7th Sep 2006 07:00
AGI Therapeutics plc07 September 2006 AGI Therapeutics, plc Interim financial results for the six months ended 30 June, 2006 Dublin, Ireland, 7th September 2006 - AGI Therapeutics plc ("AGI" or the"Company"), a speciality pharmaceutical company focused on gastrointestinal drugproducts, today reports interim financial results for the six months ended 30June, 2006. Financial highlights: • Cash and short term deposits at 30 June 2006 of €40 million• R & D spend of €1.6 million• Net loss of €2.3 million• Loss per ordinary share of €0.04 cent Corporate highlights: • Completed a successful listing on the AIM Market of the London Stock Exchange and the IEX Market of the Irish Stock Exchange on 27 February 2006, raising gross proceeds of €42.5 million (£29.2 million)• Strengthened the management team and Board through the addition of Dr. David Young, President of U.S. Operations and David Kelly as Chief Financial Officer After the period end: • Added Dr Chris Blackwell, Chief Executive of Vectura Group plc, to the Board as a non-executive director Operating highlights: • Reported positive, preliminary results of a Phase II trial of arverapamil (AGI-003) in non-constipation predominant irritable bowel syndrome (IBS), showing statistically significant superiority versus placebo• Completed enrolment and treatment in a Phase II trial in 82 patients for mecamylamine (AGI-004) in functional diarrhoea; preliminary results expected in H2 2006• Reported positive results in a human pharmacokinetics trial of 4-aminosalicylate sodium (4-ASA-Na), (AGI-022), achieving target controlled release and delivery profile for ulcerative colitis• Reported results from a human pharmacokinetics and pharmacodynamics trial of delayed/controlled release omeprazole (AGI-010) for the treatment of nocturnal acid breakthrough (NAB) in gastro esophageal reflux disease (GERD) demonstrating a controlled and extended release profile After the period end: • Completed enrolment of a Phase II trial in 68 patients in functional dyspepsia for arbaclofen (AGI-006) Commenting on the interim results, Dr John Devane, Chief Executive of AGI, said: "The first six months of 2006 was a pivotal period for AGI. Having completed asuccessful flotation, providing the Company with substantial resources to fundour future growth, we subsequently completed and announced results for a seriesof our most advanced clinical programmes which will be the basis for thatgrowth. We have also continued to strengthen our management team and operatingcapabilities. We expect the pace to continue in the second half as we buildfurther on the positive clinical results already reported and as we seek tomaximise the value of our R&D portfolio." Outlook Commenting further, on the outlook for the remainder of 2006, Dr. Devane added: "Once we have completed the current phase of clinical development activity weshall determine the best commercial options for our broad portfolio to establishboth strategic licensing partnerships and a robust internal pipeline of clinicaldevelopment programmes. While our initial strategy of advancing all our productcandidates through key clinical proof of concept trials internally is nownearing completion, we look forward in the longer term to securing strongmarketing positions for our resulting products, both in collaboration withpharmaceutical partners and through retaining marketing rights for certain ofour products in important niche market segments." Contact Information: AGI Therapeutics, plc.Tel: +353 1 449 3254David Kelly, Chief Financial Officer Financial Dynamics - UKTel: +44 (0) 20 7831 3113Sarah MacLeod Financial Dynamics - IrelandTel: +353 1 663 3607Aisling Garvey For further information please see www.agitherapeutics.com About AGI Therapeutics, plc AGI is a speciality pharmaceutical company which is focused on the developmentand commercialisation of differentiated drug products for gastrointestinal (''GI'') diseases and disorders. The Company has a portfolio of product candidates derived from the KnownMolecular Entity (''KME'') approach to drug re-profiling and development. KME isa re-profiling methodology used by the Company to identify existing therapeuticdrugs which typically have been marketed for a number of years, have establishedsafety profiles and can be developed for new clinical indications or withimproved profiles in their existing clinical indications. In this way, theCompany seeks to reduce the risk, time and cost of new product development ascompared to the development of new chemical entities. AGI has developed a range of product candidates to treat a variety of prevalentGI diseases and disorders, including irritable bowel syndrome (IBS), functionaldyspepsia, ulcerative colitis and gastro-esophageal reflux disease (GERD). TheCompany is targeting areas of the GI therapeutic drug products market for itsproduct candidates where there are currently unmet medical needs or where theeffectiveness of existing drug therapies can be further improved. The Company has six clinical