24th Feb 2005 07:03
Vernalis PLC24 February 2005 24 February 2005 Vernalis: Preliminary Announcement for the year ended 31 December 2004 Vernalis plc (LSE: VER, Nasdaq: VNLS) today makes its Preliminary Announcementfor the year ended 31 December 2004. During 2004 Vernalis has been transformed, completing three significant dealsand is now one of Europe's leading biotechnology companies. Early in the year,the North American rights to frovatriptan were reacquired and these rights weresubsequently re-licensed to Endo Pharmaceuticals Inc, which Vernalis believes isan ideal partner to exploit fully the potential of the product. Two additionalcollaborations with Biogen Idec and Novartis further demonstrated the company'sability to complete valuable, innovative, commercial collaborations. These dealsenabled the cash and short term investments of the Company to increase to £33.3million (2003: £24.2 million) and also served to validate Vernalis' researchcapability. The company has one marketed product, frovatriptan, for the acutetreatment of migraine, and five products in clinical development. Value forshareholders will be generated through progression of the product portfolio andfurther participation in consolidation of the biotechnology sector. Highlights Financial • Revenue: £15.2 million (Eight months ended 31 December 2003: £8.6 million)• Loss decreased for the period to £29.2 million (Eight months ended 31 December 2003: £34.2 million)• Cash and short term investments at 31 December 2004 of £33.3 million (2003: £24.2 million) bolstered in 2004 by payments from Biogen Idec, Novartis and Endo• Fully underwritten Placing and Open Offer to raise £30.3 million (before expenses) announced today (see separate announcement) Frovatriptan • North American rights to frovatriptan reacquired from Elan and re-licensed to Endo Pharmaceuticals.• Re-launch of frovatriptan in USA by Endo with the commitment of an increased sales force and revised marketing focus on the benefits of a long duration of action.• Additional approval of frovatriptan for the treatment of acute migraine in Canada and launches in countries including Spain, Greece and Italy.• Completion of recruitment of Phase III safety study of frovatriptan for the short-term prophylaxis of menstrually-related migraine (MRM).• Start of Phase III efficacy study to support a label extension for prophylaxis of MRM. Regulatory filing expected in H1 2006.• Option to co-promote frovatriptan in the United States exercised (see separate announcement) Product Portfolio • Start of a Phase I clinical trial of a selective inhibitor of MMP-12 (matrix metalloprotease inhibitor-12); the first compound to enter the clinic resulting from the collaboration with Serono.• Positive results from an initial Phase II proof of concept study of V10153 in acute myocardial infarction patients. Its further development will continue with a Phase II study in stroke expected to begin in H1 2005.• Positive data from initial Phase I studies of V2006 a novel treatment for Parkinson's disease; Phase II expected to start H2 2005.• Phase I with V140 completed; Phase II in post-operative pain expected to start H1 2005. Other collaborations • Biogen Idec (June 2004): Collaboration to advance V2006 and supporting A2A receptor antagonist programme which targets Parkinson's disease and other central nervous system disorders.• Novartis (August 2004): Extension of cancer research collaboration on Hsp90. Expected Future Progress • V10153: Initiate Phase II in stroke patients H1 05• V140: Initiate Phase II in post-operative pain H1 05• Frovatriptan: Interim analysis of MRM safety data H1 05• V2006: Initiate Phase II (Biogen Idec) H2 05• Hsp90: Milestone on election of clinical candidate H2 05• Frovatriptan: MRM safety data H2 05• Frovatriptan: MRM efficacy data H2 05• Frovatriptan: MRM regulatory submission H1 06 Simon Sturge, CEO commented "The events over the last year have been trulytransforming for Vernalis. The changes that have taken place have positionedVernalis as one of Europe's leading biotechnology companies with thedetermination to continue to unlock the value of our marketed product,frovatriptan, as well as drive our other clinical and earlier stage researchprojects in order to sustain growth over the longer-term. The opportunity togain a foothold in the United States by establishing our own specialityneurology sales force to co-promote frovatriptan is a very exciting developmentfor the Company." ----ends----Enquiries: Vernalis plc Simon Sturge, Chief Executive OfficerTony Weir, Chief Financial OfficerJulia Wilson, Head of Corporate Communications+44 (0)118 977 3133 Brunswick Group (for analyst, financial media enquiries) Jon Coles; Wendel Verbeek+44 (0)20 7404 5959 About frovatriptan Frovatriptan (marketed as Frova(R) in the USA) was approved by the FDA onNovember 8, 2001 for the acute treatment of migraine attacks with or withoutaura (subjective symptoms at the onset of a migraine headache) in adults. Frova(R) is generally well tolerated, with a side-effect profile that is typical ofthe triptan class of drugs. The most common side effects are dizziness, fatigue,paresthesia (tingling), flushing, headache, dry mouth, hot or cold sensation,and chest pain. The FDA-approved dosing for Frova(R) is one 2.5 mg tablet up tothree times within a 24-hour period. Frova(R) has not been approved by the FDAfor any indications other than for the treatment of acute migraine headaches,and its safety and efficacy in other indications have not been established. Safe Harbour statement: this news release may contain forward-looking statementsthat reflect the Company's current expectations 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 transactions, and the ability of the Company to identify andconsummate suitable strategic and business combination transactions. 