16th Mar 2006 07:02
Vernalis PLC16 March 2006 16 March 2006 Vernalis plc: Preliminary Announcement of Results for the year ended 31 December 2005 A Transformational Year for Vernalis Vernalis plc (LSE: VER, Nasdaq: VNLS) today announced its preliminary resultsfor the year ended 31 December 2005. Vernalis ended 2005 with a commercialpresence in North America, two marketed products and a substantiallystrengthened product development portfolio. 2006 will be a year of significantnewsflow, in particular, the Phase III data from the confirmatory efficacy studyof Frova(R) for the intermittent, short-term prevention of menstrual migraine(MM). If this study concludes successfully, Vernalis plans to file thesupplementary New Drug Application (sNDA) for this new indication with the U.S.Food and Drug Administration (FDA) in the first half of 2006. 2005 Highlights • Acquired exclusive North American rights to Apokyn(R), a marketed product for the treatment of Parkinson's disease • Three late-stage clinical products added to portfolio through the acquisition of Cita NeuroPharmaceuticals and Ionix Pharmaceuticals • Positive data from the first two of the three studies required for Frova(R) label expansion for the intermittent, short-term prevention of MM • Strengthened the balance sheet with net cash and liquid resources of £68.3 million at year end (2004: £33.3 million) • Loss for the year of £32.8 million (2004: £25.7 million) including £11.5 million (2004 : £7.0 million) of non cash charges 2006 News • V1003 - Vernalis today announced the outcome of a Phase II trial of V1003. The primary end point of pain relief over the period of eight hours from drug administration was achieved • Launch of U.S. neurology sales force to market Apokyn(R) and co-promote Frova(R) • Frova(R) - All patients have completed treatment in the Phase III MM confirmatory efficacy study with results expected in May 2006 • V10153 - The Phase IIa study in stroke patients is now expected to complete in Q4 2006 due to slower than expected patient recruitment. A number of steps have been put in place, including a revision of the inclusion criteria and evaluation of additional sites, in order to meet this revised timetable Simon Sturge, CEO of Vernalis, commented, "2005 has been a year of substantialprogress for Vernalis, creating a European biopharmaceutical company in a spaceof its own with a clear path to profitability and sustainability. In our 2004Annual Report we stated that we believed we had a strong foundation upon whichto build a sustainable, self-funded R&D-based specialist bio-pharmaceuticalcompany and 2005 has seen us make significant progress towards this goal." "Vernalis now has a commercial presence in North America with two marketedproducts being promoted by our own speciality neurology sales force. We alsoadded three new products to the clinical portfolio and have established a strongParkinson's disease franchise. Our business model will continue to drive revenuegrowth towards Vernalis becoming a sustainable self-funding business with acontinuing revenue stream." 2006 will be a year of significant newsflow - expected development progress forkey products/programmes Frova(R): MM Phase III efficacy data May 06- For the intermittent, short-term prevention of MMFrova(R): MM FDA regulatory submission H1 06- For the intermittent, short-term prevention of MMV2006: Start Phase II (Biogen Idec) H1 06- A2A receptor antagonist for Parkinson's diseaseV3381: Start Phase II H1 06- Dual NMDA antagonist and MAO-A inhibitor for neuropathic painV10153: Complete Phase IIa H2 06- Novel long-acting thrombolytic for acute ischaemic strokeV1512: Start Phase III H2 06- Effervescent levodopa methylester/carbidopa for Parkinson's diseaseV24343: Start Phase I H2 06- Cannabinoid receptor antagonist for obesity and related disordersHsp90: Start Phase I (Novartis) H2 06- Novel oncology treatment Vernalis' CEO Simon Sturge and CFO Tony Weir will discuss the company's 2005results during a conference call today at 9:30 am BST. The conference call may be accessed by dialling: +44 (0)1452 541 077, andquoting 'Vernalis conference call.' A replay facility will be available for 7days following the call by dialling: +44 (0)1452 550000, with the access code: 6018077#. Enquiries: Vernalis plc +44 (0) 118 977 3133Simon Sturge, Chief Executive OfficerTony Weir, Chief Financial OfficerJulia Wilson, Head of Corporate Communications Brunswick Group +44 (0) 20 7404 5959Jon ColesWendel Verbeek 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. Operational Review Marketed Products Frova(R) • Vernalis exercised its Frova(R) co-promote option with Endo in February 2005. Vernalis receives funding and assistance from Endo for up to 25 specialty neurology sales representatives for up to 5 years • In January 2006, Vernalis launched its 34-person U.S. neurology sales force to co-promote Frova(R) alongside its licensing partner, Endo, as well as to market Apokyn(R) • U.S. net sales of Frova(R) in 2005 totalled $38.1 million. Vernalis received a fixed anniversary payment of $15.0 million from Endo in 2005 and will receive a second and final anniversary payment of $15.0 million in 2006. From 1 January 2007 Vernalis will receive royalty payments • Frova(R) is marketed in Europe by Vernalis' licensee Menarini. Vernalis revenues for 2005 amounted to £3.0 million (£2.0 million in 2004), arising from Menarini's sales Apokyn(R) • Vernalis owns exclusive North American commercial rights to the marketed product Apokyn(R), which is registered for rescue therapy in patients with advanced Parkinson's disease • Apokyn(R) was granted orphan drug designation by the FDA and has market exclusivity until 2011 • Apokyn(R) sales from 4th November 2005 (the acquisition date) to 31st December 2005 amounted to $0.9 million • Estimated North American Apokyn(R) sales in 2006 will be in the range of $6.0 million to $7.5 million Clinical Development Portfolio Pain Franchise • Frova(R) for MM - All patients have completed treatment in the Phase III confirmatory efficacy study to support a label extension for the intermittent, short-term prevention of MM. In December 2005, results from the completed Phase III safety study of Frova(R) for the intermittent, short-term prevention of MM indicated that the drug's long-term safety profile (over 12 menstrual cycles) is consistent with safety data from previous shorter-term studies Next Milestones: Phase III confirmatory efficacy study results expected in May2006. If positive, FDA submission of full data package is expected in H1 2006 • V1003 - Vernalis today announced the outcome of a Phase II trial of V1003. The primary end point of pain relief over the period of eight hours from drug administration was achieved Next Milestone: Discussions on-going with Reckitt Benckiser on the nextdevelopment stage • V3381 (formerly CNP3381) - Acquired from Cita, this dual NMDA antagonist and MAO-A inhibitor has completed Phase I studies in neuropathic pain Next Milestone: Phase II study in diabetic neuropathic pain patients expected tostart in H1 2006 Neurology Franchise • V1512 (formerly CNP1512) - Acquired from Cita, this patented effervescent formulation, combining levodopa methylester and carbidopa, has completed Phase II studies for Parkinson's disease Next Milestone: Phase III study in Parkinson's disease patients expected tostart in H2 2006 • V2006 - Vernalis' partner Biogen Idec filed an Investigational New Drug Application (IND) with the FDA in December 2005 for this adenosine A2A receptor antagonist in development as a potential novel treatment for Parkinson's disease Next Milestone: Phase II study in Parkinson's disease patients expected to startin H1 2006 • V10153 - In August 2005, Vernalis initiated a Phase IIa study of this novel thrombolytic agent for the treatment of acute ischaemic stroke. Due to slower than expected patient recruitment, the study is now due to complete in Q4 2006. A number of steps have been put in place, including a revision of the inclusion criteria and evaluation of additional sites, in order to ensure this revised timetable is met Next Milestone: Completion of Phase IIa study in acute ischaemic stroke expectedin Q4 2006 Other Programmes • Hsp90 - Vernalis' partner Novartis selected a pre-clinical development candidate for this potential oncology treatment Next Milestone: Phase I study expected to start in H2 2006 • MMP-12 - Vernalis' partner Serono started a Phase I study in January 2005 of this matrix metalloprotease inhibitor-12 looking at its therapeutic potential in inflammatory disorders including multiple sclerosis patients Next Milestone: Serono is undertaking and funding all development activitiesassociated with the programme with Vernalis receiving milestone and royaltypayments • V24343 - This potent and selective cannabinoid receptor antagonist programme progressed from research into pre-clinical development for the potential treatment of obesity and related