stage product candidates which are either isomersor new drug delivery formulations of existing approved drugs, and which haveestablished safety and tolerability profiles in their currently approvedclinical indications. These product candidates are all in clinical development,including five Phase II trials. AGI intends to complete its ongoing clinical trials and, dependent on theresults of these trials, the Company will initiate late stage clinicaldevelopment of lead product candidates and will also seek to enter intolicensing and development agreements with pharmaceutical companies so as toenhance the global market reach for its products and achieve optimal revenue andvalue opportunities for the Company. Statements contained within this press release may contain forward-lookingcomments which involve risks and uncertainties that may cause actual results tovary from those contained in the forward-looking statements. In some cases, youcan identify such forward-looking statements by terminology such as 'may', 'will', 'could', 'forecasts', 'expects', 'plans', 'anticipates', 'believes', 'estimates', 'predicts', 'potential', or 'continue'. Predictions andforward-looking references in this press release are subject to the satisfactoryprogress of research which is, by nature, unpredictable. Forward projectionsreflect management's best estimates based on information available at the timeof issue. Chief executive's statement Overview In the year to date, we have progressed, on schedule, the development of ourclinical-stage portfolio of product candidates. We have reported preliminarydata on the outcome of two Phase II clinical trials, for arverapamil in IBS(AGI-003) and espindolol in functional dyspepsia (AGI-001), and have alsoreported on human pharmacokinetics studies for two other product candidates,being delayed/controlled release omeprazole designed to treat nocturnal acidbreakthrough ("NAB") in GERD (AGI-010), and controlled release 4-aminosalicylatesodium for the treatment of ulcerative colitis (AGI-022). Additionally, wecompleted patient enrolment and the treatment phase of a Phase II trial of ourmecamylamine candidate in patients with functional diarrhoea (AGI-004). We areon target to report preliminary data on this trial, along with preliminary dataon a Phase II trial of espindolol in IBS, during the second half of this year.Finally, we recently completed patient enrolment of a Phase II trial ofarbaclofen in functional dyspepsia (AGI-006) and we expect that preliminaryresults will be available in Q4 2006/Q1 2007. Arverapamil (AGI-003) IBS is a functional disorder that comprises a cluster of gastrointestinalsymptoms which are likely to be life long. Altered intestinal motility is amajor component of IBS and patients are diagnosed and sub-typed according totheir predominant symptom of bowel disturbance. Arverapamil is being developedin an oral dosage form for the treatment of diarrhoea-predominant irritablebowel syndrome ("d-IBS") in both men and women. The d-IBS segment of the IBSmarket is estimated to account for at least one-third of all IBS patients. Theannual market for prescription therapeutic drug products for IBS in the US wasestimated at more than US$400 million in 2004 and is predicted to grow rapidlyto more than US$1 billion by 2010. In June 2006 we announced the positive outcome of a Phase II clinical trialevaluating arverapamil in 129 patients (male and female) meeting ROME IIcriteria (modified) for non-constipation predominant IBS. The clinical trial wasa randomised, double-blind, placebo-controlled, parallel group, forceddose-escalation study (dose escalated every 4 weeks), which evaluated theefficacy of arverapamil versus placebo over a 12-week period. Using anintent-to-treat analysis and the entire 12 weeks of therapy, the arverapamiltreated patients showed a significantly higher response rate than placebo basedon patient global impression (56.9% vs. 37.5%) and based on relief of abdominalpain/discomfort (56.9% vs. 43.8%). No differences between treatments were seenin use of rescue medications. Compared with placebo, the arverapamil treatedpatients also showed significant favourable differences in change from baselinein a) the Bristol Stool Scale at week 8 and week 12, b) bloating and stoolfrequency at week 4 and c) urgency and composite gastrointestinal symptoms atweek 4 and week 12. Patients also completed the IBS Quality-of-Life (QOL)survey, a validated 34-item condition-specific QOL survey consisting of 8subscales at the 4, 8 and 12 week visits. Scores can range from 0 to 100 with ahigher score indicating better QOL. Significant improvements were recorded inthe arverapamil treated patients compared with placebo at week 12 for both thetotal score (24.9 points vs. 3.55 points) and for all 8 sub-scales and at week 8for total score and each of the sub-scales with the exception of sexual andrelationship sub-scales. Arverapamil was generally well tolerated and there wereno serious adverse events. We are extremely pleased by the outcome of this