1. Strategy Over the year to 31 December 2004, Vernalis made substantial progress towardsits objective of creating a competitive, sustainable biotechnology company bybuilding a portfolio of products focused particularly in the areas of cancer andneurological disorders. This is being achieved by internal R&D, in-licensing andthrough the acquisition of, or merger with, other companies. 2. Operational review During 2004, Vernalis reacquired the North American rights to frovatriptan fromElan and subsequently re-licensed these rights to Endo, which the companybelieves is an ideal partner to exploit fully the potential of frovatriptan. Twoother significant value adding collaborations have been secured: the first withBiogen Idec on V2006 and other A2A receptor antagonists; and the second withNovartis on Hsp90. These collaborations underpin Vernalis' research activitiesin neuroscience and oncology, respectively. (i) Product Portfolio Frovatriptan • Background Frovatriptan was launched in the USA in the second quarter of 2002, where it ismarketed as Frova(R) as a treatment for migraine. Vernalis reacquired the NorthAmerican rights to frovatriptan from Elan on 19 May 2004 for a totalconsideration of $50 million, of which, $5 million was payable immediately.These terms were subsequently renegotiated, with a final payment of $39 millionbeing made in August 2004, bringing the total consideration to $44 million. InEurope, frovatriptan is marketed by Menarini in Italy, Germany, Austria,Ireland, Spain, Greece, Holland and the UK. In Germany, where frovatriptan ismarketed as Allegro(R), the drug's share of the overall triptan market isapproximately 10 per cent. Frovatriptan is approved in an additional 17 Europeanterritories, as well as 5 Central American countries and is expected to belaunched in further of these in 2005. • Licence Agreement with Endo The agreement to license North American sales and marketing rights tofrovatriptan to Endo was announced on 15 July 2004 and completed on 17 August2004. Under the terms of the licence agreement, Endo will make unconditionalpayments totalling $60 million to Vernalis, including $30 million which was paidat closing and two further payments of $15 million on the first and secondanniversaries of closing. These amounts will be recognised as income in theperiod to 2014. Endo has made a significant immediate promotional investmentbehind frovatriptan while Vernalis retains financial and operationalresponsibility for the MRM clinical development programme. On FDA approval ofthe MRM indication, Endo will make an additional payment of $40 million toVernalis. Endo will also make various milestone payments to Vernalis upon theachievement of certain sales thresholds starting with a milestone of $10 millionupon reaching $200 million net annual sales. Endo will make royalty payments toVernalis which will be tiered at 20% or higher following FDA approval of the MRMindication. Vernalis has exercised its option to co-promote frovatriptan in the UnitedStates (see separate announcement today). Endo will provide funding for andassist in the establishment of the Vernalis sales team of up to 25 specialtyneurology sales representatives for up to 5 years, beginning 1st January 2006.The Vernalis sales team has the opportunity to market other prospective centralnervous system products in addition to frovatriptan, and will form the Company'score commercial operations in North America for the future sale ofpharmaceuticals. In August 2004, Vernalis drew down the $50 million loan from EndoPharmaceuticals agreed as part of the frovatriptan licensing deal. The proceedsof the loan were first used to make full and final settlement of the amounts dueto Elan of $43.5 million which comprised the outstanding purchase price of $39million plus an additional $4.5 million for inventory. The balance of the loanfrom Endo, $6.5 million, is available for Vernalis' general corporate purposes. Endo began its promotional efforts, including detailing the product tophysicians, in September 2004 and re-launched frovatriptan in January 2005 withan increased sales force and a revised marketing focus on the benefits of a longduration of action. Also in September 2004 Vernalis received a Notice ofCompliance (NOC) from the Canadian Health Authorities indicating thatfrovatriptan has been approved for the acute treatment of migraine in Canada.The approval follows a successful dialogue with Health Canada regarding theproduct label; a necessary step prior to initiation of the national pricingapproval. • Sales of frovatriptan North AmericaNet sales of frovatriptan in the United States in 2004 totalled $33.3 millionand comprised $11.8 million in the period to 18 May 2004 (on which Vernalisearned a royalty of 10%); $10.1 million in the period from 19 May 2004 to 17August 2004 (on which Vernalis earned a gross margin of $9.7 million); and $11.4million in the period from 18 August 2004 to 31 December 2004, as reported byEndo (on which no royalty was receivable by Vernalis). Total revenues earned byVernalis in respect of sales and royalties of frovatriptan in North America in2004 were £8.0 million (2003: £2.4 million) EuropeVernalis' revenues from frovatriptan in Europe in 2004 amounted to £2.0 million(2003: £0.5 million). • Achieving a distinct label for frovatriptan for prophylaxis ofmenstrually-related migraineIn April 2003 data were presented from an initial clinical study into theefficacy of frovatriptan