disorders Next Milestone: Phase I study expected to start in H2 2006 Pain Franchise Frova(R) - Acute Migraine Frova(R) is a selective 5-HT1B/1D receptor agonist approved as an acute oraltreatment for migraine headache and its associated symptoms. It is one of aclass of prescription drugs called triptans, a number of which are alreadyapproved for this acute indication. Frova(R) is distinguished from othertriptans by its long half-life and is also being developed for the intermittent,short-term prevention of menstrual migraine. Vernalis co-promotes Frova(R) in the U.S. with Endo Pharmaceuticals. Endore-launched the product during 2005 with an expanded sales force and a newmarketing strategy focused on the benefits of Frova(R)'s long duration ofaction. These messages are beginning to resonate with the targeted neurologists,evidenced by a growth in the number of prescriptions from this community inaddition to the general market. In Europe, frovatriptan is marketed in nine countries by Menarini. The drug wasapproved throughout the then 15 member states via the mutual recognitionprocedure in January 2002, with France acting as the reference member state.Menarini launched the product in Germany, the first European market, duringNovember 2002. Subsequent launches have taken place in The Republic of Ireland,the United Kingdom, Austria, The Netherlands, Italy, Spain, Greece and Slovakia.Frovatriptan sales have grown steadily, with strong market share gains in bothGermany and Menarini's home territory of Italy. In Germany and Italyfrovatriptan currently represents in excess of 10% and 11%, respectively, of theoverall triptan market share. In December 2004, Menarini successfully completeda second round of mutual recognition to include the EU accession countries aswell as Iceland and Norway. Frovatriptan has also been approved in Switzerland,Bulgaria, Romania and six Central American countries with further launchesexpected in these markets during 2006. U.S. net sales of Frova(R) in 2005 amounted to $38.1 million (2004: $33.3million). Endo's new marketing efforts, focused on neurologists, resulted in agrowth in prescriptions from this community as Endo and Vernalis pave the wayfor the expanded label for the intermittent, short-term prevention of MM.Vernalis received a fixed payment of $15 million from Endo in September 2005.Vernalis' gross revenues from Menarini's sales of frovatriptan in Europeincreased to £3.0 million (2004: £2.0 million). Frova(R) - Menstrual Migraine Vernalis is currently completing further studies aimed at obtaining approval forFrova(R) for use as an intermittent, short-term prevention of MM, a form ofmigraine suffered by over 60 percent of female migraineurs. In the U.S., thisrepresents approximately 12 million women. None of the triptan class of drugs iscurrently approved for this indication and Frova(R)'s long half-life(approximately 26 hours) suggests that it might be an appropriate treatment forthis novel application. Vernalis has successfully completed two Phase IIIstudies, including an initial efficacy study and a 12 month safety study. Aconfirmatory efficacy study is currently on-going in order to complete the datapackage for a supplemental New Drug Application (sNDA) to the FDA. Initial Efficacy Study: In October 2002, positive study data were firstpresented from a study of more than 500 menstrual migraine sufferers in theU.S., suggesting that short-term prevention with Frova(R) was effective inpreventing migraine headaches triggered by menstruation. The study was acrossover design covering three menstrual cycles in which patients wereadministered each of placebo, once-daily and twice-daily dosing with Frova(R)for one month. The data demonstrated a highly statistically significantimprovement in the numbers of patients who were headache-free during theirmenstrual cycles for both once and twice-daily dose regimens of Frova(R)compared to placebo (p < 0.0001). These data were published in a leadingjournal, Neurology (2004, 63: 261-269). Safety Study: In December 2005, Vernalis announced data from a long-term safetystudy that investigated the higher dose regimen from the initial efficacy study.Female patients were administered Frova(R) for six days each month (2 x 2.5 mgtwice-daily on day one, and 2.5 mg twice-daily for five days) covering theirmenstrual cycles. The study results indicated that Frova(R) is well-toleratedwhen used as a six-day dosing regimen for up to twelve menstrual periods aspreventive therapy for MM. Importantly, more than 300 patients received twelvemonths of treatment, exceeding the study objective of treating 100 patients fortwelve menstrual cycles. Confirmatory Efficacy Study: Over 550 patients who were difficult to treat usingacute therapies were included in the confirmatory study, which is investigatingthe same treatment regimens that were found to be efficacious in the initialefficacy study. Patients were treated for six days each month covering theirmenstrual cycle starting two days before the expected onset of headache and wererandomised to either placebo, once-daily or twice-daily dosing with Frova(R) forthree menstrual cycles. All patients have completed treatment and the resultsfrom the study are expected in May 2006. Provided the positive initial studyresults are confirmed, Vernalis plans to undertake regulatory submission to theU.S. FDA during H1 2006. The regulatory review of the sNDA for the MM indicationis anticipated to take twelve months after submission. If approved by the FDAfor this expanded indication, Vernalis will receive a $40 million milestonepayment from Endo. V1003 - Post-Operative Pain V1003 is a novel, proprietary intranasal formulation of buprenorphine, an opiateanalgesic, for the management of post-operative pain in hospital and homesettings. Vernalis is developing the product in partnership with ReckittBenckiser, who manufacture and market buprenorphine globally. Buprenorphine is awell-known analgesic and the proprietary intranasal formulation has thepotential to provide a convenient alternative to current treatments, enablingpatients to manage post-operative pain prior to hospital discharge, as well asat home during recovery. Two successful Phase I clinical studies have beencompleted and have demonstrated rapid attainment of potentially analgesic plasmalevels.Vernalis today announced the achievement of the primary end point of a Phase IIastudy of V1003 for the management of post-operative pain. The randomized, doubleblind, placebo-controlled single dose Phase IIa study in 360 patients undergoingbunionectomy compared V1003 to both placebo and Vicodin(R), one of the mostwidely prescribed oral pain killers. The primary end point was pain relief overthe period of eight hours from drug administration. A range of four doses of V1003 was investigated: 0.1, 0.2, 0.4 and 0.6 mg. Thesewere compared to Vicodin(R) (hydrocodone 10mg, paracetamol 1g) and placebo, withan equal number of patients in each of the six study groups. The resultsdemonstrated that doses of V1003 of 0.2 mg and above were statistically superiorto placebo for the primary end point. A dose response was demonstrated for V1003and the highest dose tested (0.6 mg) was statistically superior to Vicodin(R)for pain relief with a strong trend to superiority at lower doses. A similarpattern was observed in the secondary efficacy measure of time to rescuemedication with V1003, once again demonstrating a strong trend to superiorityover Vicodin(R). There were no serious adverse events reported in the trial, and there were fewreports of local irritancy following the nasal delivery of V1003. The mostfrequent adverse events associated with V1003 were nausea, vomiting, dizziness,sleepiness and were in keeping with its status as a potent opiate analgesic.These events were reported more frequently with V1003 than with Vicodin(R),which is a weaker opiate, or placebo.Vernalis and Reckitt Benckiser are working together on the most appropriatedevelopment programme for nasal delivery of buprenorphine. V3381 - Neuropathic Pain V3381 is a novel drug candidate that is being developed as a treatment forneuropathic pain. V3381 has a dual mechanism of action, that of an NMDAantagonist and an MAO-A inhibitor, that is believed to control pain in both theperipheral and central nervous system. Neuropathic pain is a chronic form ofpain related to damage to nerves and their signalling processes and, unlikeother forms of pain, is generally non-responsive to current analgesics, does notdiminish over time and can increase in both intensity and area. This type ofpain occurs in later stages of diabetes, post-herpetic neuralgia (shingles),side effects of chemotherapy, trigeminal (facial) neuralgia, HIV infection,spinal cord injuries and other nerve injuries (eg amputation). V3381 has undergone pre-clinical and clinical studies in which it was determinedto be safe and well-tolerated. In two proof of concept studies V3381 achieved areduction