Alliance Pharma Regulatory News (APH)

12 May 2005 07:01

Alliance Pharma PLC12 May 2005 For Immediate Release 12 May 2005 ALLIANCE PHARMA PLC ("Alliance Pharma" or "the Company") Preliminary Results for the year ended 28 February 2005 Alliance Pharma plc (AIM: APH), an emerging speciality pharmaceutical company,is pleased to announce its preliminary results for the year ended 28 February2005. These are the Company's first full year results as a listed company,following the Company's admission to AIM in December 2003. Financial Highlights • Turnover increased 13% to £11.8 million (2004: £10.4m) - the full year impact of two product acquisitions in November 2004, Periostat(R) and Forceval(R), would show an annualised turnover of £15m • Gross margin improved to 52.4% (2004: 48.4%) • Adjusted EBAT (earnings before exceptional items, amortisation and tax) of £0.645 million (2004: £1.21m) - the decrease largely reflecting the investment in infrastructure and the marketing expenditure associated with current and pipeline products • Profit before tax of £0.418 million (2004: loss of £2.15m) • Operating cashflow remains strong at £1.59 million (2004: £2.11m) • Adjusted earnings per share 0.52p (2004: 1.18p) • Basic earnings per share 0.34p (2004: loss per share of 2.44p) Operational Highlights • Continued strong sales growth of Symmetrel(R)and Nu-Seals(R) • Acquisition of Periostat and Forceval in November 2004 • Regulatory approval anticipated imminently to begin clinical trials of Posidorm(TM), melatonin in sleep disorders • Start of Phase III clinical trials in January 2005 of APL 202 misoprostol for the induction of labour • Launch of International division to drive overseas sales through out-licensing and distributors • Co-promotion agreement signed with OralDent Ltd for the UK marketing and distribution of Periostat(R), a prescription medicine for the treatment of the severe gum disease periodontitis Commenting on the results, John Dawson, Alliance Pharma's Chief Executive, said:"These results underline the robustness of Alliance Pharma's business model, inwhich the cashflow from our marketed products supports the development of ourclinical pipeline. We will shortly commence the trial programme leading toregistration for our product Posidorm(TM) for sleep disorders, which seeks toaddress a market that is currently at £0.5bn but which is expected to treble inthe next decade." For further information: Alliance Pharma plc + 44 (0) 1249 466966John Dawson, Chief ExecutiveMaddy Scott, Finance Directorwww.alliancepharma.co.uk Buchanan Communications + 44 (0) 20 7466 5000Mark Court/Lisa Baderoon/Rebecca Skye Dietrich Notes to editors About Alliance Pharma Alliance Pharma, founded in 1996, is an AIM listed emerging specialitypharmaceutical company based in Chippenham, Wiltshire, UK. The company has astrong track record of acquiring the rights to established niche brands andowns, or shares, the rights to 30 branded pharmaceutical products and continuesto explore opportunities to expand the range. Alliance Pharma's products are prescribed in the treatment of a wide range ofconditions and include brands used in periodontitis, a gum disease, theprevention of heart disease, in Parkinson's disease, in nutrition, in nasalinfections, in the treatment of dermatological conditions and in childbirth. Alliance Pharma's sales are mainly prescription driven. Its products aredistributed to hospitals directly and to pharmaceutical wholesalers whichservice both hospital and retail pharmacies with their prescriptionrequirements. Alliance Pharma is also developing novel products for sleep disorders and theinduction of labour. Alliance Pharma joined the AIM market of the London Stock Exchange in December2003 and trades under the symbol APH. Chairman's Statement This is Alliance Pharma's first full year's accounts as a publicly listedcompany and show a purposeful continuation of the broad strategy we outlined atthe time of our obtaining a listing, namely: • Obtaining turnover, margin and cashflow from a portfolio of mature branded pharmaceutical products and investing further in the marketing and promotion of those products judged to have real potential for growth • Taking our two current clinical development projects towards commercialisation and • A continuing evaluation of opportunities arising from the wider rationalisation of the pharmaceutical industry, with a view to acquiring additional branded products and/or development opportunities that fall within our chosen area of expertise and investment criteria The year's results show our moving forward in all aspects of the