12th Sep 2006 07:02
Evolutec Group PLC12 September 2006 Tuesday 12 September 2006 Evolutec Group plc ("Evolutec" or "the Company") Interim Results for the six months ended 30 June 2006 Poised for a period of significant progress Evolutec Group plc (AIM: EVC), the biopharmaceutical company developing novelproducts for the treatment of allergic, inflammatory and autoimmune diseases,announces Interim Results for the six months ended 30 June 2006. Highlights • Two Phase II trials underway for lead product candidate rEV131 o Results from rEV131 allergic rhinitis trial on schedule to be delivered by the year end o Results from rEV131 post-cataract eye inflammation trial due in the first half of 2007• rEV131's novel mechanism of action demonstrated• Discussions with potential partners for rEV131 rhinitis rights ahead of schedule• Positive rEV576 preclinical results. On track to take rEV576 into clinical development in 2007 o Myasthenia gravis - orphan drug potential o Guillain-Barre Syndrome - orphan drug potential o Asthma• Cash balance of £13.2m (2005: £12.2m)• Well placed to deliver significant progress in next 12 months Mark Carnegie Brown, Chief Executive of Evolutec, said: "The first half has seen a strong momentum with the commencement of two Phase IIrEV131 trials and positive preclinical results with rEV576 in three differentindications. "This gives us a platform for a period of significant progress. Results from thePhase IIb rhinitis trial are imminent which means Evolutec will deliver 4clinical trial results in the next 12 months. In addition, discussions withpotential partners for rEV131 respiratory indications are ahead of schedule andwe aim to have rEV576 in clinical development in 2007. "Assuming positive results, the Board is confident that the next 12 months willsee Evolutec accelerate delivery of its significant potential." A briefing for analysts will be held at 11.00am today at the offices ofFinancial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB.Please call Mo Noonan for further details on 020 7269 7116. In addition, thepresentation will be made available on Evolutec's website at http://www.evolutec.co.uk and can be accessed via teleconference by dialling +44 (0) 207138 0816. Enquiries: Evolutec 0118 922 4480Mark Carnegie Brown, Chief Executive OfficerNicholas Badman, Chief Financial Officerwww.evolutec.co.uk Financial Dynamics 020 7831 3113David YatesBen Brewerton Notes for Editors: About Evolutec Evolutec, which is based in Reading, UK, is a clinical stage biopharmaceuticalcompany with a focus on allergy, inflammation and auto-immune diseases. The Company has completed a positive 112 patient proof of concept Phase IIaclinical trial with rEV131, its lead product development candidate, in allergicrhinitis. rEV131 met the primary endpoint of reducing the sum of symptom scoresat statistically significant levels within 45mins of administration. Inaddition to the Phase IIb trial in rhinitis and the proof of concept Phase IItrial in post-cataract, Evolutec also intends to complete a proof of conceptPhase II trial in dry eye in 2007. Following positive preclinical data, Evolutecintends to undertake a Phase I trial with rEV131 in asthma in 2007. The Company has a further two product development candidates in preclinicaldevelopment: rEV576, a complement inhibitor, and rEV598, which binds serotoninand histamine. rEV576 has demonstrated preclinical activity against theautoimmune diseases myasthenia gravis and Guillain-Barre Syndrome, asthma andacute myocardial infarction ("AMI") (heart attack). Evolutec has established aresearch collaboration with Case Western Reserve University, Cleveland, Ohio, toundertake further preclinical work with rEV576 in myasthenia gravis. rEV598 isbeing evaluated in chemotherapy-induced nausea and vomiting (CINV). The rights to Evolutec's vaccine technology for animals are partnered withMerial. Merial is currently undertaking work in tick-borne diseases. Evolutec is listed on the AIM market of the London Stock Exchange and developstherapeutics originally isolated from the saliva of ticks. The tick remainsundetected by its hosts, including humans, by injecting an array of moleculesinto the skin that suppresses host immunity. These stealth molecules haveundergone millions of years of natural evolution to select a promising efficacy,potency and safety profile. Evolutec employs the tick's evolutionary stealthtechnology to offer the potential of treating human diseases. Safe Harbour statement: this news release may contain forward-looking statementsthat reflect the current expectations of the Company regarding future events.Forward-looking statements involve risks and uncertainties. Actual events coulddiffer materially from those projected herein and depend on a number of factorsincluding the success of the Company's research strategies, the applicability ofthe discoveries made therein, the successful and timely completion of clinicalstudies, the uncertainties related to the regulatory process, the successfulintegration of completed mergers and acquisitions and achievement of expectedsynergies from such tractions, and the ability of the Company to identify andconsummate suitable strategic and business combination transactions. Chief Executive's Review of Operations Evolutec is at an important stage of its development with two rEV131 clinicaltrials underway and partnering discussions progressing ahead of schedule. Inaddition, preclinical data with rEV576 shows great promise, presenting newcommercial options for the Company and the strong prospect of clinical trials in2007. In the first six months of 2006 the focus of activities in Evolutec has been onpreparatory work for the two rEV131 clinical trials. These trials, in allergicrhinitis and post-cataract eye inflammation, commenced in June and will generateresults in 2006 and 2007, respectively. In addition, the preclinical investmentmade in rEV576 has delivered promising results and a significant researchcollaboration with Case Western. Over the next 12 months the Company expects togenerate no less than four clinical results with rEV131 and, assuming