clinical trial, which supportsthe efficacy of arverapamil in IBS patients with non-constipation predominantsymptoms. We also believe arverapamil may also have utility in the treatment ofother diarrhoea-related conditions. We are currently developing an overall plan for the Phase III clinicaldevelopment of arverapamil for which we will also seek regulatory input andguidance. Omeprazole for NAB in GERD (AGI-010) We are developing a delayed/controlled release formulation of the proton pumpinhibitor drug ("PPI"), omeprazole based on our CHRONAB technology which webelieve will be effective in treating nocturnal acid breakthrough ("NAB"), aprevalent aspect of current PPI therapy of gastro-esophageal reflux disease ("GERD"). GERD is the most prevalent of the major gastrointestinal disorders andis most commonly treated with PPI drugs which achieve global annual sales inexcess of US$20 billion. NAB is estimated to occur in at least 50 per cent ofGERD patients on PPI therapy. In March 2006 we announced the preliminary outcome of a combined humanpharmacokinetics and pharmacodynamics study in 16 healthy subjects designed tocharacterize the in-vivo drug release profile and pharmacokinetics and theintra-gastric pH profiles of three delayed release/ controlled releaseformulations of omeprazole given as 40mg once-daily at bedtime for fiveconsecutive days compared to marketed omeprazole (Losec(R)) given as 20mgtwice-daily morning and evening before meals. Preliminary data from the studydemonstrated that while delayed/controlled release characteristics were clearlyachieved, the time-course of in-vivo release was markedly delayed resulting inpeak exposure at 5-6am. We have subsequently conducted a programme of formulation optimization tofurther enhance the drug release profile of our product. A further combinedhuman pharmacokinetics and pharmacodynamics study of the optimized formulationsis scheduled to commence in Q4 2006. 4-ASA-Na (AGI-022) We are developing a delayed/controlled release oral formulation of4-aminosalicylate sodium ("4-ASA-Na") for the induction and maintenance ofremission of mild to moderate ulcerative colitis ("UC"). UC is a chronic,recurrent, relapsing and remitting inflammatory disease of the colon and/orrectum. We believe that our 4-ASA-Na product may offer certain advantagescompared with current 5-ASA based therapies which are commonly used to treat UC,including a superior tolerability profile, a more reliable delivery to thetarget sites of action in UC leading to a higher efficiency of therapy withpotential dosing advantages. In March 2006 we reported on the outcome of a human pharmacokinetics trial in 16human subjects designed to characterize the in-vivo drug release profile andpharmacokinetics of three delayed release/ controlled release formulationscompared with a reference solution of 4-ASA-Na. The study demonstrated delayedand controlled in-vivo release profiles consistent with targeted colonicdelivery and a lead formulation has been selected as optimal and will be thebasis of future clinical development. We are now in the process of planning thenext stage of development of this product. Espindolol (AGI-001) Espindolol is being evaluated for the treatment of functional dyspepsia andadditionally for the treatment of irritable bowel syndrome in both men andwomen. Functional dyspepsia, also referred to as non-ulcer dyspepsia or NUD, is acluster of chronic or recurrent upper GI symptoms, including early satiety,abdominal distension and fullness and discomfort and pain, not associated withany known structural abnormality. Estimates as to the prevalence of functionaldyspepsia vary with some studies suggesting that it affects up to 25 per cent ofthe US population annually. There are as yet no therapeutic drug productsapproved for its treatment in the US. In June 2006 we announced preliminary data from a Phase II clinical trialevaluating espindolol in 132 patients (male and female) meeting ROME II criteria(modified) for functional dyspepsia. The clinical trial was a randomised,double-blind, placebo-controlled, parallel group, forced dose-escalation study(dose escalated every 4 weeks) which evaluated the efficacy of espindolol versusplacebo over a 12-week period. Using an intent-to-treat analysis and the entire12 weeks of dose-escalation therapy, the espindolol treated patients failed toshow a significantly higher response rate than placebo based on patient globalimpression (50.8% vs. 41.8%). A sub-analysis showed a significantly higherresponse rate based on global patient impression for the espindolol treatedpatients with a baseline severity >3 (i.e. moderate to severe), (42.4% vs.28.1%). No differences between treatments were seen in use of rescuemedications. Compared with placebo, the espindolol treated patients did not showsignificantly favourable differences in change from baseline in composite orindividual symptoms. Espindolol was generally well tolerated and there were noserious adverse events. In addition, during the period under review, we completed