strategy.During the year to February 2005, sales from our existing portfolio grew some7%, on a like for like basis, with good gross margin improvement mainly arisingfrom our promoted brands Nu-Seals(R) and Symmetrel(R). During the year weacquired Forceval(R), a prescription multi-vitamin, and Periostat(R), atreatment for periodontitis. Both contributed to the overall sales and grossmargin increase during the year but, more importantly, looking to the future,offer good potential for further growth in the UK and in overseas territorieswhere we have also acquired distribution rights. Further, through theacquisition of Periostat we have entered the substantial dental market and havealready taken additional steps to widen our involvement in it. The work programme for our two key clinical development projects - Posidorm(TM),melatonin for sleep disorders, and APL 202, misoprostrol for labour induction -has begun in earnest. The trials programmes have been established and necessarypre-marketing expenditure incurred, all within a carefully planned and costedframework. When completed these projects have the potential to transform thebusiness. Trading profit, at £0.645m (before exceptional items) was lower than last yearbut this was expected as it largely resulted from the continuing marketingexpenditure on our promoted brands and the pre-marketing expenditure for ourdevelopment projects. Both these categories of cost are, in reality, aninvestment in the future. Additionally the 7% price reduction under the 2005PPRS settlement cost us £155,000 from December 2004 to February 2005. Taking a wider look at our financial position, the benefits of our AIM listingare clear. During the year we were able to raise some £4.2m through the issueof new shares, to be used towards the cost of the Forceval and Periostatacquisitions with the balance of the consideration being provided by a new loanfacility. Having wider potential access to capital has enabled us to continuework on our development projects. The year has also seen necessary changes in our organisation. The team led byJohn Dawson has grown from 13 to 21, which, while still relatively small, canoperate in a more structured way with clear lines of responsibility and profitaccountability on a business unit basis. All in all, this has been a year of solid achievement on which we will continueto build for the future. Our brand and product development projects haveclearly established programmes for the coming year, while we continue to bealert to identify new opportunities. Based on the experience of the earlymonths of the current year, trading results continue to be satisfactory. Michael R B GatenbyChairman12 May 2005 Chief Executive's Review Strategic Overview In the year ended February 2005, tremendous progress on the growth of Alliancehas been made on many fronts. We have moved our two development projects -Posidorm(TM), melatonin for sleep disorders, and APL 202, misoprostol forinduction of labour - further down the path towards marketing; we have acquireda major growth opportunity in Periostat for periodontitis; we have acquired asignificant and respected cash-generative brand in the prescriptionmultivitamin, Forceval; we have made considerable development to the operationalteam; and via the acquisitions of Periostat and Forceval we now haveinternational opportunities beyond our historical territories of the UK andIreland. Progress in 2004 Sales development Sales for the year grew by £1.4m or 13.5%; 6.8% being like-for-like, principallyfrom Nu-Seals(R) and Symmetrel(R), and 6.7% through the acquisitions ofPeriostat(R) and Forceval(R) in November 2004. UK sales were affected by the 7%PPRS price decrease, which became effective from January 2005. Although thisanticipated price decrease was significant, it does mean that in the UK, forbranded prescription medicines, there is price stability going forward for fiveyears. Nu-Seals, our low-dose enteric-coated aspirin for the prevention of heartattacks and strokes, continues to grow well (17%) in Ireland, where there ismuch emphasis on reducing cardiovascular disease. Symmetrel, our product for treating dyskinesias, which are large involuntarymovements associated with Parkinson's disease, experienced growth of 18% as ourUK hospital field force established itself. In the other area where we have been placing promotional effort, the group offour dermatology brands that we acquired from Dermapharm Ltd in February 2004,growth was 15%. Financial Performance As had been forecast, profitability reduced as we invested in the UK hospitalfield force and in pre-marketing activities for