furtherpositive results with rEV576, will have two clinical stage developmentcandidates in 2007. rEV131 Allergic rhinitis is the lead indication for our clinical development candidaterEV131. This $6.6 billion market represents a major commercial opportunity forthe Company. Evolutec received an unconditional "no objection letter" fromCanada Health following its regulatory submission for a multi-dose double blindtrial comparing rEV131 with placebo. Previous regulatory submissions had beenmade via the Food and Drug Administration (FDA) of the United States. TheCompany now has positive experience of two different regulatory agencies. This300 patient rhinitis trial is underway in the Environmental Exposure Chamber atAllied Research International ("Allied") in Toronto under the leadership of Dr.Piyush Patel. This study will determine efficacy under a constant high levelpollen challenge for up to 12 hours. Duration and onset of action will bedetermined under these conditions. The trial aims to build on the commercialdifferentiation of rEV131 from existing therapies and follows the Phase IIasingle dose study which demonstrated the rapid onset of action of rEV131 in anasal allergen challenge format. Allied has an excellent track record ofdelivering high quality data in a timely fashion. Patient recruitment iscomplete and Evolutec is on track to deliver this result on schedule by the endof 2006. On the basis of a positive outcome to the trial, the Company intendsto license rEV131 in rhinitis to a partner who will develop and commercialisethe product worldwide. Partnering discussions are ahead of schedule. Alicensing deal of this nature would be a transformational event for Evolutec. The Company has demonstrated the efficacy of rEV131 in preclinical models ofasthma. On the basis of these positive results, the Company intends to commencea Phase I clinical study in asthma, the results of which are expected to beavailable by the middle of 2007. The Phase II post-cataract eye inflammation trial is being undertaken atapproximately 10 separate clinical sites in the United States. The 150 patienttrial is being coordinated by Ophthalmic Research Associates, Inc ("ORA") led byDr. Mark Abelson. The result of this trial is now anticipated to be in thefirst half of 2007. This dose ranging trial will evaluate the efficacy ofrEV131 in pre-selected patients and compare the anti-inflammatory potential ofrEV131 with the commercial steroid standard, prednisolone. Steroids are thedominant therapy in this $500 million market. However, there are concerns aboutthe safety of the steroids, and in particular, their potential to increaseintraocular pressure and cause glaucoma. The intended positioning of rEV131 isto produce steroid-like clinical effects with an improved safety profile. Theefficacy of rEV131 dosed twice daily will be compared to placebo andprednisolone dosed four times a day. The Company intends to retain themarketing rights in specialised areas, such as ophthalmology, with the intentionof establishing its own sales revenue and developing a high quality business. The rEV131 Phase II trial in dry eye will commence early in 2007 once thelong-term safety data is available allowing a six week clinical study. The lowhumidity at this time of year also favours dry eye symptom reproducibility.These trials are being monitored by our own clinical research manager based inthe United States. rEV131 is now available in two different presentations. For the nasal deliveryroute, unpreserved product has been prepared in a Pfeiffer multi-dose device.For the eye drop delivery, unpreserved product has been prepared in a CardinalHealth single dose unit. Long-term storage and stability studies are underwaywith both presentations. Long-term and chronic safety studies via threedifferent routes of administration - ocular, nasal and inhaled - are alsounderway. The importance of the novel mechanism of action of rEV131 has long beenrecognised by Evolutec. However, despite preclinical data to support theeffects of rEV131 on the H4 inflammatory cascade, the impact of sequesteringhistamine and preventing the precise effects of the H4 receptor has beenchallenging to demonstrate definitively. This has now been resolved. Recentstudies undertaken with human eosinophils have shown that rEV131 impacts theimportant H4 receptor on this cell type. This work is important bothscientifically and commercially. Potential partners regard an understanding ofthe mechanism of action as important in the context of in-licensing noveltherapies. This data will be additive to discussions with prospective partners. rEV576 The preclinical programme with rEV576, a novel complement inhibitor, is ahead ofschedule and new positive results have been generated in preclinical models ofmyasthenia gravis, Guillain-Barre Syndrome ("GBS") and asthma. Myastheniagravis and GBS are autoimmune conditions in which disease impacts the peripheralnervous system. These two areas are commercially interesting to the Company asthey are not only areas of high unmet clinical need, but also have small patientnumbers, potentially allowing the Company to target direct sales rather thandepend upon a marketing partner. These are also orphan drug indications whichcould allow the Company reduced development expenditure and a period ofmarketing exclusivity. In myasthenia gravis, the preliminary work at CaseWestern has shown that rEV576 impacts both mild and severe disease in thepreclinical models. The models used by Professor Kaminski reflect the chronicdisease more closely than those used previously because antibodies are developedin vivo. These results are important as they suggest that rEV576 could be usedas an acute treatment during myasthenic crises. In the GBS model, rEV576 had asignificant effect in reducing moderate levels of disease. On the basis ofthese results and those previously generated in acute myocardial infarction, abroad range of clinical development options are open to Evolutec. The Companyhas applied for orphan indication in myasthenia gravis and is in dialogue withthe FDA over this application. In a preclinical asthma