25th Apr 2008 07:00
Vernalis PLC25 April 2008 25 April 2008 Announcement of Preliminary results for the year ended 31 December 2007 Winnersh, UK, 25 April 2008, Vernalis plc (LSE: VER) today announces itspreliminary results for the year ended 31 December 2007. During 2007, Vernalis made significant progress across its R&D programmes andboth marketed products, Frova(R) and Apokyn(R), showed strong sales growth.However, this progress was overshadowed by the receipt of the FDA'snon-approvable letter for the sNDA for Frova(R) for the short-term prevention ofmenstrual migraine. As a result, Vernalis is currently implementing a majorchange in business strategy and will now focus on building value by effectivelyand rapidly progressing its innovative development pipeline and discoveryprogrammes. In order to provide a stable financial platform for this R&D-based strategy, theCompany is well advanced in implementing an extensive restructuring of itsbusiness. In early 2008, Vernalis has substantially strengthened its financialposition through the early settlement of its loan from Endo PharmaceuticalsInc., and by the recently announced financing of its EU frovatriptan revenues.After completion of the restructuring, the Company expects to have funds topursue its planned R&D programmes for two years. Under the new strategy Vernalis will pursue its development programmes, up toand including proof of concept clinical studies and then undertake partnershipsfor later-phase clinical development and commercialisation. Highlights Financial •Revenues from continuing operations increased to £19.8 million (2006: £12.4 million) •Operating loss from continuing operations before exceptional items reduced to £13.8 million (2006: £29.1 million). Total operating loss reduced to £31.7 million (2006: £40.8 million) •Utilisation of cash resources reduced to £17.1 million (2006: £30.7 million) •Cash reserves at 31 December 2007 of £20.5 million (2006: £37.6 million) •Early settlement of $56 million loan (announced in February 2008) £££18.4 million financing for European revenues from frovatriptan (announced in April 2008) Pipeline •BIIB014 (V2006) started Phase II (Biogen Idec - Parkinson's disease) •Positive V3381 Phase IIa results (Neuropathic Pain) •NVP-AUY 922 started Phase I (Novartis - Oncology) •Positive V24343 Phase I results (Obesity) •V10153 Phase IIa recruiting at 7.5 mg/kg dose (Ischaemic stroke) •New oncology research collaboration with Servier Forthcoming Newsflow •Divestment of Apokyn & US operations Q2 08 •V1512: Partner and start Phase III programme H2 08 •V10153: Complete Phase IIa study H2 08 •V3381: Partner/start Phase IIb H2 08 •V24343: Start dose-ranging study H2 08 •BIIB014: V2006: Complete Phase II (Biogen Idec) 2009 •NVP-AUY922: Complete Phase I (Novartis) Undisclosed Peter Fellner, Executive Chairman, Vernalis commented, "I am very pleased thatwe have been able to strengthen our balance sheet substantially by utilising ourfrovatriptan revenues to raise cash and cancel our debt. This, together with ourrecent restructuring, has significantly reinforced our financial position,enabling us to fund further investment in our pipeline of product candidates. Weare confident that we have now created a platform from which to rebuildshareholder value in the mid-term". -- ends -- Enquiries: Vernalis plc +44 (0) 118 977 3133Peter Fellner, Executive ChairmanTony Weir, Chief Financial Officer Brunswick Group +44 (0) 20 7404 5959Jon ColesJustine McIlroyAlex Tweed Notes to Editors About Vernalis Vernalis is a speciality bio-pharmaceutical company focused on products marketedto specialist neurologists. The company has two marketed products, Frova(R) andApokyn(R), and a development pipeline focused on neurology and central nervoussystem disorders. The company has six products in clinical development andcollaborations with leading, global pharmaceutical companies including Novartis,Biogen Idec, Endo, Menarini and Chiesi: Product Indication Phase I Phase Phase Registration Market Marketing Rights II IIIFrova(R) Migraine X Endo/Menarini (Royalties)Frova(R) Menstrual X Endo/Menarini Migraine (Royalties) PreventionApokyn(R) Parkinson's X North America DiseaseV1512 Parkinson's X World Wide (excl. Disease Italy)V10153 Thrombotic X Worldwide DisordersV3381 Neuropathic X Worldwide PainV2006 Parkinson's X Biogen Idec Disease (Milestone & Royalties)MMPI Inflammation X WorldwideV24343 Obesity X WorldwideAUY922 Cancer X Novartis (Milestone & Royalties)Hsp90-Oral Cancer Novartis (Milestone & Royalties) For further information about Vernalis, please visit www.vernalis.com. Forward-Looking Statement This news release may contain forward-looking statements that reflect theCompany's current expectations regarding future events including the clinicaldevelopment and regulatory clearance of the Company's products, the Company'sability to find partners for the development and commercialisation of itsproducts, as well as the Company's future capital raising activities.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 ability of theCompany to identify and agree beneficial terms with suitable partners for thecommercialisation and/or development of its products, as well as the achievementof expected synergies from such transactions, the acceptance of Frova(R) andApokyn(R) and other products by consumers and medical professionals, thesuccessful integration of completed mergers and acquisitions and achievement ofexpected synergies from such transactions, and the ability of the Company toidentify and consummate suitable strategic and business combinationtransactions. Strategic and Operational Review Strategic Framework Vernalis is implementing a major change in its business strategy following thedecision of the US FDA, in September 2007, not to approve the Company'sSupplemental New Drug Application (sNDA) for Frova(R) for the short-termprevention of menstrual migraine. The revised strategy will refocus the Company on building value by effectivelyand rapidly progressing its innovative oncology and neurology developmentpipeline and discovery programmes. The development pipeline includes a series of novel product candidatesaddressing potentially large market opportunities. Several are retained inentirety by Vernalis, and two are being developed in collaboration with majorpartners, Novartis and Biogen Idec. The retained pipeline programmes will bepursued up to and including proof-of-concept clinical studies, prior toestablishing partnerships for later-phase clinical development and subsequentcommercialisation. Vernalis will continue to exploit its proven, highly competitive structure-baseddiscovery technologies and capabilities to drive a series of key programmes,with the initial goal of generating attractive development candidates from oneto two of these programmes within the next 12 months. As a consequence of this strategic shift, Vernalis is now well advanced inimplementing a major restructuring of its business, in order to provide a stablefinancial platform for the repositioned Company. Upon completion of thisrestructuring, current estimates are that Vernalis will have sufficient funds topursue its planned R&D programmes for 2 years. The key elements of this restructuring are as follows: •Early settlement of the loan due to Endo Pharmaceuticals Inc. This was successfully concluded and announced in February 2008. The outstanding balance of approximately $56million, which was originally due for repayment in August 2009, was discharged in full in return for an initial payment of $7million and Vernalis foregoing Frova(R) royalties from US sales until they exceed $85million per annum. •A financing agreement with Paul Capital Healthcare whereby Paul Capital Healthcare acquired an interest in 90% of Vernalis' net revenues under its collaboration with Menarini in return for a payment to Vernalis of €18.4 million. The remaining 10% retained by Vernalis will be used to meet the costs of supplying active pharmaceutical ingredient to Menarini. •Divestment of Apokyn(R), currently marketed in the US for Parkinson's disease, together with the Company's US sales and marketing operation. Detailed discussions are currently ongoing with interested parties. •Partnering of our novel Parkinson's disease product V1512, prior to it entering a pivotal Phase III programme. •Reduction of the total headcount from 210, including US commercial operations, to approximately 90. The remaining employees will all be based in the UK, with around 75 in R&D. The discovery programmes are being