the treatment phase ofa second Phase II clinical study evaluating the efficacy of espindolol in 67patients (male and female) meeting ROME II criteria (modified) for IBS. This isa randomised, double-blind, placebo-controlled, parallel group, dose escalationtrial. We expect preliminary data from this study to be available in Q3, 2006. We will evaluate the data from both of these studies before determining how bestto advance the development of espindolol. Mecamylamine (AGI-004) During the period we completed the treatment phase of a Phase II clinical trialdesigned to evaluate a controlled release form of mecamylamine in functionaldiarrhoea. This trial is a randomised, double-blind, placebo-controlled,parallel group, dose escalation trial in a total of 82 functional diarrhoeapatients. We are on schedule to announce preliminary data from this studyduring Q4 2006. Arbaclofen (AGI-006) We have completed enrolment of 68 patients for a Phase II clinical trialevaluating the efficacy of arbaclofen in the treatment of functional dyspepsiain both men and women. This is a randomised, double-blind, placebo-controlled,parallel group, dose escalation trial. It is expected that preliminary resultswill be available in Q4 2006/Q1 2007. Financial review Basis of preparation and International Financial Reporting Standards (IFRS). The interim results set out below are the first set of results of AGI as apublic company. However, as a result of a reverse acquisition of AGITherapeutics Research Limited by AGI Therapeutics, plc, on January 20, theresults presented are a continuation of the precursor entity. Operating performance In the six months to June 30, 2006, AGI was exclusively engaged in advancing theR&D projects referred to in the chief executive's statement above. The Companyhad no revenues. Research and development expenditure during the period was €1.6 million comparedto €2.0 million in 2005. This decline was as a result of certain Phase IIstudies completing during the first half of 2006 and therefore entering theirdata analysis phase which is less expensive than the data collection phase of astudy. Included in research and development costs are the costs of internal salariesand costs of developing the Company's intellectual property portfolio, bothcosts which increased in 2006 over 2005 as the Company built out its internalexpertise and patent portfolio. Administrative expenses during the period were €0.7 million, an increase overthe €0.3 million incurred in the same period in 2005. This increase reflectscosts associated with the expansion of the group into the US, the recruitment ofa CFO and the Company's transformation into a public company. In accordance with IFRS 2 the Company has accounted for the expense of sharebased compensation arising from the issuance of options over the Company'sequity to key employees. The expense in the period was €0.2 million. There isno comparable expense in 2005. This is a non-cash expense. Net cash outflow from operating activities for the period was €2.3 million,comparable to the €2.3 million in 2005. Net cash generated from financingactivities, as a result of the Company's public offering, was €39.5 million. Atthe end of June 2006 the Company had cash, cash equivalents and investments inthe form of term deposits, of €40.0 million. UNAUDITED CONSOLIDATED INTERIM INCOME STATEMENTS For the Six Months Ended 30 June Notes 6 months ended 30 6 months ended 30 June 2006 June 2005 •'000 •'000 ______ ______ Revenue - - ______ ______Research and development expenses 1,617 2,005Administrative expenses 653 303Share based payment charge 6 233 - ______ ______Total operating expenses 2,503 2,308 ______ ______Operating loss (2,503) (2,308) Interest income 318 50Interest expense (98) (352) ______ ______Loss before tax (2,283) (2,610)Income tax 3 - - ______ ______Loss for the period (2,283) (2,610) ______ ______ Basic loss per ordinary share:Basic loss per share 4 (0.04) (0.08) ______ ______ UNAUDITED CONSOLIDATED INTERIM BALANCE SHEETS Notes 30 June 2006 31 December 2005 •'000 •'000 ______ ______Non-Current AssetsIntangible assets 1,504 1,521Property, plant and equipment 43 2 ______ ______Total Non-Current Assets 1,547 1,523 ______ ______Current AssetsOther current assets 199 110Other investments 5 15,000 -Cash and cash equivalents 25,072 2,915 ______ ______Total Current Assets 40,271 3,025Total Assets 41,818 4,548 ______ ______Non-Current LiabilitiesConvertible preference shares 7 - 7,943 ______ ______Total Non-Current Liabilities - 7,943 ______ ______Current LiabilitiesAccounts payable 160 724Accrued and other liabilities 334 11 ______ ______Total Current Liabilities 494 735 ______ ______Total Liabilities 494 8,678 ______ ______Shareholders' Equity 7Share capital 658 1Share premium 51,007 4,167Other reserves 264 24Retained loss (10,605) (8,322) ______ ______Total Shareholders' Equity 41,324 (4,130) ______ ______Total Shareholders' Equity and Liabilities 41,818 4,548 ______ ______ UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS 30 June 2006 