Interim Results

28th Aug 2008 07:00



Press Release 28 August 2008

Cyprotex PLC

("Cyprotex" or "the Company" or "the Group")

Interim results for the six months to 30 June 2008

Cyprotex PLC (LSE:CRX), the drug discovery technology and information company, today reports its Interim results for the half year ended 30 June 2008.

Financial Highlights

Revenues for the period ended June 2008 expanded significantly on the comparable period, up 33% to £2.25m (1H 2007: £1.69m).

The Group recorded a net profit for the first time at £56,000 (1H 2007: loss £418,000)

Cash and cash equivalents ended the period largely unchanged from the 2007 year end position, at £276,000 (2007: £301,000), although the second half of the year will bear the weight of certain non-recurring costs associated with the departure of Cyprotex's previous Chief Executive Officer, Mr Robert Morrisson Atwater.

At a General Meeting on 14th July 2008, shareholders authorised the placement of 40 million new ordinary shares at 2.5p each to both new and existing shareholders raising £1m (gross). The closing date for subscriptions associated with this placement was 26th August 2008, following which the fund raising was declared successfully completed.

Commenting on the results, Nikolas Sofronis, Chairman of Cyprotex PLC, said: 

"A number of important steps took place during the first half of 2008. As a result, Cyprotex now possesses greater confidence and remains optimistic of securing further growth in the second half."

  

For further information:

Cyprotex PLC
Dr Anthony Baxter,  Chief Executive Officer Russell Gibbs Chief Financial Officer	Tel: +44 (0) 1625 505 100
[email protected]	www.cyprotex.com
Nomura Code Securities Limited
Charles Walker	Tel: +44 (0) 20 7776 1200
[email protected]	www.nomuracode.com

Media enquiries:

Pelham PR
Simon Miller	Tel: +44 (0) 20 3178 4419
[email protected]	www.pelhampr.com

  CHAIRMAN'S STATEMENT

Notable Events

The first half of 2008 was a particularly busy period for Cyprotex, marked by three specific and notable events.

Firstly, increased operational activity during the six-month period allowed Cyprotex to report a profit for the very first time. Secondly, the Company witnessed the departure of Mr Robert Morrisson Atwater who, after four years at the helm, handed the role of Chief Executive Officer to Dr Anthony Baxter. Thirdly, the Board took the opportunity to bolster Group reserves by embarking on a fund raising exercise.

Given the significance of each of these events, I will now more fully expand upon their details:

A Positive Return

Declaring its first profit, however modest, is undoubtedly a landmark event for Cyprotex. The positive net and operating profits achieved during the six months to June 2008, represent the first genuine fruits that follow six years of heavy strategic investment.

This improvement resulted from a sharp acceleration in revenue growth. As I have explained in the past, Cyprotex's automated platform provides significant operational gearing. Enjoying a relatively low cost of consumables, the Group is able to demonstrate consistently strong gross margins, while other operational expenses have remained generally fixed. Increased activity thus drops largely to the bottom line. The half-year cash position finished close to where it began the period, although the second half of 2008 will bear the weight of certain non-recurring costs associated with the departure of Chief Executive Officer, Mr Robert Morrisson Atwater. 

In my report for the year ended 31st December 2007, I suggested that the New Year should present an excellent opportunity in which to prove Cyprotex's business plan. I said this in the knowledge that the global drug discovery industry was confronting caution on two fronts: one being the imminent economic slowdown associated with the international credit crunch; the other being the continued tightening of the regulatory screw that was already being blamed for the two years of consecutive underperformance by the international sector. Against this, however, I was clear that Cyprotex should prosper under conditions that force industry players into maximising their operational efficiencies.

In so doing, pharmaceutical companies would be adopting a more generalised policy of externalising non-core, or generic activities, which cannot be said to form part of their core competency. While offering the potential for significant cost savings, such a move also represents a break with the past where most stages of drug development, from concept through to commercialisation, have been controlled internally. Nevertheless, with industry costs continuing to spiral, levels of success have tumbled (2007 saw the number of new drug approvals by the US Food and Drugs Administration (FDA) fall to its lowest level in nearly quarter of a century) against the gathering pace of generic competition for a number of the world's most profitable offerings. Recently, a number of authorative reports, including one by Turner Investment Partners (TIP), have recognised this evolution. TIP cites independent forecasts of market expansion for global contract research organisations (CRO) from US$16.3bn in 2006 rising to US$29.4bn by 2011. Importantly, it also suggests that CROs will be involved in as much as half of all drug development, both at the pre-clinical level and beyond, within five years.

With urgent calls for change now clearly being heard, Cyprotex has claimed its first formal and longer-term collaborations with significant pharmaceutical companies. These collaborations effectively pass responsibility for providing high integrity ADMET (Absorption, Distribution, Metabolism, Excretion and Toxicity) services covering entire screening schedules and in so doing, Cyprotex becomes an integral part of its partner's development programme. In turn, such interdependence significantly improves forward visibility and operational planning, while its automated platform is able to cope with the higher levels of throughput without deterioration in quality or turnaround.