concentrated at the Cambridge research facility, with a small group of development and corporate staff continuing to be based in Winnersh. All elements of the restructuring are expected to be completed by the thirdquarter of 2008. Marketed Products Apokyn(R) - Advanced Parkinson's Disease Apokyn(R) is the only acute, intermittent therapy available in the US for thetreatment of "off" episodes (re-emergence of Parkinson's disease symptoms)associated with advanced Parkinson's disease. It is used as an adjunct to othertreatments and is administered, as needed, by means of an injection pen to treatperiods of poor mobility in patients with advanced disease. Gross sales for Apokyn during 2007 increased by 45% to $8.1 million (2006: $5.6million) of which $4.9 million (2006: $3.3 million) were recorded in the secondhalf of the year. Following the decision to divest Apokyn(R) and the UScommercial operations these results are shown as a discontinued operation in theincome statement. Frova(R) - Acute Migraine Frova(R), a selective 5-HT1B/1D receptor agonist, is approved as an acute oraltreatment for migraine headache and its associated symptoms. Vernalis licensedNorth American rights for Frova(R) to Endo, who reported an increase in netsales in 2007 of 29% to $52.4 million (2006: $40.6 million). Vernalis commencedreceiving a variable royalty from Endo from 1 January 2007 and earned £3.9million in 2007. In Europe, frovatriptan is marketed by Menarini, and they reported an increasein sales for 2007 of 31% to €22.1 million (2006: €16.9 million). Under itscollaboration with Menarini, Vernalis earns a return which approximates to 25per cent of net sales through the supply of product to Menarini. During the yearthe product supply arrangements were altered such that Vernalis now supplies theactive pharmaceutical ingredient, and Menarini completes the manufacture offinished product. During 2007 Vernalis supplied Menarini under both arrangementswhich resulted in a one-off increase to the reported gross profit. Vernalisearned a gross profit from European sales of frovatriptan in 2007 of £7.6million (2006: £2.7 million). In 2007, frovatriptan was launched in France, Turkey, Denmark, Slovenia andCanada. Frova(R) - Prevention of Menstrual Migraine (MM) On 30 September 2007, Vernalis announced that the FDA had issued anon-approvable letter in respect of the sNDA for Frova(R) for the short-termprevention of menstrual migraine. Vernalis' partner, Endo, has subsequentlywithdrawn the sNDA and Vernalis and Endo are continuing to evaluate options forfurther development in this and other indications. Vernalis' European partner, Menarini, is considering submitting an applicationthroughout Europe, under the mutual recognition procedure, to extend the currentacute indication to include prevention of menstrual migraine. Product development pipeline Unpartnered products V1512 - Parkinson's Disease V1512 combines Levodopa (L-dopa) methylester, a form of L-dopa withsignificantly enhanced solubility, with Carbidopa. It is fully soluble in waterand is presented in a patented effervescent formulation as a potential noveltreatment for Parkinson's disease. It is expected that this product couldprovide a valuable clinical advantage in patients with advanced disease, many ofwhom suffer from reduced gastrointestinal motility. Data from a recentlycompleted pharmacokinetic study have confirmed the improved reproducibility andreliability of L-dopa absorption from V1512 compared with standard L-dopatherapy. It is planned to evaluate V1512 in a pivotal Phase III programme, which has beenagreed with the FDA under the Special Protocol Assessment (SPA) process.Discussions are currently ongoing with potential partners, to enable this PhaseIII programme to be completed, and to undertake the commercialisation of thisnovel product. V10153 - Ischaemic Stroke V10153 is a novel thrombolytic protein which is being developed for thetreatment of acute ischaemic stroke. Current therapeutic options for strokesufferers are limited since the only approved therapy, recombinant tissueplasminogen activator (tPA), must be administered within three hours of a strokeoccurring. V10153 is currently being evaluated in a Phase IIa study in which patients whohave recently suffered a stroke are treated within three to nine hours. This isprimarily a safety study, but patients will also be assessed by CT angiographyto ascertain whether reperfusion or recanalisation events occur. The first three (of up to five) dose levels have been completed and a total of40 patients have been treated. Ten patients received each of the first two doselevels of 1 mg/kg and 2.5 mg/kg. The third dose level of 5 mg/kg was expanded to20 patients after two patients (in the first cohort of ten) experiencedclinically significant bleeds. These may possibly have been treatment-related,but such bleeds occur relatively frequently in ischaemic stroke patients. TheData Safety Monitoring Board overseeing the study subsequently agreed thatpatients could be recruited at the fourth dose level of 7.5 mg/kg. This is nowunder way. Several reperfusion events have so far been observed, and consultants withspecialised expertise in neurological imaging have been engaged to furtherassess the data which has been obtained to date. The trial is planned tocomplete later this year. Plans are also being evaluated for an additional study to assess V10153 withinthe initial three hour period following a stroke, since this product haspotential clinical advantages over recombinant tPA. These advantages include aprolonged plasma half-life permitting administration by bolus injection ratherthan infusion. V3381 - Neuropathic pain V3381 has a dual mechanism of action, as an NMDA antagonist and MAO-A inhibitor,that gives it the potential to moderate pain at both central and peripheralsites, and is being developed for the treatment of neuropathic pain. V3381 hassuccessfully completed a Phase IIa trial in patients suffering neuropathic painfrom long-standing diabetes. Data from the trial indicate that V3381 wasgenerally well tolerated with good preliminary indications of efficacy. V24343 - Obesity V24343 is a cannabinoid type 1 receptor (CB1) antagonist which is a potentialtreatment for obesity, diabetes and related disorders. V24343 has successfullycompleted a series of Phase I studies which showed that V24343 producedsignificant weight loss in overweight and mildly obese volunteers while beinggenerally well tolerated and without any serious adverse events. The preclinicaland clinical data indicate a wide safety margin, and suggest that the centrallymediated side effects seen with rimonabant may be less problematic with V24343.A further study to evaluate lower doses in the likely effective dose range isplanned for H2 2008, after which Vernalis will explore potential partnershipoptions for further development and commercialisation. Back-up compounds whichhave predominantly peripheral CB1 effects are also being evaluated inpre-clinical studies (see below). Partnered products BIIB014 (V2006) - Parkinson's disease V2006 is an adenosine A2A receptor antagonist in development as a noveltreatment for Parkinson's disease. V2006 has been licensed to Biogen Idec whoare conducting the development programme. Vernalis will receive milestones asV2006 progresses through development, and subsequently royalties on futuresales. Biogen Idec has started a Phase II programme which is investigatingV2006, in combination with L-dopa, in late-stage Parkinson's disease patientsand as monotherapy, in a placebo-controlled study, in early stage Parkinson'sdisease patients. Results from the programme are expected in 2009. NVP-AUY922 - Cancer NVP-AUY922 is a novel Hsp90 inhibitor for the treatment of a range of cancers,and is being developed by Novartis. It is the first compound from thecollaboration with Novartis to enter clinical testing and is currently beingevaluated in a Phase I programme in patients in a variety of solid tumours andhaematological cancers. Vernalis will receive milestone payments as itprogresses through development, and royalty payments upon commercialisation. Discovery programmes As part of the restructuring programme, research at Vernalis has been reduced insize by approximately one third whilst still retaining the core assets ofchemistry, structural sciences, molecular modelling and assay development toensure ongoing capability to evaluate new targets rapidly and identifyinnovative drug candidates. The Vernalis discovery capability has been endorsedrecently