our two development projects.Before exceptional items, amortisation and tax, profits were £0.645m, comparedwith £1.210m in the prior year (a reconciliation of these numbers is in theFinancial Review). Following our reassessment of the useful economic lives of our intangible fixedassets to indefinite, the brands we have acquired over the past six years weresubjected to a full impairment review. This review concluded that the value ofthese intangible assets has not been impaired since acquisition and supports ourlong-standing practice of judging our trading profit before amortisation. Goingforward our previous practice of amortising our brands over 20 years will bereplaced by an annual impairment review. Development pipeline Our largest development opportunity is Posidorm(TM) for sleep disorders.Melatonin is the body's natural hormone for regulating the sleep/wake cycle.When given therapeutically it can alleviate several sleep disorders connectedwith melatonin imbalance. These are found in the elderly; in patients withneurological damage; in the blind; in shiftworkers; and in travelling acrosstime-zones. Although not yet registered, UK prescribing of melatonin on a namedpatient basis supplied by other companies is estimated to be worth between £5mand £6m. We are developing Posidorm(TM) for registration across the EU, initially in theindications of sleep disorders associated with shiftworking and in the elderly,where market research has shown that doctors recognise sleep disorders in theelderly as a major problem and would welcome the opportunity to wean theirpatients off the long-term usage of existing hypnotic drugs. Overall the market for products for sleep disorders across the EU is currentlyworth £500m (IMS data) and is forecast to treble in the next decade (ESPICOMresearch). Hypothetically, if every patient in the EU suffering from the twosleep disorders addressed by our clinical developments were to receive melatonintherapy, the market would be in excess of £2bn. We intend to expand our ownsales forces in the UK and Ireland for the launch and marketing of Posidorm(TM).On the Continent we intend to commercialise the opportunity via out-licensingagreements. We have successfully developed an advanced, surge-sustained tablet formulationthat has performed well in the pharmacokinetic trials. Approvals are expectedto be received imminently for the commencement of the clinical trials programme,which leads to product registration. The trials will start during this currentquarter of Q2 2005 and a registration application is expected during the secondhalf of 2006. Since melatonin has not been previously registered in the EU, weanticipate that we shall gain data exclusivity, thus preventing genericcompanies from cross-referencing our data for a period of ten years. Our second development is APL 202, a vaginal tablet of misoprostol for theinduction of labour, to be used when pregnancy has progressed beyond its term. The use of misoprostol for the induction of labour has been well researched overthe past decade and is well known as a treatment option to obstetricians.Several clinical trials have shown misoprostol to yield more reliable resultsthan the current market leader in this area. However there is no suitable formof misoprostol on the market for this indication and indeed in 2002 the RoyalCollege of Obstetricians and Gynaecologists called for an obstetric form to bedeveloped. Across the EU it is estimated that there are over 700,000 induced births peryear and the existing market for induction agents is £13m per annum. We intendto market APL 202 via our existing field forces in the UK and Ireland and toseek marketing and distribution partners on the Continent. Our clinical trials programme started in January 2005 and we expect to besubmitting for registration around the end of this year. Acquisitions Last November we made two important brand acquisitions, namely, Periostat(doxycycline 20mg) for periodontitis, which we acquired from CollaGenex Inc for$3.3m, and Forceval, a prescription multi-vitamin/multi-mineral product forclinical malnutrition, which we acquired from the Administrators of Unigreg Ltdfor £7m. Periodontitis is a severe form of gum disease in which openings or pocketsdevelop between the tooth and the gum, leading to abscesses, tooth sensitivity,tooth mobility and ultimately tooth loss. It is estimated to affect 11% of theadult population in the UK. Whilst the disease process starts off as abackground infection, it is exacerbated by the body producing an excess of theenzyme collagenase, which destroys the supporting structures which hold