Allergy Thera. Regulatory News (AGY)

17 September 2012

Allergy Therapeutics plc

("Allergy Therapeutics" or "the Company")

Preliminary Results for the year ended 30 June 2012

Allergy Therapeutics plc (AIM: "AGY" or the "Company"), the fully integrated specialty pharmaceutical company specialising in allergy vaccines, announces its Preliminary Results for the year ended 30 June 2012.

Highlights 

·; US Clinical hold lifted on Pollinex® Quattro Grass 0.5ml (Pollinex Quattro) and approval to progress with a Phase III efficacy study, to be conducted in an Environmental Exposure Chamber ("EEC")

·; Gross Revenue (before rebate) £43.8 million (2011: £43.0 million) 2.0% higher

·; Pollinex Quattro sales grew by 2.8% to £21.4 million (2011: £20.9 million) at constant currency

·; Gross sales increased 9.3% in non-German markets at constant currency

·; Operating profit higher at £1.1 million (2011: £0.1 million)

·; Profit after interest and tax higher at £0.8 million (2011: £2.7 million loss)

·; Submitted complete response to the Paul Ehrlich Institute ("PEI") for Pollinex® Quattro Complete Grass in Germany

·; Successful Placing and Subscription of New Ordinary Shares, issue of Convertible Loan Notes and an Offer to Qualifying Participants of New Ordinary Shares raising £13.3 million gross

·; Substantial reduction in net debt to £0.6 million (2011: £14.1 million)

Manuel Llobet, Chief Executive Officer, commented:

"The financial results for the year highlight a solid performance particularly in the UK, Austria, Ireland and Italy, while on the product front Pollinex Quattro in Europe continues to gain traction in a number of territories. Our belief that the UK market represents an opportunity for further growth underpins our investment in expanding that sales team.

"The lifting of the clinical hold by the US FDA for our Pollinex Quattro Grass product is a significant event and milestone for the Company. We can now commence a pivotal clinical trial programme for the product, which is obviously a major step towards registering the product in the United States. In order to fully exploit this opportunity we are in the process of identifying a suitable development and commercialisation partner for that territory.

 "Our strategy of product diversification and geographical expansion is reflected in this year's results. We have shown expansion into South America, with shipping of initial supplies of vaccines to Colombia, Chile, Argentina and most recently, Venezuela. We continue to develop these markets.

"Our prospects remain positive, particularly given the lifting of the clinical hold in the US and the anticipated reply from thePaul-Ehrlich Institute (PEI) before the end of the calendar year, both of which bode well for our continued growth."

For further information

Chairman's Statement

I am pleased to write my second statement as Chairman of Allergy Therapeutics and comment upon a year that has been important in the continued development of the Group. I would like to thank the Directors, the Executive Team and employees for their contribution to the continued success of the Group for the year.

The lifting of the clinical hold by the US Food & Drug Administration (FDA) on the 3rd August 2012 for our Pollinex® Quattro Grass product was a significant event and milestone for the Company. This decision allows the Group to commence a pivotal clinical trial programme for Pollinex Quattro Grass, a major step towards registering the product in the United States. If successful, this implies that Pollinex Quattro Grass will be the first registered subcutaneous vaccine to reach the US market. In order for us to exploit this opportunity, we are in the process of identifying a suitable development and commercialisation partner in the United States.

The successful fundraising that took place in April this year raised £13.3m through a combination of equity (£9.3m) and convertible debt (£4.0m) with CFR International acting as the cornerstone investor. The resolutions were approved by shareholders at the General Meeting on 19 April. The fundraising has provided greater financial flexibility to the Group, allowing it to repay existing bank debt, agree a new overdraft facility and allows the Executive Team to concentrate on the Group's continued and future growth.

The financial results for the year show consistent sales and a better profit after tax position of £0.8m (2011: loss of £2.7m). This improvement has arisen as a result of favourable foreign exchange movements and effective cost control measures introduced during the year. In addition, the Group's strategy of product diversification and geographical expansion, reducing the Group's reliance on the German market, is clearly reflected in this year's results.

I am pleased to welcome Dr Thomas Lander, who joined the Board as a Non-Executive Director in May 2012. He brings extensive knowledge of drug development and European regulatory experience, having held senior executive roles with major pharma and biotech companies, including positions in German and Swiss pharmaceutical companies.

