Alliance Pharma Regulatory News (APH)

12 Sep 2007 07:01

Alliance Pharma PLC12 September 2007 For immediate release 12 September 2007 ALLIANCE PHARMA PLC ("Alliance Pharma" or "Alliance" or "the Company") Interim results for the six months ended 30 June 2007 Alliance Pharma plc (AIM:APH), an emerging speciality pharmaceutical company, ispleased to announce its interim results for the half year ended 30 June 2007. Highlights in the year to date • Strategy implemented to increase profitability and cash generation - costs reduced by more than £1 million annually with increased focus on trading business and reduced investment in development portfolio • Half-year sales of £7.8 million (H1 2006: £7.8m), constrained by temporary supply shortfalls but current trading is buoyant with sales in the three months June to August of £4.8 million • Half-year loss of £0.7 million, before reorganisation costs of £0.2 million, with action taken to restore profitability in the full year • Start of Forceval sales in China through new local joint venture • Successful completion of Phase III trial for Isprelor, with encouraging reaction from potential prescribers Commenting on the results, Michael Gatenby, Alliance Pharma's Chairman, said: "Sales in recent months have increased significantly after a disappointing salesperformance in the first half caused by temporary supply shortfalls, which arebeing resolved. Taking into account both current sales and the decisive actionon costs already taken this year, we are confident that profitability willimprove sharply in the second half enabling the Group to return to profit forthe full year." For further information:Alliance Pharma plc + 44 (0) 1249 466966John Dawson, Chief Executive Richard Wright, Finance Directorwww.alliancepharma.co.uk Buchanan Communications + 44 (0) 20 7466 5000Mark Court/Rebecca Skye Dietrich Numis Securities + 44 (0) 20 7260 1000David Poutney/Michael Meade Chairman's and Chief Executive's statement Demand for our products has continued to grow satisfactorily but short termsupply problems constrained sales of three products, costing us around £1m inturnover and resulting in disappointing sales performance and a trading loss inthe first half. We have taken action to restore supplies of the affectedproducts and return the business to profit for the full year. Morefundamentally, we have evolved our strategy to deliver a rapid increase inprofitability and cash generation. As a result, we expect to resume profitablegrowth in 2008 and beyond. Strategy At the start of the year we announced that one of our development products,Posidorm, was affected by a change in regulatory procedures which closed ourplanned route of obtaining UK registration as the first stage of the fullEuropean registration process. As a consequence, completion of the developmentwill take significantly longer and cost substantially more than originallyexpected. This has prompted a shift in our strategy to maximise short termprofitability. We are now seeking a co-development partner for Posidorm, toshare the final-stage investment costs. We are making encouraging progress withthis, and the product continues to offer the potential for a transformationalincrease in our revenues. However, we have suspended Posidorm development workuntil we have a partner in place, though Isprelor development continues. Given the deferral of prospective income from our development portfolio, and theimpact of the supply problems in the first half of 2007, we are increasing ourfocus on profitability and cash generation in the trading business. We haveimplemented a cost reduction programme involving a reduction in marketingexpenditure, rationalisation of our sales forces and a total of 11 redundanciesacross our operations. Our product acquisition strategy has been to seek out brands that come withestablished demand and cash flows. This means we are well placed to pursue salesgrowth for individual brands through distribution-type arrangements as analternative to direct investment in marketing. We have already agreed one such partnership deal in the UK, where we are workingwith Pharmexx, Europe's largest contract sales organisation, to develop newsales channels for two of our larger brands, Forceval and Hydromol. This ventureis a low-risk way for us to explore the over-the-counter potential of thesebrands. We are also looking to promote Periostat through distributors in the UK,along the lines that have worked successfully for us overseas. We continue to support products directly, but with a lower level of activity.While this may result in slower sales growth rates, it will immediately andsubstantially increase profits and cash generation. Financial performance During the first half we saw continued underlying growth in demand for ourproducts, but were frustrated by supply problems that prevented us from meetingthe full demand for three products. This cost us an estimated £1m of sales. As aresult, turnover totalled £7.8m, virtually unchanged on the same period in 2006.Periostat grew well and Hydromol sales were up significantly; we also received amodest contribution from the first sales of Forceval through a new joint venturein China. Gross margin rates were adversely affected by a combination of temporary events.The most significant of which was a 20% price reduction that was imposed