26th Mar 2010 07:00
VERONA PHARMA plc ("Verona Pharma" or the "Company") PRELIMINARY UNAUDITED RESULTS for the twelve months ended 31 December 2009
Verona Pharma plc, the AIM-quoted drug discovery company dedicated to the research, discovery and development of new therapeutic drugs for the treatment of allergic rhinitis (hay fever) and other chronic respiratory and inflammatory diseases, is pleased to announce its unaudited preliminary results for the year ended 31 December 2009.
2009 OPERATIONAL HIGHLIGHTS
* 28 January - Approval from the regulatory authority in The Netherlands to commence its Phase I/IIa clinical trial of RPL554 * 20 May - First two stages of a three stage Phase I/IIa clinical trial of RPL554 successfully completed at the Center for Human Drug Research, The Netherlands * 11 September - Final results of the Phase I/IIa trial, showed RPL554 has clear clinical benefits in patients with asthma and allergic rhinitis and a good safety profile * 11 September - Dr. Patrick Humphrey, a leading drug researcher, appointed to the Board of Directors * 8 December - Announced proposal to raise approximately £3.0 million, before expenses, at a price of 13 pence per share, via a placing arranged on the Company's behalf by Evolution Securities Limited * 29 December - Completed first of two tranches of placing, raising £2.2 million before expenses
2009 FINANCIAL HIGHLIGHTS
* Loss after tax of £1.6 million or 0.74 pence per share, which includes a non-cash charge of £0.01 million for the cost of issuing share options * Cash and cash equivalents at 31 December 2009 of £2.8 million
SUBSEQUENT EVENT HIGHLIGHTS
* 8 January 2010 - Completed the second tranche of placing, raising an additional £0.8 million before expenses for a total of £3.0 million * Opened discussions with various potential licensees for RPL554 * Four new patents related to novel compounds discovered under the Company's NAIPs project have been filed * Regulatory documents for the proposed clinical trial of the cough treatment, VRP700, have been prepared and will be submitted to the appropriate authorities as soon as possible * The Company continues to look for additional opportunities to enhance its Intellectual Property portfolio
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S JOINT STATEMENT
RPL554
Verona Pharma has made excellent progress during the last year. Our primary drug, RPL554, a treatment for inflammatory diseases of the respiratory tract, including asthma, allergic rhinitis (hay fever) and Chronic Obstructive Pulmonary Disease ("COPD"), successfully completed its Phase I/IIa clinical proof of concept trial in November 2009, leading to the issue of the quality assured report by the Centre for Human Drug Research ("CHDR") on the 8 January 2010. The trial demonstrated that RPL554 produces clear clinical benefits in patients with asthma and allergic rhinitis and has a good safety profile. The official completed report from the CHDR is an important element in the data package for the Company's ongoing licensing efforts.
The Company is seeking the most compatible and appropriate licensing partner to develop RPL554. It is of fundamental importance that the ultimate licensing partner posses a high level of expertise in the respiratory area, a good inhalation device and leading formulation skills. While the licensing activities are underway, the Company continues to add strength and value to the RPL554 project by conducting a variety of further development studies. Successful licensing of RPL554 is expected to provide a source of funds that will provide a bright financial future for your Company.
RPL554 continues to be the major component in Verona's portfolio of projects and the area in which the majority of the Company's attention and support is dedicated.
VRP700
In order to progress Verona Pharma's cough project, VRP700, the Company has prepared regulatory documents that will be submitted to the EU regulatory agencies, including Italy, to obtain the necessary ethical and regulatory approvals for the up-coming clinical trial. If the outcome of this trial is successful, Verona will immediately initiate a sustained programme designed to further advance the clinical value of VRP700. The project will also enable studies in the cough project designed to identify a generation of compounds with a similar mechanism of action.
The mechanism of action of VRP700 is presumed to involve the suppression of cough initiating signals originating at cough sensory nerve endings located in the lungs. Cough is one of the most irritating, common medical complaints that can be extremely debilitating - especially in patients with respiratory problems such as asthma, COPD and lung cancer.
NAIPS
Verona Pharma's Novel Anti-Inflammatory Polysaccharides ("NAIPS") project has progressed to the point that the Company has filed four new composition of matter patents for products that have been discovered as a result of the collaboration with Glycomar Ltd. These novel products have been identified from a number of marine sources and have shown anti-inflammatory activity with clinical potential. This is a significant step forward for the project.
FINANCIALS
The Company successfully raised approximately £3.0 million (before expenses of £0.2 million) via a placing of 23,265,684 million New Ordinary shares at 13 pence per share at the end of 2009, providing the Company with a strong financial position.