of the area and intensity of pain reported by volunteers in a model ofneuropathic pain. A maximum tolerated dose study in healthy volunteers hasrecently been completed in order to establish the dose range for Phase IIclinical studies. An Investigational New Drug (IND) application has beensubmitted to the FDA. Vernalis plans to initiate a Phase II clinical study ofV3381 in diabetic neuropathic pain patients in H1 2006. The randomised doubleblind study will assess safety, pharmacokinetics and preliminary efficacy onmultiple doses in the U.S. and Canada. Neurology Franchise During 2005 Vernalis has significantly expanded its Parkinson's diseasefranchise which now includes the marketed product Apokyn(R) and two developmentprogrammes V1512 and V2006. It is estimated that approximately 1.5 millionpeople in the U.S. have Parkinson's, a disease that occurs when certain neuronsin an area of the brain called the substantia nigra are damaged or destroyed.Normally these nerve cells release dopamine - a chemical that transmits signalsbetween nerve cells (called a neurotransmitter). This signalling pathwayco-ordinates muscle movement and posture so that movements are smooth andcontrolled. Everyone loses some dopamine-producing neurons as a normal part ofaging. People with Parkinson's disease, however, have usually lost 80% or moreof their dopamine containing neurons in the substantia nigra and oftenexperience trembling, muscle rigidity, difficulty walking and problems withbalance and co-ordination. The muscle rigidity, or "off" episodes, aredebilitating periods of partial loss of movement or total immobility experiencedby patients. The disease is progressive and the signs and symptoms worsen overtime. Although Parkinson's disease may eventually be disabling, the diseaseoften progresses gradually and most people have many years of productive livingafter initial diagnosis. Apokyn(R) - Advanced Parkinson's Disease Apokyn(R) is the only therapy available in the U.S. for the acute, intermittenttreatment of immobilising "off" episodes associated with advanced Parkinson'sdisease. It is administered by means of an injector pen, as needed, to treatperiods of immobility in people with advanced disease. In April 2004, Apokyn(R)received FDA approval with Orphan Drug designation to treat approximately112,000 Parkinson's patients who experience the severe "on/off" motorfluctuations unresponsive to other therapies. It was launched in the U.S. inJuly 2004 and acquired by Vernalis from Mylan Bertek in November 2005. MylanBertek originally licensed the product from Britannia Pharmaceuticals Limited in1999. Apokyn(R) is now marketed by Vernalis' newly established neurology salesforce, which is focusing its promotional efforts on the high-prescribingneurologists who treat Parkinson's disease and migraine in key U.S. metropolitanareas. In clinical studies, Apokyn(R) was shown to be effective in the acute,intermittent treatment of "off" episodes, demonstrating a highly significantimprovement in Unified Parkinson 60 Disease Rating Scale (UPDRS) Part III motorscores at 20 minutes, with statistical improvements in some measures noted asearly as 10 minutes. Since Apokyn(R) may cause a decrease in blood pressure when first administered:initial treatment is usually conducted under medical supervision. Initialadministration of Apokyn(R) is also associated with nausea and vomiting, so itis usual for patients to take an anti-emetic drug prior to initiating treatment.Evidence suggests, however, that these side-effects become better tolerated withsubsequent administration. Apomorphine has an established safety record having been marketed in Europe byBritannia Pharmaceuticals Limited for a number of years as both a sub-cutaneousinjection and a continuous sub-cutaneous infusion using a small portable pumpfor patients with frequent fluctuations or who require multiple injections in aday. In November 2005, Vernalis entered into a collaboration with Britannia toexplore the development of new formulations of apomorphine for the U.S. market.Vernalis has exclusive rights to Britannia's technology to develop a continuoussub-cutaneous infusion of apomorphine in the U.S. and to negotiate terms for anasal powder formulation of apomorphine, which is currently in Phase II clinicalstudies in Europe. V1512 - Parkinson's Disease V1512 is an innovative, patented effervescent formulation combining levodopamethylester, a more soluble form of levodopa, and carbidopa. Levodopa, commonlyknown as L-dopa, has been the cornerstone of Parkinson's disease treatment for anumber of years. L-dopa, however, has side effects and becomes less effectiveduring disease progression. After a number of years of treatment, patients oftendevelop unwanted movements (dyskinesias) despite continuing L-dopa therapy. There is clinical evidence that V1512 may reduce the periods when patientssuffer from the debilitating effects of Parkinson's disease, as well asproviding a more effective method of delivering the drug than current therapy.As Parkinson's disease progresses, patients may experience frequent "off"episodes. It is believed that this is caused in part by poor absorption ofL-dopa, as current formulations of the drug are relatively insoluble and may bedelayed in transit through the gastrointestinal tract. V1512 represents asignificant opportunity to improve the effectiveness of L-dopa therapy bypresenting it in a more soluble form (levodopa methylester), which has thepotential to be absorbed more rapidly and consistently and, hence, to provideenhanced clinical efficacy. Vernalis acquired the worldwide rights, excludingItaly, to V1512 through its acquisition of Cita NeuroPharmaceuticals in December2005. Eighteen clinical studies, including two European Phase II clinical studies anda proof of concept study, have been completed involving levodopa methylesteralone or as part of V1512. In these studies, 696 volunteers and patients havereceived the drug without any significant safety or tolerability issues. Thesestudies achieved statistical significance with respect to the studies' primaryend-point, being faster onset of action (8.5 minutes faster activity per dose inpatients with one or two times per day dosing); increased mobility time aftereach dose (15.4 minutes less "off" episodes per dose in patients); improvedreliability of drug response compared to current levodopa-based drugs (importantin patients with gastrointestinal dysfunctions) and increased water solubilityresulting in an easier mode of administration (effervescent tablet thatdissolves in three tablespoons of water). The studies supported regulatoryapproval for the drug in Italy where it is now marketed by Chiesi for rescue(fast onset) in Parkinson's disease. Vernalis plans to initiate a Phase III programme of V1512 in H2 2006 aimed atobtaining regulatory approval in North America and Europe. The primary end-pointfor these pivotal studies will be the reduction of total daily "off" episodes.Also in H2 2006, Vernalis plans to initiate a pharmacokinetic study of V1512 inParkinson's disease patients in order to compare the plasma levels of L-dopawith Sinemet(R), the most widely prescribed form of L-dopa treatment forParkinson's disease patients in the U.S. V2006 - Parkinson's Disease V2006 is an adenosine A2A receptor antagonist in development as a potentialnovel treatment for Parkinson's disease. A2A receptor antagonists may possessadvantages over conventional dopaminergic therapies, 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. Phase I development of V2006 has been completed. In June 2004, Vernalis enteredinto an agreement with Biogen Idec to develop and commercialise V2006. BiogenIdec is conducting and funding future development and will pay milestones androyalties on the successful development and commercialisation of products.Vernalis has an option to co-promote products arising out of this collaborationin the U.S. Biogen Idec filed an IND in December 2005 with plans to commencePhase II studies in H1 2006. V10153 - Ischaemic Stroke V10153 is a novel thrombolytic protein which is being developed for thetreatment of acute ischaemic stroke; a type of stroke that is caused by blockageof a blood vessel, unlike a hemorrhagic stroke which is caused by bleeding.Ischaemic stroke is the most common type of stroke, accounting for over 80percent of all strokes and occurs when a blood clot (thrombus) forms and blocksblood flow in an artery bringing blood to part of the brain.Current therapeutic options for stroke sufferers are severely limited. Only oneagent, recombinant tissue plasminogen activator (rtPA), is approved for use inthe acute setting and treatment must be administered within the first threehours after a stroke has occurred. In August 2005, a multi-centre Phase IIclinical study of V10153 commenced with the aim to determine whether this novelthrombolytic can safely benefit patients who have recently experienced an acuteischaemic stroke up to nine