as a preventive treatment for MRM, which affects over50 per cent of all women who suffer migraine. The data demonstrated astatistically highly significant improvement in the numbers of patients who wereheadache-free during the peri-menstrual period for both the studied doseregimens of frovatriptan compared to placebo (p< 0.0001). These data werepublished in full in July 2004 by a leading journal, Neurology. Two further trials are required to complete the data package for a supplementalNew Drug Approval application in the United States to permit frovatriptan to bemarketed as a short-term prophylaxis for MRM. The first, a long-term safetystudy, is fully recruited and will complete H2 2005. An interim analysis of thesix-month data from this study will be announced in Q2 2005. The second trial, astudy to confirm the efficacy observed in the initial study, commenced in Q42004, with recruitment ongoing and is expected to complete H2 2005. If thepositive initial results are confirmed, these studies will lead to regulatorysubmissions for the new indication in the USA and Europe in H1 2006. New distribution agreement for frovatriptan in KoreaOn 16 September 2004, Vernalis signed an agreement with SK Chemicals Co., Ltd ofKorea, granting SK exclusive distribution rights for frovatriptan in the Koreanmarket. Vernalis received an upfront fee of $222,500 ($250,000 net ofwithholding tax of 11 per cent) on signature and is due a further payment onreceipt of Korean marketing authorisation, in addition to revenues from futureproduct supply. SK will be responsible for managing and funding the regulatoryapproval process and the subsequent marketing of the product in Korea. V10153V10153 is a novel recombinant thrombolytic protein which is being developed forthe treatment of ischaemic stroke. It was initially evaluated by a consortium ofcardiologists in the US and Europe (the TIMI Study Group) in a Phase IIaascending dose study to establish proof-of-concept (i.e. that it can dissolveclots and restore coronary bloodflow) in patients who have suffered acutemyocardial infarction (AMI). The study also evaluated the safety of treatmentwith V10153, especially with respect to bleeding. This study was successfully completed in March 2004. V10153 was well toleratedthroughout the dose range of 1-10 mg/kg to patients with AMI. Full restorationof bloodflow was observed in blocked coronary arteries in around 40 per cent ofpatients after 60 minutes following doses of 5 mg/kg and greater. This iscomparable to the efficacy reported for other marketed thrombolytic therapiesusing a similar experimental protocol. Importantly, initial analysis of safetywas encouraging. The next stage in the development of V10153 is to conduct a Phase II study inapproximately 150 patients with acute ischaemic stroke which is expected tostart in H1 2005. In parallel, work will be undertaken to improve the productionprocess prior to manufacturing material for Phase III studies. V2006V2006 is an adenosine A2A receptor antagonist in development as a potentialnovel treatment for Parkinson's disease. A2A receptor antagonists may possessadvantages over conventional dopaminergic strategies, helping to restore motorfunction in patients with Parkinson's disease with fewer of the side effectssuch as nausea and dyskinesia (uncontrolled movements) associated withconventional dopaminergic treatments. The initial Phase I study of V2006, a single ascending dose study in healthymale volunteers designed to investigate the drug's safety and pharmacokineticshas been successfully completed. Single oral doses of V2006 were administered togroups of male volunteers in the dose range 5-100 mg. The drug was safe and welltolerated in this range and exposure increased with dose. Potentiallytherapeutic blood levels (based on predictions from pre-clinical studies) wereachieved following the lowest dose of 5 mg, which provides reassurance that awide therapeutic ratio might be achieved in patients. Furthermore, the plasmahalf-life of V2006 in normal subjects was in the region of 18 hours, which wouldbe consistent with a simple, once-daily dosing regimen. On 23 June 2004 Vernalis entered into an agreement with Biogen Idec to advanceVernalis' adenosine A2A receptor research antagonist programme, which istargeting both Parkinson's disease and other central nervous system disorders.(See Research section below). Under the agreement, Biogen Idec received exclusive worldwide rights to developand commercialise Vernalis' lead compound, V2006. In addition, Biogen Idec hasthe right to develop one back-up compound to V2006 and has option rights overthe entire Vernalis' A2A antagonist research programme. Initially, thecollaboration will focus on completing the Phase I programme for V2006, with thegoal to begin Phase II proof of concept studies of V2006 in Parkinson's diseasepatients in H2 2005. Vernalis has an option to co-promote products arising outof this collaboration in the United States. At the time of the agreement, Biogen Idec made an equity investment of £3.3million ($6 million) through the subscription for 6,218,487 new Vernalisordinary shares and paid an initial licence fee of $10 million to Vernalis. V140V140 is a GABAA agonist targeting the treatment of pain in cancer patients. Thecompound entered a Phase I clinical programme in September 2003 to evaluate itssafety and pharmacokinetic properties in single and multiple dose studies. ThePhase I programme in which V140 was administered to healthy volunteers in singleand multiple doses for five days was completed in May 2004. Subject to thesatisfactory completion of further preclinical studies it is