CLIN.L Regulatory News (CLIN)

27 February 2019

Good H1 performance with adjusted EPS up 9% and strong cash flow

Clinigen Group plc (AIM: CLIN, 'Clinigen' or 'the Group'), the global pharmaceuticals and services group, has today published its half year results for the six months ended 31 December 2018.

FINANCIAL SUMMARY

FINANCIAL HIGHLIGHTS

§ Adjusted gross profit up 25% (2% on an organic basis*)

§ Adjusted EBITDA up 22% (8% on an organic basis*) to £41.8m (2017: £34.4m)

§ Adjusted EPS up 9% to 23.0p (2017: 21.2p)

§ Strong cash flow performance with operating cash flow of £36.9m (2017: £32.7m)

OPERATIONAL HIGHLIGHTS

§ Increasing balance across divisions, reflecting portfolio strategy

§ EU and US infrastructure strengthened by CSM and iQone acquisitions - CSM YoY EBITDA up approximately 20%

§ Commercial Medicines enhanced by rights acquisitions: Proleukin® and Imukin® ROW and intention to acquire Proleukin® US

§ Unlicensed Medicines delivering strong organic performance and continued good growth in Africa and Asia Pacific

Shaun Chilton, Group Chief Executive Officer, said:

"The business has transformed over the last 12 months through a combination of substantial corporate and product acquisitions, investment in infrastructure and underlying growth. This has resulted in an improved balance across our complementary businesses - reflecting our portfolio strategy.

"Operationally, we saw good growth in Africa and Asia Pacific and the Unlicensed Medicines business, with adjusted EPS up 9% and operating cash flow up 13%. Notably, CSM, which we acquired in October 2018, saw approximately 20% year on year growth in EBITDA.

"We have started the second half of the year well and in-line with the Board's expectations. We remain well placed to deliver on our vision to be the trusted global leader in the global supply and distribution of critically important hospital medicines."

Note: Group results on an adjusted basis exclude amortisation of acquired intangibles and products, and other non-underlying items relating to acquisitions (see note 3 and 4 of the condensed financial statements). Adjusted EBITDA includes the Group's share of EBITDA from its joint venture. Constant currency growth is derived by applying the prior period's actual exchange rate to this period's result.

*Year on year comparisons referred to as 'organic' are a measure of growth on a constant currency basis, excluding the impact of business and product acquisitions. Business and product acquisitions in the current period are excluded from organic EBITDA, and for the acquisitions completing in the prior year, they are included on a pro-forma basis as if they occurred on the first day of the prior year. Organic growth is presented to aid the reader's understanding of the underlying performance of the business.

Operating cash flow is net cash flow from operating activities before income taxes, interest and working capital movements.

- Ends -

An analyst briefing will be held at 9:30am on Wednesday, 27 February 2019 at the offices of Instinctif Partners, 65 Gresham Street, London EC2V 7NQ.

An audio replay file will be made available shortly afterwards via the Group's website: www.clinigengroup.com.

Contact details

Notes to editors

About Clinigen Group

Clinigen Group plc (AIM: CLIN) is a global pharmaceutical and services company with a unique combination of businesses focused on providing ethical access to medicines. Its mission is to deliver the right medicine to the right patient at the right time through three areas of global medicine supply; clinical trial, unlicensed and licensed medicines. The Group has sites in North America, Europe, Africa and Asia Pacific. In October 2018, the Group acquired CSM, a specialist provider of packaging, labelling, warehousing and distribution services, with sites in the US and Europe, and iQone, a specialist pharmaceutical company in Switzerland.

For more information on Clinigen, please visit www.clinigengroup.com

Cautionary statement

This announcement contains certain projections and other forward-looking statements with respect to the financial condition, results of operations, businesses and prospects of Clinigen Group plc. These statements are based on current expectations and involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. Any of the assumptions underlying these forward-looking statements could prove inaccurate or incorrect and therefore any results contemplated in the forward-looking statements may not actually be achieved. Recipients are cautioned not to place undue reliance on any forward-looking statements contained herein. Except as required by law, Clinigen undertakes no obligation to update or revise (publicly or otherwise) any forward-looking statement, whether as a result of new information, future events or other circumstances. 