30 June 2005 •'000 •'000 ______ ______ Loss for the period (2,283) (2,610)Adjustments to reconcile loss to net cash used in operating activities:Depreciation of property, plant and equipment 1 1Amortisation of intangibles 17 17Interest income (318) (50)Interest expense 98 352Share-based compensation 233 - ______ ______ Operating cash outflow before changes in working capital (2,252) (2,290)(Increase)/decrease in other current assets (89) 20(Decrease)/ increase in accounts payable (564) 246Increase in accrued and other liabilities 323 39Fair value of shares issued to director over service period 7 7 ______ ______ Cash used by operations (2,575) (1,978)Interest received 324 50Interest paid - (352) ______ ______ Net cash outflow from operating activities (2,251) (2,280) ______ ______ Investing activitiesAcquisition of other investments (15,000) -Acquisition of property, plant and equipment (42) - ______ ______ Net cash used by investing activities (15,042) - ______ ______ Financing activitiesProceeds from issue of share capital 39,450 353 ______ ______ Net cash provided by financing activities 39,450 353 ______ ______ Net increase/ (decrease) in cash and cash equivalents 22,157 (1,927) ______ ______ Cash and cash equivalents at the beginning of period 2,915 6,782Cash and cash equivalents at the end of the period 25,072 4,855 ______ ______ UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS'EQUITY Number Ordinary share Preference Share Share of Shares Capital Capital Premium •'000 •'000 •'000 __________ _____ _____ ______Balance at 1 January 2005 - 1 - 4,167 __________ _____ _____ ______ Loss for the period - - - -Fair value of ordinary shares issued to a director - - - - __________ _____ _____ ______Balance at 30 June 2005 - 1 - 4,167 __________ _____ _____ ______ Loss for the period - - - -Fair value of ordinary shares issued to a director - - - - __________ _____ _____ ______Balance at 31 December 2005 - 1 - 4,167 __________ _____ _____ ______ Loss for the period - - - -Issue of share capital 1,663,599 - - -Issued share capital to acquire AGI Therapeutics Research Limited 32,019,025 137 183 (303)Conversion of preference shares - 183 (183) -Issue of ordinary shares on listing on AIM 33,730,159 337 - 42,163Costs of share issue - - - (3,067)Redemption of convertible debt - - - 8,047Fair value of ordinary shares issued to a director - - - -Share-based compensation - - - - __________ _____ _____ ______Balance at 30 June 2006 67,412,783 658 - 51,007 __________ _____ _____ ______ UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS'EQUITY (continued from table above) Other Reserves Retained Loss Total Amount •'000 •'000 •'000 _____ _______ ______Balance at 1 January 2005 10 (3,121) 1,057 Loss for the period - (2,610) (2,610)Fair value of ordinary shares issued to a director 7 - 7Balance at 30 June 2005 17 (5,731) (1,546) Loss for the period - (2,591) (2,591)Fair value of ordinary shares issued to a director 7 - 7Balance at 31 December 2005 24 (8,322) (4,130) Loss for the period - (2,283) (2,283)Issue of share capital - - -Issued share capital to acquire AGI Therapeutics Research Limited - - 17Conversion of preference shares - - -Issue of ordinary shares on listing on AIM - 42,500Costs of share issue - - (3,067)Redemption of convertible debt - - 8,047Fair value of ordinary shares issued to a director 7 - 7Share-based compensation 233 - 233 _____ _______ ______Balance at 30 June 2006 264 (10,605) 41,324 _____ _______ ______ NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIMFINANCIAL STATEMENTS 1 BASIS OF PREPARATION These unaudited condensed consolidated interim financial statements (the interimfinancial statements) have been prepared in accordance with IFRS that areadopted by the European Union (EU) and effective (or available for earlyadoption) at 30 June 2006. The interim financial statements do not include allof the information required for full annual financial statements. These interim financial statements are presented in euro rounded to the nearestthousand, being the functional currency of the parent company and the groupcompanies. They are prepared on the historical cost basis, except for financialinstruments, share based payments and derivative financial instruments, whichare stated at fair value. The accounting policies applied by AGI in these interim financial statements arethe same as those applied by AGI in its consolidated financial statements as atand for the year ended 31 December 2005. The preparation of interim financial statements requires management to makejudgements, estimates and assumptions that affect the application of policiesand reported amounts of assets and liabilities, income and expenses. Actualresults could differ materially from these estimates. In preparing these interimfinancial statements, the significant judgements made by management in applyingour accounting policies and the key sources of estimation uncertainty were thesame as those that applied to the consolidated financial statements as at andfor the year ended 31 December 2005. These interim financial statements do not constitute Statutory FinancialStatements of the Group within the meaning of Regulation 40 of the EuropeanCommunities (Companies: Group Accounts) Regulations, 1992. Statutory FinancialStatements for the year ended 31 December 2005 have been filed with theCompanies Office. The auditor's report on those financial statements wasunqualified. 