onNu-Seals in the Republic of Ireland. We have successfully appealed against theprice reduction and it has been reversed from July. As a result we expectmargins to recover in the second half. Costs were well controlled, and were already running below last year's levelwhen we instigated our cost reduction programme. This programme will help tooffset the losses resulting from the supply shortfalls, but its main purpose isto drive the Group's profitability over the longer term. It is making us aslimmer, stronger business with overheads at a level that allows us to continueexploiting our markets successfully. The benefits will start to flow in thesecond half, enabling us to return the business to profitability for 2007 as awhole and reducing our costs by at least £1m a year from 2008 onwards. The reorganisation has already been completed, and has resulted in anexceptional charge of £0.2m to the first-half accounts. The trading loss for theperiod before the exceptional charge was £0.7m. Trading business The supply shortfalls affected three products: Deltacortil, Atarax and Forceval. Deltacortril, a product acquired in late 2006, experienced technical problems inthe process of being transferred from Pfizer to Alliance, despite extensivecooperation between the technical staff of Pfizer and our own contractmanufacturer. These problems are now resolved and, as production rates increase,we expect to meet demand in full from the start of 2008. Atarax was affected by a fire in March 2007 at the plant that supplies theactive ingredient. Production will not restart there until the beginning of2008. We have located an alternative source of supply, but this requires areformulation of the product. We are seeking the necessary regulatory clearance,and production of this alternative source is also expected to begin at the startof 2008. At present we are pursuing both options and rationing supplies of ourexisting stocks to support key customers. A third product, Forceval, was affected when suppliers stopped producing threekey ingredients without adequate warning. We had to ration deliveries whilearranging regulatory approvals for alternative supplies. Approvals were grantedin July and production is now meeting demand again. In the light of these events we have reviewed our supply management and enhancedour procedures to minimise the risk and impact of similar issues arising in thefuture. In 2004 we acquired the rights to sell Forceval everywhere except China. Througha new joint venture with Forceval's existing Chinese distributor, we acquiredthe Chinese rights in March this year and despatched our first shipments inApril. This arrangement enables us to retain the distributor's experience andmarket knowledge, and provides a platform with wider future potential. In July the Government announced that it plans to reopen discussions with theindustry over the Pharmaceutical Price Regulation Scheme (PPRS), despite havingagreed a five year deal only two years ago. It is unclear yet how the Governmentwill approach this, but if they adopt the value-based approach recommended bythe Office of Fair Trading, the impact of any price reductions could fall mainlyon in-patent brands, as opposed to the patent-expired brands that Allianceholds. Development brands Our development portfolio currently consists of two products: Isprelor, forinduction of labour, and Posidorm, our melatonin treatment for sleep disorders.Our investment in progressing these products has been significantly lower thisyear than in 2006. We are in substantive discussions with several potential partners for Posidorm'sfinal phases of development. Until these are complete, which may take some time,no further development is taking place. The final stages of development willtake about three years, once we have a partner. In July we announced that Isprelor had successfully completed Phase III clinicaltrials involving more than 600 women. As we expected, these showed that Ispreloris as effective as the current standard treatment, dinoprostone. Importantly, itis also less likely to cause nausea - a well known side effect of dinoprostone.In other respects it is as well tolerated as the standard treatment, and it hasthe advantage of not requiring refrigerated storage. The potential market for Isprelor is significant - induced labour is required inabout one in five pregnancies. Isprelor is a vaginal formulation of misoprostol:the Royal College of Obstetricians and Gynaecologists and other obstetriciansworldwide have been calling for such a formulation to be marketed because thereis growing unlicensed use of oral misoprostol tablets, which are officiallyapproved only for treating stomach ulcers. These positive results add impetus to our negotiations to outlicense Isprelor,and we are on track with our plans to file for European registration of theproduct in the second half of 2008. People Two directors stepped down at the AGM in May. Our Director of AcquisitionIntegration, Sam Madden, left as part of a long planned succession; and FinanceDirector Maddy Scott left for a new opportunity in the biotechnology sector. In January we appointed Mark Tomlinson, a highly experienced pharmaceuticalphysician with an international track record in clinical R&D and medicalaffairs, as Medical Director. He has joined the board as an Executive Directorand takes over Sam