theaffected tooth in place. Left unchecked, periodontitis often leads to the lossof otherwise healthy teeth. Traditional treatment involves extensive cleaningof plaque and debris by an intensive procedure known as scaling and rootplaning, sometimes in conjunction with short-term antibiotics, and coaching thepatient to improve his or her oral hygiene. Periostat enhances traditionaltreatment by suppressing the collagenase enzyme that is destroying the dentalsupport structures, thus facilitating the closing of the gum pockets andaccelerating the healing process. Periostat was introduced into the UK dentalmarket three years ago, but has received minimal promotion and its UK sales arejust under £300,000. However, in the US, where CollaGenex has marketed theproduct effectively, sales have reached $45m after five years. Following ourco-promotion agreement with OralDent Ltd, from May 2005 we now have an effectivedental marketing operation in the UK from which to develop the brand.Additionally we have, as territories to develop, the rest of the enlarged EUplus Switzerland, Israel, Australia, New Zealand and South Africa. Through theacquisition of Periostat, we feel we have secured a very significant growthopportunity. The acquisition of Forceval, and other minor brands from Unigreg Ltd, with salesof £2.8m, adds to the portfolio an established, profitable brand which, in termsof sales and profits, will rank second to Nu-Seals. The international sales ofForceval, which amount to around £0.8m, arise from only ten territories. Wehave acquired the rights to all territories apart from China and therefore,working via new distributors in new territories, some growth in internationalsales can be expected. Organisation In December 2004, our UK hospital sales force, which was set up in December 2003on an out-sourced basis, was brought onto our payroll, having established itselfas an effective operation. It is currently promoting Symmetrel to neurologistsand care-of-the-elderly physicians and our dermatology range to dermatologists.During the coming year it will start to establish relationships withobstetricians in preparation for the launch of APL 202 misoprostol in 2006. During the year we have also made measured investments in infrastructure todrive the future growth of the business. We have added depth to our ScientificAffairs area in order to manage the development of the new products Posidorm(TM)and APL 202. Following the acquisition of Periostat, we have recruited anexperienced dental industry executive to head up the new Dental Productsbusiness unit and also an experienced international manager to drive theinternational opportunities of Periostat and Forceval. To optimise the management of our expanded portfolio and to prepare for theintroductions of Posidorm(TM) and APL 202, during the year we instituted abusiness unit structure, placing responsibility for operational profitabilitywith the business unit manager. Looking Forward We can expect continued incremental growth from Nu-Seals, Symmetrel and ourdermatology range. The launch of APL 202 for induction of labour, anticipatedin 2006, will bring moderate, but nevertheless significant, growth. However thereal opportunities for transformational growth are from Periostat inperiodontitis and Posidorm(TM) in sleep disorders, following its expectedintroduction in 2007. With the management now in place and a co-promotional partner now on board,growth in Periostat is expected to commence in the second half of this year. For Posidorm(TM), aside from the obvious completion of the developmentprogramme, the key factors affecting success will be concerned with the qualityof our pre-marketing and our selection of the right marketing partner for theContinent. Resources and effort going into these factors are of a top priority. We will continue to build the financial base of the company by furtheracquisitions of cash-generative brands when the right opportunities arise. Ourtrack record of eight transactions in six years demonstrates our ability to findand execute these deals; our recent impairment review showing zero impairment ofthe assets acquired demonstrates our ability to screen and select the best ofthe opportunities on offer. The climate for portfolio rationalisation amongstbig pharma continues to be favourable and therefore we anticipate that furthergood opportunities will present themselves. Our practice of leveraging thefresh equity going into each transaction with an appropriate amount of debtoptimises the longer-term shareholder return. Overall trading so far this year is in line with the expectation set followingour