Allergy Thera. Regulatory News (AGY)

16 September 2013

Allergy Therapeutics plc

Preliminary Results for the year ended 30 June 2013

Market share gains and US regulatory progress

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 2013.

Highlights

· Improved market share in Germany and other European markets

· At constant currency* gross revenue (excludes rebate and sales discount) increased 1% to £44.5 million (2012: £44.2 million)

o Revenue £39.3 million (2012: £41.3 million) impacted principally by foreign exchange movements

o Revenue outside of Germany increased 4% at constant currency to £16.6 million (2012: £15.9 million)

o Decline in gross revenues (before rebate) in Germany of 2% at constant currency to £27.3 million (2012 £27.9 million)

· Launch of probiotic product range in a number of European countries

· Net profit after tax £0.5 million (2012 £0.8 million)

· FDA clinical hold lifted in August 2012 on Company's grass pollen allergy vaccine (Grass MATA MPL/ Pollinex® Quattro Grass 0.5ml)

· Pollinex® Ragweed distribution agreement signed with Paladin Labs in December 2012, replacing the existing distributor in Canada

· US Patent approved for sublingual administration of MPL adjuvant and vaccine antigens

Manuel Llobet, Chief Executive Officer, commented:

"The financial results for the year demonstrate continuing profitability, despite difficult market conditions, with an operating profit for the fourth consecutive year. We strengthened our market share in Europe, with particular growth in Germany, Italy, Austria and The Netherlands.

"The lifting of the clinical hold on Pollinex Quattro Grass 0.5ml by the FDA at the beginning of the financial year was a major strategic achievement for the Company. The partnering process for Pollinex Quattro in the US, although it has not entirely completed, has not generated a suitable partner to date for the company and as a consequence work is underway to explore alternatives to develop the US opportunity; an update will be provided on developments in due course.

"We have made good progress in our strategy to diversify the business, enter new markets and expand our product portfolio, which bodes well for longer-term growth. With these developments, alongside expected regulatory news, we remain confident of the future prospects of the Company"

* Constant currency uses prior year weighted average exchange rates to translate current year foreign currency denominated revenue to give a year on year comparison excluding the effects of foreign exchange movements. See table in financial review for an analysis of revenue.

For further information

Chairman's Statement

During the year Allergy Therapeutics has focused on diversifying the Group's product portfolio whilst evaluating potential partnering opportunities to commercialise our Pollinex® Quattro product in the US.

At the beginning of the financial year we were pleased to report that the clinical hold on the Group's development program for Pollinex® Quattro in the United States had been formally lifted by the US FDA (Food and Drug Administration). The Group is focussed on securing a suitable partner with whom it intends to complete late stage clinical development, submit a BLA (Biologics License Application) to the FDA, and launch Pollinex® Quattro in the important US market. The Group has continued to work with the FDA to support the protocol for the Pollinex Grass 304 study and will update the market in due course with any developments.

In the absence of a registered subcutaneous vaccine in the US for grass-related allergic rhinitis, commercialisation of Pollinex® Quattro could revolutionise treatment in the US by providing effective, fast-acting treatment to allergy sufferers. Pollinex® Quattro involves four pre-seasonal allergy vaccine injections administered over a month, making it an attractive alternative to the prolonged course of weekly to monthly injections over three years that is currently available with the allergen extract vaccines used in the US.

Outside of the US, the Group anticipates regulatory news in Germany, where it submitted a Marketing Authorisation Application (MAA) for Pollinex® Quattro Grass 0.5 ml to the Paul Ehrlich Institute (PEI). PEI has not disclosed when an update on the review process can be expected owing to the significant increase in its workload as a result of the introduction of Therapeutic Allergen Regulation (TAV).

I am pleased to report that the Group has made good progress with its strategy to diversify the business, enter new markets and expand its product portfolio, resulting in reduced reliance on the historically important German market. The Group is progressing the registration process for products in Italy and Portugal and continues to invest prudently in promising R&D programmes. In addition, the Group has introduced three probiotics products - Kallergen-Th, ATI-Prob and Pollagen, which have been well received in Italy and are expected to be launched in other markets later this year. The Group also launched Acarovac Plus in Spain, a modified-allergen product developed for the treatment of perennial mite allergy.