Loss for the current year increased by 17% or £227,422 to £1,598,532 (2008: £ 1,371,110). Research and development expenditure for the year amounted to £ 944,903 (2008: £878,094). The main area of expenditure has continued to be the RPL554 programme at £817,815 in 2009 (2008: £788,096). Administrative expenses for the year were £660,872 (2008: £603,519), the increase of £57,353 being primarily due to increase in corporate activities. Finance revenue decreased by £131,137 to £7,243 as a result of lower interest rates.
OUTLOOK
There have been significant changes over the past year within the pharmaceutical industry. Many large pharmaceutical companies are undergoing significant restructuring programs that are resulting in some profound changes in strategy. The Board believes that Verona Pharma is well positioned to take advantage of these changes, especially as a number of large pharmaceutical companies have indicated their intentions to scale down their own research and development operations while increasing out-sourcing of such activities.
We would like to thank our staff, consultants, advisers and collaborators for all of their dedicated effort in the past year and for sharing our mission to research, discover and develop drugs of benefit to those millions of sufferers from asthma, allergic rhinitis and other respiratory diseases. We also wish to express the most sincere gratitude to our shareholders for their continuing support of our endeavours.
Professor Clive P. Page Professor Michael J. A. WalkerChairman Chief Executive OfficerGROUP STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2009 Notes Year ended 31 Year ended 31 December 2009 December 2008 £ £ Revenue - - Cost of sales - - Gross profit - - Research and development (944,903) (878,094) Administration expenses 7 (660,872) (603,519) Operating loss (1,605,775) (1,481,613) Finance revenue 7,243 138,380 Loss before taxation (1,598,532) (1,343,233) Taxation 4 - (27,877) Loss and comprehensive loss (1,598,532) (1,371,110)for the period Loss per ordinary share - 2 (0.74)p (0.66)pbasic and diluted GROUP STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2009 Notes 31 December 31 December 2009 2008 Restated £ £ ASSETS Non current assets Tangible assets 18,004 14,088 Intangible assets 70,570 71,996 Goodwill 9 1,469,112 1,469,112 1,557,686 1,555,196 Current assets Trade and other receivables 381,259 67,632 Cash and cash equivalents 6 2,829,981 2,454,882 3,211,240 2,522,514 Total assets 4,768,926 4,077,710 EQUITY AND LIABILITIES Capital and reserves attributable to equity holders Called up share capital 232,378 215,258 Option reserves 356,210 343,001 Share premium account 8,561,493 6,504,783 Retained losses (4,668,057) (3,069,525) Total equity 4,482,024 3,993,517 Current liabilities Trade and other payables 286,902 84,193 Total liabilities 286,902 84,193 Total equity and liabilities 4,768,926 4,077,710
The financial statements were approved by the Board on 25 March 2010.
Prof. Clive PageChairmanGROUP STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2009 Notes Year ended 31 Year ended 31 December 2009 December 2008 £ £ Net cash outflow from operating (1,620,382) (1,322,442)activities Cash outflow from taxation - (27,877) Cash flow from investing activities Interest received 9,879 137,657 Purchase of tangible assets (16,593) (8,588) Purchase of intangible assets (8,070) (13,441) Net cash (outflow) / inflow from (14,784) 115,628investing activities Cash flow from financing activities Deferred financing cost (54,365) - Net proceeds from issue of shares 2,064,630 2,437,510 Net cash inflow from financing 2,010,265 2,437,510activities Net increase in cash and cash 375,099 1,202,819equivalents Cash and cash equivalents at the 2,454,882 1,252,063beginning of the year
Cash and cash equivalents at the end of 6 2,829,981 2,454,882 the year
GROUP STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2009 Share Share Option Retained Total capital Premium reserve earnings Restated Restated Restated £ £ £ £ £ Balance at 1 January 146,775 4,135,756 405,313 (1,799,687) 2,888,1572008 Total comprehensive - - - (1,371,110) (1,371,110)loss for the year Issue of shares 68,483 2,465,850 - - 2,534,333 Issue cost - (96,823) - - (96,823) Share based payment - - 38,960 - 38,960 Transfer of previously - 101,272 (101,272) -expensed share based payment charge upon exercise of options As previously stated 215,258 6,606,055 343,001 (3,170,797) 3,993,517 Balance at 31 December 2008 Restatement - (101,272) - 101,272 - As restated 215,258 6,504,783 343,001 (3,069,525) 3,993,517 Balance at 31 December 2008 Balance at 1 January 215,258 6,504,783 343,001 (3,069,525) 3,993,5172009 Total comprehensive - - - (1,598,532) (1,598,532)loss for the year Issue of shares 17,120 2,188,680 - - 2,205,800 Issue costs - (131,970) - - (131,970) Share based payment - - 13,209 - 13,209
Balance at 31 December 232,378 8,561,493 356,210 (4,668,057) 4,482,024 2009
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2009
1. Accounting policies
A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below.