 

With the tangible benefit of such collaborations being simple to demonstrate, Cyprotex is confident of securing similar agreements over the coming months. Having a truly global customer base established through well over 200 Master Services Agreements (MSA), ranging from the global giants down to the smallest biotechs, Cyprotex is already a trusted partner. Such relationships, historically built through servicing laboratory overflow for the majors, or piecemeal work for fledgling companies too small to operate their own facilities, can now be expected to deepen significantly. In so doing, Cyprotex hopes to lessen its historical dependence on shorter-term 'fee-for-service' activity, against which forward scheduling can be uncertain, in favour of highly visible longer-term projects. Recognition of the true scale of this opportunity will indeed prove Cyprotex's business plan. 

The second half of 2008 opened on a similarly optimistic note. Activity levels continue to accelerate while levels of customer satisfaction remain high. Cyprotex's sales and marketing team continued to add new customers at an impressive pace. In so doing they are focussing customers on the Group's technical capabilities and value-added services as a means of accelerating candidate selection.

Financial Highlights

Revenues for the period ended June 2008 expanded sharply on the comparable period, up 33% to £2.25m (1H 2007: £1.69m).

The Group recorded a net profit for the first time at £56,000 (1H 2007: loss £418,000)

Cash and cash equivalents ended the period largely unchanged from the 2007 year end position, at £276,000 (2007: £301,000), although the second half of the year will bear the weight of certain non-recurring costs associated with the departure of Cyprotex's previous Chief Executive Officer, Mr Robert Morrisson Atwater.

At a General Meeting on 14th July 2008, shareholders authorised the placement of 40 million new ordinary shares at 2.5p each to both new and existing shareholders. The closing date for subscriptions associated with this placement was 26th August 2008, following which the fund raising was declared as successfully completed.

A Change of Management

Toward the end of the first half, Cyprotex's Chief Executive Officer, Mr Robert Morrisson Atwater, decided to step down in favour of Dr Anthony Baxter.

Robert assumed the title of Chief Executive Officer some four years ago after overseeing a refinancing exercise for Cyprotex PLC. Having recognised the value embedded in its technologies, he refocused the Group's business plan and invested heavily in its infrastructure. During his tenure, Cyprotex's customer base and international reputation expanded dramatically.

In passing the baton to Dr Anthony Baxter, Robert has ensured the Group's next phase of growth will be overseen by an experienced industry professional with an exceptional record.

At both CEO and CSO level, Anthony's career stretches over 25 years, with experience at board level, in management and research functions. His core competence can be found in drug discovery, medicinal chemistry, combinatorial chemistry and genomics.

He has had notable scientific roles in assisting the discovery and development of significant drugs for large pharmaceutical groups and in the discovery of advanced clinical development candidates for several major industry players. 

Anthony co-founded Argenta Discovery Ltd, leading the funding through a number of City institutions and then building revenues to $20m over four years. Significant success was been claimed in the arranging of international collaborations with numerous partners, including Aventis, GSK and Astra Zeneca. This was followed by its merger with biotech group, Etiologics, to create a world class respiratory therapeutics company. 

Anthony followed this by leading the turnaround of deltaDOT Ltd, a technically impressive but financially distressed, proteomics/genomics platform technology company.

Since May 2006, Anthony has been Non-Executive Chairman of Equinox Pharma Ltd and remains a Member of the Imperial College Non-Executive panel.

Bolstering Group Reserves

On commencing his role with Cyprotex, Anthony, in conjunction with the Board, completed a thorough review of Group operations.

Our conclusion was that Cyprotex's proprietary technologies, its unique high-throughput offering and market reputation presented a major opportunity for growth. This review also convinced the Board that there is a significant opportunity to expand both the product offering and value-added services, while deepening customer relationships.

Securing such opportunities, however, requires both commitment and resources. Having depleted reserves, during the first half of 2008 Cyprotex utilised its banking facilities for the first time. Given the significant hike in the cost of borrowing that followed the now all-too-apparent credit crunch, the Board recognised that it would be unrealistic to finance a short term expansion of working capital through borrowings alone.

Having performed ahead of management forecasts during the first half, and registering improved confidence amongst major shareholders following Anthony's appointment, the Board proposed a placement of 40,000,000 new ordinary shares priced at 2.5 pence each, representing 22.39% of the Group's enlarged share capital. New funds raised would be used to strengthen the Group's commercial sales infrastructure with a view to increasing revenue from existing customers, together with investment in laboratory quality, efficiency and capacity. In so doing, Cyprotex would be providing additional confidence for mid-scale pharmaceutical companies to consider longer-term and significant outsourcing of the ADMET requirement.