model, inhaled rEV576significantly reduced airway hyper-responsiveness with good effect at low doses.Effects were comparable to the commercial standard budesonide. In addition,rEV576 reduced the number of eosinophils in the bronchoalveolar lavage fluidsuggesting a reduction in underlying inflammation. Recent evidence suggeststhat activation of the complement system is associated with the more severeforms of asthma. It is possible that rEV576 could be suited to severe asthmapatients. An orphan drug application will now be made for GBS. The processdevelopment work required to manufacture rEV576 commercially has progressed welland is on track to deliver the clinical grade material required for clinicalstudies in 2007. The Company is in a strong position to progress rEV576 to theclinic in 2007, so providing a second clinical development candidate. Vaccine technology The tick-borne disease studies undertaken by Merial have now been completed.However, because the model did not perform as expected, this work will need tobe repeated. Merial has indicated its interest in pursuing the work further anddiscussions are underway over the next steps. rEV598 Preclinical work with rEV598 is underway to determine the in vivo effect of thedevelopment candidate in chemotherapy-induced nausea and vomiting. Outlook During the first half of 2006, Evolutec has commenced two Phase II trials forits lead product development candidate, rEV131. In the next 12 months, Evolutecintends to deliver 4 clinical trial results with rEV131 and progress rEV576 intoclinical development. Ongoing rEV131 partnership discussions are progressingwell. Assuming positive results, the Board is confident of delivering a strongperformance in the next 12 months. Financial Review Evolutec reports a net loss of £5.7 million for the first six months of 2006.This reflects increased expenditure on clinical trials with the Company's leadproduct development candidate rEV131. Evolutec had cash and held-to-maturity investments of £13.2 million as at 30June 2006. These funds will be used to complete the rhinitis and post-cataracttrials as well as to progess further clinical work with rEV131 and preclinicalwork with rEV576 in 2007. Implementation of International Financial Reporting Standards The financial results for the six months ended 30 June 2006 are the firstresults prepared in accordance with the recognition and measurement principlesof International Financial Reporting Standards ("IFRS"). Prior to theseresults, the Group prepared its audited annual financial statements under UKGenerally Accepted Accounting Practices ("UK GAAP"). The results for the six months ended 30 June 2005 and year ended 31 December2005 included in these interim results have been restated in accordance withIFRS. The impact of the restatement is described in detail in Note 2 to thefinancial statements. The principal adjustments relate to: a. Cash and cash equivalents. Under IFRS cash and cash equivalents include bank deposits and other short-term highly liquid investments with original maturities of three months or less. Under UK GAAP only immediate access deposits were included in cash and cash equivalents. b. Expenditure on patents. In the 2005 financial statements, Evolutec reclassified expenditure on patents as a research and development expense. Prior to the 2005 financial statements Evolutec classified patent costs as an administrative expense. c. Foreign exchange gains/(losses). Under IFRS Evolutec has chosen to reclassify foreign exchange gains/(losses) on monetary assets and liabilities under interest payable and similar items. Under UK GAAP, foreign exchange gains/(losses) on monetary assets and liabilities were shown under administrative expenses. The loss for the six months ended 30 June 2005 and the loss for the year ended31 December 2005 are unaffected by these adjustments. Net assets at 1 January 2005, 30 June 2005 and 31 December 2005 are unaffectedby these adjustments. All further comparisons refer to the results reported under IFRS. Income statement Revenue for the six months ended 30 June 2006 was £14 thousand (2005: nil) inrespect of revenue recognised under a collaboration agreement with Merialregarding the animal uses of Evolutec's vaccine technology. Selling and marketing costs for the six months ended 30 June 2006 of £0.1million (2005: nil) relates mainly to market research. Research and development expenditure for the six months ended 30 June 2006increased to £5.1 million (2005: £1.7 million). The increase relatesprincipally to the clinical development of rEV131 in rhinitis and post-cataracteye inflammation. A Phase IIb rhinitis trial and a proof of concept Phase IIpost-cataract eye inflammation trial commenced during the period. Patientrecruitment is already complete for the rhinitis trial. Administrative expenses for the six months ended 30 June 2006 increased to £1.0million (2005: £0.8 million). In part this reflects an increase in headcount to12 full-time employees compared to 7 at 30 June 2005. Interest receivable and similar income for the six months to 30 June 2006decreased to £0.3 million (2005: £0.5 million) and comprised interest receivableof £0.3 million (2005: £0.1 million) and no exchange gains (2005: £0.4 million).The increase in interest receivable follows the fundraising in November 2005.Interest payable and similar charges increased to £0.1 million (2005: nil) andentirely comprised unrealised exchange losses on Evolutec's US Dollardenominated deposits. Balance sheet Non-current assets at 30 June 2006 amounted to £0.2 million (2005: £0.1 million)with the principal components being office equipment and leasehold improvements. Current assets at 30 June 2006 amounted to £14.2 million (2005: £12.5 million)and comprised amounts receivable of £1.0 million and cash resources of £13.2million. The cash resources comprised £2.7 million on deposits with maturitydates at inception of more than 3 months, and £10.5 million on deposits eitherwith immediate access or with maturities of less than 3 months at inception.The increase in current assets is due to the higher cash balance following theequity