intended toevaluate V140 in a Phase II proof of concept trial, which is expected to startin H1 2005. This will investigate the opiate-sparing and analgesic efficacy andsafety in patients undergoing elective total knee replacement surgery. MMPIVernalis' collaboration with Serono is focused upon identifying selectivemetalloenzyme inhibitors for the treatment of inflammatory/immune disorders,including multiple sclerosis. A phase I trial, in healthy volunteers, wasinitiated by Serono in January 2005, with a primary objective of elucidating thesafety, tolerability and pharmacokinetic properties of the compound. Serono willconduct and fund all development activities associated with any programme thatenters the clinic, with Vernalis receiving milestone payments and royalties uponthe successful further development and commercialisation of any product. 5HT2C receptor agonistsVernalis' 5HT2C receptor agonist research programme for obesity is beingundertaken in collaboration with Roche. A development candidate has beenselected by Roche and is undergoing pre-clinical studies; which, if successfulwould lead to further development being undertaken by Roche. (ii) Research Following the portfolio review in 2003, Vernalis' internal research programmesare now focused on central nervous system disorders and oncology. Vernalisconducts approximately half of its research programmes under collaborationagreements. Oncology Hsp90 inhibitorsHsp90 is a novel drug target, inhibition of which is believed to havesignificant potential in the treatment of a broad range of cancers. Thisprogramme is utilising state-of-the-art structure-based design technology toidentify highly potent and specific inhibitors, of Hsp90. In December 2003 Vernalis formed a research collaboration with the NovartisInstitutes for BioMedical Research, Inc., (Novartis) in Cambridge, MA, USA, toinvestigate inhibitors of Hsp90. Under the agreement Vernalis provided elementsof its ongoing oncology research to Novartis for an initial six-month evaluationperiod after which Novartis had the right to enter a longer-term research anddevelopment collaboration. On 9 August 2004 Vernalis announced that Novartis had exercised its option tolicense exclusive worldwide rights to Hsp90. The Companies will conduct a jointresearch programme under which Novartis will provide research funding toVernalis over an initial three year period. In addition, Novartis is responsiblefor funding and conducting the preclinical development of product candidates,and for commercialisation. The agreement was executed on 16 September 2004following which Novartis paid Vernalis initial fees under the licence agreement of $1.5 million and made an equity investment of £5 million through the subscription for 7,106,344 new Vernalis ordinary shares. CNS disorders A2A receptor antagonistsA programme is under way to identify and evaluate potent, selective A2A receptorantagonists for the treatment of depression. Biogen Idec has option rights overthis programme under the collaboration agreed on 24 June 2004. CB1 receptor antagonistsSelective cannabinoid CB1 receptor antagonists are being evaluated as noveltreatments for obesity. They also have potential in other clinical indicationsincluding smoking cessation. 3. Expected Progress • V10153: Initiate Phase II in stroke patients H1 05 • V140: Initiate Phase II in post-operative pain H1 05 • Frovatriptan: Interim analysis of MRM safety data H1 05 • V2006: Initiate Phase II (Biogen Idec) H2 05 • Hsp90: Milestone on election of clinical candidate H2 05 • Frovatriptan: MRM safety data H2 05 • Frovatriptan: MRM efficacy data H2 05 • Frovatriptan: MRM regulatory submission H1 06 4. Directorate The Board and Management team at Vernalis was strengthened during the year bythe appointment of Allan Baxter as a non-executive director and John Slater asGeneral Counsel. They bring with them enormous experience in the biotechnologyand pharmaceutical fields which will assist the Company in delivering on itsstrategy. 5. Financial Review As a result of the change in accounting reference date implemented last yearcomparisons are made between the results for the 12 months ended 31 December2004 and Eight months ended 31 December 2003. Balance sheet amounts at 31December 2004 are compared with the amounts at 31 December 2003. Profit and loss account The loss for the year ended 31 December 2004 was £29.2 million (Eight monthsended 31 December 2003: £34.2 million). This is mainly due to the impact ofincreased revenues and a reduced cost base, offset by one-off costs associatedwith the transactions referred to above and an increase in long term provisionsin the year. Turnover was £15.2 million (Eight months ended 31 December 2003: £8.6 million)and comprised £10.0 million in respect of frovatriptan product sales androyalties (2003: £2.4 million) and £5.2 million in respect of revenue recognisedunder collaboration and similar agreements (2003: £6.0 million). In 2004, thefrovatriptan income of £10.0 million comprised European generated revenues of£2.0 million and North American revenues of £8.0 million. North Americanrevenues consisted of royalties of £0.6 million for the period to 18 May 2004and product sales of £7.4 million for the period from 19 May 2004 to 17th August2004. Cost of sales amounted to £2.9 million (2003: £0.2 million) and comprised£0.9 million on European sales and £2.0 million on North American sales(including £1.7 million of stock sold directly to Endo at nil margin). Research and development expenditure decreased to £24.4 million (Eight monthsended 31 December 2003: £26.9 million). In 2004, expenditure of £17.2 million(2003: £18.1 million) was incurred on internally funded R&D and £7.2 million(2003: £7.0 million) on external costs associated with development of theproduct portfolio. The significant reduction on internal expenditure resultsfrom the cost-saving initiatives implemented following the business combinationsin 2003. Selling, General and Administrative expenses increased to £18.6 million (Eightmonths ended 31 December 2003: £10.9 million) and comprised goodwillamortisation of £4.4 million (2003: £3.0 million), restructuring costs of £1.5million (2003: £2.3 million), sales and marketing costs associated withfrovatriptan of £1.3 million (2003: £nil), professional fees associated withcollaborations of £1.1 million (2003: £nil), an increase in the provision forvacant leases of £4.4 million (2003: £1.6 million) and other costs of £5.9million (2003: £4.0 million). As a result, the operating loss was increased to £30.7 million (Eight monthsended 31 December 2003: £29.4 million). The loss on disposal of fixed assets of £0.8 million (2003: £3.0 million)related to the Oxford facility which was sold for £3.3 million, in October 2004. In the Eight months ended 31 December 2003 merger transaction expenses of £5.4million were charged to the profit and loss account in relation to thecombination of British Biotech and Vernalis Group. Interest receivable and similar income increased to £2.9 million (Eight monthsended December 2003: £2.3 million) and comprised bank interest of £0.7 million(2003: £1.1 million), exchange gains on loans and other creditors of £1.7million (2003: £1.2 million), and an implicit interest receipt of £0.5 million(2003: £nil) relating to the fair value accounting for the accrued income of $30million due from Endo. Interest payable increased to £2.2 million (Eight monthsended 31 December 2003: £0.5 million) and comprised loan interest of £0.9million (2003: £0.4 million), finance lease charges of £0.1 million (2003: £0.1million), an exchange loss on the accrued income of $30 million due from Endo of£0.7 million (2003: £nil) and an implicit finance charge of £0.5 million (2003:£nil) in respect of the deferred consideration that was payable to Elan. Theincrease in loan interest arises due to the draw down of the $50 million loanfrom Endo in August 2004 and the final settlement payment for the mortgage onthe Oxford facility in October 2004. Amounts written off investments incollaborators reduced to £0.1 million (December 2003: £0.9 million). The tax credit of £1.8 million (Eight months ended 31 December 2003: £2.6million) represents amounts that are expected to be received under currentlegislation on research and development tax credits for small and medium-sizedcompanies. Balance sheet Intangible assets increased to £37.0 million (2003: £22.9 million) and comprisedgoodwill of £3.6 million and other intangibles of £33.4 million. The increase isdue to the reacquisition of the North American rights to frovatriptan from Elan.Tangible assets decreased to £1.6 million (2003: £7.5 million) due to thedisposal of the Oxford facility and regular depreciation charges. Debtors increased to £28.1 million (December 2003: £11.0 million) with theprincipal amounts being £15.2 million (2003: £nil) of other debtors due fromEndo and £6.4 million (2003: £5.8 million) in respect of research anddevelopment tax credits. The amount due from Endo arises from the re-licensingof the North American rights to frovatriptan in August 2004 and relates to theunconditional payments of $15 million due in each of August 2005 and August2006. Cash and short-term investments were £33.3 million (2003: £24.2 million), anincrease of £9.1 million. The cash movement for the year was significantlyimpacted by the transactions with Elan, Endo, Biogen Idec and Novartis.Significant receipts during the year included: the $30 million signature feefrom Endo in respect of the re-licensing of frovatriptan; the draw-down of the$50 million loan from Endo; the $10 million signature fee and $6 million equityinvestment from Biogen Idec; and the $9 million equity investment and $1.5million signature fee from Novartis. Significant payments during the yearincluded $48.5 million paid to Elan to reacquire the North American rights tofrovatriptan. This comprised $44 million for the reacquisition of the rights($50 million less $6 million for early settlement in August 2004) and $4.5million for inventory. In addition, payments of £5.5 million ($10 million) weremade to GSK in respect of the deferred consideration under the agreement to buyout royalties due to GSK on sales of frovatriptan. Further payments relating torestructuring costs, one-off professional fees associated with the abovetransactions and sales and marketing support for frovatriptan in the period Mayto August 2004 amounted to £4.5 million. Creditors falling due within one year decreased to £16.1 million (December 2003:£19.8 million) of which £4.8 million related to deferred revenue and thereforehas no future cash impact. The balance at 31 December 2004 included £2.6 million(December 2003: £5.8 million) due to GSK, and trade creditors and accruals. Creditors falling due after more than one year increased to £60.6 million (2003:£8.1 million) due principally to the $50 million (£26.7 million) long term loanreceived from Endo in the year (repayable in August 2009) and £31.3 million(December 2003: £1.3 million) of deferred income resulting from the licensingdeals with Endo, Biogen Idec and Novartis, where the revenue is being recognisedover the expected life of the contracts. A payment of £1.6 million was made toredeem the mortgage on the Oxford facility when it was sold for £3.3 million inOctober 2004. Provisions for liabilities and charges increased to £10.5 million (2003: £4.1million) of which £7.4 million (2003: £3.4 million) relates to onerouscommitments on leased properties and £3.0 million (2003: £nil) relates toexpected returns and rebates in relation to Frova sales in the US prior toAugust 2004. Cashflow Net cash inflow from operations was £1.7 million (Eight months ended 31 December2003 : Outflow of £34.1 million). This was principally due to an operating lossof £30.7 million offset by amortization of £7.1 million, an increase in deferredincome of £20.3 million, depreciation and tangible fixed asset write- offs of£2.7 million and other movements of £2.3 million. Capital expenditure for the year was £27.4 million (2003: £nil) due principallyto payments of £5.4 million to GSK and £25.1 million to re-acquire the NorthAmerican rights to frovatriptan from Elan. There was an inflow of financing inthe year of £33.6 million, (Eight months ended 31 December 2003 £6.5 million),due principally to the receipt of the loan from Endo of £27.5 million, andequity issues of £8.3 million, offset by the repayment of the mortgage on theOxford property of £1.4 million. Unaudited Consolidated profit and loss accountFor the year ended 31 December 2004 Eight months Year ended ended 31 December 31 December 2004 2003 (Unaudited) Note £000 £000-------------------------------------------------------------------------------Turnover 2 15,195 8,631Cost of Sales (2,909) (228)-------------------------------------------------------------------------------Gross Profit 12,286 8,403Research and development expenditure (24,387) (26,890)Selling, general and administrativeexpenses 3 (18,642) (10,901)-------------------------------------------------------------------------------Operating loss (30,743) (29,388)Loss on disposal of fixed assets (836) (2,988)Merger transaction expenses - (5,396)-------------------------------------------------------------------------------Loss on ordinary activities beforeinterest and taxation (31,579) (37,772)Interest receivable and similarincome 2,933 2,314Amounts written off investments (71) (862)Interest payable and similar charges (2,250) (544)-------------------------------------------------------------------------------Loss on ordinary activities beforetaxation (30,967) (36,864)Tax credit on loss on ordinaryactivities 1,758 2,645-------------------------------------------------------------------------------Loss for the period (29,209) (34,219)Loss per share (basic and diluted) 8 (19.8)p (24.9)p------------------------------------------------------------------------------- The results for the period shown above are derived entirely from continuingactivites, There is no difference between the loss on ordinary activities before taxationand the loss for the financial periods stated above, and their historical costequivalents. There are no recognised gains and losses other than the losses above, andtherefore no separate statement of total recognised gains and losses has beenpresented. Unaudited consolidated Balance sheetAs at 31 December 2004 At At 31 December 31 December 2004 2003 (Unaudited) Notes £'000 £'000-------------------------------------------------------------------------------Fixed assetsIntangible assets 4 36,999 22,925Tangible assets 1,596 7,508Investments - 83------------------------------------------------------------------------------- 38,595 30,516Current assetsStock - finished goods 49 49Debtors (Includes £7.4 million due inmore than one year) 5 28,120 10,991Short term deposits and investments 32,014 22,329Cash 1,309 1,885------------------------------------------------------------------------------- 61,492 35,254Current liabilitiesCreditors: amounts falling due withinone year (16,050) (19,773)-------------------------------------------------------------------------------Net current assets 45,442 15,481-------------------------------------------------------------------------------Total assets less current liabilities 84,036 45,997Creditors: amounts falling due aftermore than one year 6 (60,632) (8,119)Provisions for liabilities andcharges 7 (10,530) (4,089)-------------------------------------------------------------------------------Net assets 12,875 33,789-------------------------------------------------------------------------------Capital and reservesShare capital 39,492 38,813Share premium account 305,842 298,226Merger reserve 101,985 101,985Other reserves 50,776 50,776Profit and loss account (485,220) (456,011)-------------------------------------------------------------------------------Total shareholders' funds 12,875 33,789-------------------------------------------------------------------------------Analysis of shareholders' fundsEquity (18,832) 2,082Non-equity 31,707 31,707------------------------------------------------------------------------------- 12,875 33,789------------------------------------------------------------------------------- Unaudited Consolidated cash flow statementYear ended 31 December 2004 Notes Year ended Eight months 31 December ended 2004 31 December Unaudited 2003 £'000 £000Net cash inflow/outflow fromoperating activities 1,716 (34,089)Returns on investments andservicing of finance 81 659Taxation 1,129 2,783Capital expenditure (27,380) (16)-------------------------------------------------------------------------------Cash utilised by operations (24,454) (30,663)Management of liquid resources (9,685) 25,786Financing 33,611 6,478-------------------------------------------------------------------------------(Decrease)/increase in cash in theperiod (528) 