2 SIGNIFICANT ACCOUNTING POLICIES a Statement of compliance These interim financial statements have been prepared in accordance with IAS 34,"Interim Financial Reporting." They do not include all of the informationrequired for full annual financial statements. b Basis of consolidation The interim financial statements include the accounts of the Company and all ofits subsidiary undertakings. All significant intercompany account balances,transactions, and any unrealised gains and losses or income and expenses arisingfrom intercompany transactions have been eliminated in preparing the interimfinancial statements. On 20 January 2006 the Company entered into a reverse acquisition of AGITherapeutics Research Limited. In accordance with International FinancialReporting Standard 3, 'Business Combinations', following the reverse acquisitionthe consolidated financial statements have been issued in the name of theCompany, however they are a continuation of the financial statements of AGITherapeutics Research Limited. The retained earnings and other equity balancesrecognised in the consolidated financial statements are those of AGITherapeutics Research Limited immediately before the reverse acquisition,however the number and type of share capital are those of the Company. c Revenue recognition To date the Company has not earned any revenues. When the Company enters intorevenue generating contracts, revenue will be recognised when earned andnon-refundable and when there is no obligation with respect to the revenue, inaccordance with the terms prescribed in the applicable contract. d Leasing Operating lease rentals are charged to the income statement on a straight linebasis over the period of the lease. e Research & development expenses Expenditure on research activities, undertaken with the prospect of gaining newscientific or technical knowledge and understanding, is recognised in the incomestatement as an expense as incurred. Expenditure on development activities, whereby research findings are applied toa plan or design for the production of new or substantially improved productsand processes, is capitalised if the product or process is technically andcommercially feasible and the Company has sufficient resources to completedevelopment. The expenditure capitalised includes the cost of materials, directlabour and an appropriate proportion of overheads. Other developmentexpenditure is recognised in the income statement as an expense as incurred. Todate the Company has not incurred development costs that have met the criteriafor recognition of an internally generated intangible asset and as such alldevelopment costs have been recognised as an expense in the income statement asincurred. The Company considers that regulatory and other uncertainty inherentin the development of its products preclude it from capitalising developmentcosts. f Income Tax Income tax comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year usingtax rates enacted or substantially enacted at the balance sheet date and anyadjustments to tax payable in respect of previous years. Deferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases on assets and liabilities and theircarrying amounts in the financial statements, except to the extent thattemporary differences arising on goodwill not deductible for tax purposes or theinitial recognition of assets or liabilities that affect neither accounting ortaxable profits. Deferred tax assets are recognised to the extent that it isprobable that future taxable profits will be available against which thetemporary differences can be utilised. g Property, plant and equipment Equipment is stated at cost less accumulated depreciation. Depreciation ischarged to the income statement on a straight line basis over an estimateduseful life of 3 years for office and computer equipment. h Intangible assets Acquired in process research and development (IPR&D) and acquired patent andlicence agreements are stated at cost or valuation, less impairment losses (seeaccounting policy (i)). The acquired patent and licence agreements are being amortised over their usefullives on a straight line basis. Estimated useful life is the lower of legalduration and economic useful life and has been estimated as 17 years. Theacquired IPR&D will be amortised on a straight line basis over its estimateduseful life which will commence upon generation of economic benefits relating tothe acquired IPR&D. i Impairment of assets Assets are reviewed at each balance sheet date to determine whether there is anyindication that the carrying amount may not be recoverable. An impairment lossis recognised in the