I would also like to thank, on behalf of all the stakeholders, Ignace Goethals and Virinder Nohria for their contribution to the development of the Group over a number of years. They both stepped down from the Board on 30 June 2012.

Despite challenging market conditions, prospects for the Group remain positive, particularly given the lifting of the clinical hold in the US and the anticipated reply from the Paul Ehrlich Institute before the end of the calendar year, both of which bode well for the Group to continue to grow the business and deliver shareholder value.

Peter Jensen

Chairman

14 September 2012

CEO's Review

The most recent significant achievement was the lifting of the FDA's clinical hold on the Company's grass pollen allergy vaccine Pollinex® Quattro Grass announced on 3rd August 2012. We now have approval to progress with a Phase III efficacy study, to be conducted in an Environmental Exposure Chamber ("EEC"). The Company is focused on securing a partner to help fund the remainder of the development programme and commercialise Pollinex Quattro in the US.

This 'four shot' product is based on the adjuvant MPL®, the Company's innovative toll-like receptor four (TLR4) agonist which acts to stimulate and re-direct the immune response in decreasing allergenicity and increasing immunogenicity. The Pollinex Quattro allergy vaccines, which are already commercialised in a number of European countries under a named patient basis, require only four injections per year and have the potential to transform allergy treatment in the US, providing a convenient, safe, and effective vaccination for allergic rhinitis sufferers. Pollinex Quattro has the potential to greatly benefit allergy sufferers in the US in the absence of registered products by being the first subcutaneous immunotherapy vaccine to reach that market.

Looking at the financial results, I am pleased to report that the profit after tax for the year was £0.8m, which compares favourably with the loss reported in the corresponding period last year (2011: loss £2.7m). Several factors contributed to a return to profit, including good cost management as we focus on protecting net margins.

The Company performed well in the UK, Austria, Ireland and Italy but in some parts of Europe sales were hampered by government austerity measures. Overall sales of Pollinex Quattro increased 2.8% to £21.4m (2011: £20.9m) at constant currency.

The Group believes that the UK market presents an opportunity for further growth. To this end we have expanded the UK sales team to increase sales going forward. Despite the Italian market for vaccines decreasing by around 10%, the Company has in fact grown sales thanks to an outstanding team effort. One of the highlights has been the Company's annual adjuvant congress held in early July this year, where the values of adjuvants in immunotherapy were reviewed. The Austrian market continues to have opportunities for allergy vaccines, in particular where vaccines offer an improved rate of patient compliance, as seen with Pollinex Quattro. The success in Ireland during the year has been generated by the introduction of Anapen®, an epinephrine auto-injector. Following the voluntary recall by Lincoln Medical, the producer of Anapen, in May 2012, the Company is working with Lincoln towards re-establishing normal supply.

The Group has continued to decrease its reliance on Germany, the Group's largest market which has been impacted by general austerity measures and the withdrawal of de-notified products. This has contributed to a shrinking market that is only now showing signs of stabilising. The weaker market and the increase in the rebate payable to sick funds, operated by German insurance companies have impacted sales. In spite of this, the Company has improved its competitive position in the number of units sold against the prior year with a strong improvement in sales of the registered TA range. The outlook for Germany remains cautious given the on-going uncertainty in the Eurozone.

Sales in Spain have also been affected by austerity measures introduced to counteract the impact of a weaker economy and broader Eurozone related pressures.

During the period the Group shipped initial supplies of vaccines to Colombia, Chile, Argentina and most recently, Venezuela. The regulatory requirements in these markets are complex and although significant progress has been made, it has been slower than originally anticipated. The Group is undertaking an educational programme with physicians and continues to develop these markets.

The Group continues to identify potential new markets and in-licensing product opportunities. The Group's in-licensed products in some markets include DAP, a diagnostic product for people who are allergic to penicillin, which is licensed by Diater Laboratories S.A and Anapen, an emergency device that can inject adrenaline for the treatment of anaphylaxis licensed from Lincoln Medical.

