17th Mar 2008 07:01
Allergy Therapeutics PLC17 March 2008 Monday 17 March 2008 Allergy Therapeutics plc ("Allergy Therapeutics" or "the Company") Interim Results Strong Growth in Core Business No Change in US Clinical Hold Allergy Therapeutics plc (AIM: AGY), the specialty pharmaceutical companyfocused on allergy vaccination, announces interim results for the period ended31 December 2007. Financial Highlights • Gross sales increased by 23% to £21.6 million (2006: £17.5m) • Pollinex(R) Quattro named-patient sales increased by 23% • £2.7 million milestone payment received from Canadian licensee • Operating profit before R&D and strategic costs increased to £7.5 million (2006: £4.5m) • R&D expenditure reduced to £10.2 million (2006: £11m) • Operating loss reduced to £4.4 million (2006: £7.9m) Operational key points • Successful MHRA audit in February 2008 at both facilities • FDA's clinical hold remains pending their general review of novel vaccines and adjuvants • No further significant new investment in R&D without the support of a partner Keith Carter, Chief Executive of Allergy Therapeutics, said: "Our core business is profitable and growing strongly. It continues to providethe Company with a solid base giving us confidence in the future. Furthermore,the changes made to the sales force last year should deliver additional revenuebenefits from the second half onwards. "Allergy Therapeutics is fundamentally a European speciality pharmaceuticalcompany with a growing sales base, a substantial manufacturing facility, a fullsales and marketing infrastructure operating in growth markets. Phase IIIclinical trial results are expected in May and, if successful, registrations inthe EU will follow, adding further value to the core business. "Once the FDA position has been resolved, the Company has valuable late phasedevelopment assets for partnering, representing significant upside potential." A briefing for analysts will be held at 9.30am today at the offices of FinancialDynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. Please callMo Noonan for further details on 020 7269 7116. In addition, the presentationwill be made available on the Company's website at www.allergytherapeutics.com For further information Allergy Therapeutics +44 (0) 1903 844 7200 Keith Carter, Chief Executive Ian Postlethwaite, Finance Director www.allergytherapeutics.com Financial Dynamics +44 (0) 207 831 3113 David Yates Ben Brewerton Joint Statement from the Chairman and CEO Introduction Allergic rhino-conjunctivitis Allergy remains a major area of unmet medical need. The allergy 'epidemic'continues to grow and it is increasingly recognised that for many suffering fromSeasonal Allergic Rhino-conjunctivitis (commonly known as 'hay fever') it is farfrom being a trivial matter. The more severe sufferers often have a greatlyimpaired quality of life, impacting upon their work, study, sleep and leisureactivities. These are patients for whom pharmacotherapy does not work;antihistamines are not sufficiently efficacious and corticosteroids either offerinadequate relief, or are hard to accept as a long-term therapy proposition, orboth. The more severe sufferers seek medical help and, having failed on treatment withthe primary care practitioner, are treated by physicians specialising in thefield of allergy. These specialists are the professionals who administerallergy vaccination in its various forms. Most of these immunological treatmentsare administered to the severe sufferer by way of subcutaneous injection. Aswell as offering an effective treatment option when the best pharmacotherapy hasfailed, these products offer the prospect of long-term benefit as they treatallergy at its root cause by 'rebalancing' the immune system. It is for thisgroup of patients and their physicians that Allergy Therapeutics aims totransform the treatment of allergy by developing much improved products offeringeffective treatment in an ultra-short course of four injections over threeweeks. Period review Therapeutic innovation Innovation in the field of allergy, as far as pharmacological treatment isconcerned, seems to have come to an end with the non-sedating anti-histaminesand leukotriene inhibitors. Sales of these convenient and well-toleratedmedications are still measured in the billions of US dollars but the effects areshort-lived and for many patients efficacy levels are low. Patent expiries andOTC use ('over the counter' - not requiring doctor's prescription) are makingthem less relevant for the pharmaceutical industry and the specialist doctors.However, in the allergy vaccine field there are currently a number ofinnovations in development. Oral delivery of allergens - including sub-lingual(under the tongue) and swallowed - offers the prospect of injection-freetreatment, potentially by a broader group of physicians. Adjuvants - such asAllergy Therapeutics' MPL(R) - offer the possibility of quicker, shorter coursesof injected vaccines, improved safety and efficacy. Remarkably, in the sixmonths after June 2007, all the allergy vaccine products in late phasedevelopment have suffered setbacks ranging from Phase III failure to regulatorydelay. One such setback was the US clinical hold imposed by the FDA on AllergyTherapeutics' MPL-based vaccine development programme. United States Clinical Hold At the time of the publication of Allergy Therapeutics' annual report for 2007in September last year, our extensive late-phase clinical trial programme hadbeen on 'clinical hold' by the FDA in the United States for some 3 months. Atthat stage we were still analysing the unexpected adverse event which caused theFDA to impose the clinical hold, and a final diagnosis of the condition had notyet been determined. Our intensive efforts to understand the adverse event,including detailed advice from leading experts in the fields of neurology,allergy and immunology from the universities of Harvard, Johns Hopkins andCambridge, were pointing strongly away from any scientific or medical foundationfor any link between our study drug, MATAMPL, and the adverse event observed. The situation today is that the patient involved has fully recovered, aconclusion has been reached on the diagnosis and the expert advice continues tooffer no convincing scientific argument or medical precedents to support anypotential for a link with our study drug. Extensive contact with the FDA hasconfirmed that the Agency also does not know of any convincing mechanismconnecting our study drug with the one adverse event we have seen, nor with anytheoretical class of similar adverse events. It has also confirmed that noreportable similar adverse events are known to the Agency from their review ofothers' data. However, the FDA is still in the process of conducting a broadreview into vaccine adjuvants, and is still unable to give us any indication ofwhen their review might be complete. We are confident that the data do not support the continued clinical hold on ourdevelopment programme and continue to assist the FDA wherever we can in theirreview. Toll-Like Receptor (TLR) agonists and antagonists Allergy Therapeutics' innovative late stage development vaccines are designed tooffer relief