hours after the stroke has occurred. The study isbeing conducted in two parts, with Part A designed to identify a safe andpotentially efficacious dose of V10153. Due to slower than expected patientrecruitment, the study is now due to complete in Q4 2006. A number of stepshave been put in place, including a revision of the inclusion criteria andevaluation of additional sites, in order to meet this revised timetable. Part Bof the study will be a placebo controlled extension of the study to confirm theinitial indications of efficacy from Part A, subject to satisfactory regulatoryreview. V10153 was initially evaluated by a consortium of cardiologists in the U.S. andEurope (the TIMI Study Group) in a Phase IIa ascending dose study to establishproof-of-concept (i.e. that it can dissolve clots and restore coronarybloodflow) in patients who have suffered acute myocardial infarction (AMI). Datashowed that V10153 was well-tolerated throughout the dose range of 1-10 mg/kg inpatients with AMI. Restoration of bloodflow was observed in blocked coronaryarteries in up to 40 percent of patients after 60 minutes following doses of 5mg/kg and greater. These results are comparable to the efficacy reported forother marketed thrombolytic therapies using a similar experimental protocol.V10153 was found to be safe in the range of doses tested.Vernalis is developing a large scale manufacturing process for V10153 to provideproduct for Phase III studies in collaboration with Diosynth, a division of AkzoNobel. Other Programmes V24343 - Obesity Vernalis' research group has successfully progressed a series of potent andselective cannabinoid receptor antagonists as novel treatments for obesity.According to the World Health Organisation, obesity is a major contributor tothe global burden of chronic disease and disability and has reached globalepidemic proportions, with more than one billion adults overweight and at least300 million of these considered clinically obese. CB1 receptors, initiallyidentified in the brain, are also present in several other peripheral tissues,including adipocytes (fatty tissues). These receptors are part of theendocannabinoid system, a natural physiological system that is thought to play arole in the regulation of both appetite and peripheral energy metabolism,thereby affecting body weight.In August 2005, V24343 was selected as the lead clinical candidate and apre-clinical programme, which includes process and formulation development,pre-clinical safety and drug metabolism and pharmacokinetics, is underway.Phase I studies are expected to commence in H2 2006. MMP-12 - Multiple Sclerosis This specific inhibitor of MMP-12, with therapeutic potential in inflammatorydisorders including multiple sclerosis, entered into a Phase I study in January2005. It is the first compound to enter the clinic resulting from the researchcollaboration with Serono focused upon identifying selective metalloenzymeinhibitors (MEI) for the treatment of serious inflammatory diseases. Theprimary objectives of the Phase I study are to elucidate the safety,tolerability and pharmacokinetic properties of the compound. Serono willconduct and fund all development activities associated with the programme withVernalis receiving milestone and royalty payments. Hsp90 inhibitors - Oncology Inhibition of Hsp90 is believed to have significant potential in the treatmentof a broad range of cancers. This programme is utilising the company'sstructure-based design technology to identify potent and specific inhibitors ofthis novel drug target for use against various cancers.In December 2003, Vernalis formed a research collaboration with the NovartisInstitutes for BioMedical Research, Inc., (Novartis) to investigate inhibitorsof Hsp90. After an initial six-month evaluation period, Novartis exercised itsoption to license exclusive worldwide rights to Vernalis' Hsp90 inhibitors. Thecompanies are conducting a joint research programme under which Novartisprovides research funding to Vernalis for an initial three-year period. Inaddition, Novartis is responsible for funding and conducting the development ofproduct candidates as well as for commercialisation. In December 2005, Vernalis announced that Novartis had selected a preclinicaldevelopment candidate. This triggered a $1.5 million milestone payment toVernalis. The compound is expected to enter clinical development in H2 2006. Pin1 - Oncology In March 2005, Vernalis acquired the intellectual property rights, know-how andassociated assets relating to an oncology target Pin1 from PintexPharmaceuticals Inc. A programme is underway to discover development candidatesacting against the Pin1 target. Pin1 over expression is observed in a number ofcancer indications and Vernalis is looking to capitalise on its success withHsp90 through utilising its structure-based drug discovery suite oftechnologies. 2. Expected Development Progress • Frovatriptan: MM efficacy data May 06 • Frovatriptan: MM FDA regulatory submission H1 06 • V2006: Initiate Phase II (Biogen Idec) H1 06 • V3381: Start of Phase II in neuropathic pain H1 06 • V10153: Completion of Phase IIa in stroke H2 06 • V1512: Start of Phase III in Parkinson's disease H2 06 • V24343: Start of Phase I in obesity and related disorders H2 06 • Hsp90: Initiate Phase I (Novartis) H2 06 3. Financial Review The financial results for the year ended 31 December 2005 are the first annualresults prepared in accordance with International Financial Reporting Standards(IFRS). In accordance with IFRS 1, the results for the year ended 31 December2004 have been restated to comply with IFRS. Income Statement The loss for the year ended 31 December 2005 was £32.8 million (2004: £25.7million). The increase is principally due to higher levels of research anddevelopment expenditure, interest payable and similar charges, and goodwillimpairment. Non-cash charges relating to goodwill impairment, exchangemovements, intangible asset amortisation, share option charges and movement inprovisions amounted to £11.5 million (2004: £7.0 million). Turnover was £14.1 million (2004: £15.2 million) and comprised £3.0 million inrespect of Frova(R) product sales and royalties (2004: £10.0 million), £0.5million in respect of Apokyn(R) sales (2004: £nil) and £10.4 million in respectof revenue recognised under collaboration and similar agreements (2004: £5.2million) and other revenues of £0.2 million (2004: £nil). In 2005, thefrovatriptan income comprised solely European generated revenues arising fromMenarini's sales of £3.0 million (2004: £2.0 million) as no variable royalty isreceived from Endo until 1 January 2007. In 2004, Frova(R) revenues from NorthAmerica amounted to £8.0 million comprising royalties and product sales prior tothe licensing to Endo on 17 August 2004. Apokyn(R) revenues of £0.5 million(2004: £nil) represent product sales from 4 November 2005, when the product wasacquired from Mylan, to 31 December 2005. Revenues from collaboration andsimilar agreements amounted to £3.2 million (2004: £1.3 million) in respect ofFrova(R), including recognition of a proportion of the US $15 millionanniversary payment from Endo that was received in September 2005. Othercollaboration income amounted to £7.2 million (2004: £3.9 million) and relatedto the agreements with Novartis, Serono, Reckitt Benckiser and Biogen. Cost of sales amounted to £5.0 million (2004: £5.6 million) and comprised £0.1million in respect of Apokyn(R) (2004: £nil) and £1.2 million in respect ofEuropean sales of frovatriptan (2004: £0.9 million) and £3.7 million in respectof amortisation of the cost of acquiring the product rights to Frova(R) andApokyn(R) (2004: £2.7 million). In 2004, cost of sales for Frova(R) in NorthAmerica amounted to £2.0 million. Research and development expenditure increased to £26.5 million (2004: £21.4million). In 2005, expenditure of £17.3 million (2004: £14.5 million) wasincurred on internally funded R&D and £9.2 million (2004: £6.9 million) onexternal costs associated with development of the product portfolio. Theincrease in external costs is due to additional costs on the Phase IIIdevelopment of Frova(R) for MM. The increase in internal costs reflects higheraverage headcount levels and inflation. Selling, general and administrative expenses amounted to £15.5 million (2004:£15.7 million) and comprised goodwill impairment of £6.4 million (2004: £nil)and other costs of £9.1 million (2004: £15.7 million). The goodwill impairmentcharge in 2005 has arisen due to the discontinuation of V140. Sales andmarketing expenditure increased to £1.6 million (2004: £1.3 million) due to theestablishment of the US commercial operation. Other administrative costsdecreased to £7.4 million (2004: £8.5 million) due to lower levels ofprofessional fees. Restructuring costs have decreased to £0.1 million (2004:£1.5 million) and in 2004, administrative expenses also included a charge of£4.4 million in respect of vacant leases. As a result, the operating