OVERVIEW

Clinigen's vision is to be the trusted global leader in the supply and distribution of critically important hospital medicines.

To achieve this vision, Clinigen has spent the last eight years building and developing an international platform and now has a unique combination of businesses that synergistically facilitate access to medicines at key points in a medicine's lifecycle: in clinical trials, unlicensed and licensed markets.

Clinigen's specialty products and niche services are delivered through a combination of a global reach and local regulatory and operational expertise, to meet its mission of 'Right Medicine, Right Patient, Right Time'. The Group has created a compelling combination of capabilities which means it is the most logical partner for a pharmaceutical or biotech company to realise fully the long-term commercial value of its asset(s) while being the 'go to' company for healthcare professionals (HCPs) to access difficult to find medicines.

Clinigen now has approximately 1,200 employees across five continents in 14 countries, with supply and distribution hubs and operational centres of excellence in key long-term growth regions. The Group works with 29 of the top 50 pharmaceutical companies; interacting with approximately 14,000 registered users across 98 countries, shipping over 2 million units in the first half.

The ability to partner with pharmaceutical and biotech companies on a long-term basis by using the three Clinigen operations sequentially to provide continued specialist lifecycle and commercialisation support, is now becoming a reality. 

Three of the top 25 pharmaceutical companies are working across the Group using its clinical and Investigator Initiated Trials (IITs) support services; unlicensed medicine management; and licensing and/or divestment of medicines. The intention is for more companies to work with multiple parts of the business. This creates long-term revenue and gross profit flow as medicines move through the continuum of the three Clinigen businesses.

Having made a number of substantial acquisitions, of both companies and products, in the last 18 months, integration and commercial opportunities remain a priority. Good progress was made in bringing Clinical Trials Services (CTS) and the recently acquired CSM under one leadership structure and focusing the iQone capabilities in Europe to support Clinigen's owned speciality medicines portfolio. CTS and CSM are now one unit called Clinical Services (CS).

The acquisition of the US rights to Proleukin, announced in February 2019 and expected to close in April 2019, is another major development for the business, as Clinigen already owns the rights to Proleukin outside the US.

The acquisition will be highly earnings enhancing and is an interesting and important medicine with long-term potential. It will also transform the Group's US position, combining well with CSM's existing US capabilities and giving the Group a platform from which to develop its presence in the world's biggest pharmaceutical market.

In the first half of the current financial year, Group revenues increased by 24% (25% on a constant currency basis) to £208.9m (2017: £167.8m). Adjusted gross profit increased by 25% (27% on a constant currency basis, 2% on an organic basis*), driven by a full period's contribution from Quantum, three months contribution by CSM and a strong performance from Unlicensed Medicines.

Adjusted EBITDA increased by 22% (24% on a constant currency basis and 8% on an organic basis*) to £41.8m (2017: £34.4m). Adjusted EPS increased by 9% to 23.0p (2017: 21.2p).

Operating cash flow was again strong at £36.9m (2017: £32.7m) reflecting the highly cash generative nature of the Group.

Current trading and outlook

Strategically, the focus continues on building the Group's platform and on the integration of the recently acquired products and businesses. The Group is capitalising on its market-leading positions and geographical footprint in order to drive organic growth.

The second half of the year has started in line with the Board's expectations, with the Group well positioned to deliver another good year of progress.

Acquisitions and integration

CSM

On 2 October 2018, the Group acquired CSM, a specialist provider of packaging, labelling, warehousing and distribution services with infrastructure in the US, Belgium and Germany. The acquisition expands Clinigen's capabilities, diversifies CS' global client and customer base, adds important continental EU infrastructure, and reinforces the links between the Group's three business operations.

The CSM business has continued to trade well and in the year to 31 December 2018, saw EBITDA growth of approximately 20%. Following actions already taken at CSM and those planned in the remainder of the year, the Group is on track to deliver cost synergies of at least £1m and revenue synergies of around £3m by the end of its first financial year of ownership.

iQone

On 9 October 2018, the Group acquired iQone, a Swiss-based specialty pharmaceutical business. This acquisition is helping support growth of Clinigen's Commercial Medicines portfolio in key EU markets, differentiating the early access business within Unlicensed Medicines from its competitors by providing EU medical scientific liaison (MSL) capability. This secures long-term unlicensed agreements and enhances the Group's proposition as a commercial partner for pharmaceutical companies.