to severe sufferers from allergy to the major inhaled allergens ofgrass, tree and ragweed pollen. The Company has certain exclusive rights to theuse of MPL as an adjuvant to enhance the performance of these allergy vaccines -this is the 'intellectual property' the existence of which justifies theconsiderable investment made and to be made by Allergy Therapeutics in thedevelopment of these products to date. There is currently only one vaccineadjuvant approved by the US FDA - alum, salts of aluminium - and adjuvants areseen as an exciting development area. Probably the most advanced adjuvant indevelopment today is MPL. It has been safely tested in tens of thousands ofpatients in double-blind clinical trials, including our own. MPL acts as a stimulant - or agonist - to a component of the immune system knownas a Toll Like Receptor (TLR4). It is the nature of pharmaceutical developmentfor technologies to be developed in parallel in several places, and TLRs are noexception; this is illustrated by the number of licensing and other transactionsrecently signed in the field. This sort of 'big pharma' validation of atechnology is reassuring to those involved elsewhere in its development. The treatment of allergy in the UK In September the House of Lords Science and Technology Committee issued awell-researched and insightful report into the state of allergy healthcareprovision in the UK. People often ask why Allergy Therapeutics generates thevast majority of its sales outside the UK; for an answer to this question, it issufficient to read the report by the House of Lords. The UK, one of thecountries most afflicted with allergy, has amongst the fewest specialistphysicians in the developed world and, as a consequence, unacceptably poorprovision of healthcare services to allergy sufferers. Unfortunately there is noquick solution, but the House of Lords' proposal for the establishment of anational network of allergy centres each headed by a specialist is a sensibleprescription which, if followed, would mean that one day Allergy Therapeuticshas a 'home' market and UK patients can have easier access to our innovativeproducts. Operating Review R&D activity in the period has been focused on dealing with the US ClinicalHold: assessing the situation, preparing for meetings and interactions with theFDA, generating a working and workable proposal to navigate through the clinicalhold and to recommence the clinical development activities. Although this hasbeen a challenging time for us all, we recognise the importance of the job theFDA has to do and the importance of dealing with its concerns in as timely amanner as possible. Meanwhile, the Phase III programme in Grass and Ragweed MATAMPL has, despite theUS Clinical Hold, been active. Both studies had hundreds of patients who hadreceived treatment and had to be followed through their respective seasons. Inthe case of the pivotal Grass study, G301, the study was fully recruited and allthe patients treated as planned, so the data which has been collected over thesecond half of 2007 is being processed and analysed. These data are scheduledto be available early Q2 2008 for inclusion in registration dossiers forsubmission in key countries. In the case of the equivalent Ragweed study, R301,the US Clinical Hold was imposed when slightly more than one third of thepatients had been treated 'per protocol'. This however still constitutes asizeable study in the allergy vaccine field - some 379 patients (from a total of993 recruited), of these some 260 are assumed to be on active study drug. As aconsequence we are analysing the study as planned and the data from this will beavailable later in Q2 2008. The period saw the implementation in Germany of the sales force optimisationinitiative which was designed following a detailed review conducted late lastfinancial year. Although it takes time to implement such extensive operationalchange and for the benefits to be seen, we are confident that our core businessperformance will continue to benefit from this investment long into the future,further augmented as the programme is propagated to Italy and Spain. Manufacturing in the newly commissioned Noon Building is now fully integratedand work on upgrading our GMP manufacturing facilities in the main FreemanBuilding is progressing, with the objective of being fully prepared for a PAI(Pre Authorisation Inspection) from the US FDA and the equivalents from the EU,Japanese and Canadian authorities. In February the MHRA conducted a routineinspection of the Worthing facilities, with a highly satisfactory outcomeconfirming the continued improvement of our standards. In summary, the Company continues to build upon its strong core business and toplan for the ultimate success of its integrated project to bring modern,ultra-short course allergy vaccines to the world's markets. Financial review The results for the six months to 31 December 2007 have been encouraging andhave continued the progress shown in previous years. Gross sales, before the rebate in Germany, for the period were £21.6m (H1 2006:£17.5m). This represents an increase of 23% over the previous period, drivenprimarily by growth of named-patient sales of Pollinex(R) Quattro, the Group'sfour-shot allergy vaccine and by the receipt of a licensee milestone of £2.7m(H1 2006: £0.5m). At present, approximately 70% of the Group's sales aregenerated in Germany, so an increase in the compulsory rebate following pricerises in the period of on average 6.5% increased the rebate to £2.1m (H1 2006:£1m). Consequently, after the rebate, Group net sales increased by 19% to £19.6m(H1 2006: £16.5m). Owing to the seasonality of the allergy market, some 60-70% of AllergyTherapeutics' sales are generated in the first half of the financial year and,as a consequence, the interim results present a better performance than can beexpected over the course of a full year. Gross profit increased by 30% to £14.2m, representing a gross margin of 72% ofsales, compared with £10.9m and 66% in the same period last year. The increasein the gross margin was an expected trend resulting not only from the receipt ofthe licensee milestone, but also from increased sales against a background of aninvestment programme in the manufacturing facility that is starting to paydividends in improving gross margin. Sales and marketing expenses, the major component of distribution costs, haveincreased in line with our expectations; our German team has set up a new salesand marketing infrastructure following a wholesale review of its activities.Costs increased to £6.1m (H1 2006: £5.3m), an increase of 15% over the previousperiod. Administration costs of £2.3m (H1 2006: £2.5m) were marginally lower by8%. Research and development expenditure decreased during the period to £10.2m (H12006: £11m) as the development activity for the MPL(R)-based vaccine rangeprogressed into the latter stages of the Phase III programme. The operating loss for the period was £4.4m (H1 2006: £7.9m) but beforedevelopment and strategic costs associated with the commercialisation ofPollinex Quattro, the operating profit was £7.5m (H1 2006: £4.5m); higher due tothe receipt of licensee milestone income