fundraising in November 2005 and a higher level of prepayments in respectof the clinical development activity. Current liabilities at 30 June 2006 amounted to £2.7 million (2005: £1.0million) and entirely comprised trade payables. The increase in currentliabilities reflects higher trade payables and higher accrued expenses inrespect of the clinical development activities. Cash flow Net cash outflow from operating activities in the six month period to 30 June2006 increased to £4.5 million (2005: £1.6 million). The increase relatesprincipally to the increase in development expenses. The principal cash inflow items were net interest receipts of £0.3 million andthe receipt of the research and development tax credit for the prior year of£0.5 million. The principal cash outflow item was capital expenditure of £31thousand. Shareholders' equity Shareholders' equity at 30 June 2006 was £11.7 million (2005: £11.6 million) andcomprised share capital of £24.4 million, other reserves of £9.0 million and theretained deficit of £21.7 million. The increase in share capital reflects theissue of shares in November 2005. The increase in other reserves reflects thefair value of share-based payments to employees. Independent review report to Evolutec Group plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2006 which comprises the consolidated incomestatement, consolidated balance sheet, consolidated cash flow statement,consolidated statement of changes in shareholders' equity and the related Notes1 to 7. We have read the other information contained in the interim reportwhich comprises the Chief Executive's Review of Operations and the FinancialReview and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Our responsibilities do notextend to any other information. This report is made solely to the Group in accordance with guidance contained inAPB Bulletin 1999/4 "Review of Interim Financial Information". Our review workhas been undertaken so that we might state to the Group those matters we arerequired to state to them in a review report and for no other purpose. To thefullest extent permitted by law, we do not accept or assume responsibility toanyone other than the Group, for our review work, for this report, or for theconclusion we have formed. Directors' responsibilities The interim report including the financial information contained therein is theresponsibility of, and has been approved by, the Directors. They areresponsible for preparing the interim report and ensuring that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the annual accounts except where any changes, and thereason for them, are disclosed. As disclosed in Note 1, the next annual financial statements of the Group willbe prepared in accordance with International Financial Reporting Standards asadopted for use in the European Union. This interim report has been prepared inaccordance with International Accounting Standard 34 "Interim FinancialReporting" and the requirements of IFRS 1 "First-time Adoption of InternationalFinancial Reporting Standards" relevant to interim reports. The accounting policies are consistent with those that the Directors intend touse in the next annual financial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4"Review of Interim Financial Information" issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries of management and applying analytical procedures to the financialinformation and underlying financial data and, based thereon, assessing whetherthe accounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly, we do not express an auditopinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. GRANT THORNTON UK LLPCHARTERED ACCOUNTANTSOXFORD11 September 2006 1. The maintenance and integrity of the Evolutec Group plc website is the responsibility of the Directors: the interim review does not involve consideration of these matters and, accordingly, the Group's reporting accountants accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the website. 2. Legislation in the United Kingdom governing the preparation and dissemination of the interim report differs from legislation in other jurisdictions. Consolidated income statementFor the six month period ended 30 June 2006 Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Notes £000 £000 £000 Revenue 3 14 - 14Cost of sales (1) - (6) _______ _______ _______Gross Profit 13 - 8Selling and marketing costs (52) - -Research and development expenditure (5,087) (1,660) (5,346)Administrative expenses (1,007) (824) (1,665) _______ _______ _______Operating loss (6,133) (2,484) (7,003)Interest receivable and similar income 4 339 500 870Interest payable and similar charges 4 (137) - - _______ _______ _______Loss before tax (5,931) (1,984) (6,133)Taxation 251 170 528 _______ _______ _______ Loss for the period (5,680) (1,814) (5,605) _______ _______ _______ Basic and diluted loss per ordinary share 7 (24.1)p (14.0)p (34.8)p The results for the period are derived from continuing activities. Consolidated balance sheetAs at 30 June 2006 Unaudited Unaudited Audited 30 June 30 June 31 December 2006 2005 2005ASSETS Notes £000 £000 £000Non-current assetsProperty, plant and equipment 152 67 161 _______ _______ _______ 152 67 161 _______ _______ _______Current assetsResearch and development tax credits 251 143 502Trade and other receivables 5 746 145 819Held-to-maturity investments 2,728 10,798 15,877Cash and cash equivalents 10,512 1,430 1,739 _______ _______ _______ 14,237 12,516 18,937 _______ _______ _______Total assets 3 14,389 12,583 19,098 _______ _______ _______EQUITYCapital and reserves attributable to the equity holders of the CompanyShare capital 24,402 15,146 24,402Other reserves 8,948 8,699 8,793Retained deficit (21,692) (12,221) (16,012) _______ _______ _______Equity shareholders' funds 11,658 11,624 17,183 _______ _______ _______LIABILITIESCurrent liabilitiesTrade and other payables 6 2,731 959 1,915 _______ _______ _______Total liabilities 2,731 959 1,915 _______ _______ _______Total equity and liabilities 14,389 12,583 19,098 _______ _______ _______ Consolidated cash flow statementFor the six month