by a major oncology collaboration with French pharmaceutical company,Servier. Research has also been reorganised, with an increased focus on our threelate-stage lead optimisation programmes addressing novel targets in cancer,neuropathic pain and diabetes. Two of these discovery programmes utilise thesuite of highly competitive structure-based drug discovery technologies thatVernalis possesses. This uses a fragment-based approach to identify novelchemical starting points for the drug discovery process, from which hitcompounds are identified using NMR and other biophysical techniques. Theevolution of these hits into lead compounds is guided by the way in which theybind to the target, determined by using X-ray crystallography. This approachdelivered highly active clinical candidate molecules for the Hsp90 programmepartnered with Novartis. Key late-stage discovery programmes Checkpoint Kinase 1 (Chk1) inhibitors - Cancer Some cancer cells use the Chk1 pathway to increase cell survival by pausing DNAreplication and allowing repair of the damaged DNA before completing celldivision. Inhibition of the Chk1 kinase blocks this pathway, forcing cells toundergo cell division (mitosis) with substantial DNA damage that results intheir death. The aim of this programme is to identify product candidates thatincrease the anti-tumour efficacy of current cytotoxic agents without increasingtheir toxicity to non-cancerous tissues. FAAH inhibitors - Neuropathic pain Fatty acid amide hydrolase (FAAH) is the target for a late stage researchprogramme in neuropathic pain. FAAH is the enzyme responsible for metabolism ofthe endocannabinoid anandamide, and its inhibition results in elevatedanandamide. Anandamide is a central and peripheral neurotransmitter which,amongst other actions, can interact with the CB1 and CB2 cannabinoid receptors.In man, stimulation of these receptors has been shown to relieve chronic pain inpatients with spinal cord injuries and multiple sclerosis. As FAAH inhibitorsselectively increase anandamide in tissues mediating pain responses, they causea powerful analgesic response in the absence of the side effects associated withmore widespread CB1 receptor activation. Vernalis has identified highly potentand selective inhibitors which are in the process of being evaluated as possibledrug candidates. Peripherally acting CB1 antagonists - Type 2 diabetes This is a follow-on programme from that which produced V24343, which likerimonabant is a centrally acting CB1 receptor antagonist. Rimonabant has beenshown to cause weight loss and improve the symptoms of type 2 diabetes inextensive clinical trials. However, it is also associated with unwanted CNS sideeffects such as depression and anxiety, although the pre-clinical data availableon V24343 indicate that it may have a much wider safety margin. Recent evidencesuggests that the metabolic actions of CB1 receptor antagonists may be mediatedthrough peripherally located CB1 receptors. Peripherally acting CB1 receptorantagonists may therefore possess the weight loss and anti-diabetic propertiesof centrally acting agents, without the CNS side effect complication. Forthcoming Newsflow •Divestment of Apokyn & US operations Q2 08 •V1512: Partner and start Phase III programme H2 08 •V10153: Complete Phase IIa study H2 08 •V3381: Partner/start Phase IIb H2 08 •V24343: Start dose-ranging study H2 08 •BIIB014 (V2006): Complete Phase II (Biogen Idec) 2009 •NVP-AUY922: Complete Phase I (Novartis) Undisclosed Financial Review Following the decision to divest Apokyn(R) and the US commercial operation, thispart of the business is designated as a discontinued operation and, as a result,the revenues, costs and net assets are presented separately in the financialstatements. Income Statement: Continuing Operations Revenue was £19.8 million (2006: £12.4 million) and comprised £3.9 million(2006: £nil) in respect of North American royalties from Frova(R), £9.4 million(2006: £3.9 million) in respect of European revenues from frovatriptan, £6.4million (2006: £7.2 million) in respect of revenues recognised undercollaboration and similar agreements and other revenue of £nil (2006: £0.1million). Royalties from Endo on sales of Frova(R) in North America commenced on 1 January2007 and amounted to £3.9 million for the year. North American sales of Frova(R)by Endo in 2007 were $52.4 million (2006: $40.6 million). In Europe frovatriptanis promoted by Menarini and they recorded revenues of €22.1 million in 2007(2006: €16.9 million). Vernalis' net return in Europe equates to approximately25 per cent of sales and is achieved through the supply of product to Menarini.Vernalis now supplies Menarini with active pharmaceutical ingredient withMenarini completing the final drug manufacture and packaging. Previously,Vernalis had been responsible for manufacturing and supplying packaged drugproduct for each European market. This change has resulted in an increase toreported revenues in 2007 from Menarini as the transition between the supplyarrangements has been implemented. Revenues from collaborations and similar agreements comprised £6.4 million(2006: £7.2 million) being the recognition of deferred income in respect ofinitial payments received in prior years and £2.3 million (2006: £3.8 million)of milestone and collaboration funding received and recognised during the year. Cost of sales amounted to £5.8 million (2006: £5.0 million) and comprised £1.8million (2006: £1.2 million) in respect of the supply of frovatriptan toMenarini and £3.5 million (2006: £3.5 million) in respect of intangible assetsamortisation. Research and development expenditure, before exceptional items, reduced to £21.6million (2006: £28.7 million) and comprised £17.1 million (2006:£17.5 million)on internally-funded R&D and £4.5 million (2006: £11.2 million) on externalcosts associated with development of the product portfolio. The decrease inexternal costs is due to lower clinical costs on Frova, V3381 and V24343 andreduced manufacturing costs for V10153. The exceptional charge of £16.3 million(2006: £9.8 million) is a non-cash item and reflects the write down ofintangible asset valuations. This results from changes to future developmentplans for the product portfolio as a consequence of the cost-reductioninitiatives following the non-approvable letter from the FDA in respect of Frova(R). General and administrative expenditure, before exceptional items, was £6.2million (2006: £8.5 million). The reduction was due to lower levels ofprofessional fees and staff-related costs. The exceptional charge of £1.5million (2006: £1.9 million) was a non-cash item and resulted from a goodwillimpairment of £3.0 million (2006: £0.7 million) offset by a reduction in thevacant lease provision of £1.5 million (2006: £1.2 million charge). The operating loss for the year, before exceptional items, was £13.8 million(2006: £29.1 million). The total operating loss for the year was £31.7 million(2006: £40.8 million). Finance income decreased to £2.3 million (2006: £8.1 million). The reduction isdue to lower average cash balances during the year and the inclusion in 2006 oftranslational exchange gains due to the significant strengthening of sterlingagainst the dollar during that year. Finance expense decreased to £2.2 million (2006: £3.6 million) with thereduction due to lower exchange losses reflecting again the strengthening ofsterling against the dollar in 2006 which was not repeated in 2007. The tax credit of £2.6 million (2006: £3.1 million) represents amounts that areexpected to be received under current legislation on research and developmenttax credits for small and medium sized companies. Discontinued Operations The loss for the year from discontinued operations amounted to £16.5 million(2006: £9.3 million) including an exceptional intangible asset write down of£7.9 million (2006: £nil). The discontinued operations comprise the Group'scommercialisation and development activities on Apokyn(R) and the revenues andexpenditures of the US commercial operation. Gross sales of Apokyn(R) for theyear ended 31 December 2007 amounted to $8.1 million (2006: $5.6 million). Balance Sheet Non current assets decreased to £40.7 million (2006: £71.6 million) dueprincipally to the reduction of intangible assets from £69.8 million to £39.5million. In addition to the regular annual amortisation charge of £4.7 million,an impairment charge of £19.3 million was recognised in respect of goodwill andassets not yet in use to reflect the alteration to the development plans for theproduct