and improved gross margins. Strategiccosts include such activities as regulatory inspection readiness, complianceimprovement plans, upgraded manufacturing processes, strategic marketinginitiatives and business development. Finance expense costs for the period were £2.2m (H1 2006: £0.2m). The increasewas principally due to the new RBS loan liability being revalued reflectingchanges in the Euro:Pound exchange rate. Capital expenditure for the period was £1.6m (H1 2006: £1.7m) and representsupgrades to the facilities in preparation for launching Pollinex Quattro. Netcurrent assets excluding cash are £3.1m (H1 2006: £3.4m), lower due to theincrease in short-term debt facilities. Net assets of £2.2m (H1 2006: £24.7m) show a decrease of £22.5m against theprevious period end, due primarily to the investments in R&D over the period andthe corresponding increase in debt facilities. Net cash used in operating activities for the period was £9.3m (H1 2006: outflow£7.4m), higher than the previous period by £1.9m due principally to the higher R&D payments. Outlook Our core business performed well during 2007 and we expect a continuation ofthis strong performance in the current year with further good sales growth. Thelean manufacturing initiative, following a period of significant investment, iscommencing and is expected to lead to further improvements in operating margin. During the next few weeks, we expect to receive the results of our Grass PQPhase III trial which, if successful, will lead to the submission of a dossierfor registration in the EU. This is currently scheduled to take place in Q12009 after addition of the CMC (Chemistry Manufacturing & Controls) component. We will continue our intensive discussions with the FDA to resolve the ClinicalHold. Our understanding, however, is that the Clinical Hold is part of abroader review by the FDA into vaccine adjuvants and we are unable at this stageto obtain any indication from the Agency as to when this review might becomplete. Fundamentally, Allergy Therapeutics is a European speciality pharmaceuticalcompany with a growing sales base, a substantial manufacturing facility, a fullsales and marketing infrastructure operating in growth markets. In addition tothis core base, we have a number of late stage assets which have the potentialto create very significant value for shareholders. Once the FDA position hasbeen resolved, the Company shall be seeking to develop these assets withpartners, representing significant upside potential for shareholders. Ignace GoethalsChairman 14 March 2008 Keith CarterChief Executive14 March 2008 Condensed consolidated income statement 6 months to 6 months to 12 months to 31 Dec 31 Dec 30 Jun 2007 2006 2007 £'000 £'000 £'000 unaudited unaudited unaudited NotesRevenue 19,572 16,460 25,742Cost of sales (5,378) (5,526) (10,068) _____ _____ _____ Gross profit 14,194 10,934 15,674 Distribution costs (6,098) (5,332) (11,312) Administration expenses - other (2,320) (2,453) (5,273) Research and development costs (10,200) (11,009) (25,343) _____ _____ _____Administration expenses (12,520) (13,462) (30,616) Other income 0 0 32 _____ _____ _____ Operating loss (4,424) (7,860) (26,222) Finance income 93 434 647Finance expense (2,414) (54) (131) _____ _____ _____ Loss before tax (6,745) (7,480) (25,706)Income tax 0 816 2,503 _____ _____ _____ Loss for the period (6,745) (6,664) (23,203) _____ _____ _____ Loss per shareBasic & diluted (pence per share) 3 (8.2p) (8.1p) (28.3p) Condensed consolidated balance sheet 31 Dec 31 Dec 30 Jun 2007 2006 2007 £'000 £'000 £'000 unaudited unaudited unaudited NotesAssetsNon-current assetsProperty, plant and equipment 6,902 4,771 5,931Intangible assets - Goodwill 2,380 2,296 2,300Intangible assets - Other 653 773 714Investments 1,217 910 1,011 _____ _____ _____ Total non-current assets 11,152 8,750 9,956 Current assetsTrade and other receivables 4,277 4,852 3,373Inventory 6,014 3,836 4,911Cash and cash equivalents 5,752 15,204 5,696 _____ _____ _____ Total current assets 16,043 23,892 13,980 _____ _____ _____ Total assets 27,195 32,642 23,936 _____ _____ _____LiabilitiesCurrent liabilitiesTrade and other payables (6,718) (5,329) (10,714)Other financial liabilities (452) 0 0 _____ _____ _____ Total current liabilities (7,170) (5,329) (10,714) _____ _____ _____ Net current assets 8,873 18,563 3,266 _____ _____ _____Non current liabilitiesRetirement benefit obligation (2,439) (2,461) (2,182)Long term borrowings (15,170) 0 (2,161)Long term provisions (217) (193) (191) _____ _____ _____ Total non current liabilities (17,826) (2,654) (4,534) _____ _____ _____ Total liabilities (24,996) (7,983) (15,248) _____ _____ _____ Net assets 2,199 24,659 8,688 _____ _____ _____ EquityCapital and reservesIssued capital 4 92 92 92Share premium 4 33,173 33,173 33,173Merger reserve - shares issued by subsidiary 4 40,128 40,128 40,128Reserve - shares held by EBT 4 (31) (60) (36)Reserve - share based payments 4 886 494 675Revaluation reserve 4 212 42 226Foreign exchange reserve 4 (54) (14) (48)Retained earnings 4 (72,207) (49,196) (65,522) _____ _____ _____ Total equity 2,199 24,659 8,688 _____ _____ _____ Condensed consolidated statement of recognised income and expense 6 months to 6 months to 12 months to 31 Dec 31 Dec 30 Jun 2007 2006 2007 £'000 £'000 £'000 unaudited unaudited unaudited Loss for the period (6,745) (6,664) (23,203)Actuarial gain/(loss) on defined benefit pension scheme 60 (165) 48Exchange differences on translation of foreign operations (6) (14) (48)Revaluation gains and (losses) (14) (21) 163 _____ _____ _____ Total recognised income and (expense) (6,705) (6,864) (23,040) _____ _____ _____ Condensed consolidated cash flow statement 6 months to 6 months to 12 months to 31 Dec 31 Dec 30 Jun 2007 2006 2007 £'000 £'000 £'000 unaudited unaudited unaudited Cash flows from operating activitiesLoss before tax (6,745) (7,480) (25,706)Adjustments for:Foreign exchange (gain) / loss (169) 24 (9)Finance income (93) (434) (647)Finance expense 2,237 54 29Non cash movements on defined benefit pension plan 97 (2) 15Depreciation and amortisation 655 369 953Charge for share based payments 211 188 369Loss on disposal of property, plant and equipment 0 11 22(Increase) / decrease in trade and other receivables (888) (1,273) 130Increase in inventories (1,103) (185) (1,260)(Decrease) / increase in trade and other payables (3,388) 592 5,142 _____ _____ _____ Net cash used in operations (9,186) (8,136) (20,962) Interest paid (96) (54) (5)Income tax refunded 0 816 2,503 _____ _____ _____ Net cash used in operating activities (9,282) (7,374) (18,464) Cash flows from investing activitiesInterest received 77 432 721Bank loan fees and interest paid (996) 0 (678)Payments for property plant and equipment (1,613) (1,714) (3,109) _____ _____ _____ Net cash used in investing activities (2,532) (1,282) (3,066) Cash flows from financing activitiesProceeds from issue of equity shares 5 0 24Proceeds from borrowings 11,865 0 3,342 _____ _____ _____ Net cash generated by financing activities 11,870 0 3,366 _____ _____ _____ Net increase / (decrease) in cash and cash equivalents 56 (8,656) (18,164)Cash and cash equivalents at