Although certain market conditions in Europe remain challenging, the Group is pleased to report an operating profit of £0.7million (2012: £1.1million), the fourth year in succession an operating profit has been reported, coupled with continued investment in increasing the Group's markets and R&D. Encouragingly, the Group's sales in Germany have shown signs of improvement over the last 6 months in addition to increasing its market share and the Group as a whole is confident of its prospects, based on expected news and its strategy to expand the business into new and existing markets.

Peter Jensen

Chairman

13 September 2013

CEO's Review

The lifting of the FDA's clinical hold on the Group's Pollinex® Quattro vaccine in the US at the beginning of the financial year was a major achievement for the Group. Elsewhere in the business the Group continued to focus on expanding into new markets and to diversify its product portfolio.

Allergy Therapeutics has continued to grow its revenues in markets outside of Germany, the Group's largest market, as part of its broader strategy to reduce its reliance on revenues from this territory. The Group reported revenue in Germany of £23.6million, accounting for 60% of the Group's revenue compared with 73% reported in 2009. During the last six months of the year, the Group's sales in Germany have shown signs of improvement, outperforming the market by 13 points in volume during the period. The European Commission has recently opened an investigation into whether the exemption from the increase in rebates in Germany constitutes state aid. If it is eventually concluded that the exemptions constitute state aid, then all unlawful aid may have to be repaid.

In other markets, sales in Italy and Austria increased by 3% and 8% respectively at constant currency. UK sales were down owing to the termination of the Anapen distribution agreement as announced in December 2012, but before Anapen sales were positive. Sales in the Spanish market have shown signs of recovery due to improvements implemented by management, after a decline over a number of years, resulting in a turnaround of the subsidiary.

In December 2012 the Group signed a new distribution agreement for Pollinex® Ragweed, replacing the existing distributor with Paladin Labs, one of Canada's leading specialty pharmaceutical companies with extensive experience marketing in-licensed products. I am pleased to report this is going well, with sales increasing by 8% against the previous year.

Although we are beginning to see an improvement in certain markets, sales across the Group's principal geographical markets continue to reflect the impact of challenging market conditions, governmental austerity measures and the weakening average Euro against sterling. As a consequence the Group's operating profit for the year was £0.7 million (2012: £1.1 million).

Measures implemented over the last two years to improve our competitive position in Europe are beginning to show positive results. Market data, which is available for the 12 months to June 2013 showed a positive performance against the market across our main European markets. Germany was seven points above the market when measured by volume; by value improvements above the market were recorded as follows: Austria 12, Italy 15 and the Netherlands 17 points.

The partnering process for Pollinex® Quattro in the US, although it has not entirely completed, has not generated a suitable partner to date for the company and as a consequence work is underway to explore alternatives to develop the US opportunity; an update will be provided on developments in due course. In Europe, a response to the MAA for Pollinex® Quattro Grass 0.5ml submitted to the PEI is still awaited. The PEI has not disclosed when an update on the review can be expected.

During the year the Group has made good progress on its strategy to diversify its portfolio, expand into new geographical markets and identify new in-licensing opportunities. To this end the Group introduced three new probiotics products during the year: Kallergen-Th, ATI Prob and Pollagen, each targeting different forms of allergic disease. The Group also made progress with another product, Acarovac Plus, which has been launched in Spain. Acarovac Plus is a novel tyrosine-adsorbed, modified-allergen product developed for treatment of perennial mite allergy.

Research and Development costs during the financial year have increased to £2.5 million (2012: £2.1 million) to reflect the Group's focus on diversifying the business. Registrations have been undertaken in Peru and Venezuela for mite allergy products. Under the Therapeutic Allergen Regulation in Germany, progress has been made with the Pollinex Quattro Birch dose ranging study: clinical trial and ethics applications have been submitted in Germany, Austria and Poland and the dosing of patients starts in September 2013. The registration of various allergy vaccines in Portugal will be concluded in September 2013.

Outlook

The lifting of the clinical hold by the FDA in August 2012 has allowed the Group to resume its Pollinex® Quattro development programme in the US, where the search for a suitable development and commercialisation partner continues. In Europe we are also moving forward, implementing efficiencies and strengthening our position by winning market share and diversifying our revenue base. With these developments alongside expected news from PEI, we remain confident of the future prospects of the Company.