portfolio following the strategic review. Intangible assets with acarrying value of £10.5 million have been reclassified within the balance sheetas assets held for sale (see below) and relate to the discontinued operations.These charges were offset by an exchange gain of £4.6 million on theretranslation of balances denominated in foreign currencies. Current assets decreased to £29.3 million (2006: £50.8 million). Cash resources,comprising held to maturity financial assets of £0.4 million (2006: £16.1million) and cash and cash equivalents of £20.1 million (2006: £21.5 million)decreased by £17.1 million with the reasons for the movement explained in thecash flow section below. The remainder of the reduction to current assets wasprincipally due to a lower tax receivable amount of £2.4 million (2006: £5.0million) as tax credits were received during 2007 in respect of both the 2005and 2006 financial years. Assets held for resale of £3.6 million (2006: £nil) comprise the estimatedrealisable value, net of associated costs of the discontinued operations. Non current liabilities increased to £53.0 million (2006: £47.8 million). Theincrease is almost entirely due to the classification of the amount due inrespect of the Endo loan. For the purposes of the balance sheet, the loan hasbeen recorded as principally payable after more than one year, with only theamount expected to be deducted from royalties in 2008 shown as due within oneyear. Deferred income reduced by £2.8 million in the year as amounts weretransferred to the income statement and provisions decreased by £1.6 millionfollowing the agreement to sub-let property not utilised by the Group. Current liabilities decreased to £19.4 million (2006: £36.8 million). Borrowingsreduced to £4.1 million (2006: £15.1 million). Last year $20 million (being halfof the milestone due from Endo on approval of Frova(R) for the prevention ofmenstrual migraine) was classified as a current liability. Trade and otherliabilities decreased to £9.7 million (2006: £15.2 million) consistent with thelower levels of operating expenditure. Cash Flow Cash resources, comprising held to maturity financial assets and cash and cashequivalents decreased to £20.5 million (2006: £37.6 million). The decrease incash resources was £17.1 million (2006: £30.7 million) and comprised £18.6million (2006: £31.9 million) utilised in the operations of the business offsetby £1.6 million (2006: £1.6 million) generated from investing activities andother cash outflows of £0.1 million (2006: £0.4 million). The decrease in theamount utilised in the operations of the business is consistent with theexpenditure analysis described above since the exceptional items do not have acash effect. Outlook for 2008 On 19 February 2008, Vernalis reached agreement with Endo for an earlysettlement of the full amount due from Endo under the loan. In return for theimmediate cancellation of the loan, Vernalis paid Endo $7 million and willforego future royalties on sales of Frova(R) until annual US net sales exceed$85 million. On 20 February 2008, Vernalis announced restructuring plans (including thedivestment of the US Commercial operations) in which total headcount will bereduced from 210 to approximately 90. This is now being implemented withcompletion scheduled by the third quarter. In addition, the costs of developingthe product portfolio will reduce as Vernalis focuses attention on establishingclinical proof of principle for its internal programmes before seeking partnersfor the later phases of clinical development and commercialisation. On 20 April 2008, Vernalis entered an agreement with Paul Capital Partners inrespect of its European revenues from frovatriptan delivered from itscollaboration with Menarini. The key terms of the agreement are: •Paul Capital pays Vernalis €18.4 million •Paul Capital receives 90% of Vernalis' revenues from its agreement with Menarini; and •Vernalis continues to supply Menarini with the active pharmaceutical product, the cost of which will approximate the 10% net cash revenues retained by Vernalis. Vernalis' net cash revenues will be reduced in 2008 as a consequence of thetransactions with Endo and Paul Capital Partners in respect of the US royaltiesand European revenues from frovatriptan, respectively. Vernalis will not receiveany net cash revenues from these products and revenues will only be derived fromnew licensing agreements for portfolio products and from the achievement ofmilestones in these new and existing product collaborations. Vernalis is in detailed discussions with interested parties on the divestment ofApokyn(R) and the Company's US commercial operations which are expected to raisefurther cash to fund the restructured operations of the business. However,should Vernalis not succeed in reaching agreement with any interested parties,costs will be incurred on the close down of the operations albeit that a sale isconsidered highly probable. Following completion of the restructuring and the financing transaction withPaul Capital in respect of European frovatriptan revenues, it is expected thatthe Company's annual cash utilisation will be around £12-13 million per annum. Unaudited consolidated income statement for the year ended 31 December 2007 2007 2006 Note Pre Exceptional TOTAL Pre Exceptional TOTAL Exceptional Items Exceptional Items Items (Note 3) Items (Note 3) £000 £000 £000 £000 £000 £000__________________________________________________________________________________________Revenue 2 19,795 - 19,795 12,449 - 12,449Cost of sales (5,827) - (5,827) (4,983) - (4,983)Other income - - - 621 - 621Research and (21,585) (16,255) (37,840) (28,659) (9,781) (38,440)developmentexpenditureGeneral and (6,238) (1,543) (7,781) (8,484) (1,943) (10,427)administrativeexpenses__________________________________________________________________________________________Operating loss (13,855) (17,798) (31,653) (29,056) (11,724) (40,780)Finance income 4 2,315 - 2,315 8,082 - 8,082Finance 4 (2,242) - (2,242) (3,586) - (3,586)expense__________________________________________________________________________________________Loss on (13,782) (17,798) (31,580) (24,560) (11,724) (36,284)ordinaryactivitiesbeforetaxationTax credit on 2,614 - 2,614 3,168 - 3,168loss onordinaryactivities__________________________________________________________________________________________Loss for the (11,168) (17,798) (28,966) (21,392) (11,724) (33,116)year fromcontinuingoperations__________________________________________________________________________________________Loss for the 6 (8,536) (7,916) (16,452) (9,315) - (9,315)year fromdiscontinuedoperations__________________________________________________________________________________________Loss for the (19,704) (25,714) (45,418) (30,707) (11,724) (42,431)year__________________________________________________________________________________________Loss per share 5 (6.3)p (8.2)p (14.5)p (9.8)p (3.8)p (13.6)p(basic anddiluted)__________________________________________________________________________________________ The notes form part of these financial statements. Unaudited consolidated balance sheet as at 31 December 2007 2007 2006 Note £000 £000______________________________________________________________________________AssetsProperty, plant and equipment 1,128 1,689Intangible assets 7 39,527 69,795Available-for-sale financial assets 32 135______________________________________________________________________________Non-current assets 40,687 71,619 Inventories 386 927Trade and other receivables 8 5,973 7,276Tax receivable 2,440 5,046Held-to-maturity financial assets 380 16,087Cash and cash equivalents 20,076 21,469______________________________________________________________________________Current assets 29,255 50,805Non-current assets and disposal groups held for sale 3,568 -______________________________________________________________________________Total assets 73,510 122,424______________________________________________________________________________ Liabilities and shareholders' equityLiabilitiesBorrowings 9 23,377 13,806Other non-current liabilities 10 6,476 6,564Deferred income 19,150 21,937Provisions 3,983 5,540______________________________________________________________________________Non-current liabilities 52,986 47,847 Borrowings 9 4,144 15,074Trade and other liabilities 10 9,705 15,238Tax payable - 67Deferred income 4,385 5,012Provisions 1,097 1,373Derivative financial instruments 40 -______________________________________________________________________________Current