1. Basis of preparation
The financial statements have been prepared using the historical cost convention. In addition, the financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs").
2. Restatement of prior year's results
On exercise of share options in the year to 31 December 2008 the previously recognised share based payment charge, of £101,272, was transferred between equity reserves from the Option Reserve to the Share Premium Reserve. The directors have reconsidered their policy of retaining the balance within equity and reclassified the balance from the Share Premium Reserve to the Retained Earnings Reserve.
3. Basis of consolidation
These group financial statements include the accounts of Verona Pharma plc (the "Company" or the "Parent") and its wholly-owned subsidiary Rhinopharma Limited. The Parent and Rhinopharma Limited are collectively referred to as the "Group". The purchase method of accounting is used to account for the acquisition of Rhinopharma Limited.
The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. Goodwill arising on acquisitions is capitalised and subject to an impairment review, both annually and when there are indications that the carrying value may not be recoverable.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated.
Rhinopharma Limited adopts the same accounting policies as the Company.
4. Cash and cash equivalents
The Company considers all highly liquid investments, with a maturity of 90 days or less to be cash equivalents, carried at the lower of cost or market value.
5. Critical accounting judgements and estimates
The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates. IFRSs also require management to exercise its judgement in the process of applying the Group's accounting policies.
The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are as follows:
(a) Impairment of intangible assets
Determining whether an intangible asset is impaired requires an estimation of whether there are any indications that its carrying value is not recoverable.
At each reporting date, the Company reviews the carrying value of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the income statement.
(b) Valuation of goodwill
Management values goodwill after taking into account the results of research efforts and estimated future sales and costs. If the assumed factors vary from actual occurrence, this will impact on the amount of the asset which should be carried on the balance sheet.
(c) Share based payments
The Group records charges for share based payments. For option based share based payments management estimate certain factors used in the option pricing model, including volatility, exercise date of options and number of options likely to be exercised. If these estimates vary from actual occurrence, this will impact on the value of the equity carried in the reserves.
6. New standards and interpretations
The following new standards and amendments to standards are mandatory for the first time for the financials periods commencing on or after 1 January 2009:
IAS1 (revised) Presentation of financial statements includes the requirement to present a Statement of Changes in Equity as a primary statement and introduces the possibility of either a single Statement of Comprehensive Income (combining the Income Statement and a Statement of Comprehensive Income) or to retain the Income Statement with a supplementary Statement of Comprehensive Income. The Directors have chosen the first option. As this standard is concerned with presentation only it does not have any impact on the results or net assets of the Group.
IFRS8 Operating segments replaces IAS14 Segment reporting. IFRS8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker, being the Board of Directors, to allocate resources to the segments and to assess their performance. It requires a `management approach' under which segment information is presented on the same basis as that used for internal reporting purposes. The predecessor Standard (IAS 14 Segment Reporting) required the Group to identify two sets of segments (business and geographical), using a risks and rewards approach, with the Group's system of internal financial reporting to key management personnel serving only as the starting point for the identification of such segments. As a result, following the adoption of IFRS8, the identification of the Group's reportable segments has changed; details of the changes are disclosed in note 3.
New standards and interpretations not applied during the year
During the year, the IASB and IFRIC have issued new standards, amendments and interpretations with an effective date after the date of these financial statements. Of these, only the following are expected to be relevant to the Group:
IAS 27 Consolidated and separate financial statements 1 July 2009
IFRS 2 Share-based Payment - Amendments relating to group
cash-settled share-based payment transactions 1 January 2010
IFRS 3 Business Combinations - Comprehensive revision on
applying the acquisition method 1 July 2009
IFRS 8 Operating Segments - Amendments resulting from April
2009 Annual Improvements to IFRSs 1 January 2010
IAS 1 Presentation of Financial Statements - Amendments
resulting from April 2009 Annual Improvements to IFRSs 1 January 2010
IAS 7 Statement of Cash Flows - Amendments resulting from
April 2009 Annual Improvements to IFRSs 1 January 2010
IAS 38 Intangible Assets - Amendments resulting from April
2009 Annual Improvements to IFRSs 1 July 2009
The Directors do not anticipate that the adoption of these standards will have a material impact on the Group's financial statements in the period of initial application.