loss for the year increased to £32.8 million (2004:£27.5 million). Interest receivable and similar income increased to £3.9 million (2004: £2.9million). Bank interest increased to £2.0 million (2004: £0.7 million) due tothe higher average cash balances following the Placing and Open Offer inFebruary 2005. Exchange gains amounted to £1.3 million (2004: £1.7 million) andan implicit interest receipt of £0.5 million (2004: £0.5 million) was recordedrelating to the fair value accounting for the accrued income due from Endo in2005 and 2006. Interest payable and similar charges increased to £5.5 million(2004: £2.8 million). Loan interest increased to £1.5 million (2004: £0.9million) due to a full year's expense in relation to the $50 million loan fromEndo. Exchange losses increased to £3.7 million (2004: £0.7 million) andprincipally resulted from retranslation of the loan from Endo due to theweakening of sterling compared with the US dollar during 2005. The tax credit of £1.6 million (2004: £1.8 million) represents amounts that areexpected to be received under current legislation on research and developmenttax credits for small and medium-sized companies. Balance Sheet Non-current assets increased to £91.7 million (2004: £50.9 million). Property,plant and equipment increased slightly to £1.9 million (2004: £1.6 million).Goodwill decreased to £4.9 million (2004: £8.0 million) since the goodwillarising in the year on the acquisition of Ionix and Cita of £3.2 million wasoffset by the impairment charge of £6.4 million following the decision todiscontinue development of V140. Intangible assets increased to £84.3 million(2004: £33.2 million) due to the acquisition of the rights to Apokyn(R) and thedevelopment programmes acquired through the acquisition of Ionix and Cita. Theprincipal intangible assets acquired during the year were £9.8 million forV1003, £15.5 million for V1512, £16.1 million for V3381, and £13.0 million forApokyn(R). The valuation of Apokyn(R) is based on the acquisition price. For thedevelopment programmes, V1003, V1512 and V3381, which were acquired as part ofbusiness combinations, the valuation is based on the risk adjusted expected netpresent value of future cash flows. In 2004, non-current assets included £7.4million ($15 million) due from Endo after more than one year. Current assets increased to £93.1 million (2004: £53.7 million) due principallyto the fund raisings in February 2005 and November 2005. Inventories increasedto £0.8 million (2004: £nil) and related to stocks of Apokyn(R). Trade and otherreceivables increased to £24.0 million (2004: £20.4 million). Trade receivablesincreased to £2.3 million (2004: £0.9 million) and reflected £0.5 million owedby Menarini for frovatriptan sales in Europe and £1.8 million due undercollaboration agreements. Research and development tax credits decreased to £4.0million (2004: £6.4 million) following payment of some earlier claims. Otherreceivables increased to £13.0 million (2004: £8.3 million) due to an amount of£3.6 million in respect of a tax-assisted financing arrangement entered into byCita. There is an equal amount included within other payables and thearrangements were unwound on 6 January 2006. Other receivables also include £8.7million representing $15 million due from Endo in September 2006. Cashresources, comprising held to maturity financial assets of £28.1 million (2004:£15.0 million) and cash and cash equivalents of £40.2 million (2004: £18.3million), increased to £68.3 million (2004: £33.3 million). The reasons for theincrease are explained in the cash flow section below. Non-current liabilities were £69.6 million (2004: £67.0 million) and currentliabilities were £32.3 million (2004: £19.7 million). Borrowings reflect the $50million loan from Endo which is repayable in 2009 and increased to £30.9 million(2004: £26.4 million). The increase was due to the roll-up of interest andexchange movements on the weakening of sterling compared to the US dollar.Deferred income totalled £31.6 million (2004: £36.1 million) of which £5.1million (2004: £4.8 million) was due within one year and £26.5 million (2004:£31.3 million) was due in more than one year. The balance relates to a portionof the initial payments received from Endo, Biogen Idec and Novartis inconnection with the collaboration agreements which commenced in 2004. Theinitial amounts received from Endo are being recognised over the patent life ofFrova(R) and, for Biogen Idec and Novartis, over the expected useful lives ofthe agreements. The reduction in deferred income in the year was due to thetransfer of a portion to the profit and loss account. Provisions totalled £8.9million (2004: £10.5 million) of which £4.1 million (2004: £3.7 million) waswithin current liabilities and £4.8 million (2004: £6.9 million) was withinnon-current liabilities. The balance is made up of £4.7 million (2004: £5.7million) in respect of vacant leasehold properties, £1.7 million (2004: £1.7million) in respect of dilapidation obligations at the end of property leasesand £2.2 million (2004: £3.0 million) in respect of Frova(R) returns and rebatesprior to the collaboration with Endo. Trade and other payables totalled £30.4million (2004: £13.7 million) of which £23.0 million (2004: £11.2 million) waswithin current payables and £7.4 million (2004: £2.5 million) was withinnon-current payables. The principal reason for the increase is the recognitionof £11.8 million (2004: £nil) in respect of the deferred consideration that maybecome payable following the acquisition of Cita. The deferred consideration isrecognised to the extent that it is considered more likely than not that it willbecome due. If any deferred consideration becomes due, Vernalis has the optionto satisfy the obligation by either the issue of shares or a cash payment. Anamount of £7.2 million is recognised within current payables and £4.6 millionwithin non-current payables. Other increases are due to the payable related tothe tax assisted finance (described above) of £3.6 million, the assumption of£1.8 million liabilities on the acquisition of Cita and £1.3 million of unpaidtransaction costs relating to the placing and acquisition of Cita. Vernalis' share capital was increased during the year due principally to theacquisitions of Ionix and Cita and two placings of the ordinary shares. On 22March 2005, 43,250,107 new ordinary shares were issued following a Placing andOpen Offer at 70 pence per share which raised £30.3 million (£28.4 million netof expenses). On 26 July 2005, 17,847,769 new ordinary shares were issued inconnection with the acquisition of Ionix. On 14 December 2005, 26,915,831 newordinary shares were issued in connection with the acquisition of Cita and67,749,457 new ordinary shares were issued following a Placing and Open Offer at63 pence per share which raised £42.7 million (£40.6 million net of expenses). Cash Flow Cash resources, comprising held to maturity financial assets and cash and cashequivalents increased from £33.3 million at 1 January 2005 to £68.3 million at31 December 2005. The increase of £35.0 million arises as a result of the netproceeds from two placings of new shares in March 2005 and December 2005totalling £69.0 million. Excluding the proceeds from financing, cash resourcesdecreased by £34.0 million of which £18.7 million was utilised in investingactivities and £15.8 million was used in operations offset by exchange gains of£0.5 million. The amount utilised in investing activities comprised £13.0million on Apokyn(R), £2.8 million to GSK in respect of the royalty buy-out forFrova(R), £3.1 million on the costs associated with business combinations, and£1.3 million on the purchase of tangible and intangible fixed assets (other thanApokyn(R), V1003, V1512 and V3381) offset by net interest received of £1.6million. The amount used in operations of £15.8 million benefited from thereceipt of £4.3 million in R&D tax credits. Outlook for 2006 Income is expected to increase in 2006 as a full year of sales from Apokyn(R) inNorth America will be recognised compared with two months in 2005. In addition,revenues from frovatriptan in Europe are expected to show a small increase. Endowill make a contractual anniversary payment of $15.0 million to Vernalis inSeptember 2006 (as in September 2005) in respect of Frova(R) in North Americawith a variable royalty based on sales commencing on 1 January 2007. Recurringrevenues, representing release of deferred income from licensing agreementsentered into prior to 31 December 2005 are expected to be approximately £5.1million. This is a non-cash item and includes recognition of a proportion of the$15 million payment from Endo. Additional revenues may arise on achievement ofmilestones in existing collaborations or any further licensing agreements. External development costs are expected to increase over 2005 due to expenditureon the newly acquired products: Apokyn(R), V1512 and V3381; and additional costson the manufacture of V10153. Internal R&D expenditure will also increase due tohigher levels of headcount arising from the acquisition of Ionix and Cita andthe broader development portfolio. The establishment of Vernalis Pharmaceuticals Inc, the Company's North Americancommercial operation, and the sales and marketing expenditure to support Apokyn(R) will also give rise to additional costs in the period. 