liabilities 19,371 36,764Liabilities directly associated with non-current 278 -assets and disposal groups held for sale______________________________________________________________________________Total liabilities 72,635 84,611____________________________________________________________________________________________________________________________________________________________Shareholders' equityShare capital 48,106 47,372Share premium 369,633 369,633Other reserves 185,687 177,941Retained deficit (602,551) (557,133)______________________________________________________________________________Total shareholders' equity 875 37,813______________________________________________________________________________Total liabilities and shareholders' equity 73,510 122,424______________________________________________________________________________ The notes form part of these financial statements. Unaudited consolidated statement of changes in shareholders' equity Share Share Other Retained Total capital premium reserves deficit £000 £000 £000 £000 £000______________________________________________________________________________________Balance at 1 January 2006 47,280 369,324 180,958 (514,702) 82,860Revaluation of assets available for sale - - (382) - (382)Exchange loss on translation of overseas - - (3,789) - (3,789)subsidiaries______________________________________________________________________________________Net income recognised directly in equity - - (4,171) - (4,171)Loss for the period from continuing - - - (33,116) (33,116)operationsLoss for the period from discontinued - - - (9,315) (9,315)operations______________________________________________________________________________________Total recognised income and expense for - - (4,171) (42,431) (46,602)the periodIssue of equity share capital 92 - (92) - -Refunded expenses on issue of share - 309 - - 309capitalEquity share options charge - - 1,246 - 1,246______________________________________________________________________________________Balance at 31 December 2006 47,372 369,633 177,941 (557,133) 37,813______________________________________________________________________________________Revaluation of assets available for sale - - (103) - (103)Exchange loss on translation of overseas - - 4,586 - 4,586subsidiaries______________________________________________________________________________________Net income recognised directly in equity - - 4,483 - 4,483Loss for the period from continuing - - - (28,966) (28,966)operationsLoss for the period from discontinued - - - (16,452) (16,452)operations______________________________________________________________________________________Total recognised income and expense for - - 4,483 (45,418) (40,935)the periodIssue of equity share capital 734 - 2,007 - 2,741Equity share options charge - - 1,256 - 1,256______________________________________________________________________________________Balance at 31 December 2007 48,106 369,633 185,687 (602,551) 875______________________________________________________________________________________ The notes form part of these financial statements. Unaudited consolidated cash flow statementfor the year ended 31 December 2007 2007 2006 £000 £000______________________________________________________________________________Cash flows from operating activitiesLoss for the year from continuing operations (28,966) (33,116)Loss for the year from discontinued operations (16,452) (9,315)______________________________________________________________________________Loss for the year from continuing and discontinued (45,418) (42,431)operationsTaxation (2,248) (3,070)Depreciation 670 1,318Loss on disposal of property plant and equipment 2 3Amortisation, impairment and disposal of intangible fixed 23,952 15,290assets and investmentsLoss recognised on measurement to fair value less costs to 7,916 -sell of discontinued operationsMovement in provision (2,222) (2,385)Royalty off set against US dollar secured loan (1,952) -Loss on sale of available-for-sale asset - 22Decrease in deferred income (3,414) (4,655)Option charge 1,256 1,246Finance income (2,370) (8,132)Finance expense 2,280 3,642Exchange (gain)/loss (136) 41______________________________________________________________________________ (21,684) (39,111)Changes in working capitalDecrease/(increase) in inventories 237 (175)Decrease in receivables 513 11,969Decrease in liabilities (2,396) (6,590)______________________________________________________________________________Cash used in from operations (23,330) (33,907)Taxation received 5,347 2,073Taxation paid (530) (28)Interest paid (38) (50)______________________________________________________________________________Net cash used in from operating activities (18,551) (31,912)Cash flows from investing activitiesPurchase of property plant and equipment (381) (351)Purchase of investment in subsidiary undertakings - (395)Sale of available for sale asset - 62Interest received 961 1,002Interest received on financial assets held-to-maturity 989 1,276______________________________________________________________________________Net cash generated from investing activities 1,569 1,594Cash flows from financing activitiesMovement in held-to-maturity financial assets 15,707 11,965Share issue refunds - 309Capital element of finance lease payments (177) (140)______________________________________________________________________________Net cash generated from financing activities 15,530 12,134Foreign exchange gain/(loss) on cash and cash equivalents 59 (590)______________________________________________________________________________Movements in cash and cash equivalents in the year (1,393) (18,774)Cash and cash equivalents at the beginning of the year 21,469 40,243______________________________________________________________________________Cash and cash equivalents at the end of the year 20,076 21,469______________________________________________________________________________ 1 Basis of preparation This financial information for the years ended 31 December 2007 has not beenaudited and does not constitute statutory accounts within the meaning of Section240 of the Companies Act 1985. Financial information for the year ended 31December 2006 has been extracted from the Group's accounts for the year ended 31December 2006, which have been delivered to the Registrar of Companies: theauditors' reports on these financial statements was unqualified and did notcontain statements under either section 237(2) or section 237(3) of theCompanies Act 1985. The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) and International Financial ReportingInterpretations Committee (IFRIC) interpretations endorsed by the European Unionand with those parts of the Companies Act 1985 applicable to companies reportingunder IFRS. In preparing the financial information management has used theprincipal accounting policies as set out in the Group's annual financialstatements for the year ended 31 December 2006 to which no material changes arerequired other than IFRS 7 'Financial instruments: Disclosures' which is astandard requiring disclosure only. Going Concern The financial information has been prepared on a going concernbasis which assumes that the Group will continue in operational existence forthe foreseeable future. In arriving at this assessment, the directors havereviewed the working capital requirements of the Group over the next 12 monthshaving regard to the restructuring that was announced on 20 February 2008 whichwill reduce cash outflows, the disposal of certain interests in the futurerevenue from frovatriptan in Europe for €18.4million, announced on the 21 April2008, and on the assumption that Apokyn and the US commercial operations aredivested or closed. Critical accounting policies and estimates Intangible assets The Group has significant intangible assets arising as a result of acquisitionsof businesses and purchases of assets such as product development and marketingrights. Under IFRS, intangible assets, other than goodwill, that are in use areamortised over their estimated useful life and charged to cost of sales in theincome statement and are only tested for impairment when there is an indicationof the balance sheet carrying value not being recoverable. Intangible assetsthat are not yet in use, and goodwill, are not amortised, but are testedannually for impairment. The impairment analysis is principally based uponestimated discounted future cash flows. Actual outcomes could vary significantlyfrom