2. Earnings per share
Basic loss per share of (0.74p) (2008: loss of 0.66p) for the Group is calculated by dividing the loss for the period by the weighted average number of ordinary shares in issue of 215,540,798 (2008: 209,100,584).
Diluted loss per share for the current period has not been presented since the Company's stock options are anti-dilutive.
3. Segmental information
The Group has adopted IFRS8 Operating Segments with effect from 1 January, 2009. Following a review of the Group's internal management information, the Group has determined that its operating segments be reported on a product pipeline basis as this best reflects the Group's activity cycle. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Board of Directors.
The Group's product pipeline is dedicated to the research, discovery and development of new therapeutic drugs for the treatment of chronic respiratory diseases. At present there are three products: RPL554, NAIP and Cough. RPL554 is in the clinical phase, having successfully completed a Phase I and IIa trial, NAIPs and Cough are in the basic research phase.
Segment information by operating segment is as follows:
Clinical Clinical Basic Basic Research Research 2009 2008 2009 2008 £ £ £ £ Income statement information Research and (817,815) (788,096) (127,088) (89,998)development Amortization of patent (7,311) (6,949) (2,186) (1,122) Segment loss (825,126) (795,045) (129,274) (91,120) Balance sheet information Patents 51,843 57,360 18,727 14,636 Goodwill 1,469,112 1,469,112 - - Segment assets 1,520,955 1,526,472 18,727 14,636 2009 2008 £ £ Reconciliation of segment result Loss per reportable segment- Clinical (825,126) (795,045) Loss per segment- Basic Research (129,274) (91,120) Total loss for reportable segments (954,400) (886,165) Amortisation of non-segment assets (12,677) (10,559) Unallocated administration expense (638,698) (584,889) Group operating loss (1,605,775) (1,481,613) Reconciliation of segment assets Assets per reportable segment- Clinical 1,520,955 1,526,472 Assets per reportable segment- Basic Research 18,727 14,636 Total assets for reportable segments 1,539,682 1,541,108 Unallocated non-current assets 72,369 14,088 Unallocated current assets 3,156,875 2,522,514 Group total assets 4,768,926 4,077,710
Segment information by geographical segment for 2009 is as follows:
Geographical segment (Group) United Canada Total Kingdom £ £ £ Research and development (944,903) - (944,903) Administration expenses (651,759) (9,113) (660,872) Finance revenue 7,243 - 7,243 Loss before taxation (1,589,419) (9,113) (1,598,532) Tangible assets 18,004 - 18,004 Intangible assets 70,570 - 70,570 Trade and other receivables 380,471 788 381,259 Cash and cash equivalents 2,826,869 3,112 2,829,981 Goodwill 1,469,112 - 1,469,112 Trade and other payables (286,682) (220) (286,902) Net assets 4,478,344 3,680 4,482,024
At the end of the financial year, the Group was still in early development stage and therefore had no turnover in the year.
2009 2008 £ £ 4. Taxation Analysis of tax charge for the year Current tax: UK corporation tax at 28% (2008: 30%) - - Foreign taxation - 27,877 Current tax charge - 27,877 Factors affecting the tax charge for the year Loss on ordinary activities before (1,598,532) (1,343,233)taxation Multiplied by standard rate of corporation tax of 28.00% (30.00%) (447,589) (376,105) Effects of: Non deductible expenses 3,779 10,909 Timing differences not recognised (102) (3,227) Tax losses carried forward 443,912 396,300 Current tax charge - 27,877
Factors that may affect future tax charges
At the balance sheet date, the Group has unused United Kingdom tax losses available for offset against suitable future profits in the United Kingdom. A deferred tax asset has not been recognised in respect of such losses due to uncertainty of future profit streams. The contingent deferred tax asset is estimated to be £1,400,000.
5. Subsidiary entities
The Company currently has one wholly owned subsidiary, Rhinopharma Limited.Rhinopharma Limited is incorporated under the laws of the Province of BritishColumbia, Canada. Rhinopharma Limited was a drug discovery and developmentcompany focused on developing proprietary drug to treat allergic rhinitis andother respiratory diseases prior to its acquisition by the Company on 18September 2006.6. Cash and cash equivalents 2009 2008 £ £ Group Cash at bank and in hand 2,829,981 223,784 Cash equivalents - 2,231,098 2,829,981 2,454,882
7. Cost of issuing share options
Included within administration expenses is a charge for issuing share options. The Company granted 1,200,000 (2008: 1,159,666) stock options during the current year with fair value estimated using the Black-Scholes option-pricing model of £112,600. The cost of issuing share options recognised during the current year is £13,209 (2008: £38,960) and the balance in unamortised share options issuing cost of £99,391 will be amortised over the period of 2010 to 2012.