acquisition of Periostat and Forceval in November 2004. Finally we look forward to the future with the increased confidence that isdrawn from the quality of the team we are building. The high quality and bigpharma backgrounds of our senior team have often been commented upon. Byselective recruitment and development we are now putting the necessary depthinto the organisation. John DawsonChief Executive12 May 2005 Financial ReviewKey Figures 2005 2004 % IncreaseTurnover £11.826m £10.416m 13.5%Gross Profit £6.201m £5.039mGross Margin % 52.4% 48.4%Operating Expenses £3.930m £4.335m (10.3)%Interest charges (excl other finance chgs) £1.661m £1.502m 10.6%Adjusted EBAT (earnings before amortisation, tax, £0.645m £1.210m (46.7)%exceptional project costs and finance charges - asreconciled below)Profit/(loss) before tax £0.418m £(2.153m) -Net assets £6.824m £2.224m -Basic earnings per share 0.34p (2.44p) 113.9%Adjusted earnings per share 0.52p 1.18p (55.9)% Turnover The turnover for the year increased 13.5% to £11.8m from £10.4m. Of this 6.8%was a like for like increase on the previous year with the remaining 6.7% beingdue to the acquisition of the product licences for Periostat and Forceval inNovember 2004. The impact of these acquisitions was an increase in turnover of£0.7m and gross margin of 1.3%. The full year impact of these acquisitions would show an annualised turnover of£15.0m. Gross Profit The 4.0% improvement in gross margin from 48.4% to 52.4% was partly due to thefull year impact of the improvements in cost of goods made on the acquisition ofNu-Seals in 2002 and partly due to the acquisitions of Periostat and Forceval.The running rate of gross margin would be 54.5% for a full year impact of theacquisitions. Operating Expenses During the year a thorough review of the useful economic lives of all intangibleassets was made, the result being that this was determined to be indefinite andas such no amortisation has been charged during the year. Therefore the prioryear operating expenses figure should be restated to remove amortisation of£1.750m, (brand amortisation accounted for £0.907m whilst reverse takeovergoodwill was £0.843m) to show a like for like comparison of £2.585m. There wassignificant investment in the future growth of the company made through theoperating expenses, of which an additional £0.800m was due to sales andmarketing expenses for the promotions of our UK hospital products and the earlymarketing activities for the development of APL202 misoprostol and APL510melatonin. The remaining increase is due to the investment in the infrastructureof the company to support the activities to drive the future growth. 2005 2004 % IncreaseOperating Expenses £3.930m £4.335m (9.6)%Project costs in relation to aborted acquisition £0.110m -Amortisation - £1.750mOperating Expenses (excl amortisation) £3.820m £2.585m 52.1% Finance Costs The increase in ongoing interest payable from £1.502m to £1.661m in thefinancial year reflected the full year impact of the interest payments on theconvertible loan stock, and the additional debt provided by Bank of Scotland inNovember 2004 for the acquisition of Forceval. The other finance chargesreflects the effect of the movement in the exchange rate on the euro denominatedloan of £0.118m and £1.345m shown in the prior year being one-off costsassociated with the AIM listing. 2005 2004 % IncreaseInterest charges (excl other finance charges and £1.661m £1.502m 10.6%amortised finance issue costs)Amortised finance issue costs £0.074m £0.009mTotal finance costs before exceptional items £1.735m £1.511mOther finance charges £0.118m £1.345m - Profit Before Tax A profit before tax of £0.418m has been achieved in the year, an improvement onthe prior year loss of £2.153m. Adjusting the profit before tax to exclude theexceptional items of £0.227m shows a trading profit of £0.645m. The exceptionalitems are partly due (£0.118m) to the revaluation of the Euro denominated loanas required by SSAP20 and the project costs associated with an abortedacquisition attempt during the year. The prior year exceptional items relate tothe reverse takeover transaction during the prior year as shown below: 2005 2004Profit/(loss) on ordinary activities before taxation £0.418m £(2.152)mAmortisation of intangible assets - £0.907mExceptional Items:Costs associated with Peerless Technology prior to the reverse - £0.258mtakeoverAmortisation of reverse takeover goodwill - £0.843mDebt redemption premia - £1.185mExceptional project costs, finance charges and finance issue £0.110m £0.169mcostsForeign exchange movement on Euro denominated load £0.118m -Adjusted