income statement whenever the carrying amount of an assetexceeds its recoverable amount. The recoverable amount of an asset is thegreater of its fair value less cost to sell and value in use. For the purposesof assessing impairments, assets are grouped at the lowest levels for whichthere are separately identifiable cash flows (cash-generating units). j Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banksand other short term highly liquid investments with original maturities of threemonths or less. k Employee benefits (a) Share based compensation On 27 January 2006 AGI Therapeutics, plc created an equity settled, share basedcompensation plan. The Company has accounted for the share based compensationplan in accordance with IFRS 2 "Share-based Payment." The fair value of theemployee services received in exchange for the grant of options is recognised asan expense. The total amount expensed over the vesting period is determinedusing an appropriate valuation model by reference to the fair value of theoptions granted, excluding the impact of any non-market vesting conditions.Non-market vesting conditions are included in assumptions about the number ofoptions that are expected to vest. At each balance sheet date, the Company willrevise its estimates of the number of options that are expected to vest. Itrecognises the impact of the revision of original estimates, if any, in theincome statement, and a corresponding adjustment to equity over the remainingvesting period. (b) Pension obligation The Company does not currently operate a pension scheme. It has madecontributions to a personal pension scheme held by one of the shareholders/directors. These contributions are recognised as an expense in the period inwhich they are paid. l Preference share capital Preference share capital is classified as equity if it is non-redeemable and anydividends are discretionary, or is redeemable but only at the Company's option.Dividends on preference share capital classified as equity are recognised asdistributions from equity. Preference share capital is classified as a liability if it is redeemable on aspecific date or at the option of the shareholders or if dividend payments arenot discretionary. Dividends thereon are recognised in the income statement asan interest expense. Convertible preference shares include a debt and equity element. For initialrecognition purposes the fair value of the debt is determined by discounting theexpected cash flows generated by the financial instrument using a market ratefor a debt instrument that could be issued by the company over the same term.The difference between the proceeds raised and the fair value of the debt isdeemed to be the equity element. The debt element is thereafter accounted foron an amortised cost basis and interest is accrued up to the redeemable amountof the instrument over its life. The costs of raising the convertible preferredshares are split proportionally between the debt and equity components. m Interest income Interest income is recognised in the income statement as it accrues. n Foreign currency Transactions in foreign currencies are recorded at the rate of exchange at thedate of the transaction. Monetary assets and liabilities denominated in foreigncurrencies at the balance sheet date are retranslated into local currency at therate of exchange ruling at the balance sheet date, and the resulting gains andlosses are recognised in the income statement. 3 TAXATION No tax charge arose as the Company has generated losses in each of the periodssince its incorporation. No deferred tax asset has been recognised on the taxlosses forward as it is not sufficiently probable at this point in time thatfuture taxable profits will be available against which the temporary differencescan be utilised. 4 LOSS PER SHARE Basic loss per share is computed by dividing the loss for the period availableto ordinary shareholders by the weighted average number of ordinary sharesoutstanding during the period. For the period ended 30 June 2005 the ordinaryshares in issue include the Ordinary Shares of 13,749,900 and A OrdinaryPreference Shares of 18,269,125 issued to acquire AGI Therapeutics ResearchLimited. Diluted loss per share is computed by dividing the loss for theperiod, by the weighted average number of ordinary shares outstanding and, whendilutive, adjusted for the effect of all potentially dilutive shares, includingstock options, warrants, and convertible debt securities on an as-if-convertedbasis. The following table sets forth the computation for basic and diluted loss pershare for the six months ended 30 June 2006 and 2005: 30 June 2006 30 June 2005 ___________ ___________Numerator:Loss attributable to ordinary shareholders (2,283,000) (2,610,000) Denominator:Denominator for basic-weighted average shares 56,420,412 32,019,124Basic loss per share:Basic loss per share (0.04) (0.08) ___________ ___________ For the period ended 30 June 2005 and 30 June 2006 there is no difference, inweighted average number of ordinary shares used for basic and diluted net lossper Ordinary share as the effect of all potentially dilutive ordinary sharesoutstanding for each period was anti-dilutive. The potential effect of allanti-dilutive stock options at 30 June 2006 was 3 million shares (30 June 2005:nil). 