the start of the period 5,696 23,860 23,860 _____ _____ _____ Cash and cash equivalents at the end of the period 5,752 15,204 5,696 _____ _____ _____ ALLERGY THERAPEUTICS PLC 1. Accounting policies Basis of preparation The unaudited consolidated interim financial information is for the six monthperiod ended 31 December 2007. They have been prepared in accordance with theaccounting policies set out below which are based on the recognition andmeasurement principles of International Financial Reporting Standards (IFRS) inissue as adopted by the European Union (EU) and are effective at 30 June 2008 orare expected to be adopted and effective at 30 June 2008, our first annualreporting date at which we are required to use IFRS accounting standards adoptedby the EU. The interim financial information does not include all of theinformation required for full annual financial statements. From 1 July 2006 the group has adopted IFRS in the preparation of itsconsolidated financial statements. Comparative financial information previouslypublished under UK Generally Accepted Accounting Principles has been restated onan IFRS basis for the opening balance sheet as at 1 July 2006, interim accountsas at 31 December 2006 and for the year ended 30 June 2007. The change in thegroup's reported performance and financial position on adopting IFRS is fullydisclosed in these interim consolidated financial statements. The consolidated financial statements have been prepared under the historicalcost convention. The interim financial information has not been audited nor has it been reviewedunder ISRE 2410 of the Auditing Practices Board. The financial information setout in this interim report does not constitute statutory accounts as defined inSection 240 of the Companies Act 1985. The group's statutory financialstatements for the year ended 30 June 2007 prepared under UK GAAP have beenfiled with the Registrar of Companies. The auditor's report on those financialstatements was unqualified and did not contain a statement under Section 237(2)of the Companies Act 1985. First-time adoption of International Financial Reporting Standards The opening IFRS balance sheet as at the date of transition on 1 July 2006 hasbeen prepared with regard to the measurement and recognition rules of IFRS 1 'First-time adoption of International Financial Reporting Standards'. The mostsignificant optional exemptions adopted are set out below:- a) Cumulative translation differences which exist at the time of the transition can be transferred into the retained earnings and the foreign exchange reserve therefore shows only differences arising after transition (IFRS 1 'First time adoption of International Financial Reporting Standards'). b) Business combinations that occurred before the opening IFRS balance sheet date are exempt from the application of the standard (IFRS 3 'Business Combinations') and have not been restated. Accounting policies The principal accounting policies adopted by the group are set out below:- Consolidation Subsidiaries are all entities over which the group has the power to govern thefinancial and operating policies, generally accompanying a shareholding of overone half of the voting rights. The existence and effect of potential votingrights that are currently exercisable or convertible are considered whenassessing whether the group controls another entity. Subsidiaries are fullyconsolidated from the date on which control is transferred to the group. Theyare deconsolidated on the date control ceases. The group uses the purchase method of accounting for the acquisition of asubsidiary. The cost of an acquisition is measured by the fair value of theassets given, equity instruments issued and liabilities incurred or assumed atthe date of exchange, plus costs directly attributable to the acquisition.Identifiable assets acquired and liabilities and contingent liabilities assumedin a business combination are measured initially at their fair values at theacquisition date irrespective of the extent of any minority interest. The excessof the cost of acquisition over the fair value of the group's share of theidentifiable net assets acquired is recorded as goodwill. If the cost of theacquisition is less than the fair value of the net assets of the subsidiaryacquired the difference is recognised directly in the income statement. Inter-company transactions, balances and unrealised gains and losses ontransactions between group companies are eliminated except for unrealised lossesif they show evidence of impairment. Goodwill Goodwill arising from business combinations is the difference between the fairvalue of the consideration paid and the fair value of the assets and liabilitiesand contingent liabilities acquired. It is initially recognised as an intangibleasset at cost and is subject to impairment testing on an annual basis or morefrequently if circumstances indicate that the asset may have been impaired.Details of impairment testing are described in the accounting policies. Intangible assets acquired as part of a business combination Intangible assets acquired in a business combination are identified andrecognised separately from goodwill where they satisfy the definition of anintangible asset and their fair values can be measured reliably. The cost ofsuch intangible assets is their fair value at the acquisition date. Subsequent to initial recognition, intangible assets acquired in a businesscombination are reported at cost less accumulated amortisation and accumulatedimpairment losses. Segmental reporting A business segment is a group of assets and operations engaged in productionthat is subject to risks and returns that are different from those of otherbusiness segments. A geographical segment is engaged in production within aparticular economic environment that is different from that in segmentsoperating in other economic environments. The group's one principal activity is the research, development, manufacturing,marketing and sales of allergy treating drugs. This forms the single businessstream and primary reporting segment. The group's secondary reporting segment isgeographical and is based both on customer location and country of origin. Foreign currency translation Functional and presentational currency Items included in the financial statements of each of the group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the functional currency). The company's functional currency andthe group's presentational currency is Sterling. Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at reporting period end exchange rates of monetary assets andliabilities denominated in foreign currencies are recognised in the incomestatement. Group companies The results and financial position of all group entities that have a functionalcurrency different from the presentation currency are translated into thepresentation currency as follows: • Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet; • Income and expenses for each income statement are translated at actual exchange rates or using an average rate as an approximation; • All resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the netinvestment in foreign entities are taken to equity and as previously described,the group has claimed the transitional exemption from retrospective applicationof IAS21 "The effects of changes in foreign exchange rates". This means thatequity will show any post transition foreign exchange differences.Post-transition differences initially brought to equity are realised on theincome statement on disposal of the business. Income recognition Revenue is measured by reference to the fair value of consideration received orreceivable by the group for goods supplied and services provided, excludingvalue added tax. Revenue is recognised upon the performance of services ortransfer of risk to the customer. Sale of goods Revenue from the sale of goods is recognised when all the following conditionshave been satisfied: • The group has transferred to the buyer the significant risks and rewards of ownership of the goods which is generally when the customer has physically received the goods • The group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold which is again when the customer has physically received the goods • The amount of revenue can be measured reliably • it is probable that the economic benefits associated with the transaction will flow to the group, and • The costs incurred or to be incurred in respect of the transaction can be measured reliably Royalties Royalties are recognised on an accruals basis in accordance with the substanceof the relevant agreement. Milestones Revenues with performance milestones are recognised on the satisfactoryoccurrence of critical events as pre-defined in the relevant agreement. Expenditure recognition Operating expenses are recognised in the income statement upon utilisation ofthe service or at the date of their origin. Borrowing costs All borrowing costs are expensed to the income statement on an accruals basisusing the effective interest method except for those costs that are directlyattributable to the acquisition, construction or production of a qualifyingasset (per IAS 23.4), when they are capitalised as part of the cost of thatasset Internally generated intangible assets An internally generated intangible asset arising from development (or thedevelopment phase) of an internal project is recognised if, and only if, all ofthe following have been demonstrated: • The technical feasibility of completing the intangible asset so that it will be available for use or sale • The intention to complete the intangible asset and use or sell it • The ability to use or sell the intangible asset • How the intangible asset will generate probable future economic benefits • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset • The ability to measure reliably the expenditure attributable to the intangible asset during its development The amount initially recognised for internally generated intangible assets isthe sum of the expenditure incurred from the date when the intangible assetfirst meets the recognition criteria listed above. Where no internally generatedintangible asset can be recognised, research and development expenditure ischarged to profit or loss in the period in which it is incurred. Subsequent to initial recognition, internally generated intangible assets arereported at cost less accumulated amortisation and accumulated impairmentlosses. Amortisation of these assets is calculated on a straight line basis overthe useful economic life of 15 years. Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulateddepreciation and accumulated impairment losses. Provision for depreciation ofall tangible assets of the group is made over their estimated useful lives,principally using the following annual rates: Buildings 10 yearsComputer equipment 3 - 7 yearsMotor vehicles 4 yearsFixtures and fittings 5 yearsPlant and equipment 5 - 10 years Asset residual values and useful lives are reviewed annually and amended asnecessary. Assets are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of the fixed asset may not berecoverable. An asset's carrying amount is written down immediately to itsrecoverable amount if the asset's carrying amount exceeds the higher of theasset's fair value less costs to sell or value in use. Impairment The group's goodwill, other intangible assets and property plant & equipment aresubject to impairment testing. For the purposes of assessing impairment, assets are grouped at the lowestlevels for which there are separately identifiable cash flows (cash generatingunits). Goodwill is allocated to those cash generating units that are expectedto benefit from synergies of the related business combination and represent thelowest level within the group at which management controls the related cashflows. Individual assets or cash generating units that include goodwill and otherintangible assets with an indefinite useful life or those not yet available foruse are tested for impairment at least annually. All other individual assets orcash generating units are tested for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets or cashgenerating units carrying amount exceeds its recoverable amount. The recoverableamount is the higher of fair value, reflecting market conditions less costs tosell and value in use, based on an internal discounted cash flow evaluation.Impairment losses recognised for cash generating units, to which goodwill hasbeen allocated, are credited initially to the carrying amount of goodwill. Anyremaining impairment loss is charged pro rata to the other assets in the cashgenerating unit. With the exception of goodwill, all assets are subsequentlyreassessed for indications that an impairment loss previously recognised may nolonger exist. Inventories Inventory is carried at the lower of cost or net realisable value. The costs ofraw materials, consumables, work in progress and finished goods are measured bymeans of weighted average cost using standard costing techniques. Cost offinished goods comprises direct production costs such as raw materials,consumables, utilities and labour, and production overheads such as employeecosts, depreciation, maintenance and indirect factory costs. Standard costs arereviewed regularly in order to ensure relevant measures of utilisation,production lead time and appropriate levels of manufacturing expense arereflected in the standards. Net realisable value is calculated based on the revenue from sale in the normalcourse of business less any costs to sell. Leases In accordance with IAS 17, the economic ownership of a leased asset istransferred to the lessee if the lessee bears substantially all the risks andrewards related to the ownership of the leased asset. The related asset isrecognised at the time of inception of the lease at the fair value of the leasedasset or, if lower, the present value of the minimum lease payments plusincidental payments, if any, to be borne by the lessee. A corresponding amountis recognised as a finance leasing liability. The interest element of leasing payments represents a constant proportion of thecapital balance outstanding and is charged to the income statement over theperiod of the lease. All other leases are regarded as operating leases and the payments made underthem are charged to the income