 (continued)

 

1 Accounting policies and basis of preparation (continued)

 

·; Improvements to International Financial Reporting Standards 2009 were issued in

April 2009. The effective dates vary standard by standard but most are effective 1

January 2010.

 

The following new standards, new interpretations and amendments to standards and

interpretations have been issued but are not effective for the financial year beginning 1

January 2010 and have not been early adopted:

 

·; IFRS 9, 'Financial instruments', issued in December 2009. This addresses the

classification and measurement of financial assets. The Group is assessing whether there will be any impact on the accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption.

 

·; Revised IAS 24, 'Related party disclosures', issued in November 2009. It supersedes

IAS 24, 'Related party disclosures', issued in 2003. The revised IAS 24 is required to

be applied from 1 January 2011. Earlier application, in whole or in part, is permitted.

 

·; 'Classification of rights issues' (Amendment to IAS 32), issued in October 2009. The

amendment should be applied for annual periods beginning on or after 1 February

2010. Earlier application is permitted.

 

·; 'Prepayments of a minimum funding requirement' (Amendments to IFRIC 14), issued in November 2009 is effective for annual periods beginning 1 January 2011. Earlier application is permitted. The standard is not applicable to the Group as there is no defined benefit pension scheme.

 

·; Improvements to International Financial Reporting Standards 2010 were issued in

May 2010. The effective dates vary standard by standard but most are effective

1 January 2011.

 

 

2 Segmental information

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Executive Committee.

 

The Group has only one segment, being the research, development and commercialisation of pharmaceutical products for a range of medical disorders. All costs to acquire property, plant, equipment and intangible assets as well as all related depreciation, impairment and amortisation expense borne by the Group relate to this one segment. In addition, all other non-cash expenses incurred by the Group relate to this one segment.

 

 

Notes to the unaudited condensed financial statements for the six months ended 30 June 2010 (continued)

 

3 Finance charge

 

	Six months ended 30 June 2010	Six months ended 30 June 2009
	£000	£000
Finance income
Interest on cash, cash equivalents and held-to-maturity assets	181	105
Exchange gains on royalty buy-out from GSK	-	103
Exchange gains on Paul Capital funding liability	-	2,141
Other interest	-	22
	181	2,371
Finance expense
Finance costs on the Paul Capital funding liability (note 6)	1,008	2,835
Exchange loss on cash	80	364
Exchange loss on Paul Capital funding liability	238	-
Unwinding of discount on provision	103	99
Finance expense before exceptional item	1,429	3,298
Loss on settlement of Paul Capital Healthcare Agreement (note 6)	6,559	-
	7,988	3,298

 

 

4 Loss per share

 

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

 

For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion for all dilutive potential ordinary shares.

 

For diluted loss per share, all potential ordinary shares including options and deferred shares are antidilutive.

 

	Six months ended 30 June	Six months ended 30 June
	2010	2009
Attributable loss before exceptional items (£000)	(738)	(5,347)
Exceptional items (£000)	(6,559)	-
Attributable (loss)/profit (£000)	(7,297)	(5,347)
Weighted average number of shares in issue (000)	86,288	27,433
Loss per ordinary share before exceptional items	(0.9)p	(19.5)p
Exceptional items	(7.6)p	0.0p
Loss per share (basic and diluted)	(8.5)p	(19.5)p

 

 

Notes to the unaudited condensed financial statements for the six months ended 30 June 2010 (continued)

 

5 Property, plant and equipment

 

Additions of £0.2m were purchased during the six months ended 30 June 2010.

 

There are no capital commitments at 30 June 2010 or 30 June 2009.

 

6 Borrowings

 

	£000
Opening amount as at 1 January 2010	14,976
Finance costs on the Paul Capital funding liability	1,008
Exchange gains on Paul Capital funding liability	238
Settlement of Paul Capital agreements	(16,222)
Closing balance as at 30 June 2010	-

 

Paul Capital funding liabilities

 

On 8 March 2010 Vernalis terminated the Paul Capital Healthcare Agreement in exchange for a one time net payment of US $32.57 million in cash. In addition Paul Capital Healthcare subscribed for 2.1 million Vernalis warrants, 1.1 million at a 25% premium to the Placing and Open Offer price of 76p and 1.0 million at a 50 % premium. The fair value of these warrants on issue was £1.1 million. The settlement of this debt resulted in a loss on settlement of £6.6 million (including the fair value of the warrants issued).