trading profit £0.645m £1.210m This drop in trading profit had been previously forecast as we planned ourinvestment in our UK marketing capability and preparations connected with ourlaunch products. Earnings per share The basic earnings per share of 0.34p is an improvement on the prior yearposition of a loss per share of 2.44p. However this was heavily distorted byone-off charges and tax credits recognised in the year. An adjusted EPS figureof 0.52p (1.18p 2004) reflects the investments made during the year in marketingand infrastructure expenses and removes exceptional items, amortisation, otherfinance charges and deferred tax. Cashflow The cash inflow from operating activities was £1.6m. During the year £4.2m wasraised from the issue of shares and was used to acquire Periostat for $3.3m pluscosts and part of the consideration for Forceval. The remainder of the totalconsideration for Forceval of £7.0m plus costs, was funded by way of £6.5m debtfrom Bank of Scotland. The reduction in the net operating cashflow is as aresult of the investment in working capital stemming from the acquisitions. Net Assets The issue of shares to fund the acquisitions is the main contributor to theincrease in Net Assets to £6.824m (2004: £2.224m). A further £0.858m was invested in the development of APL202 misoprostol andPosidorm(TM), adding to the prior year spend of £0.487m, bringing the total to£1.346m. These costs have been capitalised having met the criteria set by thecurrent UK accounting standard (SSAP13). Each project has been re-examined toensure that it has technical feasibility and has ultimate commercial viability. Net Debt The net debt position increased to £22.6m (2004: £16.0m) , including theConvertible Loan Stock at £7.5m, the increase being principally due to thefunding from Bank of Scotland for the Forceval acquisition. Of the total debt,89.4% is subject to long term fixed interest rates resulting from theConvertible Loan Stock interest being fixed and other interest rate swaps toreduce the interest rate exposure. The currency risk is reduced using a debtfacility denominated in euros to match revenues arising in the Eurozone. Accounting Standards A working group has been established to assess the implications of InternationalAccounting Standards and to prepare the restatement and confirm the accountingpolicies under the new regime. The decision has been made by the Directors ofthe company to adopt IFRS for the financial year commencing 1st March 2005 aheadof the required date for AIM listed companies. As such, additional unauditedinformation has been attached to the annual report to provide details of theimpact on the opening balance sheet of the transition to IFRS. There were nosignificant adjustments. Madeleine ScottFinance Director12 May 2005 Consolidated Profit & Loss Accountfor the year ended 28 February 2005 Note 2005 2005 2005 2004 Pre Total Total exceptional Exceptional £ £ £ £Turnover 11,826,292 - 11,826,292 10,416,036Cost of sales (5,624,857) - (5,624,857) (5,377,179)Gross profit 6,201,435 - 6,201,435 5,038,857 Operating expenses Administrative and marketing expenses 1 (3,820,470) (109,504) (3,929,974) (2,584,611) Amortisation of intangible assets - - - (1,750,245) (3,820,470) (109,504) (3,929,974) (4,334,856) Operating profit 2,380,965 (109,504) 2,271,461 704,001 Net interest payable and similar charges Net interest and similar charges 2 (1,661,487) - (1,661,487) (1,502,058) Other finance charges 2 (73,988) (117,727) (191,715) (1,354,449) (1,735,475) (117,727) (1,853,202) (2,856,507) Profit/(loss) on ordinary activities before 645,490 (227,231) 418,259 (2,152,506)taxationTax on profit/(loss) on ordinary activities - - - 197,856Profit/(loss) transferred to reserves 645,490 (227,231) 418,259 (1,954,650)Earnings/(loss) per shareBasic (pence) 0.34 (2.44)Adjusted (pence) 0.52 1.18Diluted (pence) 0.82 (2.44)Adjusted diluted (pence) 1.00 1.92 All of the activities of the company are classed as continuing. There were no recognised gains or losses other than the profit for the financialyear. 1. Operating profit is stated: 2005 2004 £ £After charging Auditors' remuneration - Group - audit services 29,500 18,500 - non-audit services 60,561 146,870Auditors' remuneration - Company - audit services 8,500 8,000 - non-audit services 2,200 2,000Amortisation of intangible assets - 907,074Exceptional items 109,504 - - Project costs in relation to aborted acquisition- Amortisation of goodwill acquired in reverse takeover - 843,171Depreciation of tangible assets 115,229 83,250Operating lease rentals 42,816 40,839After crediting 37,653 7,488 Profit on foreign exchange transactions With the exception of amortisation, all the above are included within operatingexpenses. 