Alliance Pharma Regulatory News (APH)

ALLIANCE PHARMA PLC

("Alliance" or the "Company")

Interim Results for the six months ended 30 June 2013

Alliance Pharma plc(AIM: APH), the speciality pharmaceutical company, is pleased to announce its interim results for the six months ended 30 June 2013.

Highlights of the year to date:

• Half year sales up 4% to £22.8m (H1 2012: £22.0m)

• Hydromol™ continues to grow well - now a £5m brand

• Launch of MolluDab™ - an exciting new treatment for molluscum contagiosum

• Half year profit before tax up 29% to £6.8m (H1 2012: £5.3m)

• Basic earnings per share for the half year up 23% to 2.22p (H1 2012: 1.80p)

• Interim dividend up 10% to 0.303p per share (H1 2012: 0.275p)

• Net bank debt £26.6m (31 December 2012: £21.8m)

• Gearing modest with net bank debt : EBITDA at 1.5 times*

• Acquisition of international SyntometrineTM rights from Novartis in June 2013

*Including pro forma EBITDA from acquisitions

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

"The strong start to 2013 augurs well for meeting full year expectations. We are energetically pursuing additional growth through further acquisitions, supported by strong UK and international teams, a good flow of opportunities, healthy cash flow and ample headroom in our funding facilities."

For further information:

Chairman's and Chief Executive's Statement

Alliance made encouraging progress in the first half of 2013 as sales growth continued and profits advanced strongly. This was a significant achievement, given the continuing unavailability of the ImmuCyst™ bladder cancer treatment.

Turnover was boosted by our cyclical toxicology product, which reached the peak of its sales cycle during the first half, and by the acquisitions made in the second half of 2012. Together with growth in our existing portfolio, these more than offset the temporary loss of ImmuCyst and a decline in sales in Ireland of our Nu-Seals™ enteric-coated low-dose aspirin.

Our performance is not likely to be quite as strong in the second half as the toxicology product sales pass their cyclical peak. However, we will gain an additional contribution from Syntometrine™, the obstetric drug to which we acquired international rights in June 2013.

Trading and financial performance

Pre-tax profit was up 29% to £6.8m (H1 2012: £5.3m), on sales that rose 4% to £22.8m (H1 2012: £22.0m).

First-half sales were buoyed by our cyclical toxicology product, which reached the peak of its 30-month sales cycle. Sales reached £3.2m in the first half, but are set to be significantly lower in the second half of 2013 and through 2014.

Our Hydromol dermatology range maintained its double-digit growth, with annualised sales up 23%. The brand continued to gain share in a growth market and annualised sales of Hydromol now exceed £5.0m.

The Opus Group stoma care business, acquired in October 2012, made a substantial contribution to sales, as expected, at £2.0m.

Gelclair™, acquired alongside ImmuCyst and also promoted by the secondary care team, has continued to maintain growth. Annualised sales of this oral mucositis treatment have passed £1m and are growing at approximately 10% per annum.

Our Nu-Seals™ enteric-coated low-dose aspirin, sold mainly in the Irish Republic, continued to suffer from the arrival of generic competitors, with sales reducing to £1.6m (H1 2012: £2.1m). But the sales decline was slower than we had been expecting, as a result of the time it took to enact the reference pricing and generic substitution legislation. The full impact will now probably not be felt until sometime in 2014; in the meantime, our efforts to maintain relationships with pharmacists through a contracted sales force appear to be slowing the attrition in sales.

Sales of Ashton & Parsons Infants' Powders have been limited by production constraints, as we cautioned at the time of acquisition in 2011. New production capacity is expected to be coming on stream over the next couple of months, and as output rises in the fourth quarter we will be able to start realising the product's full sales potential.

The hand-back of nine products that we have been distributing for Novartis, which was originally planned for the start of 2013, is being phased through this year. These products have in the past contributed around £0.5m gross margin per annum.

Sales of the ImmuCyst bladder cancer treatment have been suspended while Sanofi Pasteur addresses regulatory issues at its manufacturing facility. As highlighted in our half year trading update, we currently expect to bring the product back to market in the second half of 2014. However, rebuilding sales will take some time as we will have to regain market share.

In the UK our marketing investment has been relatively stable over the past couple of years. Over time we anticipate some increase in spend to support several consumer products acquired in recent years that have potential to reward marketing investment. These include QuinodermTM, an acne skincare product, and MolluDab, a treatment for the highly infectious skin condition molluscum contagiosum. We acquired the rights to launch MolluDab as part of our acquisition from Beacon Pharmaceuticals in 2011 and have brought the product to the market in the first half of this year. This product is in a niche market, but we are hopeful that it will gain a good share of that market.

In China, the in-market sales of Forceval™ have reduced due to strong competition in the marketplace. As a result, our distributor in China has been left with high inventory levels, leading in turn to a very low level of orders from the distributor this year. We are working with the distributor to address the situation.

The strong profit performance reflected short-term changes in the product mix that temporarily lifted the gross margin rate during the period to 61.9%.

Operating costs were £6.5m, or 28.7% of sales. This is virtually unchanged from the 28.5% for the year ended December 2012 despite continuing investment in establishing our French and German presence, and some staffing increases to support the growth in our product portfolio.

Finance costs have remained at £0.7m. Strong cash generation enables us to keep investing in acquisitions without increasing debt unduly: in the first half, net debt rose only £4.8m to £26.6m despite spending £8.2m on acquisitions.

The ratio of bank debt to EBITDA (including pro forma EBITDA from acquisitions) remains modest at 1.5 times (FY 2012: 1.3 times). Interest cover is very comfortable at 11.7 times.