Madden's role as part of his responsibilities. As Maddy Scott's successor we appointed Richard Wright in June. He bringsconsiderable experience of quoted and private businesses across a variety ofsectors. He was previously Finance Director of Great Western Trains and GroupFinance Director and Company Secretary of Parragon Books, the world's largestnon-fiction publisher. Outlook Sales in recent months have increased significantly, with £4.8m recorded in thethree months June to August, aided by resolution of the Forceval supply issues.Taking into account both this and the decisive action on costs already takenthis year, we are confident that profitability will improve sharply in thesecond half - enabling the Group to return to profit for the full year. In 2008we expect profits to grow to a fundamentally higher level as the last of oursupply issues are resolved, delivering higher sales on a much reduced cost base. Michael GatenbyChairman John DawsonChief Executive 11 September 2007 Consolidated Income Statement For the six months ended 30 June 2007 6 months to 6 months to Year to 30 June 2007 30 June 2006 31 December 2006 Note £ 000s £ 000s £ 000s Revenue 7,751 7,801 17,253 Cost of sales (4,105) (3,658) (8,022) Gross profit 3,646 4,143 9,231 Operating expensesAdministration and marketing (2,945) (3,282) (6,629)expenseNon-recurring items (212) - - (3,157) (3,282) (6,629) Operating profit before 701 861 2,602non-recurring itemsNon-recurring items (212) - -Operating profit after 489 861 2,602non-recurring items Finance costsInterest paid (1,380) (1,068) (2,171)Interest received 43 10 16Other finance costs (70) (59) (65)Change in fair value of derivative 8 75 110financial instruments (1,399) (1,042) (2,110) (Loss)/profit on ordinary (910) (181) 492activities before taxation Taxation - 11 11 (Loss)/profit for the period (910) (170) 503attributable to equityshareholders Earnings per shareBasic (pence) 6 (0.56) (0.11) 0.32Diluted (pence) 6 (0.56) (0.11) 0.32 Consolidated balance sheet At 30 June 2007 30 June 2007 30 June 2006 31 December 2006 Note £ 000s £ 000s £ 000s AssetsNon-current assetsGoodwill 1,129 1,129 1,129Intangible fixed assets- Product licences 35,439 29,140 33,316- Development costs 5,418 3,856 5,017Property, plant and equipment 291 256 297 42,277 34,381 39,759 Current assetsInventories 2,595 2,537 2,852Trade and other receivables 4 3,901 3,015 5,224 6,496 5,552 8,076 Total assets 48,773 39,933 47,835 EquityOrdinary share capital 1,621 1,621 1,621Share premium account 11,275 11,285 11,275Share option reserve 80 46 65Reverse takeover reserve (329) (329) (329)Retained earnings (3,110) (2,872) (2,200)Total equity 9,537 9,751 10,432 LiabilitiesNon-currentLong-term financial 22,393 16,011 18,452liabilitiesConvertible debt 7,230 7,188 7,209Other liabilities 919 179 940 30,542 23,378 26,601Current liabilitiesCash and cash equivalents 3,451 688 2,607Financial liabilities 771 3,391 3,031Trade and other payables and 5 4,472 2,725 5,164provisions 8,694 6,804 10,802 Total liabilities 39,236 30,182 37,403 Total equity and liabilities 48,773 39,933 47,835 Consolidated Statement of Cash Flows For the six months ended 30 June 2007 6 months to 6 months to Year to 30 June 2007 30 June 2006 31 December 2006 £ 000s £ 000s £ 000s Operating activitiesResult for the period before 489 861 2,602tax and finance costsDepreciation of property, 67 56 112plant and equipmentChange in inventories 257 212 (112)Change in trade and other 1,352 48 (2,189)receivablesChange in trade and other (688) (1,602) 675payablesProfit on disposal of - (11)property, plant and equipment -Tax received/(paid) - 11 11Share options charges 15 15 34Cash flows from operating 1,492 (399) 1,122activities Investing activitiesInterest received 9 10 17Payment of deferred (20) - (20)considerationDevelopment costs capitalised (401) (781) (1,941)Purchase of tangible assets (62) (32) (129)Investment in subsidaries - (254) -Proceeds from sales of - - 12property, plant and equipmentPurchase of other intangible (2,122) (3,378) (6,815)assetsNet cash used in investing (2,596) (4,435) (8,876)activities Financing activitiesNet proceeds from the issue of - 2,401 2,391sharesInterest paid and similar (1,431) (1,149) (2,165)chargesOther finance charges paid (255) - (1)Net receipt from borrowings 1,950 3,800 6,536Repayment of borrowings - - (704)Finance lease payments (4) (7) (11)Net cash used in financing 260 5,045 6,046activities Net movement in cash and cash (844) 211 (1,708)equivalentsCash and cash equivalents at 1 (2,607) (899) (899)January 2006 Cash and cash equivalents at (3,451) (688) (2,607)30 June 2006 Consolidated Statement of Changes in EquityAt 30 June 2007 Share Share Shares to Retained Total capital premium be issued Reserves earnings equity £ 000s £ 000s £ 000s £ 000s £ 000s £ 000s Balance 1 1,474 9,031 31 (329) (2,702) 7,505January 2006 Issue of 147 - - - - 147sharesPremium on - 2,254 - - - 2,254sharesissuedEmployee - - 15 - - 15benefits Profit for - - - - (170) (170)the period Balance 30 1,621 11,285 46 (329) (2,872) 9,751June 2006 Balance 1 1,474 9,031 31 (329) (2,702) 7,505January 2006 Issue of 147 - - - - 147sharesPremium on - 2,244 - - - 2,244sharesissuedEmployee - - 34 - - 34benefitsProfit for - - - - 502 502the period Balance 31 1,621 11,275 65 (329) (2,200) 10,432December2006 Balance 1 1,621 11,275 65 (329) (2,200) 