Proleukin (US rights)

On 13 February 2019, the Group signed an agreement with Novartis to acquire the US rights to Proleukin. Clinigen already owns the rights to Proleukin outside the US, acquired in July 2018. The acquisition will be modestly EPS accretive in the current financial year as the product transitions to Clinigen, and at least 25% accretive in the first full financial year.

As part of Commercial Medicines, Proleukin is an excellent fit within the Group's existing oncology and infectious disease medicines. The product has significant potential for revitalisation, which will provide further breadth and diversity to the portfolio and material increases in revenues.

For the Group as a whole, it creates an ideal platform to expand the existing footprint in the higher value US market, enabling Clinigen to exploit other opportunities across the business. 

OPERATIONAL REVIEW

Commercial Medicines (encompassing medicines acquired, licensed and developed)

Clinigen's Commercial Medicines operation has a threefold strategy:

o Continued revitalisation/growth of current portfolio of specialty medicines, coupled with selective acquisition of additional hospital assets

o Increasing the number of regional licensing agreements, individual medicines and portfolios

o Develop a long-term pipeline of medicines through the unlicensed to licensed (UL2L) model

Commercial Medicines represents 41% of adjusted Group gross profit. Although gross profit on an adjusted basis increased 6%, on an organic basis* it decreased 6% due to lower sales of Foscavir® and the dexrazoxane portfolio.

Gross margin was 71.3% (2017: 73.8%) with the decrease due to the change in mix from the higher margin specialty pharmaceutical products towards the lower margin products licensed in the Africa and Asia Pacific region.

Owned products

Anti-infective portfolio

Clinigen acquired the global rights (excluding US, Canada and Japan) to Imukin (recombinant human interferon gamma-1b) on 25 July 2018. Imukin is licensed in 19 countries globally to reduce the frequency of serious infections in patients with Chronic Granulomatous Disease (CGD) and for the treatment of Severe Malignant Osteopetrosis (SMO), both considered rare conditions.

The revitalisation strategy centres around improved understanding of the benefits of the product and also broadening the product's availability via the Group's international distribution network for both licensed and unlicensed supply. Imukin is one of two biologics in the portfolio, which provide greater inherent protection against generic threat because of a more difficult manufacturing process.

Foscavir's performance declined modestly due to reduced volumes in two of its main markets, the US and Japan. In both markets, as expected, volumes have come under some pressure from alternative therapies. Without immediate visibility of the long term impact, the business continues with its strategy to mitigate against the competitive landscape by extending the Foscavir franchise by seeking new presentations of the product and new indications.

Progress has been made on both counts - the Group continues to seek approval for the HHV6 encephalitis indication from the Japanese Ministry of Health, Labour and Welfare and the Foscavir bag line extension is expected to be launched in 2019. 

Oncology portfolio

The main development in the oncology portfolio was the acquisition of the rest of world rights to Proleukin in July 2018, and the subsequent intention to acquire the global rights, announced in February 2019.

Proleukin is indicated for the treatment of metastatic melanoma and metastatic renal cell carcinoma. Following the most recent announcement, the Group will own the worldwide rights. Based on its current sales revenues, Proleukin will become the largest product in the Commercial Medicines portfolio and will also be highly earnings enhancing.

Proleukin further diversifies the product portfolio and has significant potential for revitalisation. This applies not only to its current indication, but across multiple disease areas, as evidenced by the fact that it is being used in around 80 active studies within the US.

For the Group, the product creates opportunities for other divisions such as CS around the provision of Proleukin for comparator studies and IITs. It also creates an ideal platform to expand the existing footprint in the higher value US market, building on the infrastructure benefits obtained through the acquisition of CSM.

The focus for the dexrazoxane products has been on extending the market opportunity, by expanding the clinical understanding within the paediatric physician population.

Collectively these seven acquired products, along with iQone, contributed 62% of Commercial Medicines' adjusted gross profit (2017: 73%), demonstrating a further move away from reliance on any single asset towards a much more balanced portfolio. 