As reported previously, a complete response was submitted by the Group in November 2011, addressing the questions raised by Paul Ehrlich Institute (PEI) in Germany concerning the Marketing Authorisation Application (MAA) for the Pollinex Quattro Complete grass formulation. The Company addressed all the questions raised by the PEI in their report and expects a decision on the new presentation of Pollinex Quattro during 2012. The new presentation differs from the existing marketed version of Pollinex Quattro due to its lower injection volume of 0.5ml; compared to a 1.0ml injection volume for the earlier version. Subject to approval of Pollinex Quattro Complete, the Company will pursue further registrations through the mutual recognition procedure (MRP) in other European countries.

At the end of November 2010 the Group submitted 10 marketing authorisation applications to the PEI. These marketing authorisation applications have been made in response to the introduction of the Therapeutic Allergen Regulation (TAV), which has changed the regulatory landscape in Germany. To date many products have been available in Germany on a 'named patient' basis. However, as a result of the TAV, all immunotherapy products containing common allergens (grass, trees, house dust mites and insect venoms) will require marketing authorisations by 2017. Since 2008, the Group has reviewed its product portfolio and has submitted marketing authorisation applications for its top 10 products in the Pollinex Quattro, Tyrosin TU t.o.p. and Oralvac Compact ranges.

The PEI has given the Company timelines for a transition period ending in 2017 by which time approval of these applications must have been obtained. The Company currently intends to meet the requirements associated with those applications which are likely to result in the group incurring R&D spend of up to £5m per annum.

There have also been changes in the reimbursement regime in Germany. As announced in the Company's results last year, there has been a price freeze in Germany on reimbursed products from the prices in the market on 1 August 2009. The rebate paid to sick-funds increased from August 2010 from the previous level of 6% to 16% and although the Company has received an exemption from this rebate rise until mid-2011 and preliminary exemption extension until the end of 2011, it is currently uncertain as to whether the Company will continue to receive such an exemption, however it continues to discuss this with the authorities.

Outlook

Despite the uncertain economic times in the Group's main markets the outlook for revenue growth in Europe is expected to see low-mid single digit growth.

The lifting of the FDA clinical hold for Pollinex® Quattro Grass in the United States enables the Group to move forward in this important and currently poorly served market. Diversification into other geographies and product in-licensing opportunities continue to be explored in line with the Group's strategy for growth.

With opportunities to expand and grow the business in new, growing and established markets, we are confident of the future prospects of the Group to deliver shareholder value in the medium to long term.

Manuel Llobet

Chief Executive Officer

14 September 2012

Financial Review

Overview of the business model

We are a specialist fully integrated pharmaceutical company, focused on the allergy vaccine sector. We concentrate on specialist products used by allergists, dermatologists, paediatricians and Ear Nose and Throat (ENT) doctors who treat people for Allergic Rhinitis.

The results for the twelve months to 30 June 2012 show a Group operating profit for the third year running of £1.1m (2011: £0.1m). The improvement in the performance is mainly due to controlling overhead expenditure and favourable foreign exchange movements.

Revenue

The Group has continued to grow its revenues in markets outside Germany and therefore the reliance of the Group on Germany has continued to decrease, with 62% of revenue originating in the territory compared with last year's 66%. In addition to the sale of allergy vaccines the Group has also continued to increase its revenue from in-licensed products, contributing £1.5m this year (2011: £0.4m). However, the key product is still Pollinex® Quattro, which now accounts for 50% of sales.

Gross sales for the financial year for the Group overall were £43.8m (2011: £43.0m), before the statutory sales rebate in Germany of £2.5m (2011: £1.4m). Gross sales were helped by a stronger Euro to GBP exchange rate over the year.

The influence of the public spending restraints in Germany saw the net sales fall slightly to £41.3m (2011: £41.6m). Net sales in the UK and Ireland benefited from the inclusion of Anapen this year, increasing during the financial year to £1.5m (2011: £0.7m). Italy's net sales increased to £4.4m (2011: £3.9m), which was a strong result given the market fell by 10% during the year. Austria showed strong growth in net sales to £1.9m (2011: £1.3m). By contrast the Group's sales in Spain declined marginally during the year. Sales in the Latin American market were disappointing for the year owing to a number of registration delays.

Gross Profit

Manufacturing overheads decreased against the prior year by £0.3m. However, there was a slight increase in the cost of goods due to movements in stock against the prior year. Gross profit decreased by 2.5% to £27.6m (2011: £28.3m) generating a gross margin of 67% (2011: 68%).