Eligible shareholders were permitted to avoid dilution of their existing holdings, while core shareholders (that comprised a combination of existing shareholders, management and one new investor) remained subject to claw-back of their subscriptions. The placing was successfully completed on 26th August 2008, raising £1 million (gross).

Product Development

Cyprotex's range of services are offered under the Cloe® ('Cyprotex-Lead-Optimisation-Engine') title and include Cloe® Screen, Cloe® Select and Cloe® Predict.

 

Shortly after taking up his role at Cyprotex, Anthony authorised a comprehensive review the Group's entire range of products and services. In so doing, he recognised that technological advances can provide both a threat to the Group's established market position and an opportunity to power its future growth.

 

Based on a marriage of 'leading-edge' laboratory technologies, Cyprotex offers a proprietary operating system, an automated decision making and processing package (the Cyprotex Discovery Bus), pharmacokinetic prediction software (Cloe® PK), combined with a highly automated screening facility (Cloe® Screen) and an ability to perform higher-value bespoke project work (Cloe® Select). This combination offers something unique to the international discovery and drug development community. 

 

Feedback from questionnaires, interviews and market surveys has provided us with greater visibility as to our customer's requirements and expectations. They display particularly high levels of satisfaction and opportunity for repeat business for the Group's existing offering. They also provide guidance for anticipated market evolution and recommended areas into which Cyprotex should focus its own research and development to both protect and expand its market position. 

 

As a result, Cyprotex's offering will be broadened to capture more customised, higher value and scientifically challenging studies. As well as enjoying higher margin on such later-stage work, Cyprotex will be responding to customer demands for a more complete service spanning the discovery and development process. Investment in areas such as metabolite profiling services and method development (bioanalysis) are obvious targets, while the main portfolio of automated ADMET screens are also continually updated, refined and expanded to meet new regulatory guidelines and customer demands.

 

The Discovery Bus (part of Cloe® Predict), software incorporating novel workflow techniques to automate QSAR (Quantitative Structure-Activity Relationships) and support laboratory operations, is also to be repackaged as a commercial offering to the pharmaceutical industry. In the first instance, Cyprotex will seek a development partner through which to champion the system. 

 

The Scientific Computing division already routinely supports Cloe® PK for a number of important customers, while investigating means by which to improve the performance of pharmacokinetic prediction through external collaboration. Having successfully participated in EUMAPP (looking to accelerate the transition from 'lab to clinic' using human microdosing, improved analytical and in silico approaches), Cyprotex is already quoting to participate in similar grant-funded projects sponsored through the European Union alongside continuing work with OSIRIS that seeks to comprehensively address REACH (Registration, Evaluation and Authorisation of Chemicals) legislation.

 

Corporate Governance

On 3rd June 2008, the Board of Directors accepted the resignation of Chief Executive Officer, Robert Morrisson Atwater and, effective the same day, the appointment of his replacement, Dr Anthony Baxter.

Following this, on the 17th June 2008, Non-Executive Directors, Dr Martial Lacroix and Mr. Minhaz Manji both tendered their resignations. After due consideration the Board accepted their proposals, which would become effective immediately. 

At our Annual General Meeting on 14th July 2008, I took the opportunity to inform shareholders that it is my intention, in due course, to pass the responsibility of Chairing Cyprotex PLC to a new Non-Executive Director. I look forward to this individual being named during the second half of 2008 and to supporting my successor at Board level going forward. 

Nikolas Sofronis

Non-Executive Chairman 

28 August 2008

 

		Unaudited  6 months ended	Unaudited  6 months ended	Audited year  ended
		30 June	30 June	31 December
	Note	2008	2007	2007
		£	£	£
Continuing operations
Revenue	4	2,246,012	1,685,358	3,626,118
Cost of sales		(351,769)	(247,944)	(621,717)
Gross profit		1,894,243	1,437,414	3,004,401
Administrative costs		(1,813,741)	(1,865,189)	(3,500,028)
Operating profit /(loss)		80,502	(427,775)	(495,627)
Finance income		2,377	10,639	8,591
Finance cost		(26,753)	(34,602)	(56,066)
Profit/(loss) before tax		56,126	(451,738)	(543,102)
Income tax		-	34,210	64,367
Profit/(loss) for the period		56,126	(417,528)	(478,735)
Earnings/(loss) per share attributable to the equity holders of the company during the period
Basic earnings/(loss) per share	5	0.04p	(0.31)p	(0.35)p
Diluted earnings/(loss) per share	5	0.04p	(0.31)p	(0.35)p

 