Manuel Llobet

Chief Executive Officer

13 September 2013

Financial Review

Overview

The results for the twelve months to 30 June 2013 demonstrate continuing profitability, despite difficult market conditions, with a Group operating profit of £0.7 million (2012: £1.1 million); the Group has now generated an operating profit for the fourth year in a row.

Revenue

Despite weak allergy vaccine markets in Europe, revenue at constant currency, excluding the impact of rebates and discounts, was marginally better at £44.5 million (2012: £44.2 million). This can be seen in the table below:

The Group recognised revenue of £1.0 million (out of a total receipt of £1.25 million) in relation to signing a new distributor for Canada.

With a weaker EUR:GBP average exchange rate during the year compared to the prior year, revenue decreased by 5% to £39.3 million (2012: £41.3 million). The average EUR:GBP exchange rate in the period was 1.24 compared to 1.15 in the previous period; the weakening Euro adversely impacted revenue by £2.8 million. The Group has continued to grow its revenue in markets outside of Germany and to reduce its reliance on the German market, with 60% of revenue originating in the territory compared with 73% in 2009. In addition to the sale of allergy vaccines, the Group has continued to look to increase its revenue from in-licensed products; although revenue was impacted in the year by the loss of Anapen sales due to the termination of the agreement with Lincoln, the supplier of Anapen, following issues with the device. Total sales from in-licensed products contributed £0.7 million this year (2012: £1.5 million). However, the key product is still Pollinex® Quattro, which accounts for 49% of sales.

Germany experienced various austerity measures and gross sales at constant currency in Germany fell slightly to £27.3 million (2012: £27.9 million). During the period the Group was subject to a preliminary exemption from the full rebate charge in Germany for the first half of the financial year, although for the second half the full rebate was charged. The Group also benefited from an exemption to the increase in the German rebate for the period January 2012 to June 2012. The European Commission has recently opened an investigation into whether the exemption from the increase in rebates in Germany constitutes state aid. If it is eventually concluded that the exemptions constitute state aid, then all unlawful aid may have to be repaid (please refer to Note 8).

Italy's sales at constant currency increased by 3%, which was a strong result given the weak market during the year. Similarly, Austria showed strong growth in sales of 8% in the year. By contrast, the Group's sales in Spain and the Czech and Slovak Republics 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

Tight discipline on costs in all areas helped drive manufacturing overheads lower against the prior year by £0.4 million. This lower cost base combined with lower costs attributable to Anapen sales helped reduce the cost of goods to £12.0 million (2012: £13.7 million). Consequently, the gross profit percentage improved by 2.7% points, to 69.6%, leading to a gross margin of £27.3 million (2012: £27.6 million).

Operating Expenses

Total overheads are slightly higher against the prior year at £26.7 million (2012: £26.5 million). The weaker Euro helped reduce distribution costs, which are mainly European sales and marketing costs, to £16.3 million (2012: £17.9 million). Administration expenses include a cost of the fair valuation of foreign exchange hedges, generating a liability at the year end of £0.3 million. At the prior year end the fair valuation generated an asset; together these created a loss in the year of £0.8 million (2012: gain £1.3 million). The initiation of the dose ranging study for Pollinex Quattro Birch started during the year and was the main factor behind the increase in R&D costs to £2.5 million (2012: £2.1 million).

The Euro denominated loan was repaid in April 2012, which means there is no retranslation difference on the loan in this period (2012: £1.0 million credit). The finance expense reflects the absence of the loan, with the expense in the period being the interest on the overdraft and German pension fund finance cost. The overdraft was repaid at 31 December 2012 but drawn against at the year end as expected due to the seasonality of the Group's business.

Tax

The tax credit of £0.1 million during the year relates mainly to the recognition of a deferred tax asset in respect of accumulated UK trading losses generated by the Group's investment in R&D in previous years. This asset has been recognised following several years of taxable profits and expected future profits. An R&D tax credit was recognised during the prior year. In both years these credits offset tax charges in some of the overseas subsidiaries.

Balance Sheet

With the major capital investment programme now complete and a lower maintenance level of spend now required, property, plant and equipment has fallen from £7.6 million to £7.3 million as the depreciation charge for the period is higher than new equipment purchases. Goodwill remains broadly similar at £2.6 million, whilst other intangible assets have fallen by £0.8 million mainly due to the cancellation of the agreement with Lincoln Medical Limited for the Anapen device.