Of the 1,200,000 stock options granted in the year, 200,000 stock options were granted to consultants ("consultants") and 1,000,000 stock options were granted to an employee ("employee"). The consultants' options are exercisable at 4 pence per option and the expiry date of these stock options is 8 January 2014. The employee's options are exercisable at 17.5 pence per option and the expiry date of these stock options is 11 September 2014.
The following assumptions were used for the Black-Scholes valuation of stock options granted in the current year:
Year/Type 2009/Employee 2009/Consultants Options granted 1,000,000 200,000 Risk-free interest rate 5.0% 4.75% Expected life of options 5 years 5 years Annualised volatility 75.02% 155.20% Dividend rate 0.00% 0.00%
8. Related parties transactions
The Company was charged £41,562 (2008: £45,026) by Magic Bullets Enterprises Limited, a company controlled by Prof. Michael Walker. At the year end the Company does not have any outstanding debt owing (2008: £Nil) to the related party.
The Company was charged £27,000 (2008: £27,000) by Gryon Consulting Limited, a company of which Prof. Clive Page is a Director. At the year end the Company does not have any outstanding debt owing (2008: £Nil) to the related party.
2009 2008 £ £ 9. Goodwill Group Goodwill 1,469,112 1,469,112 Company Goodwill 1,453,570 1,453,570
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with the acquisition of Rhinopharma Limited in September 2006. The Company has elected to test goodwill for impairment as of 31 December of each year. Based on the evaluation performed as of 31 December 2009 the Company concluded that no impairment was required.
10. Financial instruments
(a) Fair values
The carrying amounts of cash and cash equivalents, short-term investments, receivables, and accounts payable and accrued liabilities, approximate to fair value due to their short-term nature.
b. Credit risk
Credit risk reflects the risk that the Group may be unable to recover contractual receivables. The Group is still in the development stage; therefore, no policies are required at this time to mitigate this risk.
(c) Currency risk
Foreign currency risk reflects the risk that the Group's net assets will be negatively impacted due to fluctuations in exchange rates. The Group has not entered into foreign exchange contracts to hedge against gains or losses from foreign exchange fluctuations. At 31 December 2009, cash and cash equivalents include Euro €61,819, and accounts payable and accrued liabilities include balances of CAD$32,680, Euro €22,076, AUD$8,704 and CNY$2,500.
(d) Financial risk management
The Directors recognise that this is an area in which they may need to develop specific policies should the Group become exposed to further financial risks as the business develops.
(e) Management of capital
The Group considers capital to be its equity reserves. At the current stage of the Group's life cycle the Group's objective in managing its capital is to ensure funds raised meet the research and operating requirements until the next development stage of the Group's suite of projects.
The Group ensures it is meeting its objectives by reviewing its Key Performance Indicators ("KPIs") to ensure its research activities are progressing in line with expectations, controlling costs and placing unused funds on deposit to conserve resources and increase returns on surplus cash held.
(f) Interest rate risk
At 31 December 2009, the Group had cash deposits of £2,829,981 (2008: £2,454,882). The Company's exposure to interest rate risk, which is the riskthat a financial instrument's value will fluctuate as a result of changes inmarket interest rates on classes of financial assets and financial liabilities,was as follows:Financial Asset Floating Non-interest Floating Non-interest interest rate bearing interest rate bearing 2009 2009 2008 2008 Cash deposits 2,829,981 - 2,454,882 -
11. Financial information
The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2009 or 2008. The statutory accounts for the year ended 31 December 2009 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies.
12. Subsequent Event
Subsequent to 31 December, 2009, the Company completed second tranche of placing, raising £827,939 before expenses, by issuing 6,368,761 new ordinary shares at 13 pence per share.
13. Directors' report and accounts
Copies of the full report and accounts will be posted to shareholders on or around 23 April 2010. A copy will be made available on the Company's website ( www.veronapharma.com) at the same time.
14. Annual General Meeting
The Company intends to convene an annual general meeting of shareholders on or around 4 June 2010 at 11.30 am at One America Square, Crosswall, London EC3N 2SG. A notice to convene the AGM will be dispatched to shareholders at the same time the full report and accounts are dispatched.
ENDS
For further information please visit www.veronapharma.com or contact:
Professor Clive Page, Chairman, Verona Pharma plc: 020 7863 3300
Barry Saint/Tim Redfern/Esther Lee, Evolution Securities Limited: 020 7071 4300
Robyn Samuelson/Gemma O'Hara, Bishopgate Communications: 020 7562 3350
vendorRelated Shares:
VRP.L