such estimates of discounted future cash flows, due to the highly sensitiveassumptions used, such as: •Outcome of research & development activities (compound efficacy, results of clinical trials, etc.) •Probability of obtaining regulatory approval •Long-term sales forecast period of up to 20 years •Selling price erosion rates after the end of patent protection due to generic competition •Behaviour of competitors, launch of competing products, marketing initiatives etc •The availability of sufficient funding to develop the programme in-house The determination of these underlying assumptions relating to the recoverabilityof intangible assets is subjective and requires the exercise of considerablejudgement. Any changes in key assumptions about our business and prospects,including those arising from measures taken by the Directors to conserve cashresources, or changes in market conditions, could result in a future impairmentcharge. Assets held for sale On the 29 November 2007 the Vernalis Board approved the decision to divestApokyn and the US commercial operation. This part of the business has beenpresented as a discontinued operation, and the assets and liabilities classifiedas held for sale. The group has written down the assets held for sale toestimated fair value of sales proceeds less costs to sell. This value depends onsuccessful conclusion at the estimated sale price; should an agreement to sellnot be concluded, further impairments will be required. 2 Revenue analysis The revenue analysis in the table below is based on the country of registrationof the fee-paying party. Continuing Discontinued Total Continuing Discontinued Total 2007 2007 2007 2006 2006 2006 £000 £000 £000 £000 £000 £000________________________________________________________________________________United Kingdom 55 - 55 63 - 63Rest of Europe 10,243 - 10,243 3,598 - 3,598North America 9,465 4,876 14,341 8,746 3,878 12,624Rest of the World 32 - 32 42 - 42________________________________________________________________________________ 19,795 4,876 24,671 12,449 3,878 16,327________________________________________________________________________________ An analysis of revenue by category is set out in the table below: Continuing Discontinued Total Continuing Discontinued Total 2007 2007 2007 2006 2006 2006 £000 £000 £000 £000 £000 £000________________________________________________________________________________Product sales 9,379 3,649 13,028 5,155 2,584 7,739Royalties 3,996 - 3,996 91 - 91Collaborative 6,420 1,227 7,647 7,203 1,294 8,497________________________________________________________________________________ 19,795 4,876 24,671 12,449 3,878 16,327________________________________________________________________________________ 3 Exceptional items Exceptional items represent significant items of income and expense which due totheir nature or the expected infrequency of the events giving rise to them, arepresented separately on the face of the income statement to give a betterunderstanding to shareholders of the elements of financial performance in theyear, so as to facilitate comparison with prior periods and to better assesstrends in financial performance. Exceptional items include, but are not limitedto, impairments of goodwill and intangible assets, and provision for vacantleases. 2007 2006Continuing operations £000 £000________________________________________________________________________________ Intangibles impairment (see note 7) 16,255 9,781Goodwill adjustment/impairment (see note 7) 3,044 747Provision for vacant (1,501) 1,196leases________________________________________________________________________________Exceptional items from continuing operations 17,798 11,724Loss recognised on measurement to fair value less 7,916 -costs to sell of discontinued operations (see note 6)________________________________________________________________________________Exceptional items from continuing and 25,714 11,724discontinued operations________________________________________________________________________________ 4 Finance charge 2007 2006Continuing operations £000 £000______________________________________________________________________________Finance incomeInterest on cash, cash equivalents and 1,357 2,277held-to-maturity assetsExchange gains on cash (previously disclosed 59 -within administrative expenses)Exchange gains on other payables 42 347Exchange gains on long-term loan 496 3,911Exchange gains on contingent deferred 331 1,446considerationUnwinding of discount on other receivable - 74Other interest 30 27______________________________________________________________________________ 2,315 8,082______________________________________________________________________________ Finance expenseLoans repayable wholly or partly within five 1,498 1,546yearsExchange loss on cash - 590Exchange loss on other receivables 19 695Unwinding of discount on contingent deferred 476 514consideration on purchase of intangible assetsUnwinding of discount on royalty buy-out from 23 67GSKUnwinding of discount on provision 226 174______________________________________________________________________________ 2,242 3,586______________________________________________________________________________ 5 Loss per share Basic loss per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the year. For diluted loss per share, the weighted average number of ordinary shares inissue is adjusted to assume conversion of all dilutive potential ordinaryshares. Since the Group is loss-making there is no such dilutive impact. Continuing operations 2007 2006______________________________________________________________________________Attributable loss before exceptional items (£000) 11,168 12,392Exceptional items (£000) 17,798 11,724Attributable loss (£000) 28,966 33,116Weighted average number of shares in issue (000) 313,341 312,229______________________________________________________________________________Loss per ordinary share before exceptional items (3.6)p (6.9)p______________________________________________________________________________Exceptional items (5.7)p (3.8)p______________________________________________________________________________Loss per share (basic and diluted) (9.2)p (10.6)p Continuing and discontinued operations 2007 2006______________________________________________________________________________Attributable loss before exceptional items (£000) 19,704 30,707Exceptional items (£000) 25,714 11,724Attributable loss (£000) 45,418 42,431Weighted average number of shares in issue (000) 313,341 312,229______________________________________________________________________________Loss per ordinary share before exceptional items (6.3)p (9.8)p______________________________________________________________________________Exceptional items (8.2)p (3.8)p______________________________________________________________________________Loss per share (basic and diluted) (14.5)p (13.6)p______________________________________________________________________________ All potential ordinary shares including options and deferred shares areanti-dilutive. 6 Assets held for sale and discontinued operations On the 29 November 2007 the Vernalis Board approved the intention to sellVernalis Pharmaceuticals Inc, its sales and marketing division, along with theassociated rights to Apokyn. The sales and marketing operations form a separate major line of business andgeographical area of operations. The operations are held for sale and thereforehave been classified as discontinued operations. Results of discontinued operations Year to 31 December 2007 Year to 31 December 2006 Pre Exceptional Exceptional TOTAL Pre Exceptional Exceptional TOTAL Items (Note 3) Items (Note 3) 2007 2007 2007 2006 2006 2006Discontinued operations £000 £000 £000 £000 £000 £000_________________________________________________________________________________________________________________Revenue 4,876 - 4,876 3,878 - 3,878Cost of sales (2,025) - (2,025) (1,816) - (1,816)Research and developmentexpenditure (1,185) - (1,185) (446) - (446)Selling and marketing (7,784) - (7,784) (9,036) - (9,036)General and administrative expenses (2,069) (7,916) (9,985) (1,791) - (1,791)_________________________________________________________________________________________________________________Operating loss (8,187) (7,916) (16,103) (9,211) - (9,211)Finance income 55 - 55 50 - 50Finance expense (38) - (38) (56) - (56)_________________________________________________________________________________________________________________Loss