10,432January 2007 Employee - - 15 - - 15benefitsLoss for the - - - - (910) (910)period Balance 30 1,621 11,275 80 (329) (3,110) 9,537June 2007 Notes to the interim report For the six months ended 30 June 2007 1 Nature of operations Alliance Pharma plc ("the Company") and its subsidiaries (together 'the Group')develop, market and distribute pharmaceutical products. The company is a publiclimited company incorporated and domiciled in England. The address of itsregistered office is Avonbridge House, Bath Road, Chippenham, Wiltshire, SN152BB. The company is listed on the AIM exchange 2 General information The information in these financial statements does not constitute statutoryaccounts as defined in section 240 of the Companies Act 1985. A copy of thestatutory accounts for the period ended 31 December 2006, prepared underInternational Financial Reporting Standards, has been delivered to the Registrarof Companies. The auditors' report on those accounts was unqualified. The interim financial report for the six month period ended 30 June 2007(including comparatives for the six months ended 30 June 2006) were approved bythe board of directors on 11 September 2007. 3 Accounting policies The interim financial report has been prepared in accordance with InternationalAccounting Standard 34 Interim Financial Reporting The same accounting policies and methods of computation are followed in theinterim financial report as published by the company in its 31 December 2006Annual Report which is available on the company's website atwww.alliancepharma.co.uk. 4 Trade and other receivables 30 June 2007 30 June 2006 31 December 2006 £ 000s £ 000s £ 000s Trade receivables 3,379 2,796 4,670Amounts owed by joint 54 - -ventureOther receivables 83 72 105Prepayments and accrued 385 147 449income 3,901 3,015 5,224 Notes to the interim report (continued) For the six months ended 30 June 2007 5 Trade and other payables 30 June 2007 30 June 2006 31 December 2006 £ 000s £ 000s £ 000s Trade payables 2,862 2,017 3,298Other taxes and social 393 136 496security costsAccruals and deferred 997 572 1,150incomeOther payables 220 220 4,472 2,725 5,164 6 Earnings per share Basic earning per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the period. For diluted earnings per share, the weightedaverage number of ordinary shares in issue is adjusted to assume conversation ofall dilutive potential shares. The group has two categories of dilutivepotential ordinary shares: share options granted to directors and employees andconvertible unsecured loan stock. For employee share options a calculation isdone to determine the number of shares that could have been acquired at fairvalue (determined as the average annual market share price of the Company'sshares) based on the monetary value of the subscription rights attached tooutstanding share options. The number of shares calculated as above is comparedwith the number of shares that would have been issued assuming the exercise ofthe share options. The convertible unsecured loan stock is convertible intoordinary shares at any time between the date of issue and 30 November 2013,unconditionally and at the option of the note holder. The conversion rate is£4.7619 nominal of Ordinary share capital for every £100 nominal of loan stock.These could potentially dilute the earnings per share into the future, but werenot included in the calculation of diluted earnings per share because they areanti-dilutive for the periods presented. 6 months to 6 months to Year ended 30 June 2007 30 June 2006 31 December 2006 Weighted Weighted Weighted average average average number number of number of of shares 000s shares 000s shares 000sFor basic earnings per 162,062 151,114 156,663shareExercise of options 156 210 35For diluted earnings per 162,218 151,324 156,698share 6 months to 6 months to Year ended 30 June 2007 30 June 2006 31 December 2006 £ 000s £ 000s £ 000s Basic (loss)/profit (910) (170) 503For diluted earnings per (910) (170) 503share Basic earning per share (0.56) (0.11) 0.32(pence)Diluted earnings per (0.56) (0.11) 0.32share (pence) Notes to the interim report (continued) For the six months ended 30 June 2007 7 Joint Venture Name Principal Activity Country of % Owned Incorporation Unigreg Ltd Distribution of British 60.0 pharmaceutical Virgin products Islands The Group considered the existence of substantive participating rights held by theminorityshareholder which provide that shareholder with a veto right overthe significant financialand operating policies of Unigreg Ltd and determined that, as aresult of these rights, theGroup does not have control over the financial and operating policies of UnigregLtd, despitethe Group's 60% ownershipinterest. The company is integrated with proportionate consolidation. The following amountsare included in the balancesheet and the profit and loss account of the Group, being the Group's share ofthose items.Inter-company transactions are also eliminatedproportionally. 30 June 2007 £ 000s Intangible fixed assets 1,950Current assets 219Non-current liabilities 1,463Current liabilities 183Net assets 523 6 months to 30 June 2007 Income 219Cost of sales 120Administration and marketing 33expenseInterest paid 30Profit on ordinary activities 36before taxation This information is provided by RNS The company news service from the London Stock Exchange