5 OTHER INVESTMENTS The company has cash of €15 million on deposit which has a maturity date of morethan 3 months. 6 SHARE-BASED COMPENSATION The Company grants to certain employees and non-employee directors share optionsunder the Company share option plans. The options are granted at fixed exerciseprices equal to the market value of our shares on the date of grant. No shareoptions were granted by the Company in the period to 30 June 2005. However share options were granted by the Company in the period to 30 June 2006. The fair value of services received in return for share options granted toemployees is measured by reference to the fair value of share options granted.The estimate of the fair value of the services received is measured based theBlack-Scholes option-pricing model. This fair value is calculated using the following inputs into the option pricingmodels: Six months ended 30 June 2006 _____Weighted average share price (•) 1.50Weighted average exercise price 1.50Expected life 5 yearsExpected volatility 40%Expected dividend yield -Risk-free rate 3.9 _____ As the Company has only traded on AIM since February 2006 the Company hasdetermined volatility by considering the limited historical volatility of itsown shares and the volatility of stock options issued by a group of comparablepharmaceutical companies listed on a US or UK Exchange having options with anexpected life of five years. The risk-free interest rate assumption is basedupon observed interest rates appropriate for the term of our employee stockoptions. The dividend yield assumption is based on the history and expectationof dividend payouts. The Company recognised total expense of €232,695 related to equity-settledshare-based compensation during the six months ended 30 June 2006. 7 SHARE CAPITAL On incorporation of the Company on 16 December 2005 the authorised share capitalof the Company was €100,000 divided into 100,000 Ordinary shares of €1 each,with 1 Ordinary share issued. On 19 January 2006, the Company sub-divided itsordinary share capital into 10 million Ordinary shares of €0.01 each and theCompany issued 1,663,499 Ordinary shares for cash at par. The authorised share capital of the Company was increased on 20 January 2006 bythe creation of 70 million Ordinary shares of €0.01 each and 200 million AOrdinary Preference shares of €0.01 each in the Company. On 20 January 2006 the Company entered into a reverse acquisition of AGITherapeutics Research Limited and the Company issued 13,749,900 Ordinary sharesof €0.01 each and 18,269,125 A Ordinary Preference shares to acquire the entireinterest of AGI Therapeutics Research Limited, which became its wholly ownedsubsidiary. The shares were issued to the shareholders of AGI TherapeuticsResearch Limited in the ratio of 125 shares in the Company for one share in AGITherapeutics Research Limited. The fair value of the Company's identifiableassets and liabilities is €16,639 and no goodwill arose on the reverseacquisition. On 27 February 2006 the entire A Ordinary Preference shares in the Company wereconverted into Ordinary shares at a ratio of one Ordinary share for every one AOrdinary Preference share. On 27 February 2006 the Company issued 33,730,159 Ordinary shares of €0.01 eachon the AIM market of the London Stock Exchange at a price of €1.26. The totalcost of the listing amounted to €3,067,000. This has been accounted for as areduction to the share premium account. 8 RELATED PARTY TRANSACTIONS (a) Transactions with founding members and shareholders In the six month period ended 30 June 2006, the Company paid €20,000 (30 June2005: €10,000) in consulting fees to Kellpharm, a company of which John Kelly, ashareholder of the Company, is also a shareholder. The Company also paid Icon Clinical Research Limited fees of €309,884 (30 June2005: €949,652) for clinical research studies, Ronan Lambe, chairman of AGI'sboard of directors is also a director of Icon Clinical Research Limited. Frank Kenny, John O'Sullivan and Peter Sandys are directors of the Company andare board nominees of Delta Partners, ACT Venture Capital and Seroba Bioventuresrespectively. Fees of €17,000 annually are paid by the Company to each ofDelta, ACT and Seroba in respect of their nominees' appointment. (b) Transactions with other related parties The Company entered into an agreement with BioClin Research Laboratories Ltd ("BioClin") on 25 April 2005. Under this agreement, BioClin providesbioanalytical sample analysis to the Company at contracted rates. In the periodended 30 June 2006 €53,165 (30 June 2005: €26,613) was paid to BioClin for theseservices. Mary Martin, a director of the Company is also a director of BioClin. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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