period ended 30 June 2006 Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Notes £000 £000 £000Cash flows from operating activitiesLoss for the period (5,680) (1,814) (5,605)Taxation (251) (170) (528)Depreciation 40 8 29Interest Receivable (339) (149) (429)Unrealised foreign exchange losses/(gains) 138 (351) (311)Share options - value of employee services 155 80 275Decrease/(increase) in trade and other receivables 73 (66) (741)Increase in trade and other payables 816 673 1,548 _______ _______ _______Cash used by operations (5,048) (1,789) (5,762)Taxation received 502 203 203 _______ _______ _______Net cash outflow from operating activities (4,546) (1,586) (5,559) _______ _______ _______Cash flows from investing activitiesPurchase of property, plant and equipment 3 (31) (64) (179)Interest received 4 339 149 429(Decrease)/increase in held-to-maturity investments 13,118 (8,060) (13,167) _______ _______ _______Net cash generated from investing activities 13,426 (7,975) (12,917) _______ _______ _______Cash flows from financing activitiesProceeds from issuance of shares - 9,504 18,760Purchase of treasury shares - - (20) _______ _______ _______Net cash generated from financing activities - 9,504 18,740 _______ _______ _______Net increase/(decrease) in cash, cash equivalents and bank overdrafts 8,880 (57) 264 Cash, cash equivalents and bank overdrafts at start of the period 1,739 1,374 1,374Exchange gains/(losses) on cash and bank overdrafts (107) 113 101 _______ _______ _______Cash, cash equivalents and bank overdrafts at the end of the period 10,512 1,430 1,739 _______ _______ _______ Consolidated statement of changes in shareholders' equityFor the six month period ended 30 June 2006 Share Other Retained capital reserves deficit Total £000 £000 £000 £000Balance at 1 January 2005 10,446 3,734 (10,407) 3,773 _______ _______ _______ _______Issue of ordinary shares in April 2005 10,000 - - 10,000Expenses of issue of ordinary shares (496) - - (496)Cancellation of deferred shares (4,804) 4,804 - -Loss for the period - - (1,814) (1,814)Fair value of share-based payments - 161 - 161 _______ _______ _______ _______Balance at 30 June 2005 15,146 8,699 (12,221) 11,624 _______ _______ _______ _______Issue of ordinary shares in November 2005 10,000 - - 10,000Expenses of issue of ordinary shares (744) - - (744)Purchase of own shares - (20) - (20)Loss for the period - - (3,791) (3,791)Fair value of share-based payments - 114 - 114 _______ _______ _______ _______Balance at 31 December 2005 24,402 8,793 (16,012) 17,183 _______ _______ _______ _______Loss for the period - - (5,680) (5,680)Fair value of share-based payments - 155 - 155 _______ _______ _______ _______Balance at 30 June 2006 24,402 8,948 (21,692) 11,658 _______ _______ _______ _______ Notes to the interim financial statementsFor the six month period ended 30 June 2006 1. Accounting policies and basis of preparation Prior to 2006, the Group prepared its audited financial statements under UKGAAP. For the year ended 31 December 2006, the Group has decided to prepare itsannual consolidated financial statements in accordance with accounting standardsas adopted in the European Union ("EU"). As such, those financial statementswill take account of the requirements and options in IFRS 1 "First-time Adoptionof IFRS" as they relate to the 2005 comparatives included therein. The financial information for the six months ended 30 June 2006 is unaudited andhas been prepared in accordance with the Group's accounting policies, based onIFRS, that are expected to apply for 2006. The financial information for thesix months ended 30 June 2005 is also unaudited and has been restated underIFRS. These interim financial statements have been prepared in accordance with IAS 34and in accordance with the recognition and measurement principles of IFRS thatthe Group expects to apply in the full year IFRS financial statements for 31December 2006. Certain of the requirements and options in IFRS 1 relating to comparativefinancial information presented on first-time adoption may result in a differentapplication of accounting policies in the 2005 restated financial information tothat which would apply if the 2005 financial statements were the first financialstatements of the Group prepared in accordance with IFRS. An explanation of howthe transition from UK GAAP to IFRS has affected the Group's financial position,income statement and cash flow is set out in Note 2. The interim financial information has not been audited and does not constitutestatutory accounts within the meaning of Section 240 of the Companies Act 1985but has been reviewed by the auditors in accordance with Bulletin 1999 / 4issued by the Auditing Practices Board. The Company's statutory accounts forthe year ended 31 December 2005, prepared under UK GAAP, have been delivered tothe Registrar of Companies; the report of the auditors on these accounts wasunqualified and did not contain a statement under Section 237 (2) or (3) of theCompanies Act 1985. Accounting policies The principal accounting policies adopted in the preparationof these interim financial statements are set out below. These policies havebeen consistently applied to all periods presented, unless otherwise stated. Evolutec is a research and development based biopharmaceutical business whichexpects to incur further losses until revenues from royalty income, milestonereceipts and product sales exceed expenditure on the product portfolio and itsoverheads and administrative costs. The Directors believe that the Group hassufficient funds for the foreseeable future, therefore the interim financialstatements have been prepared on the going concern basis. Basis of consolidation The consolidated interim financial statements of theGroup include the accounts of Evolutec Group plc and all its subsidiaryundertakings (together, the "Group"), made up to 30 June 2006. Inter-companytransactions are eliminated on consolidation. Revenue The Group generates revenue by licensing its technologies. Therecognition of such revenue, including up front and milestone payments, isdependent on the terms of the related arrangement, having