Alliance Pharma Regulatory News (APH)

ALLIANCE PHARMA PLC

("Alliance" or the "Company")

Interim results for the six months ended 30 June 2012

Alliance Pharma plc (AIM: APH), the speciality pharmaceutical company, is pleased to announce its interim results for the six months ended 30 June 2012.

Highlights of the year to date:

·; Half year sales £22.0m (H1 2011: £24.4m)

·; Underlying sales growth of 2%, excluding DeltacortrilTM

·; Half year profit before tax £5.3m (H1 2011: £7.0m)

·; Underlying pre-tax profit growth of 16%, excluding Deltacortril

·; Basic earnings per share for the half year 1.80p (H1 2011: 2.38p)

·; Interim dividend up 10% to 0.275p per share (H1 2011: 0.25p)

·; Net bank debt reduced to £14.3m (31 December 2011: £18.4m)

·; Acquisition of anti-malarial brands from AstraZeneca UK Ltd in August 2012

·; First stage of Continental expansion underway

Commenting on the results, Michael Gatenby, Alliance Pharma's Chairman, said:

"We are pleased with the underlying performance in the first half year. We have an attractive and robust portfolio, which, boosted by the product acquisitions we have made over the past 12 months, gives us plenty of scope for driving organic sales growth. We remain well placed to fund further acquisitions and we have substantially broadened our search for targets to include opportunities on the Continent. We are confident that Alliance will continue to make solid progress."

For further information:

Chairman's and Chief Executive's Statement

In the first half of 2012 we delivered growth in underlying sales and profits and benefited from robust cash generation. We also made progress with our acquisition strategy, resulting in the purchase of three products from AstraZeneca UK in August. This acquisition was particularly important as it gives Alliance a foothold in continental Europe, part of a strategy to significantly increase the number of acquisition opportunities.

Underlying sales (excluding the previously highlighted decline in Deltacortril) in the first half were up 2% on the same period in 2011 and underlying pre-tax profits were up 16%. Total sales were £22.0m (H1 2011: £24.4m) and total pre-tax profits were £5.3m (H1 2011: £7.0m). HydromolTM grew particularly well, recording growth of 28% in the first half. Our healthy cash flows have allowed us both to make further reductions in net debt and to increase the interim dividend by 10%.

Sales of Deltacortril / enteric coated prednisolone now appear to have stabilised at a run rate of around £2m per annum, following the decline seen in early 2011 after the launch of a second generic competitor and changes in clinical preference.

As discussed over the past 18 months we have seen increased competition in Ireland for Nu-SealsTM, our enteric-coated low-dose aspirin. Also, as announced in June, Sanofi Pasteur has suspended production of the ImmuCystTM bladder cancer treatment, with production expected to resume by late 2013.

In August 2011 we acquired the antimalarial brands PaludrineTM, AvloclorTM and SavarineTM from AstraZeneca for an initial consideration of £4.2m with a further sum payable over the next three years not expected to exceed £1m. These brands are sold mainly in the UK and France and are expected to contribute around £1.1m per annum to our operating profit.

Financial performance

Sales and operating profit showed improvement on the previous six months as the business returned to growth, demonstrating our recovery from the rapid Deltacortril decline of 2011. Sales increased from £21.6m in H2 2011 to £22.0m in H1 2012 and pre-tax profit increased over the same period from £3.7m to £5.3m.

Compared with the first half of 2011, total sales were down by 10% at £22.0m - reflecting the substantially greater benefit that we were still receiving from Deltacortril at the start of 2011; however, the underlying business, excluding Deltacortril, achieved year-on-year growth of 2%. Continued growth in Hydromol and the benefits of the 2011 acquisitions more than offset the reduction in Nu-Seals sales and the impact of the ImmuCyst production issue.

Gross margin has stabilised after a period of decline caused largely by the reducing contribution from higher-margin Deltacortril sales in the product mix. The gross margin rate in the first half of 2012 was 54.0%, compared with 56.8% in the first half of 2011 and 53.3% in the whole of 2011.