4. Directors Mr Keith Merrifield will retire from the Board at the upcoming Annual GeneralMeeting in May 2006 after 10 years service. The Board would like to thank himfor his wise and very valuable contributions to the company throughout aprolonged period of considerable change. Unaudited statement of changes in shareholders' equityFor the year ended 31 December 2005 2005 2004 Note £000 £000 Revenue 2 14,131 15,195Cost of Sales (4,991) (5,573)Research and development expenditure (26,491) (21,423)Selling, general and administrative expenses (15,483) (15,722) ------------------------ ------ -------- --------Selling, general and administrative expenses are asfollowsRestructuring costs 102 1,493Goodwill impairment 6,371 -Provision for vacant lease 29 4,401Other 8,981 9,828 -------- -------- 15,483 15,722 ------------------------ ------ -------- -------- Operating loss (32,834) (27,523)Interest receivable and similar income 3 3,892 2,933Interest payable and similar charges 3 (5,490) (2,821) -------- --------Loss on ordinary activities before taxation (34,432) (27,411)Tax credit on loss on ordinary activities 1,584 1,758 -------- --------Loss for the period (32,848) (25,653) ======== ======== Loss per share (basic and diluted) 4 (16.3)p (17.4)p The results for the year are derived entirely from continuing activities Unaudited statement of changes in shareholders' equityFor the year ended 31 December 2005 Group Share Share Other Retained Total capital premium reserves earnings £000 £000 £000 £000 £000 ------- -------- ------- ------- -------Balance at 1January 2004 38,813 298,226 153,092 (456,201) 33,930Revaluationof assetsavailable for sale - - 597 - 597 ------- -------- ------- -------- ------- Net incomerecogniseddirectly inequity - - 597 - 597Loss for theyear - - - (25,653) (25,653) ------- -------- ------- -------- -------Totalrecognisedincome andexpense forthe period - - 597 (25,653) (25,056)Issue ofequity sharecapital 679 7,616 - - 8,295Equity shareoptions charge - - 728 - 728 ------- -------- ------- -------- -------Balance at 31 December 2004 39,492 305,842 154,417 (481,854) 17,897 Revaluationof assetsavailable for sale - - (79) - (79) ------- -------- ------- -------- ------- Net incomerecogniseddirectly inequity - - (79) - (79)Loss for theyear - - - (32,848) (32,848) ------- -------- ------- -------- -------Totalrecognisedincome andexpense forthe period - - (79) (32,848) (32,927)Issue ofequity sharecapital 7,788 91,903 - - 99,691Expenses onissue ofshare capital (4,021) - - (4,021)Shares to beissued - - 1,034 - 1,034Equity shareoptions - - 1,217 - 1,217chargeExchange losson translation of overseas - - (31) - (31) ------- -------- ------- -------- -------subsidiariesBalance at 31 December 2005 47,280 393,724 156,558 (514,702) 82,860 ------- -------- ------- -------- ------- Unaudited balance sheetAt 31 December 2005 2005 2004 Note £000 £000AssetsProperty, plant and equipment 1,910 1,596Goodwill 5 4,851 8,014Intangible assets 6 84,345 33,211Available for sale financial assets 601 680Other receivables 7 - 7,418 -------- -------Non current assets 91,707 50,919Inventories 752 49Trade and other receivables 7 24,013 20,355Held to maturity financial assets 28,052 15,000Cash and cash equivalents 40,243 18,323 -------- -------Current assets 93,060 53,727 -------- -------Total assets 184,767 104,646 -------- -------LiabilitiesBorrowings 8 (30,938) (26,364)Other non-current liabilities 9 (7,412) (2,467)Deferred income (26,457) (31,294)Provisions (4,780) (6,877) -------- -------Non current liabilities (69,587) (67,002)Borrowings 8 (33) (18)Trade and other liabilities 9 (22,971) (11,237)Deferred income (5,147) (4,839)Provisions (4,169) (3,653) -------- -------Current liabilities (32,320) (19,747) -------- -------Total liabilities (101,907) (86,749) -------- -------Net assets 82,860 17,897 ======== ======= EquityShare capital 47,280 39,492Share premium 393,724 305,842Other reserves 156,558 154,417Retained deficit (514,702) (481,854) -------- -------Total equity 82,860 17,897 -------- -------- Unaudited cash flow statementsFor the year ended 31 December 2005 2005 2004Cash flows from operating activities £000 £000 Loss before tax (34,432) (27,411)Depreciation 921 2,327Loss on disposal of tangible fixed assets 12 836Amounts written off goodwill 6,371 -Amortisation of intangible fixed assets 3,983 2,664Amounts written off investments - (12)Option charge 1,217 728Interest receivable (3,892) (2,933)Interest payable 5,490 2,821Exchange gain (511) (366) ------- ------- (20,841) (21,346)Changes in working capital(Increase)/decrease in receivables 7,914 (16,178)(Decreased)/increase in liabilities (133) 355(Decrease)/increase in provisions (1,807) 4,260(Decrease)/increase in deferred income (4,529) 35,299Increase in inventories (703) - ------- -------Cash (used in)/generated from operations (20,099) 2,390Taxation received 4,284 1,129Interest paid (8) (216) ------- -------Net cash (used in)/generated from operating activities (15,823) 3,303Cash flows from investing activitiesPurchase of tangible fixed assets (589) (101)Acquisition of subsidiary undertaking (3,104) -Sale of tangible fixed assets - 3,250Purchase of intangible fixed assets (16,570) (30,841)Sale of investment - 12Interest received 710 19Interest received on financial assets held to maturity 898 664 ------- -------Net cash used in investing activities (18,655) (26,997)Cash flows from financing activitiesFinance charge on US dollar secured loan - (372)Interest payable on US dollar secured loan - (388)Receipt of US dollar secured loan - 27,539Repayment of sterling secured loan - (1,485)Movement in held to maturity financial assets (13,052) (6,933)Issue of shares 72,958 8,295Share issue costs (3,996) -Capital element of finance lease payments (23) (738) ------- -------Net cash generated from financing activities 55,887 25,918 Foreign exchange on cash and cash equivalents 511 (48) ------- -------Movements in cash and cash equivalents in the period 21,920 2,176Cash and cash equivalents at the beginning of the period 18,323 16,147 ------- -------Cash and cash equivalents at the end of the period 40,243 18,323 ======= ======= Notes to the financial statementsFor the year ended 31 December 2005 1 Accounting policies and basis of preparation Basis of preparationPrior to 2005 the Group prepared its audited annual financial statements underUK Generally Accepted Accounting Practices (UK GAAP). For the year ended 31December 2005, the Group is required to prepare its annual consolidatedfinancial statements in accordance with accounting standards adopted in theEuropean Union (EU). As such those financial statements will take account of therequirements and options in IFRS 1 'First-time Adoption of InternationalFinancial Reporting Standards (IFRS)' as they relate to the 2004 comparativesincluded therein. The financial information based on IFRS for the year ended 31 December 2004 and31 December 2005 is unaudited and has been prepared in accordance with theGroup's accounting policies. The financial statements have been prepared underthe historical cost convention as modified by the revaluation of available forsale investments and certain other financial assets and liabilities. A summaryof the more important group accounting policies is set out below. Certain of the requirements and options in IFRS 1 relating to comparativefinancial information presented on first-time adoption may result in a differentapplication of accounting policies in the 2004 restated financial information tothat which would apply if the 2004 financial statements were the first financialstatements of the Group prepared in accordance with IFRS. An explanation of howthe transition from UK GAAP to IFRS has affected the Group's financial position,income statement and cash flow was set out in the interim results to June 2005which are available on the company website. The preliminary financial information has not been audited and does notconstitute statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. The Company's statutory accounts for the year ended 31 December 2004,prepared under UK GAAP, have been delivered to the Registrar of Companies; thereport of the auditors on these accounts was unqualified and did not contain astatement under Section 237 (2) or (3) of the Companies Act 1985. Accounting policies Basis of consolidationThe consolidated financial statements include the financial statements ofVernalis Plc and its subsidiaries. Share-based paymentsThe Group makes equity-settled and cash-settled share-based payments to itsemployees and