regard to the ongoingrisks and rewards of the arrangement, and the existence of any performance orrepayment obligations with any third party. Non-refundable access fees, options fees and milestone payments receivable forparticipation by a third party in development and commercialisation of a productdevelopment candidate are recognised when they become contractually binding,provided there are no related commitments of the Group. Where there are relatedcommitments, revenue is recognised on a percentage-of-completion basis in linewith the actual levels of expenditure incurred in fulfilling these commitments.All other licence income and contract research fees are recognised over theaccounting period to which the relevant services relate. Revenues derived fromgrants received are recognised in line with the related expenditure. Royaltyincome is recognised in relation to sales to which the royalty relates. Operating leases Costs in respect of operating leases are charged to the profitand loss account on a straight-line basis over the terms of the leases. Share-based payments The Group makes equity-settled share-based payments to itsemployees and Directors. Equity-settled share-based payments are measured atfair value at the date of grant and expensed on a straight-line basis over thevesting period of the award. At each balance sheet date, Evolutec revises itsestimate of the number of options that are expected to become exercisable. The value of any shares or options granted is charged to the profit and lossaccount over the period the shares vest, with a corresponding credit toreserves. When share options are exercised, the proceeds received, net of anytransaction costs, are credited to share capital (nominal value) and sharepremium. The principal assumptions used to calculate the value of options issued are: Share price volatility 45%Risk free rate of return 4.5%Date of exercise Normally assumed to be the first possible exercise date Employee benefits All employee benefit costs, notably holiday pay andcontributions to personal defined contribution pension plans, are charged to theincome statement on an accruals basis. The Group does not offer any otherpost-retirement benefits. Taxation Current tax, including UK corporation tax and research and developmenttax credits, is provided (or shown) at amounts expected to be paid (orrecovered) using the tax rates or laws that have been enacted, or substantiallyenacted, by the balance sheet date. Credit is taken in the accounting period for research and development taxcredits, which will be claimed from HM Revenue and Customs in respect ofqualifying research and development costs incurred in the same accountingperiod. Deferred tax is recognised in respect of all temporary differences identified atthe balance sheet date, except to the extent that the deferred tax arises fromthe initial recognition of goodwill (if amortisation of goodwill is notdeductible for tax purposes) or the initial recognition of an asset or liabilityin a transaction which is not a business combination and at the time of thetransaction affects neither accounting profit nor taxable profit and loss.Temporary differences are differences between the carrying amount of the Group'sassets and liabilities and their tax base. Deferred tax liabilities may be offset against deferred tax assets within thesame taxable entity or qualifying local tax group. Any remaining deferred taxasset is recognised only when, on the basis of all the available evidence, itcan be regarded as probable that there will be suitable taxable profits, withinthe same jurisdiction, in the foreseeable future against which the deductibletemporary difference can be utilised. Deferred tax is provided on temporary differences arising in subsidiaries,jointly controlled entities or associates, except where the timing of reversalof the temporary difference can be controlled and it is probable that thetemporary difference will not reverse in the foreseeable future. Deferred tax is measured at the average tax rates that are expected to apply inthe periods in which the asset is realised or liability settled, based on taxrates and laws that have been enacted or substantially enacted by the balancesheet date. Measurement of deferred tax liabilities and assets reflects the taxconsequence expected to follow from the manner in which the asset or liabilityis recovered or settled. Property, plant and equipment Property, plant and equipment are stated athistoric cost less depreciation. Historic cost comprises the purchase pricetogether with any incidental costs of acquisition. Depreciation is calculated towrite off the cost, less residual value, of tangible fixed assets in equalannual installments over their estimated useful lives as follows: Plant and machinery 3-5 yearsFixtures and fittings 3 years Internally-generated intangible assets - product research and developmentDevelopment expenditure on new or substantially improved products is capitalisedas an intangible asset and amortised through cost of sales over the expecteduseful life of the product concerned. Capitalisation commences from the pointat which the technical feasibility and commercial viability of the product canbe demonstrated and the Group is satisfied that it is probable that futureeconomic benefit will result from the product once completed. This is usuallyat the point of regulatory filing in a major market and approval is highlyprobable. Capitalisation ceases when the product is ready for launch. Whereassets are acquired or constructed in order to provide facilities for researchand development over a number of years, they are capitalised and depreciatedover their useful lives. Expenditure relating to clinical trials is accrued ona percentage-of-completion basis with reference to fee estimates with thirdparties. Expenditure on research and development activities which do not meet the abovecriteria, is charged to the income statement as incurred. Held-to-maturity investments Held-to-maturity investments are non-derivativefinancial assets with fixed or determinable payments and fixed maturities thatthe Group's