Operating Expenses

Despite challenging market conditions, the Group maintained its expenditure on sales and marketing. Lower regulatory costs associated with the TAV project in Germany plus foreign exchange gains from hedges helped lower administration costs. Moreover the Income Statement benefitted from the fair valuation of the exchange hedges creating an asset at the year end and the release of the prior year fair valuation liability; together contributing to a gain of £1.3m (2011: loss £0.8m).

Tax

The receipt of an R&D tax credit in the UK of £0.6m, relating to previous financial years' R&D helped offset tax charges from some of the subsidiaries, resulting in a net credit to the income statement of £0.2m

Balance Sheet

Spending on capital maintenance items was lower than the previous year with the significant investment required in prior years now completed. Intangible assets increased after the capitalisation of a milestone payment to Lincoln Medical for the rights to Anapen in the UK and Republic of Ireland. Total current assets fell to £13.0m (2011:£14.9m) mainly due to a German debtor in last year's accounts relating to a rebate repayment. Due to the equity fundraising, net assets for the year increased to £14.6m compared to £2.1m last year.

As a result of favourable working capital movements and reduced overheads, the Group generated net cash from operations of £2.9m (2011: outflow £1.7m)

Financing

The successful fundraising that took place in April this year raised £13.3m through a combination of convertible debt (£4.0m) and equity (£9.3m) with CFR International acting as the cornerstone investor. The additional liquidity has enabled the Group to reduce its financing costs by repaying the bank loan facility and replacing it with a seasonal overdraft facility. The Group utilised the new facility for the first time in June 2012.

The Directors believe that the Group will have adequate facilities for the future and accordingly they continue to adopt the going concern basis in preparing the full year results.

Ian Postlethwaite

Finance Director

14 September 2012

ALLERGY THERAPEUTICS PLC

Consolidated statement of changes in equity

ALLERGY THERAPEUTICS PLC

NOTES TO THE FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) in issue as adopted by the European Union ('EU').

Allergy Therapeuticsplc is the Group's ultimate parent company. The Company is a limited liability company incorporated and domiciled in England. The address of Allergy Therapeutics plc's registered office and its principal place of business is Dominion Way, Worthing, West Sussex and its shares are listed on the Alternative Investment Market (AIM).

The consolidated financial statements for the year ended 30 June 2012 (including comparatives) have been prepared under the historical cost convention except for land and buildings and derivative financial instruments which have been measured at fair value. They were approved and authorised for issue by the Board of Directors on 14 September 2012.

New standards adopted

There are no IFRS or IAS interpretations that are effective for the first time in this financial period that have had a material impact on the Group.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group in the 30 June 2012 financial statements

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective. Not all of these have yet been adopted by the EU. The Group has not adopted any of these pronouncements early. The new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements are as follows:

IFRS 9 Financial Instruments (effective 1 January 2015)

This IFRS replaces IAS39 and addresses the usefulness for users of financial statements by simplifying the classification and measurement requirements for financial instruments. Management are currently assessing the detailed impact on the Group's financial statements.

IFRS 10 Consolidated Financial Statements (effective 1 January 2013)

This IFRS establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities

IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013)

This IFRS looks at the disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities, and the effects of those interests on its financial position, financial performance and cash flows

IFRS 13 Fair Value Measurement (effective 1 January 2013)

IFRS 13 seeks to increase consistency and comparability in fair value measurements and related disclosures through a 'fair value hierarchy'.

IAS 19 (Revised June 2011) Employee Benefits (effective 1 January 2013)

IAS 19 reviews the treatment of employee benefits with a view to recognising the cost in the period in which the benefit is earned by the employee, rather than when it is paid or payable.

IAS 27 (Revised) Separate Financial Statements (effective 1 January 2013)

IAS 27 is concerned with the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent, and in accounting for investments in subsidiaries, jointly controlled entities and associates when an entity elects, or is required by local regulations, to present separate (non-consolidated) financial statements.

Amendments to IAS 1 Presentation of Other Comprehensive Income (effective 1 July 2012)

This IAS amendment revises the way the statement of other comprehensive income should be presented requiring separate subtotals for those elements which may be 'recycled' (e.g. cash-flow hedging, foreign currency translation), and those elements that will not.