directors. Equity-settled share-based payments are measured atfair value at the date of grant and expensed on a straight-line basis over thevesting period of the award. At each balance sheet date, Vernalis revises itsestimate of the number of options that are expected to become exercisable. Cash-settled share based payments are accrued over the vesting period of theaward based on the current expected fair value at each balance sheet date. When share options are exercised, the proceeds received net of any transactioncosts, are credited to share capital (nominal value) and share premium. Intangible assetsGoodwillGoodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the identifiable net assets (including intangibleassets) of the acquired subsidiary at the acquisition date. Goodwill is notsubject to amortisation but is tested at each balance sheet date for impairmentand is carried at cost less accumulated impairment losses. Gains and losses ondisposal of an entity include the carrying amount of goodwill relating to theentity or investment sold. Goodwill that was previously directly written off toreserves under UK GAAP is not included in the gain or loss on disposal of anentity. Internally generated intangible assets - Product research and developmentExpenditure on new or substantially improved products is capitalised as anintangible asset and amortised over the expected useful life of the productconcerned. Capitalisation commences from the point at which the technicalfeasibility and commercial viability of the product can be demonstrated and theGroup is satisfied that it is probable that future economic benefit will resultfrom the product once completed. This is usually at the point of regulatoryfiling in a major market. Capitalisation ceases when the product is ready forlaunch. Expenditure on research and development activities which do not meet the abovecriteria is charged to the income statement as incurred. Other IntangiblesOther intangibles are recognised when they have been acquired separately forcash or other monetary assets. Assets acquired which are used in productdevelopment are not amortised until they are included in a commerciallyavailable product. To this point they are therefore subject to annual impairmentreview. Impairment of assetsAssets that are not subject to amortisation are tested at each balance sheetdate for impairment. Assets that are subject to amortisation are reviewed forimpairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. An impairment loss is recognised for theamount by which the assets carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of an asset's fair value less cost to sell andvalue in use. For the purpose of assessing impairment, assets are grouped at thelowest levels for which there are separately identifiable cash flows (cashgenerating units). InvestmentsThe Group classifies its investments in the following categories: loans andreceivables, held to-maturity investments and available-for-sale financialassets. The classification depends on the purpose for which the assets wereacquired. Management determines the classification of its investments at initialrecognition and re-evaluates this designation at every reporting date. At each balance sheet date management assesses whether there is objectiveevidence that a financial asset or group of financial assets is impaired. Ondisposal or impairment of the investment, gains or losses recorded in equity arerecycled through the income statement. Loans and receivablesLoans and receivables are non-derivative financial assets or liabilities withfixed or determinable payments that are not quoted in an active market. Assetsin this category are recognised at amortised cost and included in trade andother receivables, and loans in the balance sheet. Held-to-maturity investmentsHeld-to-maturity investments are non-derivative financial assets with fixed ordeterminable payments and fixed maturities that the Group's management has thepositive intention and ability to hold to maturity. Assets in this category areheld at amortised cost. Held-to-maturity investments include short terminvestments with original maturities of more than 90 days. Available-for-sale financial assetsAvailable for sale financial assets are non-derivative financial assets that aredesignated as available for sale or are not classified as loans and receivables,held to maturity investments or financial assets at fair value through theprofit or loss. Assets in this category are recognised at fair value withunrealised gains and losses arising from changes in fair value recognised inequity. Cash and cash equivalentsCash and cash equivalents include cash in hand, bank deposits repayable ondemand and other short-term highly liquid investments with original maturitiesof 90 days or less. RevenueRevenue, which excludes value added tax, represents the value of goods andservices supplied. Product sales are recognised on despatch to the customer, netof a provision for expected sales returns and rebates to be paid in futureyears. Non-refundable access fees, options fees and milestone paymentsreceivable for participation by a third party in commercialisation of a compoundare recognised when they become contractually binding provided there are norelated commitments of the Group. Where these receipts are inducements to enterinto contracts, they are recognised over the expected life of the contract.Where there are related commitments, revenue is recognised on a percentage ofcompletion basis in line with the actual levels of expenditure incurred infulfilling these commitments. All other licence income and contract researchfees are recognised over the accounting period to which the relevant servicesrelate. Revenues derived from grants received are recognised in line with therelated expenditure. Royalty income is recognised in relation to sales to whichthe royalty relates. 2 Revenue Analysis of Revenue A geographical analysis of revenue according to the country of registration ofthe fee-paying parties is as follows. 2005 2004 £'000 £'000 United Kingdom 2,178 161Rest of Europe 3,622 3,822North America 8,317 11,207Rest of the World 14 5 ---------- --------- 14,131 15,195 ---------- --------- An analysis of revenue by category is set out in the table below: 2005 2004 £'000 £'000 Product Sales 3,602 9,330Royalties 110 688Collaborative Agreements 10,419 5,177 ---------- --------- 14,131 15,195 ---------- --------- 3 Finance Charge (net) 2005 2004 £000 £000Interest receivable and other similar incomeInterest on cash, cash equivalents and held-to-maturity assets 1,997 664Exchange gains on other payable - 468Exchange gains on long term loan - 1,266Exchange gains on other receivable 1,320 -Unwinding of discount on other receivable 531 529Other interest 44 6 ---------- --------- 3,892 2,933Interest payable and similar chargesLoans repayable wholly or partly within five years 1,489 866Finance leases 4 107Exchange loss on other receivables - 686Exchange loss on long term loan 2,987 -Exchange loss on other payable 429 -Exchange loss on deferred consideration 257 -Unwinding of discount on deferred consideration on purchase ofintangible assets - 519Unwinding of discount on royalty buy out from GSK 94 571Unwinding of discount on provision 226 -Other interest payable 4 72 ---------- --------- 5,490 2,821 ---------- ---------Net finance (charge)/ credit (1,598) 112 ---------- --------- 4 Loss per share 2005 2004 Attributable loss (£000) 32,848 25,653Weighted average number of shares in issue (000) 202,174 147,388 ---------- ---------Loss per share (basic and diluted) (16.3)p (17.4)p ---------- --------- All potential ordinary shares including options and deferred shares areanti-dilutive. 5 Goodwill For the year ended 31 December 2005 £'000 CostAt 1 January 2005 17,223Additions through business combinations 3,208 -----------At 31 December 2005 20,431 ----------- Aggregate impairmentAt 1 January 2005 9,209Impairment charge for the year 6,371 -----------At 31 December 2005 15,580 ----------- Net book value at 31 December 2005 4,851 ----------- For the year ended 31 December 2004 £'000 CostAt 1 January 2004 and 31 December 2004 17,223 ----------- Aggregate impairmentAt 1 January 2004 and 31 December 2004 9,209 ----------- Net book value at 31 December 2004 8,014 ----------- During the year ended 31 December 2005 goodwill has arisen from the acquisitionsof Ionix Pharmaceuticals Limited and Cita NeuroPharmaceuticals Inc. 6 Intangible Assets For the year ended 31 December 2005 £'000 CostAt 1 January 2005 38,008Additions through business combinations 41,327Additions separately acquired 13,790Disposals (300) ---------At 31 December 2005 92,825 --------- Aggregate amortisationAt 1 January 2005 4,797Charge for the period 3,683 ---------At 31 December 2005 8,480 --------- Net book value at 31 December 2005 84,345 ========= For the year ended 31 December 2004 £'000CostAt 1 January 2004 16,488Additions separately acquired 21,520 ---------At 31 December 2004 38,008 --------- Aggregate amortisationAt 1 January 2004 2,133Charge for the period 2,664 ---------At 31 December 2004 4,797 --------- Net book Value at 31 December 2004 33,211 --------- Intangible assets acquired during the year were: Additions through business combinations £'000 V3381 16,084V1512 15,462V1003 9,781 --------- 41,327 --------- Additions separately acquired £'000 Pintex 631Apokyn 12,992Britannia 167 --------- 13,790 --------- The following useful lives have been determined for the intangible assets:Apokyn (R) - to 2015Frova (R) - to 2014 Intangible assets at 31 December 2004 represent the capitalisation of paymentsconditionally due to GlaxoSmithKline (GSK) agreed in December 2000 to buy outroyalties due to GSK on sales of frovatriptan, and the consideration paid toElan in respect of the re-acquisition of the North American rights tofrovatriptan in May 2004. 