Licensed products

Good progress continues to be made in the Africa and Asia Pacific region, with growth across all geographies. The Group has 215 (2017: 192) specialist pharmaceutical and medical-technology actively marketed licensed products in this region and continues to make progress in extending the commercial strategy in converting medicines from UL2L.

The partnership agreement with Bristol-Myers Squibb (BMS), signed in May 2018 and which will lead to the transfer of marketing authorisations (product registration certificates) in South Africa to Clinigen, is expected to begin generating revenues midway through 2019.

Developed products

The Commercial Medicines business also develops, licenses and commercialises medicines with a particular focus on those currently prescribed as unlicensed medicines in the UK (the UL2L pathway). At the end of the period, the business had 12 products in its portfolio.

The lead product in the developed product portfolio, Glycopyrronium Bromide Oral Solution 1mg/5ml (Glyco), continues to perform strongly. As announced in February 2019, Clinigen was granted an additional indication for Glyco to treat paediatric and adolescent hypersalivation. This new indication extends the Glyco franchise and creates an opportunity to further internationalise the product.

Pipeline

The Group continues to seek selective product acquisitions that fit within the acquired product portfolio, and in the Africa and Asia Pacific region looks to continue to increase the number of regional licensed products. In addition, the business continues to develop its pipeline of UL2L products, as well as complementary larger niche generic products.

Unlicensed Medicines (encompassing early access/Managed Access and 'on-demand'/Global Access)

Clinigen is the international leader in ethically sourcing and supplying unlicensed medicines to hospital pharmacists and physicians for patients with a high unmet medical need. The Group manages early access programs to innovative new medicines and provides 'on-demand' access globally to medicines which remain unlicensed at the point of care.

The Group's strategy for Unlicensed Medicines remains unchanged: to capitalise on the considerable long-term international opportunity by increasing the number of exclusive supply agreements for high demand or niche products and to increase Clinigen's profile amongst HCPs through targeted marketing activity.

Cliniport, the Group's customisable, scalable web portal continues to be an invaluable part of Clinigen's service offering for its clients and strengthens its interaction with the customer. Currently, Cliniport holds a library of over 400 products and has a community of approximately 14,000 registered users. Over 40,000 orders have been placed on Cliniport over the last 12 months which has been responsible for 43% (June 2018: 47%) of activity in Unlicensed Medicines.

The Unlicensed Medicines operation represents 45% of adjusted Group gross profit. This operation increased gross profit by 36% to £35.7m (2017: £26.3m) due to a strong performance in early access and 'on-demand' access across the regions, and a full period's contribution from Quantum. Adjusted gross profit on an organic basis* increased by 10%.

At the end of the period, there were 119 Managed Access Programs (MAPs) (2017: 109), of which 88% of products shipped on behalf of the client were provided free of charge to patients. When the product is 'charged for', the revenue is passed through the Group's accounts. A shift in mix towards 'free of charge' products can have a material impact on the revenue generated without affecting gross profit which is why the Group views gross profit as the best measure of top-line growth.

Following the 15 programs that began in the second half of the last financial year, there were a further 11 programs signed in the first half of this financial year. The largest of these programs is anticipated to be an important driver of profit in the coming years.

In 'on-demand' access, the Group ethically supplies unlicensed or short supply medicines to patients via their physicians.

This business has made further progress against the key objective of increasing the number of 'on-demand' exclusive supply agreements for high demand or niche medicines. Seven new exclusive agreements were signed in the half taking the number of products under management to 56 (2017: 43).

On a regional basis, the Africa and Asia Pacific region delivered good growth across all geographies. Growth in Asia was excellent, driven by strong performances in both early access and 'on-demand' access and from expanding supply from the hub in Singapore into surrounding territories.

Clinical Services (encompassing CTS and CSM)

The strategy for CS is to continue to expand the original, core service of comparator sourcing into a more diverse, complementary set of services that target long-term adjacent growth segments in clinical trials, notably IITs.

Following the acquisition of CSM in October 2018, one immediate benefit to CS is to significantly expand the client base to 440 clients (2017: 63)† and create a much expanded, diversified set of value added clinical services: comparator and ancillary sourcing, on demand specialist packaging, labelling, supply and distribution, and biological sample management.