		Unaudited  6 months ended	Unaudited  6 months ended	Audited year  ended
		30 June	30 June	31 December
		2008	2007	2007
		£	£	£
ASSETS	Note
Non current assets
Property, plant and equipment	7	1,250,589	1,472,532	1,365,661
		1,250,589	1,472,532	1,365,661
Current assets
Inventories		82,574	101,729	113,694
Trade receivables		560,579	405,511	467,105
Other receivables		306,406	202,152	192,911
Current tax assets		68,986	134,277	68,986
Cash and cash equivalents		275,737	267,468	300,854
		1,294,282	1,111,137	1,143,550
Total assets		2,544,871	2,583,669	2,509,211
LIABILITIES
Non current liabilities
Long term borrowings		600,000	623,500	611,500
Obligations under finance leases		47,267	107,435	72,399
		647,267	730,935	683,899
Current liabilities
Trade payables		176,345	236,157	166,334
Current portion of long term borrowings		22,500	22,500	22,500
Other payables		301,684	162,491	275,768
Obligations under finance leases		59,974	113,500	92,556
		560,503	534,648	557,158
Total liabilities		1,207,770	1,265,583	1,241,057
EQUITY
Share capital	6	138,648	138,619	138,648
Share premium account		9,663,685	9,663,385	9,663,685
Other reserve		128,070	128,070	128,070
Share based payment reserve		376,294	352,527	363,473
Retained losses		(8,969,596)	(8,964,515)	(9,025,722)
		1,337,101	1,318,086	1,268,154
Total equity and liabilities		2,544,871	2,583,669	2,509,211

 

 

	Share capital	Share premium account	Other reserve	Share based payment reserve	Retained losses	Total  equity
	£	£	£	£	£	£
Balance at 31 December 2006	138,573	9,662,913	128,070	299,984	(8,546,987)	1,682,553
Changes in equity for the first half of 2007
Loss for the period	-	-	-	-	(417,528)	(417,528)
Total recognised income and expense for the period	-	-	-	-	(417,528)	(417,528)
Issue of share capital	46	472	-	-	-	518
Share based payment charge	-	-	-	52,543	-	52,543
Balance at 30 June 2007	138,619	9,663,385	128,070	352,527	(8,964,515)	1,318,056
Balance at 31 December 2006	138,573	9,662,913	128,070	299,984	(8,546,987)	1,682,553
Changes in equity for 2007
Loss for the period	-	-	-	-	(478,735)	(478,735)
Total recognised income and expense for the period	-	-	-	-	(478,735)	(478,735)
Issue of share capital	75	772	-	-	-	847
Share based payment charge	-	-	-	63,489	-	63,489
Balance at 31 December 2007	138,648	9,663,685	128,070	363,473	(9,025,722)	1,268,154
Balance at 31 December 2007	138,648	9,663,685	128,070	363,473	(9,025,722)	1,268,154
Changes in equity for the first half of 2008
Profit for the period	-	-	-	-	56,126	56,126
Total recognised income and expense for the period	-	-	-	-	56,126	56,126
Share based payment charge	-	-	-	12,821	-	12,821
Balance at 30 June 2008	138,648	9,663,685	128,070	376,294	(8,969,596)	1,337,101

 

 

	Unaudited  6 months ended	Unaudited  6 months ended	Audited Year  ended
	30 June	30 June	31 December
	2008	2007	2007
Cash flows from operating activities	£	£	£
Profit/(loss) after taxation	56,126	(417,528)	(478,735)
Adjustments for:
Depreciation	121,558	141,230	264,225
Share based payment charge	12,821	52,543	63,489
Investment income	(2,377)	(10,639)	(8,591)
Interest expense	26,753	34,602	56,066
Taxation income recognised in income statement	-	(34,210)	(64,367)
(Increase)/decrease in trade and other receivables	(206,969)	150,761	98,408
Decrease/(increase) in inventories	31,120	(16,093)	(28,058)
Increase in trade and other payables	35,927	10,753	54,207
Cash generated/(consumed) from operations	74,959	(88,581)	(43,356)
Interest paid	(26,753)	(34,602)	(56,066)
Income tax received	-	-	95,448
Net cash from operating activities	48,206	(123,183)	(3,974)
Cash flows from investing activities
Purchase of property, plant and equipment	(6,603)	(17,214)	(33,338)
Sale of property, plant and equipment	117	-	-
Interest received	2,377	10,639	8,591
Net cash used in investing activities	(4,109)	(6,575)	(24,747)
Cash flows from financing activities
Proceeds from issue of share capital	-	518	847
Repayment of long-term borrowings	(11,500)	(12,300)	(24,300)
Payment of finance lease liabilities	(57,714)	(46,271)	(102,251)
Net cash used in financing activities	(69,214)	(58,053)	(125,704)
Net decrease in cash and cash equivalents	(25,117)	(187,811)	(154,425)
Cash and cash equivalents at beginning of period	300,854	455,279	455,279
Cash and cash equivalents at end of period	275,737	267,468	300,854

ENDIR KGGZRKNDGRZM

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