on ordinary activities beforetaxation (8,170) (7,916) (16,086) (9,217) - (9,217)Tax charge on ordinary activities (366) - (366) (98) - (98)_________________________________________________________________________________________________________________Loss for the year from discontinuedoperations (8,536) (7,916) (16,452) (9,315) - (9,315)_________________________________________________________________________________________________________________ Exceptional items 2007 2006Discontinued operations £000 £000___________________________________________________________________________Loss recognised on measurement to fair value less costs 7,916 -to sell of discontinued operations___________________________________________________________________________ Assets and Liabilities classified as held for sale 2007 £000Assets_______________________________________________________________Property, plant and equipment 142Intangible assets 2,875_______________________________________________________________Non-current assets 3,017_______________________________________________________________ Inventories 304Trade and other receivables 247_______________________________________________________________Current assets 551Assets of disposal group 3,568_______________________________________________________________ LiabilitiesBorrowings - Non current (131)Borrowings - Current (147)_______________________________________________________________Liabilities of disposal group (278)_______________________________________________________________ IFRS requires that the total assets and liabilities of discontinued operationsare each shown separately and excluded from the individual line items of theBalance Sheet. However, no restatement of the prior period is required and theassets and liabilities are included in the individual line items. Hence onlyamounts in respect of 2007 are shown above. Cash flow from discontinued operations included in the consolidated cash flowstatement 2007 2006Discontinued operations £000 £000___________________________________________________________________________Cash flow from operating activities (7,825) (7,529)Cash flow from investing activities 30 (188)Cash flow from financing activities (177) (140)___________________________________________________________________________ (7,972) (7,857)___________________________________________________________________________ Loss per share Discontinued operations 2007 2006___________________________________________________________________________Attributable loss before exceptionalitems (£000) 8,536 9,315Exceptional items (£000) 7,916 -Attributable loss (£000) 16,452 9,315Weighted average number of shares in issue (000) 313,341 312,229___________________________________________________________________________Loss per ordinary share before (2.7)p (3.0)pexceptional items___________________________________________________________________________Exceptional items (2.5)p (0.0)p___________________________________________________________________________Loss per share (basic and diluted) (5.3)p (3.0)p___________________________________________________________________________ 7 Intangible assets Goodwill Assets in Assets not Total use yet in use £000 £000 £000 £000_______________________________________________________________________________CostAt 1 January 2007 10,703 10,400 39,026 100,129Disposals - - - -Assets reclassified held for sale - (12,992) (167) (13,159)Adjustments (479) - - (479)Exchange 131 - 4,484 4,615_______________________________________________________________________________At 31 December 2007 10,355 37,408 43,343 91,106_______________________________________________________________________________ Aggregate amortisationAt 1 January 2007 7,311 13,242 9,781 30,334Impairment 3,044 - 16,255 19,299Amortisation charge in the year - 4,653 - 4,653Assets reclassified held for sale - (2,707) - (2,707)_______________________________________________________________________________At 31 December 2007 10,355 15,188 26,036 51,579_______________________________________________________________________________ Net book value at 31 December 2007 - 22,220 17,307 39,527_______________________________________________________________________________ CostAt 1 January 2006 20,431 50,400 42,425 13,256Disposals (8,269) - - (8,269)Adjustments (1,211) - - (1,211)Exchange (248) - (3,399) (3,647)_______________________________________________________________________________At 31 December 2006 10,703 50,400 39,026 100,129_______________________________________________________________________________ Aggregate amortisationAt 1 January 2006 15,580 8,480 - 24,060Impairment - - 9,781 9,781Amortisation charge in the year - 4,762 - 4,762Disposals (8,269) - - (8,269)_______________________________________________________________________________At 31 December 2006 7,311 13,242 9,781 30,334_______________________________________________________________________________ Net book value at 31 December 2006 3,392 37,158 29,245 69,795_______________________________________________________________________________ Opening value of intangibles Intangible assets in use at 1 January 2007 represent the capitalisation ofpayments conditionally due to GlaxoSmithKline (GSK) agreed in December 2000 tobuy out royalties due to GSK on sales of Frova(R), and the consideration paid toElan in respect of the re-acquisition of the North American rights to Frova(R)in May 2004, and the capitalisation of payments for Apokyn(R) in 2005. Goodwill at 1 January 2007 arose from the acquisitions of RiboTargets Holdingsplc of £nil in 2003 (fully impaired during 2005), Cerebrus Pharmaceuticals Ltd.of £1,643,000 in 1999, Ionix Pharmaceuticals Limited of £926,000 and CitaNeuroPharmaceuticals Inc of £823,000. Divestment of Apokyn and US operations Following the Group's decision to divest Apokyn, the associated intangible assethas been re-classified as an asset held for sale. Impairment of Intangibles V1512 Following the Group's decision to find a partner for this programme, whichhas resulted in a loss in retained value by Vernalis, and some delays to theprogramme, an impairment of £7.6 million has been made. V3381 Following the phase 2 study that was completed in the year and the Group'sdecision to transfer operations in Canada to the UK, both of which have resultedin delays to the programme, an impairment of £8.6 million has been made againstthis programme. In accordance with IAS 21 'The effects of Changes in Foreign Exchange rates',goodwill and other intangible assets that are created in relation to theacquisition of a foreign subsidiary is maintained in the functional currency ofthat subsidiary. During the year, the Group had an exchange gain of £4.5 millionon assets not yet in use relating to the acquisition of Cita. Impairment and adjustments to goodwill Following the Group's decision to reduce the head count of the company and todivest its North American operations (see note 11), all remaining Goodwill hasbeen fully impaired. Following a review of the deferred contingent consideration payable to theoriginal Cita shareholders, an adjustment of £479,000 has been made to the valueof goodwill. The adjustments relates to the timing of future contingentpayments, which are discounted at 12 percent. In accordance with IAS 21 'The effects of Changes in Foreign Exchange rates',goodwill and other intangible assets that are created in relation to theacquisition of a foreign subsidiary is maintained in the functional currency ofthat subsidiary. During the year, the Group had an exchange gain of £131,000 onGoodwill relating to the acquisition of Cita. 2007 2006 2007 2006Assets in Use £000 £000 Useful Life Useful Life_______________________________________________________________________________Frova(R) 22,220 25,682 to 2014 to 2014Apokyn(R) - 11,476 Held for to 2015 sale_______________________________________________________________________________Total assets in use 22,220 37,158_______________________________________________________________________________ 2007 2006 2007 2006Assets not in Use £000 £000 Useful Life Useful Life_______________________________________________________________________________V3381 7,987 14,351 Not in Use Not in UseV1512 8,389 13,796 Not in Use Not in UseOther 931 1,098 Not in Use Not in Use_______________________________________________________________________________Total Assets Not in use 17,307 29,245_______________________________________________________________________________ Impairment