1,601-------------------------------------------------------------------------------Reconciliation of net cash flow to movement in net funds(Decrease)/Increase in cash inthe period (528) 1,601Net cash (inflow) /outflow frommovement in debt and lease financing (25,316) 7,955Net cash (inflow) / outflow frommovement in liquid resources 9,685 (25,786)Exchange adjustment 1,218 (55)-------------------------------------------------------------------------------Movement in net funds in the period (14,941) (16,285)Net funds at start of the period 21,973 38,258-------------------------------------------------------------------------------Net funds at end of the period 7,032 21,973-------------------------------------------------------------------------------Net funds comprise:Cash 1,309 1,885Short term deposits and investments 32,014 22,329Loans due in more than one year (26,273) (1,215)Loans due in less than one year - (270)Finance Leases (18) (756)------------------------------------------------------------------------------- 7,032 21,973------------------------------------------------------------------------------- 1. The preliminary financial information of the Group set out above has beenprepared on the basis of the accounting policies set out in the Group'sstatutory accounts for the year ended 31 December 2003, other than theintroduction of a new policy in relation to product sales in the U.S. forexpected returns and rebates in future years. This preliminary financialinformation has not been audited and does not constitute statutory accountswithin the meaning of Section 240 of the Companies Act 1985. The financialstatements for the year ended 31 December 2004 have not yet been delivered tothe Registrar, nor have the auditors yet reported on them. The Company'sstatutory accounts for the year ended 31 December, 2003 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 theAct. 2. TurnoverThe Group operates one primary business, being the research and development ofpharmaceutical products for a range of medical disorders. Turnover, loss onordinary activities before taxation and net assets are wholly attributable tothis activity and originate exclusively in the United Kingdom.(a) A geographical analysis of turnover by destination according to the countryof registration of the fee paying parties is as follows: Year ended Eight months 31 December ended 2004 31 December Unaudited 2003 £'000 £'000-----------------------------------------------------------------------------United Kingdom 161 49North America 11,207 2,937Europe 3,822 5,645Rest of the world 5 ------------------------------------------------------------------------------ 15,195 8,631----------------------------------------------------------------------------- (b) The Group derives turnover from a variety of revenue streams includingout-licensing agreements, collaboration agreements and sales of product. A splitof turnover by type is as follows: Year ended Eight months 31 December ended 2004 31 December Unaudited 2003 £'000 £000-----------------------------------------------------------------------------Pharmaceutical research and developmentProduct sales 9,330 487Royalties 688 2,105Collaborative agreements 5,177 6,039----------------------------------------------------------------------------- 15,195 8,631----------------------------------------------------------------------------- 3. Selling, general and administrative expenses: Year ended Eight months 31 December ended 2004 31 December Unaudited 2003 £'000 £'000-----------------------------------------------------------------------------Restructuring costs 1,493 2,269Amortisation of goodwill 4,398 3,031Provision for vacant leases 4,401 1,642Sales and marketing costs 1,333 -Other 7,017 3,959----------------------------------------------------------------------------- 18,642 10,901----------------------------------------------------------------------------- 4. Intangible fixed assets Cost Goodwill Other Total intangibles £'000 £'000 £'000-------------------------------------------------------------------------------At 1 January 2004 17,223 17,177 34,400Additions - 21,220 21,220-------------------------------------------------------------------------------At 31 December 2004 17,223 38,397 55,620-------------------------------------------------------------------------------Aggregate amortisationAt 1 January 2004 9,209 2,266 11,475Charge for the year 4,398 2,748 7,146-------------------------------------------------------------------------------At 31 December 2004 13,607 5,014 18,621-------------------------------------------------------------------------------Net book value at 31 December 2004 3,616 33,383 36,999-------------------------------------------------------------------------------Net book value at 31 December 2003 8,014 14,911 22,925------------------------------------------------------------------------------- Goodwill arises on the acquisitions of RiboTargets and Cerebrus and is beingamortised over three years and five years respectively, which is based on theDirectors' estimate of its useful economic life. Other intangibles represent the capitalisation of payments conditionally due toGlaxoSmithKline (GSK) agreed in December 2000 to buy out royalties due to GSK onsales of frovatriptan, and the consideration paid to Elan in respect of thereacquisition of the North American rights to frovatriptan in May 2004. Bothamounts are being amortised on a straight-line basis to the end of the patentlife of frovatriptan in 2014 which is considered by the Directors to be theuseful life of the asset. 