7 Trade and other receivables 2005 2004 £000 £000 Other receivables - 7,418 -------- --------Non current trade and other receivables - 7,418 Trade receivables 2,292 860Interest receivable 524 122Research and development tax credits 3,996 6,433Other receivables 12,969 8,263Prepayments and accrued income 4,232 4,677 -------- --------Current trade and other receivables 24,013 20,355 -------- --------Total trade and other receivables 24,013 27,773 ======== ======== Other receivables at 31 December 2005 includes £8,662,000 (2004: £7,418,000) inrelation to the fair value of the $15 million receivable from Endo in August2006. During the year an exchange gain of £1,320,000 and an implicit interestreceipt of £531,000 linked to the unwinding of the discount has been recognisedin the income statement in relation to this asset. 8 Borrowings Non-current 2005 2004 £000 £000 US dollar secured loan 30,839 26,364Obligations under finance leases 99 - -------- --------Non current borrowings 30,938 26,364 Obligations under finance leases 33 18 -------- --------Current borrowings 33 18 -------- --------Total borrowings 30,971 26,382 -------- -------- Borrowings included above are repayable as follows:Under one year 33 18Over one and under two years - -Over two and under five years 30,938 26,364Beyond 5 years, by instalments - - -------- -------- 30,971 26,382 -------- -------- The US dollar secured loan relates to $50 million borrowed from Endo, net offinance charges of £0.3 million, and interest payable of $3.4million (£2million) which the Group has elected to roll up into the loan at December 2004and December 2005. It is secured against all royalty and milestone incomereceivable by Vernalis in respect of the licence deal with Endo. Endo have theright to offset half the royalty payments and milestones payable to Vernalisagainst the loan from 2007. The loan is repayable in full in August 2009. Theweighted average interest rate is 5 per cent fixed for the term of the loan. 9 Trade and other liabilities 2005 2004 £000 £000 Royalty buy out from GSK (a) 2,788 2,467Deferred consideration 4,624 - ------ --------Non current trade and other liabilities 7,412 2,467 ------ -------- Trade payables 3,975 3,134Taxation and social security payable 301 226Other payables (b) 3,626 72Accruals 7,825 5,227Royalty buy out from GSK (a) - 2,578Deferred consideration for acquisitions 7,244 - ------ --------Current trade and other liabilities 22,971 11,237 ------ --------Total trade and other liabilities 30,383 13,704 ====== ======== (a) The royalty buyout from GlaxoSmithKline (GSK) relates to the fair value ofpayments conditionally due under the agreement of December 2000 to buy outroyalties due to GSK on sales of frovatriptan. The Group is committed to makingone further annual payment of $5 million, the first having been made inSeptember 2002. A fifth payment of $5 million is due 90 days after cumulativeglobal sales exceed $300 million. During 2005, an exchange loss of £0.4 millionand an implicit interest charge of £0.1 million have been recognised in theincome statement. (b) Included within other liabilities (and other receivables) is £3,592,000(CAD7,204,000) relating to tax assisted finance that was completed by CitaNeuroPharmaceuticals Inc on 23 December 2004. This arrangement unwound on 6January 2006. 10 Acquisitions The Group purchased Ionix Pharmaceuticals Limited and Cita NeuroPharmaceuticalsInc during the year. Both transactions have been accounted for as acquisitions.In each case 100% of the voting rights shares were acquired. All intangible assets acquired have been recognised at their respective fairvalues. The fair values incorporated for identifiable intangible assets havebeen independently calculated by external consultants. The residual excess ofconsideration paid over the fair value of the net assets acquired is recognisedas goodwill in the financial statements. Shares issued as consideration for the acquisitions were valued at the marketprice at the date of acquisition. Ionix Pharmaceuticals acquisition On 26 July 2005 the Company acquired Ionix Pharmaceuticals, a companyspecialising in the discovery and development of new analgesic medicines for thetreatment of acute and chronic pain. Of the consideration of 19,685,040 ordinaryshares, 17,847,769 (90%) were issued on completion. The remaining balance of 10%is due to be issued in July 2006 subject to any reduction in the purchase pricefor warranty or indemnity claims. The deferred consideration has been includedin the fair value calculations below as the Directors do not consider that anywarranty or indemnity claims are likely to occur. The pre-acquisition carrying values and provisional fair values of the netassets acquired were: Carrying values pre-acquisition Fair value adjustments Provisional fair value £'000 £'000 £'000AssetsTangible fixedassets 759 (283) (1) 476Intangiblefixed assets - 9,781 (2) 9,781 ------------ ---------- ----- -----------Non-currentassets 759 9,498 10,257 ------------ ---------- ----- -----------Trade and otherreceivables 751 - 751Cash and cashequivalents 406 - 406 ------------ ---------- ----- -----------Current assets 1,157 - 1,157 ------------ ---------- ----- -----------Total assets 1,916 9,498 11,414Liabilities -Current -liabilitiesTrade andother payables (291) - (291) ------------ ---------- ----- -----------Totalliabilities (291) - (291) ------------ ---------- ----- -----------Net assetsacquired 1,625 9,498 11,123Goodwill 926 -----------Consideration 12,049 -----------Considerationsatisfied by:Shares issued 11,080Cash 969 ----------- 12,049 ----------- (1) Write down of unwanted Property Plant and Equipment(2) Purchase price allocation to separately identifiable intangible fixed assets An additional milestone payment of £5 million is payable on the successfulregistration of V1003. This amount has not been provided for. Cita NeuroPharmaceuticals acquisition On 14 December 2005 the Company acquired Cita NeuroPharmaceuticals, a Canadiancompany focused on the development and commercialisation of small molecule drugcandidates for neurological diseases and disorders. On completion the Companyissued 26,915,831 ordinary shares in the Company as initial consideration.Deferred consideration of up to US$ 35 million is payable in six equalinstalments upon the achievement of certain milestones. Deferred consideration,of £11,067,000 has been recognised in the fair value calculations below based onmanagement's assumptions as to the probabilities of each milestone beingreached. The pre-acquisition carrying values and provisional fair values of the netassets acquired were: Carrying values pre-acquisition Fair value adjustments Provisional fair value £'000 £'000 £'000AssetsTangible fixedassets 45 - 45Intangiblefixed assets 3,443 28,103 (1) 31,546 ------------ ---------- ---- ------------Non-currentassets 3,488 28,103 31,591 ------------ ---------- ----- ------------Trade and otherreceivables 3,820 - 3,820Cash and cashequivalents 189 - 189 ------------ ---------- ----- ------------Current assets 4,009 - 4,009 ------------ ---------- ----- ------------Total assets 7,497 28,103 35,600LiabilitiesCurrentliabilitiesTrade andother payables (2,196) - (2,196)Other payables (3,592) - (3,592)Provisions (324) - (324)Loan (1,155) (128) (2) (1,283) ------------ ---------- ----- ------------Totalliabilities (7,267) (128) (7,395) ------------ ---------- ----- ------------Net assetsacquired 230 27,975 28,205Goodwill 2,282 ------------Consideration 30,487 ------------Considerationsatisfied by:Shares 16,688Cash 2,732Deferredconsideration 11,067 ------------ 30,487 ------------ (1) Purchase price allocation to separately identifiable intangible fixed assets(2) Repayment of loan Two additional milestone payments of $5.8 million are payable on the successfulregistration of V3381. This amount has not been provided for. There were no acquisitions in the prior year. 11 Post balance sheet events There have been no post balance sheet events since the year end. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Vernalis PLC