reviews Goodwill and intangible assets that are not yet ready for use are subject toimpairment review at least annually. Intangible assets in use are amortised overtheir expected useful lives and are reviewed when there is an indication that animpairment may have occurred. If the balance sheet carrying amount of the assetexceeds the higher of its value in use to Vernalis or its anticipated fair valueless cost of sale, an impairment loss for the difference is recognised. Theimpairment analysis is principally based upon estimated discounted future cashflows. Actual outcomes could vary significantly from such estimates ofdiscounted future cash flows. Especially, the development of discounted futurecash flows for intangible assets under development involves highly sensitiveassumptions specific to the nature of the Group's activities such as: - Outcome of research and development activities (compound efficacy, results of clinical trials, etc.). - Probability of obtaining regulatory approval. - Long-term sales forecast period of up to 20 years. - Selling price erosion rates after the end of patent protection due to generic competition. - Behaviour of competitors (launch of competing products, marketing initiatives etc.). - The availability of sufficient funding to develop the programme in-house. Value in use calculations are generally utilised to calculate recoverableamount. Value in use is calculated as the net present value of the projectedrisk-adjusted, pre-tax cash flows of the cash generating unit (being the relatedproducts) relating to the intangible asset, and applying a discount rate of theGroup post-tax weighted average cost of capital of approximately 12 per cent.This approximates to applying a pre-tax discount rate to pre-tax cash flows. Thecash flows projected are over the expected useful lives of the products whichextend over the period of the licences or patents. The determination of these underlying assumptions relating to the recoverabilityof intangible assets is subjective and requires the exercise of considerablejudgement. Any changes in key assumptions about our business and prospects, orchanges in market conditions, could result in an impairment change. Sensitivity analysis as at 31 December 2007 has indicated that any changes inany of the key assumptions on 1512 and 3381 would result in a substantiallydifferent impairment. The particular factors that have resulted in theimpairments are the delays in the expected approval of the products due to theclosure of our Canadian operations and the divestment of our US operation andthe resulting decision to seek a partner in developing these compounds, whichwill lead to sharing a significant proportion of the rewards and risks. None of the Group's intangible assets at either 31 December 2007 or 31 December2006 were internally generated. 8 Trade and other receivables The fair value of trade and other receivables are the current book values. 2007 2006 £000 £000_________________________________________________________________Trade receivables 3,572 3,049Interest receivable 91 600Other receivables 424 643Prepayments and accrued income 1,886 2,984_________________________________________________________________Current trade and other receivables 5,973 7,276_________________________________________________________________ 9 Borrowings 2007 2006 £000 £000__________________________________________________________________________US dollar secured loan 23,377 13,544 - 262__________________________________________________________________________Non-current borrowings 23,377 13,806 US dollar secured loan 4,144 14,927Obligations under finance leases (see note 6) - 147__________________________________________________________________________Current borrowings 4,144 15,074__________________________________________________________________________Total borrowings 27,521 28,880__________________________________________________________________________ Borrowings included above are repayableas follows:Under one year 4,144 15,074Over one and under two years 4,538 6,847Over two and under five years 18,839 6,959 __________________________________________________________________________ 27,521 28,880__________________________________________________________________________ The US dollar secured loan relates to $54.8 (£27.5) million borrowed from Endo,net of the finance charges of $0.2 (£0.1) million. This includes interestpayable of $9.0 (£4.5) million. The Group can elect to roll up interest into theloan at January and July each year. The Group has $7.8 (£3.9) million rolled upinto the loan at July 2007. The loan is secured against all royalty andmilestone income receivable by Vernalis in respect of the licence deal withEndo. Endo have the right to offset half the royalty payments and milestonespayable to Vernalis against the loan from 2007. During 2007 Endo has elected tooffset royalties payable to Vernalis of $3.9 (£2.0) million against the loan.This is a material non cash transaction. The weighted average interest rate is 5per cent fixed for the term of the loan. All borrowings are denominated in US dollars. Subsequent to the year end the Group settled the loan (see note 11). 10 Trade and other liabilities 2007 2006 £000 £000______________________________________________________________________Royalty buy out from GSK 2,489 2,508Deferred consideration 3,987 4,056______________________________________________________________________Non-current trade and other liabilities 6,476 6,564______________________________________________________________________Trade payables 1,924 2,894Taxation and social security payable 294 278Other payables - 9Accruals 4,491 6,055Deferred consideration for acquisitions 2,996 6,002______________________________________________________________________Current trade and other liabilities 9,705 15,238______________________________________________________________________Total trade and other liabilities 16,181 21,802______________________________________________________________________ The royalty payment to 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 Frova(R). The Group is committed to making onefurther payment of $5 million, the first having been made in September 2002. Afifth payment of $5 million is due 90 days after the year end of the period inwhich cumulative global sales exceed $300 million. During 2007, an exchange gainof £0 million (2006: £0.3m) and an implicit interest charge of £0 million (2006£0.1m) have been recognised in the income statement. The weighted average periodcannot be calculated due to the payments being conditional on future events. Thedirectors estimate that this will not be before 31 December 2008. The deferred consideration falls due when the milestones are met. 11 Post-balance-sheet events On the 20 February 2008 the Group announced that it has agreed to the earlysettlement of the amount due to Endo Pharmaceuticals Inc (Endo) under the loanagreement between the two companies. Vernalis paid Endo $7 million in cash andagreed to forego future royalties on US sales of Frova(R) until annual US netsales exceed a threshold of $85 million to give effect to this early settlement.The outstanding balance on the Loan, which was originally due for repayment inAugust 2009, was approximately $56m. On 20 February 2008, Vernalis implemented a restructuring of the Company and itsoperations. The Group's US commercial operations and Apokyn(R) are beingdivested and its R&D activities rationalised to operate only from the UK withthe research activities concentrated in Cambridge. The restructuring will besubstantially completed during the second quarter of 2008 and will result in atotal headcount reduction from 210 to approximately 90. On 21 April 2008, Vernalis received €18.4 million from Paul Capital partners inreturn for an interest in 90 percent of its future revenues under the licenceagreement with Menarini to Market frovatriptan in Europe. A number of changes to the UK Corporation Tax system were announced as part ofthe March 2007 budget statement. Certain of these changes were substantivelyenacted in the 2007 Finance Act on 26 June 2007. The impact of the changes hasbeen recognised in these financial statements where relevant. Certain other changes are expected to be enacted in the Finance Act 2008. Theimpact of these changes will be recognised in the period in which the FinanceAct 2008 is substantively enacted, which is expected to be in the year to 31December 2008. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Vernalis PLC