5. Debtors 31 December 31 December 2004 2003 Unaudited £'000 £'000------------------------------------------------------------------------------Trade debtors 860 1,133Interest receivable 122 136Research and development tax credits 6,433 5,804Other debtors 15,681 2,079Prepayments and accrued income 5,024 1,839------------------------------------------------------------------------------ 28,120 10,991------------------------------------------------------------------------------ Included within other debtors is £15.2 million in relation to the fair value ofthe $30 million receivable from Endo, in equal instalments in August 2005 andAugust 2006. During the period an exchange loss of £0.7 million has been recognised in theprofit and loss account in relation to this asset. 6. Creditors: amounts falling due after more than one year 31 December 31 December 2004 2003 Unaudited £'000 £'000------------------------------------------------------------------------------Loans and other borrowingsLong Term interest payable 438 -Secured loan 26,273 1,215Obligations under finance leases - 18------------------------------------------------------------------------------ 26,711 1,233Deferred income 31,294 1,299Other creditors 2,627 5,587------------------------------------------------------------------------------ 60,632 8,119------------------------------------------------------------------------------ Loans and other borrowings included above are repayableas follows:Over one and under two years - 288Over two and under five years 26,273 945Beyond five years, by instalments - ------------------------------------------------------------------------------- 26,273 1,233------------------------------------------------------------------------------ Deferred income included above and within amounts due within one year include£30.5 million in relation to the fair value of the unconditional payments of $60million due from Endo in relation to the North American rights to frovatriptan.This income is being recognised over the patent life of the product to 2014. Inaddition, within deferred income, are the remaining portions of initial paymentsreceived from Biogen Idec of $10 million and Novartis of $1.5 million which arebeing recognised over the expected useful lives of the respective agreements. The secured loan at 31 December 2003 related to the mortgage on the Oxford site.Following the sale of this site during the year this loan has been repaid infull. The secured loan at 31 December 2004 relates to $50 million (£26.3million) due to Endo, together with interest payable which the group has electedto roll up into the loan since the year end. During the period, exchange gainsof £1.3 million have been recognised in the profit and loss account in relationto this liability. 7. Provisions for liabilities and charges Restructuring Vacant lease Dilapidation Returns Total Provision provision provision & rebates £'000 £'000 £'000 £'000 £'000--------------------------------------------------------------------------------At 1 January 2004 717 1,932 1,440 - 4,089Charge for the year 1,493 4,401 283 3,328 9,505Utilised during theyear (2,080) (618) - (192) (2,890)Movements on exchange - - - (174) (174)--------------------------------------------------------------------------------At 31 December 2004 130 5,715 1,723 2,962 10,530-------------------------------------------------------------------------------- The restructuring provision at 31 December 2003 and further charges incurredduring the year related to redundancy costs incurred as part of the Group's ongoing restructuring following the acquisition of RiboTargets and the merger ofthe Company and Vernalis Group plc on 1 September 2003. Where leasehold properties become vacant the Group provides for all costs, netof anticipated income, to the end of the lease or the anticipated date of thedisposal or sublease. During the year the company received notice from a Tenantin its property in Oxfordshire and has significantly increased the provision asa result. In addition, based on professional advice, the company has increasedit's provision on a vacant property in Cambridge. This provision is expected tobe utilised over the life of the related leases to 2014 and 2020 respectively. The dilapidation provision relates principally to costs associated with theGroup's obligation to reinstate leased buildings to their original state. Theprovision is expected to be utilised on vacation of the properties by 2014. Thecharge in the year has been capitalised to Fixed Assets and is being depreciatedover the life of the lease. On acquiring the rights from Elan the company took on an obligation for certainproduct returns, estimated at £1.9 million. In addition the company isresponsible for product returns, rebates and chargebacks from the date itreacquired the rights from Elan through to the date of the outlicence to Endo. Afurther provision has been made in relation to sales made by the Group totalling£1.4 million. There are no further obligations to the company in respect ofthese for sales made after the company outlicenced the rights to frovatriptan toEndo. 8. Loss per share is based on the loss attributable to shareholders on 147.4million (31 December 2003 137.2 million) shares being the weighted averagenumber of share in issue for the period. 9. The directors do not propose a dividend for the period (2003: Nil). 10. A copy of the Annual Report for the year ended 31 December 2004 will be sent to shareholders during April 2005. Further copies of the Annual Report will beavailable from the Company's registered office at: Vernalis plc, Oakdene Court,613 Reading Road, Winnersh, Berkshire, RG41 5UA. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Vernalis PLC