Total administration and marketing expenses were virtually unchanged from a year earlier as our programme of cost savings offset inflationary pressures. We have pursued savings across all areas of activity; as expected, the greatest economies came from the supply chain, particularly from retendering distribution contracts.

Operating profit was £6.0m (H1 2011: £7.8m) and pre-tax profit was £5.3m (H1 2011: £7.0m). Excluding the Deltacortril gross margin, underlying operating profit increased by 10% and underlying pre-tax profit by 16%.

Continued healthy cash flows enabled us to make further reductions in net bank debt - down from £18.4m to £14.3m over the period. This resulted in a further modest reduction in financing costs, from £0.8m in H1 2011 to £0.7m in H1 2012. The debt/EBITDA ratio reduced to 1.32, from 1.41 at the end of 2011. The cash generated in the first half year effectively funded the acquisition of the anti-malarial products from AstraZeneca in August.

Products and marketing

The interruption to the production of ImmuCyst, which we license from Sanofi Pasteur for distribution in the UK and Ireland, is particularly frustrating because we had been achieving significant sales growth with this product. By May this year, the moving annual sales total had reached £4.4m, representing annual growth of 18% and making ImmuCyst one of our largest products.

Our organic sales growth continues to be led by our dermatology product Hydromol. This increased sales by 28% in the first half, to £2.2m (H1 2011:£1.7m).

This year we have seen increased competition for Nu-Seals, our enteric-coated low-dose aspirin, which is sold mainly in the Irish Republic. The single existing competitor was joined by two new generic competitors and as a result Nu-Seals sales were down from £2.8m in the first half of 2011 to £2.1m in the same period in 2012. In July 2012 the Irish Government published draft legislation intended to introduce both generic substitution and reference pricing and as a result we expect sales to fall back further over the next 12 months.

As previously announced, our distribution contract for nine Novartis products will cease at the end of this year, although we are due to receive a termination payment.

In 2011 we acquired a total of 10 products in three separate deals. These products between them brought annualised sales of around £5m. They include some very interesting consumer brands, such as AnbesolTM for pain caused by mouth ulcers or teething and QuinodermTM for acne. These brands have a strong heritage and bring with them the potential for growth.

Dividend

Our confidence in the business remains strong. Indeed, the evident resilience of the business confirms that our progressive dividend policy is soundly based. We therefore propose to pay an increased interim dividend of 0.275p, up 10% on last year's interim payment. This interim dividend remains well covered by after-tax earnings. The interim dividend will be paid on 15 January 2013 to shareholders on the register on 7 December 2012.

Strategy

Alliance acquires and licenses established products with stable sales in niche areas. While most of these require little or no promotional support, we actively market a small number of products with clear growth potential. These account for less than a fifth of our sales. We have two field forces, focused on dermatology and specialist hospital products, and have scope for economies of scale when we bring in products that these teams can promote alongside the existing ones. Following the ImmuCyst production issue, we are re-evaluating the use of the specialist hospital team, whose focus for the time being has shifted to other products within the portfolio.

We currently generate just under a fifth of our sales outside the UK, and have ambitions to diversify the business by significantly increasing this proportion - primarily through increased sales in Western Europe. For most of our existing portfolio, the opportunities for expanding international sales are limited: as long-established products occupying well-defended niches, they would have to dislodge similarly well-entrenched competitors elsewhere at disproportionate cost.

Our international strategy is therefore to replicate the model that has proved so effective in the UK by acquiring established products in overseas markets. Our extensive research across Europe indicates that other Western European countries are well suited to this approach.

Our newly acquired anti-malarial products give us a useful foothold in France, where they are already well established with annual sales of about £1m. We have also recently appointed two country managers to develop opportunities and sales on the Continent: one will cover France and the other Germany, Austria and Switzerland. Their remit is to reinforce our continuing search for acquisition targets in those countries, advise on the deals and build the resulting businesses.

Team

As part of our international strategy outlined above, in August we announced the appointment of two country managers to drive the development of product portfolios in Western Europe through acquisition.