statement on a straight line basis over the leaseterm. Lease incentives are spread over the term of the lease. Financial assets Financial assets are divided into the following categories: loans andreceivables; financial assets at fair value through profit or loss;available-for-sale financial assets; and held-to-maturity investments.Financial assets are assigned to the different categories by management oninitial recognition, depending on the purpose for which they were acquired. Thedesignation of financial assets is re-evaluated at every reporting date at whicha choice of classification or accounting treatment is available. Available-for-sale financial assets include non-derivative financial assets thatare either designated as such or do not qualify for inclusion in any of theother categories of financial assets. All financial assets within this categoryare measured subsequently at fair value, with changes in value recognised inequity, through the statement of changes in equity/statement of recognisedincome and expense. Gains and losses arising from investments classified asavailable-for-sale are recognised in the income statement when they are sold orwhen the investment is impaired. In the case of impairment of available-for-sale assets, any loss previouslyrecognised in equity is transferred to the income statement. Impairment lossesrecognised in the income statement on equity instruments are not reversedthrough the income statement. Impairment losses recognised previously on debtsecurities are reversed through the income statement when the increase can berelated objectively to an event occurring after the impairment loss wasrecognised in the income statement. Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. Tradereceivables and other receivables are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition atamortised cost using the effective interest method, less provision forimpairment. Any change in their value through impairment or reversal ofimpairment is recognised in the income statement. Provision against trade receivables is made when there is objective evidencethat the group will not be able to collect all amounts due to it in accordancewith the original terms of those receivables. The amount of the write-down isdetermined as the difference between the asset's carrying amount and the presentvalue of estimated future cash flows. Financial liabilities Financial liabilities categorised as at fair value through profit or loss areremeasured at each reporting date at fair value, with changes in fair valuebeing recognised in the income statement. All other financial liabilities arerecorded at amortised cost using the effective interest method, withinterest-related charges recognised as an expense in finance cost in the incomestatement. Finance charges, including premiums payable on settlement orredemption and direct issue costs, are charged to the income statement on anaccruals basis using the effective interest method and are added to the carryingamount of the instrument to the extent that they are not settled in the periodin which they arise. .Equity Share capital is determined using the nominal value of shares that have beenissued. Equity is any contract which evidences residual interest in the assetsof the group after deducting all its liabilities. Income taxes Current income tax assets and liabilities comprise those obligations to fiscalauthorities in the countries in which the group carries out its operations. Theyare calculated according to the tax rates and tax laws applicable to the fiscalperiod and the country to which they relate. All changes to current taxliabilities are recognised as a component of tax expense in the incomestatement. Deferred income taxes are calculated using the liability method on temporarydifferences. This involves the comparison of the carrying amount of assets andliabilities in the consolidated financial statements with their respective taxbases. IAS 12 'Income taxes' does not require deferred tax to be recognised ontemporary differences relating to the initial recognition of goodwill or theinitial recognition of an asset or liability in a transaction that is not abusiness combination and that affected neither the accounting nor taxableprofit. Deferred tax liabilities are always provided for in full. Deferred tax assetsare recognised to the extent that it is probable that future taxable profitswill be available against which the temporary differences can be utilised.Deferred tax assets and liabilities are calculated at tax rates that areexpected to apply to their respective period of realisation, provided they areenacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity (such as the revaluation of land) inwhich case the related deferred tax is also charged or credited directly toequity. Cash and cash equivalents Cash and cash equivalents include cash at bank and in hand as well as overdraftsand short term deposits. Defined Benefit Pension Scheme Scheme assets are measured at fair values. Scheme liabilities are measured onan actuarial basis using the projected unit credit method and are discounted atappropriate high quality corporate bond rates that have terms to maturityapproximating to the terms of the related liability. Appropriate adjustmentsare made for past service costs. Past service cost is recognised as an expenseon a straight-line basis over the average period until the benefits becomevested. To the extent that benefits are already vested the group recognisespast service cost immediately. Actuarial gains and losses are recognised immediately through the statement ofrecognised income and expense (SORIE). The net surplus or deficit is presentedwith other net assets on the balance sheet. The related deferred tax is shownwith other deferred tax balances. A surplus is recognised only to the extentthat it is recoverable by the group. The current service cost, past service cost and costs from settlements andcurtailments are charged against administrative expenses in the incomestatement. Interest on the scheme liabilities and the expected return on schemeassets are included in other finance costs. Short-term employee benefits, including holiday entitlement are included incurrent pension and other employee obligations at the undiscounted amount thatthe group expects to pay as a result of the unused entitlement. Provisions Provisions are recognised when the present obligations arising from legal orconstructive obligations resulting from past events, will probably lead to anoutflow of economic resources from the group which can be estimated reliably. Provisions are measured at the present value of the estimated expenditurerequired to settle the present obligation, based on the most reliable evidenceavailable at the balance sheet date. All provisions are reviewed at each balance sheet date and adjusted to reflectthe current best estimates. Share based employee compensation The group operates equity settled share based compensation plans forremuneration of its employees. All employee services received in exchange for the grant of any share basedcompensation are measured at their fair values. These are indirectly determinedby