The convertible loan stock continues to be converted to equity, ahead of the November 2013 maturity date. The amount of outstanding stock fell from £4.2m to £2.7m over the period. The steady pace of conversion over the past couple of years has helped to minimise the impact of conversions on equity investors.

Dividend

We are maintaining our progressive dividend policy with an interim payment of 0.303p per ordinary share. This provides an increase of 10% on last year's figure while remaining well covered by profits. The interim dividend will be paid on 15 January 2014 to shareholders on the register on 6 December 2013.

Strategy

Our business model has been based for many years on acquiring and licensing established products with stable sales in niche areas with limited or no competition. Most of these have required little or no promotional support. The range and mix of products has gradually broadened over the years beyond this bedrock. For example, around one quarter of sales are now over-the-counter, and these products typically require some modest marketing cost but offer the potential of organic growth.

We continue to have two UK field forces, one focused on dermatology and the other focused on specialist hospital products, and have scope for economies of scale when we bring in products that these teams can promote alongside the existing ones, such as the dermatology team working on MolluDab.

We currently generate just under a fifth of our sales outside the UK. In 2012 we launched a strategy to increase the flow of acquisition opportunities by more actively searching beyond the UK, particularly in Western Europe. Most of our existing products offer limited opportunities for expanding international sales, so our international strategy is to replicate the successful UK model by acquiring established products in overseas markets.

In 2012 we appointed Country Managers in France and Germany to drive the acquisition and development of product portfolios in Western Europe. We also acquired the antimalarial brands Paludrine™, Avloclor™ and Savarine™, which are sold mainly in the UK and France. This has enabled us to begin sales in France. We have been able to attract a very encouraging flow of acquisition opportunities through our new Country Managers and are hopeful of completing further European acquisitions in the near future.

We remain alert to attractive opportunities beyond Europe, and in June 2013 we acquired from Novartis the international rights to Syntometrine, an obstetric drug to which we already own the UK rights. Overseas sales in countries including Australia, South Africa, Malaysia and New Zealand have been generating annual gross margin of some US$2.8m. Although we expect the addition of these new territories to increase our annual distribution and operating costs by around £0.5m per annum, the acquisition is immediately earnings enhancing. And the extension of our international distribution footprint creates new opportunities to make acquisitions with potential for internationalisation.

Team

In August 2013 we welcomed Stephen Kidner as Operations Director. This new role reflects the continuing growth of the business and our determination to optimise efficiency and cash generation. Stephen brings over 20 years' pharmaceutical industry experience spanning product development, production and supply at companies including Wyeth and Mundipharma International.

Outlook

The strong start to 2013 augurs well for meeting full year expectations albeit that, with lower sales of the cyclical toxicology product, the second half is unlikely to be quite as strong.

We await details of the industry's new five-year pricing agreement with the UK government, effective from January 2014. This is likely to have some impact on pricing, but now affects less than a half of our total sales.

Also in 2014 we expect to benefit from continued growth in our existing portfolio, the full year impact of the Syntometrine acquisition, and the return to the market of ImmuCyst. However we are expecting the new legislation on reference pricing and generic substitution in Ireland to impact Nu-Seals sales and our toxicology product will be in its cyclical downswing. We are energetically pursuing additional growth through further acquisitions, supported by strong UK and international teams, a good flow of opportunities, healthy cash flow and ample headroom in our funding facilities.

Consolidated Income Statement

For the six months ended 30 June 2013

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2013

Consolidated Balance Sheet

At 30 June 2013

Consolidated Statement of Cash Flows

For the six months ended 30 June 2013

Consolidated Statement of Changes in Equity

At 30 June 2013

Notes to the Half Yearly Report

For the six months ended 30 June 2013

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 434 of the Companies Act 2006 and is un-audited. A copy of the Group's statutory accounts for the period ended 31 December 2012, prepared under International Financial Reporting Standards as adopted by the European Union, has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain statements under section 498(2) or section 498(3) of the Companies Act 2006.

The interim financial report for the six month period ended 30 June 2013 (including comparatives for the six months ended 30 June 2012) was approved by the Board of Directors on 10 September 2013.

The current rate of cash generation by the Group comfortably exceeds the capital and debt servicing needs of the business (though there cannot, of course, be absolute certainty that the rate of cash generation will be maintained). The Board remains confident that all the bank covenants will continue to be met. The Group has an £8m Working Capital Facility which is largely undrawn and which the Board believes should comfortably satisfy the Group's working capital needs for at least the next 12 months.

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 2012 Annual Report. The Annual report is available on the company's website at www.alliancepharma.co.uk.

4 Taxation

Analysis of charge in period.

Notes to the Half Yearly Report (continued)

For the six months ended 30 June 2013

5. Intangible assets

On 6 June 2013, the Group acquired all of the existing rights to SyntometrineTM from Novartis AG and Novartis Pharma AG (together "Novartis") for cash consideration of US$11.5 million (£7.5 million).

6 Trade and other receivables

7 Trade and other payables

Notes to the Half Yearly Report (continued)

For the six months ended 30 June 2013

8 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:

The resulting EPS measures are:

Notes to the Half Yearly Report (continued)

For the six months ended 30 June 2013

9 Dividends

The proposed final dividend for the prior financial year was approved by the Board of Directors on 20 March 2013 and subsequently by the shareholders at the Annual General Meeting on 22 May 2013. The proposed dividend has been included as a liability as at 30 June 2013 in accordance with IAS 10 Events After the Balance Sheet Date. The proposed final dividend for the prior financial year was paid on 11 July 2013 to shareholders who were on the register of members at 14 June 2013.