Management anticipate that the above pronouncements will be adopted in the Group's financial statements in line with the effective dates stated above. Management are currently assessing their detailed impact on the Group's financial statements.

Other new standards and Interpretations have been issued but are not expected to have a material impact on the Group's financial statements.

Going concern

For the year ended 2012 and for the third year in succession, the Group has reported an operating profit and an operating cash inflow of £2.9m (2011: £2.0m outflow).

The Group has prepared detailed budgets, including cash flow projections, for the periods ending 30 June 2013 and 30 June 2014. These projections include assumptions on the trading performance of the operating business and the continued availability of the existing debt facilities. After making appropriate enquiries, which included a review of the annual budget, by considering the cash flow requirements for the foreseeable future and the effects of sales and other sensitivities on the Company's funding plans, the Directors continue to believe that the Group will have adequate resources to continue in operational existence for the foreseeable future and accordingly have applied the going concern principle in drawing up the financial statements. In reaching this view, the Directors have considered and prioritised the actions that could be taken to offset the impact of any shortfall in operating performance.

2. REVENUE

An analysis of revenue by category is set out in the table below:

There were no milestone payments in either the current or previous year.

3. SEGMENTAL REPORTING

The Group's operating segments are being reported based on the financial information provided to the Executive Directors, who are defined as the Chief Operating Decision-Maker (CODM), to enable it to allocate resources and make strategic decisions.

The CODM reviews information based on geographical market sectors and assesses performance at an EBITDA (operating profit before interest, tax, depreciation and amortisation) and operating profit level. Management have identified that the reportable segments are Central Europe (which includes the following operating segments; Germany, Austria, Switzerland and the Netherlands), Southern Europe (Italy and Spain), the UK and Other.

Revenue by Segment

Revenues from external customers in all segments are derived from the sale of a range of pharmaceutical products designed for the immunological treatment of the allergic condition.

Other revenues include licensee and distributor sales and royalties through several world-wide markets including Czech and Slovak Republics, Canada and South Korea.

Inter-segment revenues represent sales of product from the UK to the operating subsidiaries. The price is set on an arms-length basis which is eliminated on consolidation

The CODM also reviews revenue by segment on a constant currency basis to provide relevant year on year comparisons.

The following revenue table is based on a constant currency rate of € 1.20: £1.00 which was the rate used in the 2012 budget.

Depreciation and Amortisation by Segment

EBITDA by Segment

Total assets by Segment

Total liabilities by Segment

4. FINANCE EXPENSE

The retranslation (profit)/ loss represents the translation difference on the Group's Euro based borrowing facility caused by the movement of the Euro against Sterling throughout the year.

5. EARNINGS/(LOSS) PER SHARE

The diluted loss per share in the previous year does not differ from the basic loss per share as the exercise of share options would have the effect of reducing the loss per share and is therefore not dilutive under the terms of IAS 33.

6. BORROWINGS

The Loans in the previous year were repaid in full during the year. All outstanding fees and interest relating to the facility and previously held on the balance sheet have been charged to the profit and loss account.

The overdraft facility is provided by The Royal Bank of Scotland Plc and has a variable limit during the year up to a maximum of £7million. The interest on the overdraft is at the bank's base rate plus the bank's fixed margin. The facility is secured in favour of The Royal Bank of Scotland Plc by means of debentures granted by the Company and it's principal subsidiaries and share pledge agreements relating to Bencard Allergie GmbH, Allergy Therapeutics Italia SRL and Allergy Therapeutics Iberica SL.

The Convertible loan notes were issued in April 2012. The liability relates to the interest payable over the two year term, half of which is due one year from the date of issue.

7. ISSUED SHARE CAPITAL

The deferred shares have no voting rights, dividend rights or value attached to them.

On 20 April 2012 96,141,367ordinary shares of 0.1p each were issued pursuant to an Offer, Placing and Subscription at a price of 9.7p per ordinary share and were admitted to trading on AIM having been approved by shareholders of the Company at a General Meeting on 19 April 2012.

Convertible Loan Notes to the value of £4,042,000 were also issued on 20 April 2012 following approval by shareholders. Interest is payable at a rate of 3% per annum during the term of the notes. On redemption, the Convertible Loan Notes will be converted into 41,674,938 ordinary shares at a price of 9.7p per share.