management has the positive intention and ability to hold tomaturity. Assets in this category are held at amortised cost. Held-to-maturityinvestments include short-term investments with original maturities of more than3 months. Cash and cash equivalents Cash and cash equivalents include cash in hand, bankdeposits repayable on demand and other short-term highly liquid investments withoriginal maturities of 3 months or less. Foreign currencies Transactions in foreign currencies are translated intosterling at the rate of exchange ruling at the transaction date. Monetary assetsand liabilities in foreign currencies are retranslated into sterling at therates of exchange ruling at the balance sheet date. Differences arising due toexchange rate fluctuations are taken to the income statement in the period inwhich they arise. Financial instruments The Group uses financial instruments, primarily to manageexposures to fluctuations in foreign currency exchange rates and interest rates.Income and expenditure arising on financial instruments is recognised on theaccruals basis and credited or charged to the profit and loss account in thefinancial period to which it relates. 2. Explanation of transition to IFRS Reconciliation of equity and loss These interim financial statements have beenprepared in accordance with IAS 34 and in accordance with the recognition andmeasurement principles of IFRS that the Group expects to apply in the full yearfinancial statements for 31 December 2006. The following disclosures arerequired in the period of transition. For the purpose of this financialinformation the last interim statements were for the six month period ended 30June 2005, the last annual financial statements were for the year ended 31December 2005, and the date of transition to IFRS was 1 January 2005. IFRS 1 "First-time Adoption of International Financial Reporting Standards" setsout the transition rules which must be applied when IFRS is adopted for thefirst time. As a result, certain of the requirements and options in IFRS 1 mayresult in a different application of accounting policies in the 2005 restatedfinancial information from that which would apply if the 2005 financialstatements were the first financial statements. The standard sets out certainmandatory exemptions to retrospective application and certain optionalexemptions. The most significant optional exemption available taken by the Group is inrespect of business combinations. The Group has elected not to apply IFRS 3 "Business Combinations" retrospectively to business combinations that took placeprior to the transition date. Consequently, goodwill arising on businesscombinations before the transition date remains at its previous UK GAAP carryingvalue of £nil at the date of transition from the UK GAAP financial statements. Reconciliation of equity There were no adjustments required to either net assetsor loss under UK GAAP in order to arrive at net assets or loss under IFRS. Asshown in the following tables, there have been adjustments within current assetsto reclassify short-term investments with original maturities of 3 months orless as cash and cash equivalents; within equity to reclassify own sharespurchased as other reserves; and within the income statement to reclassifyexchange gains as interest receivable and similar income. Reconciliation of balance sheet presentation at 1 January 2005(date of transition to IFRS) UK IFRS GAAP effect IFRS £000 £000 £000ASSETSNon-current assetsProperty, plant and equipment 11 - 11 _____ _____ _____ 11 - 11 _____ _____ _____Current assetsResearch and development tax credits 177 - 177Trade and other receivables 78 - 78Held-to-maturity investments a 3,761 (1,261) 2,500Cash and cash equivalents a 113 1,261 1,374 _____ _____ _____ 4,129 - 4,129 _____ _____ _____Total assets 4,140 - 4,140 _____ _____ _____ EQUITYCapital and reserves attributable to the equity holders of the CompanyShare capital 5,824 - 5,824Share premium account 4,622 - 4,622Other reserves 3,734 - 3,734Retained deficit (10,407) - (10,407) _____ _____ _____Total equity 3,773 - 3,773 _____ _____ _____ LIABILITIESCurrent liabilitiesTrade and other payables 367 - 367 _____ _____ _____Total liabilities 367 - 367 _____ _____ _____Total equity and liabilities 4,140 - 4,140 _____ _____ _____ Reconciliation of balance sheet presentation at 30 June 2005 UK IFRS GAAP effect IFRS £000 £000 £000ASSETSNon-current assetsProperty, plant and equipment 67 - 67 _____ _____ _____ 67 - 67 _____ _____ _____Current assetsResearch and development tax credits 143 - 143Trade and other receivables 145 - 145Held-to-maturity investments a 11,941 (1,143) 10,798Cash and cash equivalents a 287 1,143 1,430 _____ _____ _____ 12,516 - 12,516 _____ _____ _____Total assets 12,583 - 12,583 _____ _____ _____ EQUITYCapital and reserves attributable to the equity holders of the CompanyShare capital 1,734 - 1,734Share premium account 13,412 - 13,412Merger reserve 3,734 - 3,734Capital redemption reserve 4,804 - 4,804Other reserves 161 - 161Retained deficit (12,221) - (12,221) _____ _____ _____Total equity 11,624 - 11,624 _____ _____ _____ LIABILITIESCurrent liabilitiesTrade and other payables 959 - 959 _____ _____ _____Total liabilities 959 - 959 _____ _____ _____Total equity and liabilities 12,583 - 12,583 _____ _____ _____ Reconciliation of balance sheet presentation at 31 December 2005 UK IFRS GAAP effect IFRS £000 £000 £000ASSETSNon-current assetsProperty, plant and equipment 161 - 161 _____ _____ _____ 161 - 161 _____ _____ _____Current assetsResearch and development tax credits 502 - 502Trade and other receivables 819 - 819Held-to-maturity investments a 17,013 (1,136) 15,877Cash and cash equivalents a 603 1,136 1,739 _____ _____ _____ 18,937 - 18,937 _____ _____ _____Total assets 19,098 - 19,098 _____ _____ _____ EQUITYCapital and reserves attributable to the equity holders of the CompanyShare capital 2,359 - 2,359Share premium account 22,043 - 22,043Capital redemption reserve 4,804 - 4,804Other reserves 3,989 - 3,989Retained deficit (16,012) - (16,012) _____ _____ _____Total equity 17,183 - 17,183 _____ _____ _____ LIABILITIESCurrent