reference to the share option awarded. Their value is appraised at the grantdate and excludes the impact of any non-market vesting conditions (e.g.profitability or sales growth targets). All share based compensation is ultimately recognised as an expense in profitand loss with a corresponding credit to the share based payments reserve, net ofdeferred tax where applicable. If vesting periods or other vesting conditionsapply, the expense is allocated over the vesting period, based on the bestavailable estimate of the number of shares options expected to vest. Non marketvesting conditions are included in assumptions about the number of options thatare expected to become exercisable. Estimates are subsequently revised if thereis any indication that the number of share options expected to vest differs fromprevious estimates. No adjustment to expense recognised in prior periods is madeif fewer share options ultimately are exercised than estimated. Upon exercise of share options, the proceeds received, net of any directlyattributable transaction costs, up to the nominal value of the shares issued areallocated to share capital with any excess being recorded as share premium. Employee Benefit Trust The financial statements include the assets and liabilities of a trust set upfor the benefit of the group's employees. The employee benefit trust hasacquired shares in the Company and these are deducted from the shareholders'funds on the balance sheet at the cost of acquisition. 2. Segmental reporting The group's one principal activity is the research, development, manufacturing,marketing and sales of allergy treating drugs. This forms the single businessstream and primary reporting segment. 3. Loss per share 6 months to 6 months to 12 months to 31 Dec 31 Dec 30 Jun 2007 2006 2007 unaudited unaudited unaudited £'000 £'000 £'000 Loss for the period attributable to equity shareholders (6,745) (6,664) (23,203) Shares Shares Shares '000 '000 '000 Weighted average number of shares in issue for the period. 81,951 81,951 81,951 _____ _____ _____Basic and diluted loss per share (pence) (8.2p) (8.1p) (28.3p) _____ _____ _____ 4. Condensed consolidated statement of changes in equity Issued capital Share premium Merger Reserve - reserve - shares held shares issued in EBT by subsidiary £'000 £'000 £'000 £'000 At 1 July 2006 92 33,173 40,128 (60)Exchange differences on translation of foreignoperationsActuarial lossesValuation losses taken to equityNet income recognised directly in equityLoss for the period after taxTotal recognised income and expenseShare based payments At 31 December 2006 92 33,173 40,128 (60) Exchange differences on translation of foreignoperationsActuarial gainsValuation gains taken to equityNet income recognised directly in equityLoss for the period after taxTotal recognised income and expenseShare based paymentsSale of shares by Employee Benefit Trust 24 _____ At 30 June 2007 92 33,173 40,128 (36) Exchange differences on translation of foreignoperationsActuarial gainsValuation losses taken to equityNet income recognised directly in equityLoss for the period after taxTotal recognised income and expense - - -Share based paymentsSale of shares by Employee Benefit Trust 5 _____ At 31 December 2007 92 33,173 40,128 (31) Reserve - Revaluation Foreign Retained Total share based reserve exchange earnings equity payments reserve £'000 £'000 £'000 £'000 £'000 At 1 July 2006 306 63 0 (42,367) 31,335Exchange differences on translation of foreign (14) (14)operations Actuarial losses (165) (165)Valuation losses taken to equity (21) (21) _____ _____Net income recognised directly in equity (21) (14) (165) (200) _____ _____ _____ _____Loss for the period after tax (6,664) (6,664) _____ _____Total recognised income and expense (21) (14) (6,829) (6,864)Share based payments 188 188 _____ _____ At 31 December 2006 494 42 (14) (49,196) 24,659 Exchange differences on translation of foreign (34) (34)operationsActuarial gains 213 213Valuation gains taken to equity 184 184 _____ _____Net income recognised directly in equity 184 (34) 213 363 _____ _____ _____ _____Loss for the period after tax (16,539) (16,539) _____ _____Total recognised income and expense 184 (34) (16,326) (16,176)Share based payments 181 181Sale of shares by Employee Benefit Trust 24 _____ At 30 June 2007 675 226 (48) (65,522) 8,688 Exchange differences on translation of foreign (6) (6)operationsActuarial gains 60 60Valuation losses taken to equity (14) (14) _____ _____Net income recognised directly in equity (14) (6) 60 40 _____ _____ _____ _____Loss for the period after tax (6,745) (6,745) _____ _____Total recognised income and expense (14) (6) (6.685) (6,705)Share based payments 211 211Sale of shares by Employee Benefit Trust 5 _____ _____ _____ _____ _____ At 31 December 2007 886 212 (54) (72,207) 2,199 5. Transition to IFRS From 1 July 2006 the group has adopted International Financial ReportingStandards (IFRS) in the preparation of its financial statements. The main items contributing to the change in financial information compared withthat reported under UK GAAP as at the transition date are shown below: IFRS 1 - First time adoption of International Financial Reporting Standards The reporting standard allows certain exemptions including the exemption fromthe retrospective application of IAS 21 'The effects of changes in foreignexchange rates'. The cumulative translation balance is moved into the retainedearnings at the date of transition and any subsequent translation differencesrecognised under IAS 21 are held as a separate component of equity. IFRS 3 - Business Combinations Positive goodwill is carried on the balance sheet and amortised over anappropriate life under UK GAAP. IFRS requires that the amortisation ceases atthe time of transition and a regime of impairment testing put in place includinga test for impairment at the time of transition. IAS 26 - Retirement Benefit Plans Until 30 June 2007, the pension scheme in Germany had been accounted for as adefined contribution scheme. At this date, further information became availableand as a result of this new evidence the pension has been reclassified as adefined benefit scheme. Prior periods have been restated as this is considered amaterial omission under IFRS. Detailed reconciliations between UK GAAP and IFRS of both equity and profit areshown at the end of this note. Reconciliation of equity as at 1 July 2006Balance sheet Goodwill Pension reversal restatement UK GAAP (see note 1 (see note 2 IFRS below) below) £'000 £'000 £'000 £'000AssetsNon-current assetsProperty, plant and equipment 3,637 3,637Intangible assets - Goodwill 2,326 2,326Intangible assets - Other 829 829Investments 843 843 _____ _____ _____ Total non-current assets 6,792 843 7,635 Current assetsTrade and other receivables 3,577 3,577Inventories 3,651 3,651Cash and bank balances 23,860 23,860 _____ _____ Total current assets 31,088 31,088 Current liabilitiesTrade and other payables (4,939) (4,939) _____ _____ Total current liabilities (4,939) (4,939) Non current liabilitiesRetirement benefit obligation 0 (2,210) (2,210)Long term provisions (239) (239) _____ _____ Total non current liabilities (239) (2,210) (2,449) _____ _____ _____ Net assets 32,702 (1,367) 31,335 _____ _____ _____ EquityCapital and reservesIssued capital 92 92Share premium 33,173 33,173Merger reserve - shares issued by subsidiary 40,128 40,128Reserve - shares held by EBT (60) (60)Reserve - share based payments 306 306Revaluation reserve 0 63 63Retained earnings (40,937) (1,430) (42,367) _____ _____ _____ Total equity 32,702 (1,367) 31,335 _____ _____ _____ Shares issued by subsidiary relates to the share premium of Allergy Therapeutics(Holdings) Ltd. Reconciliation of equity as at 31 December 2006Balance sheet Goodwill Pension IFRS Foreign Reversal Restatement Exchange Reserve UK GAAP (see note 1 (see note 2 (see note 3 IFRS below) below ) below) £'000 £'000 £'000 £'000 £'000AssetsNon-current assetsProperty, plant and equipment 4,771 4,771Intangible assets - Goodwill 2,132 164 2,296Intangible assets - Other 773 773Investments 910 910 _____ _____ _____ Total non-current assets 7,676 164 910 8,750 Current assetsTrade and other receivables 4,852 4,852Inventories 3,836 3,836Cash and bank balances 15,204 15,204 _____ _____ Total current assets 23,892 23,892 Current liabilitiesTrade and other payables (5,329) (5,329) _____ _____ Total current liabilities (5,329) (5,329) Non-current liabilitiesRetirement benefit obligation 0 (2,461) (2,461)Long term provisions (193) (193) _____ _____ _____ Total non current liabilities (193) (2,461) (2,654) _____ _____ _____ Net assets 26,046 164 (1,551) 0 24,659 _____ _____ _____ _____ _____ EquityCapital and reservesIssued capital 92 92Share premium 33,173 33,173Merger reserve - shares issued by 40,128 40,128subsidiaryReserve - shares held by EBT (60) (60)Reserve - share based payments 494 494Revaluation reserve 0 42 42Foreign exchange reserve 0 35 (49) (14)Retained earnings (47,781) 164 (1,628) 49 (49,196) _____ _____ _____ _____ _____ Total equity 26,046 164 (1,551) 0 24,659 _____ _____ _____ _____ _____ Shares issued by subsidiary relates to the share premium of Allergy Therapeutics(Holdings) Ltd. Reconciliation of equity as at 30 June 2007Balance sheet Goodwill Pension IFRS Foreign Reversal Restatement Exchange Reserve UK GAAP (see note 1 (see note 2 (see note 3 IFRS below) below) below) £'000 £'000 £'000 £'000 £'000 AssetsNon-current assetsProperty, plant and equipment 5,931 5,931Intangible assets - Goodwill 1,967 333 2,300Intangible assets - Other 714 714Investments 1,011 1,011 _____ _____ Total non-current assets 9,623 333 9,956 Current assetsTrade and other receivables 3,373 3,373Inventories 4,911 4,911Cash and bank balances 5,696 5,696 _____ _____ Total current assets 13,980 13,980 Current liabilitiesTrade and other payables (10,714) (10,714) _____ _____ Total current liabilities (10,714) (10,714) Non current liabilitiesRetirement benefit obligation (2,182) (2,182)Long term borrowings (2,161) (2,161)Long term provisions (191) (191) _____ _____ Total non current liabilities (4,534) (4,534) _____ _____ Net assets 8,355 333 0 0 8,688 _____ _____ _____ _____ _____ EquityCapital and reservesIssued capital 92 92Share premium 33,173 33,173Merger reserve - shares issued by 40,128 40,128subsidiaryReserve - shares held by EBT (36) (36)Reserve - share based payments 675 675Revaluation reserve 226 226Foreign exchange reserve (48) (48)Retained earnings (65,903) 333 48 (65,522) _____ _____ _____ _____ Total equity 8,355 333 0 0 8,688 _____ _____ _____ _____ _____ Shares issued by subsidiary relates to the share premium of Allergy Therapeutics(Holdings) Ltd. Reconciliation of loss for the period ended 31 December 2006 Goodwill Pension Reversal Restatement UK GAAP (see note 1 (see note 2 IFRS below) below) £'000 £'000 £'000 £'000 Revenue 16,460 16,460Cost of sales (5,526) (5,526) _____ _____ Gross profit 10,934 10,934 Distribution costs (5,332) (5,332) Administrative expenses - other (2,636) 164 19 (2,453) Research and development costs (11,009) (11,009) _____ _____Administration expenses (13,645) 164 19 (13,462) Finance income 434 434Finance expense (2) (52) (54) _____ _____ _____ Loss before tax (7,611) 164 (33) (7,480)Income tax 816 816 _____ _____ Loss for the period (6,795) 164 (33) (6,664) _____ _____ _____ _____ Reconciliation of loss for the year ended 30 June 2007 Goodwill Pension Reversal Restatement UK GAAP (see note 1 (see note 2 IFRS below) below) £'000 £'000 £'000 £'000 Revenue 25,742 25,742 Cost of sales (10,068) (10,068) _____ _____ Gross profit 15,674 15,674 Distribution costs (11,312) (11,312) Administration expenses - other (5,887) 333 281 (5,273) Research and development costs (25,343) (25,343) _____ _____Administration expenses (31,230) 333 281 (30,616) Other income 32 32Finance income 647 647Finance expense (131) (131) _____ _____ Loss before tax (26,320) 333 281 (25,706)Income tax 2,503 2,503 _____ _____ Loss for the period (23,817) 333 281 (23,203) _____ _____ _____ _____ Notes to transition statements: 1) Goodwill recognised by the group on acquisition of Allergy Therapeutics (UK)Ltd and Bencard Allergie GmbH under UK GAAP was amortised over a period of 15years. Under IFRS goodwill is not amortised, but tested annually for impairment.The goodwill amortisation charge recognised in accordance with UK GAAP in 2006/7was written back. The result of these adjustments is to decrease theamortisation charge in the income statement for the six months ended 31 December2006 by £164,000 and by £333,000 for the year ended 30 June 2007 and increasethe carrying value of those intangible assets by the same amounts. The group performed an impairment review of goodwill at the date of transitionto IFRS and at each subsequent reporting date and concluded that no adjustmentwas required as no impairment had taken place. 2) Until 30 June 2007, the pension scheme in Germany had been accounted for as adefined contribution scheme. At this date, further information became availableand as a result of this new evidence the pension has been reclassified as adefined benefit scheme. Prior periods have been restated as this is considered amaterial omission under IFRS. 3) Under IFRS 1, any cumulative foreign exchange translation balance at the dateof transition is moved into retained earnings and any subsequent translationdifferences recognised under IAS 21 are held as a separate component of equity. 6. Cashflow As a result of the transition to IFRS the following changes have resulted in thecashflow statement. The definition of cash under UK GAAP is narrower than under IAS 7 'Cash flowstatements'. Under IFRS highly liquid investments, readily convertible to aknown amount of cash and with an insignificant risk of a change in value areregarded as cash equivalents. Such a readily convertible investment is the moneymarket deposit and this is included in the heading 'Cash and cash equivalents'. Under UK GAAP payments to acquire property, plant and equipment were classifiedas part of 'Capital expenditure and financial investment' whilst under IFRS suchpayments have been reclassified as part of 'Investing activities'. There are no other material differences between the cashflow statement presentedunder IFRS and that presented under UK GAAP. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Allergy Thera.