Dr Philippe Pasdelou, country manager for France, has considerable experience of managing pharmaceutical companies in France and other countries - including establishing a company with a similar business model to ours. His new role includes managing sales of our newly-acquired anti-malarial brands in France.

Lars Börger, country manager for Germany, Switzerland and Austria, has experience across a number of pharmaceutical and medical device companies in both strategic and operational roles. He was most recently Director Licensing with Grünenthal.

Outlook

In terms of headwinds, the temporary absence of ImmuCyst will clearly be a constraint until it returns and we know that the Irish Government plans to enact legislation enabling generic substitution in the next few months that may increase the impact of competition on Nu-Seals. Against this, Hydromol is growing well and we are set to benefit from the upswing in sales of our cyclical toxicology product, which will be going through the peak of its replacement cycle over the next 12 months.

We have an attractive and robust portfolio, which, boosted by the product acquisitions we have made over the past 12 months, gives us plenty of scope for driving organic sales growth. We remain well placed to fund further acquisitions and we have broadened our search for targets to include opportunities on the Continent. We are confident that Alliance will continue to make solid progress.

Consolidated Income Statement

For the six months ended 30 June 2012

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2012

Consolidated balance sheet

At 30 June 2012

Consolidated Statement of Cash Flows

For the six months ended 30 June 2012

Consolidated Statement of Changes in Equity

At 30 June 2012

Notes to the interim report

For the six months ended 30 June 2012

1 Nature of operations

Alliance Pharma plc ("the Company") and its subsidiaries (together "the Group") acquire, market and distribute pharmaceutical products. The Company is a public limited company incorporated and domiciled in England. The address of its registered office is Avonbridge House, Bath Road, Chippenham, Wiltshire, SN15 2BB.

The Company is listed on the London Stock Exchange, Alternative Investment Market (AIM).

2 General information

The information in these financial statements does not constitute statutory accounts as defined in section 435 of the Companies Act 2006 and is un-audited. A copy of the statutory accounts for the period ended 31 December 2011, prepared under International Financial Reporting Standards, has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified.

The interim financial report for the six month period ended 30 June 2012 (including comparatives for the six months ended 30 June 2011) was approved by the Board of Directors on 11September 2012.

3 Accounting policies

The same accounting policies and methods of computation are followed in the interim financial report as published by the company in its 31 December 2011 Annual Report. The Annual report is available on the company's website at www.alliancepharma.co.uk.

4 Taxation

Analysis of charge in period.

5 Trade and other receivables

Notes to the interim report (continued)

For the six months ended 30 June 2012

6 Trade and other payables

7 Earnings per share (EPS)

Basic EPS is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares.

A reconciliation of the weighted average number of ordinary shares used in the measures is given below:

Notes to the interim report (continued)

For the six months ended 30 June 2012

7 Earnings per share (EPS) (continued)

The resulting EPS measures are:

8 Dividends

The proposed final dividend for the prior financial year was approved by the Board of Directors on 21 March 2012 and subsequently by the shareholders at the Annual General Meeting on 23 May 2012. The proposed dividend has been included as a liability as at 30June 2012 in accordance with IAS 10 Events After the Balance Sheet Date. The proposed final dividend for the prior financial year was paid on 12 July 2012 to shareholders who were on the register of members at 15 June 2012.

9 Post balance sheet events

The Group acquired the antimalarial brands Paludrine, Avloclor and Savarine from AstraZeneca UK Limited on 1 August 2012 for an initial consideration of £4.2 million, and may pay a further sum over the next three years, which is not expected to exceed £1.0 million, dependent on sales of the brands.

The initial consideration was funded from existing cash and bank facilities, including a £2 million drawdown from the Group's £20 million Revolving Credit Facility ("RCF"), and any deferred consideration will be funded from future cash generation.

The acquired products are sold mainly in the UK and France.

The Group expects the acquired products to generate incremental contribution before financing costs of approximately £1.1 million per annum.