2. Net interest payable and other charges 2005 2004 £ £(a) Net interest and similar charges (normal) On loans and overdrafts (1,820,209) (1,562,879) Interest receivable and similar income 161,726 63,669 Hire purchase interest (3,004) (2,848) (1,661,487) (1,502,058)(b) Other finance charges Foreign exchange movement on long term Euro denominated (117,727) -debt Amortised finance issue costs (73,988) (9,268) Costs of debt refinancing - (160,000) Loan redemption premiums - (1,185,181) (191,715) (1,354,449) (1,853,202) (2,854,507) Consolidated Balance Sheetat 28 February 2005 2005 2005 2004 2004 £ £ £ £Fixed assetsIntangible assets 28,095,015 17,987,603Tangible assets 306,573 147,853 28,401,588 18,135,456Current assetsStocks 2,469,363 1,739,516Debtors 2,149,613 1,984,093Cash at bank and in hand 1,367,271 4,579,197 5,986,247 8,302,806Creditors: amounts falling due within one year (5,959,415) (5,462,778)Net current assets 26,832 2,840,028Total assets less current liabilities 28,428,420 20,975,484Creditors: amounts falling due after more than (21,604,114) (18,751,378)one year - including convertible debt 6,824,306 2,224,106 Capital and reservesCalled up share capital 1,473,559 1,107,939Share premium account 9,030,959 5,214,638Other reserve (329,349) (329,349)Profit and loss account (3,350,863) (3,769,122)Shareholders' funds - equity interests 6,824,306 2,224,106 Consolidated Cash Flow StatementFor the year ended 28 February 2005 2005 2004 Note £ £Net cash inflow from operating activities 3 1,585,204 2,112,318Returns on investments and servicing of financeInterest received 161,726 35,446Interest paid and similar charges (1,820,209) (1,562,879)Loan redemption premiums paid - (1,185,181)Finance issue costs paid - (416,125)Other finance charges paid - (160,000)Hire purchase interest paid (3,004) (2,848)Net cash outflow for returns on investments and servicing of (1,661,487) (3,291,587)financeTaxation (12,747) -Capital expenditureDevelopment costs capitalised (858,499) (487,110)Purchases of other intangible assets (9,248,913) (441,045)Purchases of tangible assets (245,948) (16,694)Net cash outflow for capital expenditure (10,353,360) (944,849)AcquisitionsPurchase of subsidiary undertakings - (1,233,435)Payment of deferred consideration (128,399) -Net cash acquired with subsidiary undertakings - 2,213,664Net cash inflow from acquisitions (128,399) 980,229FinancingIssue of shares 4,181,941 3,309,514Warrant buy-back - (1,333,333)Receipts from borrowings 6,875,000 9,960,000Repayment of borrowings (3,763,859) (6,393,312)Capital element of hire purchase contracts (26,031) (25,965)Net cash inflow from financing 7,267,051 5,516,904(Decrease)/increase in cash in the year 4 (3,303,738) 4,373,015 3. Net cash inflow from operating activities 2005 2004 £ £Operating profit 2,271,461 704,001Depreciation of tangible fixed assets 115,229 83,250Amortisation of intangible fixed assets - 1,750,245(Increase)/decrease in stocks (729,847) 213,361(Increase)/decrease in debtors (165,521) (260,649)Increase/(decrease) in creditors 93,882 (377,890)Net cash inflow from operating activities 1,585,204 2,112,318 4. Reconciliation of net cash flow to movement in net debt 2005 2004 £ £(Decrease)/increase in cash in the year (3,303,738) 4,373,015Cash inflow from borrowings (3,111,140) (3,566,688)Cash outflow from capital element of hire purchase contracts 26,031 25,965Cash outflow from loan issue costs paid - 416,125Change in net debt resulting from cash flows (6,388,847) 1,248,417Non-cash movements (219,715) 158,955Net debt at 1 March 2004 (16,002,224) (17,409,596)Net debt at 28 February 2005 (22,610,786) (16,002,224) 5. Basis of preparation The financial information set out in the announcement does not constitute theGroup financial statements for the year ended 28 February 2005 or 29 February2004. The financial information for the year ended 28 February 2004 is derivedfrom the statutory accounts of Alliance Pharma PLC. Those financial statementshave been delivered to the Registrar of Companies. The auditors reported onthose accounts; their report was unqualified and did not contain a statementunder s237(2) or (3) Companies Act 1985. The Group accounts for the year ended28 February 2005 will be finalised on the basis of the financial informationpresented by the directors in this preliminary announcement and will bedelivered to the Registrar of Companies following the Company's annual generalmeeting. This information is provided by RNS The company news service from the London Stock Exchange