liabilitiesTrade and other payables 1,915 - 1,915 _____ _____ _____Total liabilities 1,915 - 1,915 _____ _____ _____Total equity and liabilities 19,098 - 19,098 _____ _____ _____ Reconciliation of income statement presentation for the six months ended 30 June2005 UK IFRS GAAP effect IFRS £000 £000 £000Revenue - - -Cost of sales - - - _____ _____ _____Gross profit - - -Research and development expenditure b (1,555) (105) (1,660)Administrative expenses b, c (578) (246) (824) _____ _____ _____Operating loss (2,133) (351) (2,484) c 149 351 500Interest receivable and similar income _____ _____ _____Loss before tax (1,984) - (1,984) 170 - 170Tax credit on loss on ordinary activities _____ _____ _____Loss for the period (1,814) - (1,814) _____ _____ _____ Reconciliation of income statement presentation for the year ended 31 December2005 UK IFRS GAAP effect IFRS £000 £000 £000Revenue 14 - 14Cost of sales (6) - (6) _____ _____ _____Gross profit 8 - 8Research and development expenditure (5,346) - (5,346)Administrative expenses c (1,224) (441) (1,665) _____ _____ _____Operating loss (6,562) (441) (7,003) c 429 441 870Interest receivable and similar income _____ _____ _____Loss before tax (6,133) - (6,133) 528 - 528Tax credit on loss on ordinary activities _____ _____ _____Loss for the period (5,605) - (5,605) _____ _____ _____ Notes to the reconciliation of presentation of balance sheets and incomestatements a. Under IFRS, short-term investments with a maturity of three months or less at the date of acquisition are included in cash and cash equivalents. b. Evolutec has reclassified expenditure on patents as a research and development expense. c. Under IFRS, Evolutec has chosen to reclassify foreign exchange gains and losses within interest receivable and similar items and interest payable and similar items, respectively. Explanation of the principle differences between the cash flow statementspresented under UK GAAP and the cash flow statements presented under IFRS The cash flow statement has been prepared in conformity with IAS 7 "Cash FlowStatements". The principle differences between the 2005 cash flow statementspresented in accordance with UK GAAP and the cash flow statements presented inaccordance with IFRS for the same periods are as follows: Under UK GAAP, net cash flow from operating activities was determined beforeconsidering cash out flows from (a) returns on investments and servicing offinance, (b) taxes paid. Under IFRS, net cash flow from operating activities isdetermined after these items. Under UK GAAP, capital expenditure, financial investments and acquisitions wereclassified separately, while under IFRS they are classified as investingactivities. Under UK GAAP, movements in short-term investments were not included in cash butclassified as management of liquid resources. Under IFRS, short-term investmentswith maturity of three months or less at the date of acquisition are included incash and cash equivalents. 3. Segment information Primary reporting format - business segments As at 30 June 2006, the Group operates one business segment, which is theresearch and development of a range of pharmaceutical product candidates. Analysis of revenue by category Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 Sale of goods - - -Collaborative agreements 14 - 14 _____ _____ _____Total 14 - 14 _____ _____ _____ Secondary reporting format - geographical segments The Group operates in four main geographical areas, even though it is managed ona worldwide basis. The home country of the Company, and of Evolutec Limited -which is the main operating company - is the United Kingdom. The area ofoperation is primarily research and development of a range of pharmaceuticalproduct candidates. Revenue Unaudited Unaudited Audited Six months ended Six months ended Year ended 31 30 June 2006 30 June 2005 December 2005 £000 £000 £000 United Kingdom - - -Rest of Europe - - -North America 14 - 14Rest of the World - - - _____ _____ _____Total 14 - 14 _____ _____ _____ Total assets Unaudited Unaudited Audited 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 United Kingdom 14,389 12,583 19,098Rest of Europe - - -North America - - -Rest of the World - - - _____ _____ _____Total 14,389 12,583 19,098 _____ _____ _____ Total assets are allocated based on where the assets are located. Capital expenditure Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 United Kingdom 31 64 179Rest of Europe - - -North America - - -Rest of the World - - - _____ _____ _____Total 31 64 179 _____ _____ _____ Capital expenditure is allocated based on where the assets are located. 4. Finance income and charges Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000Interest receivable and other similar incomeInterest on cash, cash equivalents and held-to-maturity 339 149 429assetsExchange gains on held-to-maturity assets - 351 441 _____ _____ _____Total 339 500 870 _____ _____ _____ Interest payable and other similar chargesExchange losses on held-to-maturity assets (137) - - _____ _____ _____Total (137) - - _____ _____ _____ 5. Trade and other receivables Unaudited Unaudited Audited 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 Trade receivables - - 17Other receivables 89 16 21Prepayments and accrued income 657 129 781 _____ _____ _____Total 746 145 819 _____ _____ _____ 6. Trade and other payables Unaudited Unaudited Audited 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 Trade payables 1,130 67 599Taxation and social security payable 49 32 109Accruals 1,552 860 1,207 _____ _____ _____Total 2,731 959 1,915 _____ _____ _____ 7. Loss per ordinary share Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 Attributable loss (5,680) (1,814) (5,605) _____ _____ _____Weighted average number of shares in issue (000) 23,591 13,000 16,096 _____ _____ _____Loss per share (basic and diluted) (24.1)p (14.0)p (34.8)p _____ _____ _____ The calculation of earnings per share is based on the weighted average number ofordinary shares in issue during the period. Due to the loss for the period theshare options are anti-dilutive. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Nanoco