 

 

Notes to the unaudited condensed financial statements for the six months ended 30 June 2010 (continued)

 

7 Share capital

 

Ordinary	Issued	Authorised	Price	Issued	Authorised
	Number '000	Number '000		£000	£000
1 January 2010	60,158	77,353	£0.20	12,031	15,470
Removal of authorised share capital limits	-	(77,353)	£0.20	-	(15,470)
Subdivision of ordinary shares	-	-		(11,429)	-
Shares after subdivision	60,158	-	£0.01	602	-
Placing and open offer	39,414	-	£0.01	394	-
30 June 2010	99,572	Unlimited	£0.01	996	Unlimited
A Deferred shares	Issued	Authorised	Price	Issued	Authorised
1 January 2010	-	363,233	£0.04	-	14,530
Removal of authorised share capital limits	-	(363,233)	£0.04	-	(14,530)
30 June 2010	-	-		-	-
B Deferred shares	Issued	Authorised	Price	Issued	Authorised
1 January 2010	-	-		-	-
Subdivision of ordinary shares	60,158	-	£0.19	11,429	-
Shares after subdivision	60,158	-	£0.19	-	-
Repurchase	(60,158)	-		(11,429)	-
30 June 2010	-	-		-	-
Deferred shares	Issued	Authorised	Price	Issued	Authorised
1 January 2010	-	33,376	£0.95	-	31,707
Removal of authorised share capital limits	-	(33,376)	£0.95	-	(31,707)
30 June 2010	-	-		-	-

 

On 2 March, the Group completed a placing and open offer combined with a share capital reorganisation and removal of the share capital limits.

 

Removal of share capital limits

An ordinary resolution to remove the limit on the Company's ability to issue shares in the capital of the Company was passed at the General Meeting on 1 March 2010.

 

Notes to the unaudited condensed financial statements for the six months ended 30 June 2010

(continued)

 

7 Share capital (continued)

 

Share Capital reorganisation

Under the share capital reorganisation each issued Existing Ordinary Share of 20 pence in nominal value was subdivided into one Ordinary Share of 1 pence in nominal value and one "B" Deferred Share of 19 pence in nominal value.

 

The Ordinary Shares of 1 pence each continue to carry the same rights as prior to the reorganisation (save for the reduction in nominal value).

 

The "B" Deferred Shares were all re-purchased by the Company for one pence in aggregate and, following the re-purchase, were cancelled. The repurchase of the "B" Deferred Shares was financed out of the proceeds of the issue of one new Ordinary Share to an existing Shareholder at a subscription price equal to the nominal value of these shares. This has resulted in the increase in the capital redemption reserve to maintain capital (see note 8).

 

Placing and open offer

The Group issued 39,413,722 new Ordinary Shares fully paid at a price of 76 pence per share on 2 March 2010.

 

8 Other reserves

	Merger reserve	Other reserve	Revaluation reserve	Options reserve	Warrant reserve	Translation reserve	Capital redemption reserve	Total
Group	£000	£000	£000	£000	£000	£000	£000	£000
At 1 January 2009	101,985	78,125	7	6,323	-	2,576	-	189,016
Revaluation of assets available for sale	-	-	(7)	-	-	-	-	(7)
Share-based payments charge	-	-	-	346	-	-	-	346
Shares purchased for cancellation	-	-	-	-	-	-	46,237	46,237
Exchange loss on translation of overseas subsidiaries	-	-	-	-	-	(658)	-	(658)
At 30 June 2009	101,985	78,125	-	6,669	-	1,918	46,237	234,934
At 1 January 2010	101,985	78,125	-	7,409	-	3,013	46,237	236,769
Share-based payments charge	-	-	-	225	-	-	-	225
Issue of warrants	-	-	-	-	1,155	-	-	1,155
Shares purchased for cancellation	-	-	-	-	-	-	11,429	11,429
Exchange loss on translation of overseas subsidiaries	-	-	-	-	-	600	-	600
At 30 June 2010	101,985	78,125	-	7,634	1,155	3,613	57,666	250,178

 

Notes to the unaudited condensed financial statements for the six months ended 30 June 2010 (continued)

 

9 Related party transactions

 

Key management compensation amounted to £488,000 for the six months ended 30 June 2010 (30 June 2009: £1,293,000). The key management includes only executive and non-executive directors.

 

10 Post balance sheet events

 

The Group announced in July that it, together with its partner Biogen Idec, will continue its novel A2A receptor antagonist programme for Parkinson's Disease with a next generation Vernalis compound. Based on the findings from pre-clinical studies the companies decided to discontinue development of V2006/BIIB014, also known as vipadenant, in favour of the alternative compound, which is also in development. Vernalis and Biogen expect to progress the next generation compound into Phase I clinical studies in early 2011.

 

11 Seasonality

 

The Group's financial results have not historically been subject to significant seasonal trends. However the revenue recognised in relation to royalties received for the supply of product to Menarini is dependant upon the timing when orders are received. In addition milestone revenue is dependent upon progression of the related clinical trials.

Statement of directors' responsibilities

 

The directors confirm, to the best of their knowledge, that these condensed interim consolidated financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and that the management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

 

·; An indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

 

·; Material related party transactions in the first six months of the financial year and any material changes in the related party transactions described in the last annual report.

 

The directors of Vernalis Plc are listed in the Vernalis Plc annual report for 31 December 2009. A list of current directors is maintained on the Vernalis Plc website: www.vernalis.com.

 

The directors are responsible for the maintenance and the integrity of the Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 

By order of the Board

 

 

 

 

David Mackney

Chief Financial Officer

28 July 2010

 

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