Total current assets excluding cash have increased by £1.1 million to £13.2 million (2012: £12.1 million) primarily due to an increase in debtors related to the preliminary exemption to the rebate increase in Germany.

Retirement benefit obligations, which relate solely to the German pension scheme, increased to £6.2 million (2012: £4.7 million). The increase in the liability was driven by a fall in German bond yields at the year end compared to the previous year.

Net cash generated by operations remained positive, with a reported inflow of £3.0 million (2012: £2.9 million).

Financing

The fundraising that took place in April 2012 raised £12.6 million through a combination of convertible debt (£4.0 million) and equity (£9.3 million), with CFR Pharmaceuticals acting as the cornerstone investor. The funds raised have enabled the Group to reduce its financing costs by repaying the bank loan facility and replacing it with a seasonal overdraft facility.

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

13 September 2013

ALLERGY THERAPEUTICS PLC

ALLERGY THERAPEUTICS PLC

ALLERGY THERAPEUTICS PLC

Consolidated statement of changes in equity

ALLERGY THERAPEUTICS PLC

ALLERGY THERAPEUTICS PLC

NOTES TO THE FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.

Allergy Therapeutics plc 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 2013 (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 13 September 2013.

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.

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.

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 2013 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.

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 2013, and for the fourth year in succession, the Group has reported an operating profit and an operating cash inflow. Operating profit in the period was £0.7 million (2012: £1.1 million); operating cash inflow was £2.8 million (2012: £2.9 million).

The Group has prepared detailed budgets, including cash flow projections, for the periods ending 30 June 2014 and 30 June 2015. These projections include assumptions on the trading performance of the operating business and the continued availability of the existing overdraft 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:

As noted in the accounting policy for revenue recognition for sale of goods, royalties that are deemed to part of the fair valuation of supply of goods are included in sale of goods.

Rendering of services relates to the supply of services to a new distributor to assist them in setting up operations in their territory.

3. SEGMENTAL REPORTING

The Group's operating segments are reported based on the financial information provided to the Executive Directors, who are defined as the Chief Operating Decision-Maker (CODM), to enable them 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 (including Latin America) and Other.

Revenue by Segment

Revenues from external customers in all segments are derived principally 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 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 2013 budget.

The Group has no customers which individually account for more than 10% of the Group's revenue.

Depreciation and Amortisation by Segment

EBITDA by Segment

Total assets by Segment

Included within Central Europe are non-current assets to the value of £2,560,000 relating to Goodwill and within Southern Europe assets to the value of £1,207,000 relating to Freehold land and buildings.

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 previous year. The borrowing facility was repaid in April 2012.

5. EARNINGS PER SHARE

6. BORROWINGS

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 £6 million. The interest on the overdraft is at the bank's base rate plus a fixed margin of 3.35%. The facility is secured in favour of The Royal Bank of Scotland Plc by means of debentures granted by the Company and its 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 (Note 26). The liability relates to the interest payable over the next year.

7. ISSUED SHARE CAPITAL

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

Share options were exercised in the year with proceeds of £148,000.

Convertible Loan Notes to the value of £4,042,000 were 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.

8. CONTINGENT LIABILITIES

Allergy Therapeutics (UK) Ltd, a subsidiary of Allergy Therapeutics plc, has guaranteed the deposits required for leases on cars and rented office space of Bencard Allergie GmbH. The amount as at 30 June 2013 was €107,426; £91,833 (2012: €107,426; £86,508).

A cross-guarantee exists between Allergy Therapeutics (Holdings) Ltd, Allergy Therapeutics (UK) Ltd, Bencard Allergie GmbH, Allergy Therapeutics Italia srl. and Allergy Therapeutics Iberica SL. in which the liabilities of each entity to the Royal Bank of Scotland Plc are guaranteed by all the others.

The European Commission has recently opened an investigation into whether the exemption of pharmaceutical manufacturers from the increase in rebates in Germany constitutes state aid. If it is eventually concluded that the exemptions constitute state aid, then all unlawful aid may have to be repaid. On the balance of probabilities, the Group does not consider that it will have to repay any rebate exemptions. However, should a repayment be required, then the maximum amount to be repaid would be approximately £5 million. Included in other receivables is an amount of £1.4 million in respect of exempted rebates which the Group continues to collect.