CS represents 14% of adjusted Group gross profit. Following two years of double digit growth (2017: 18%; 2016: 21%), CTS had a difficult year last financial year. In the half, adjusted gross profit on an organic basis* decreased by 3%. The foundations for the recovery are in place and an improved performance is expected in the second half.

CSM achieved a strong growth performance for its 12 months ended 31 December 2018, growing all major financial metrics, including EBITDA, approximately 20% year on year. The acquisition of CSM immediately benefited CS by diversifying its service offering, global client and customer base.

In the three months since the CSM acquisition, CSM has been fully integrated into the CS business, with the business development and strategic sourcing teams working under one leadership and management structure. 

CS continues to be a trusted partner capable of delivering high quality services across the world with an extensive understanding of the complex regulatory environment. These strengths, combined with overlaying the services offered by CSM, position the CS operation well to take advantage of the rapidly developing market opportunity.

† Total clients includes CSM clients for 12 months ended 31 December 2018.

FINANCIAL REVIEW

Summary adjusted income statement

The summary adjusted income statement presents Group results on an adjusted basis excluding amortisation of acquired intangibles and products, and other non-underlying items relating to acquisitions (see note 3 and 4 of the condensed financial statements). Adjusted EBITDA includes the Group's share of EBITDA from its joint venture. Constant currency growth is derived by applying the prior period's actual exchange rate to this period's result.

*Year on year comparisons referred to as 'organic' are a measure of growth on a constant currency basis, excluding the impact of business and product acquisitions. Business and product acquisitions in the current period are excluded from organic EBITDA, and for the acquisitions completing in the prior year, they are included on a pro-forma basis as if they occurred on the first day of the prior year. Organic growth is presented to aid the reader's understanding of the underlying performance of the business.

When presenting the financial results, a number of adjusted measures are used which are considered by the Board and management in reporting, planning and decision making. Adjusted results reflect the Group's trading performance and exclude amortisation of acquired intangibles and products, and non-underlying costs relating to acquisitions which are explained in note 4 of the condensed financial statements.

Overall, the Group achieved a good financial performance with its three key financial metrics; adjusted gross profit up 27% on a constant currency basis, adjusted EBITDA up 24% on a constant currency basis and adjusted EPS up 9%.

The growth in adjusted gross profit was driven by a strong performance by the Unlicensed Medicines division and the acquisitions.

The growth in adjusted EBITDA was lower than the growth in adjusted gross profit due to the change in business mix following the acquisitions. Adjusted EBITDA on an organic basis* increased by 8% benefitting from a reduction in underlying overheads excluding the acquisitions, reflecting the continued focus on driving efficiencies across the Group.

See note 3 of the condensed financial statements for a reconciliation of adjusted EBITDA to the IFRS equivalent comparative.

Finance cost

The adjusted net finance cost was £3.7m (2017: £2.1m). The increase is due to the Group's higher net debt position following the recent acquisitions. The average interest charge on gross debt, which increases as leverage increases, was 2.9% (2017: 1.7%) during the period.

The reported finance cost was £4.7m (2017: £3.2m), after taking account of the non-cash £1.0m unwind of discount on the contingent consideration relating to the acquisitions (2017: £1.1m).

The table below shows the reconciling items between the adjusted profit before tax of £36.7m (2017: £31.7m) and the reported profit before tax of £12.9m (2017: £15.8m).

Reconciliation of adjusted profit before tax to reported profit before tax

The adjustments to profit before tax comprise costs relating to amortisation, acquisitions and the Group's share of the tax charge on the JV earnings of £0.2m (2017: £0.2m).

Total amortisation was £16.6m (2017: £9.7m), of which £13.7m (2017: £7.3m) related to acquired intangibles, £2.5m (2017: £2.2m) related to acquired product licences and £0.4m (2017: £0.2m) related to software.

Acquisition costs amounted to £5.0m (2017: £3.7m) relating predominantly to the CSM acquisition. The main acquisition costs were professional advisory and due diligence fees of £2.2m and £2.4m for securing 'certain funds' for the CSM acquisition.

Restructuring costs relating to the acquisitions are £1.1m (2017: £1.3m), most of which are redundancy costs resulting from streamlining the senior management teams and removing duplicate functions following the acquisitions.

Taxation

Taxation was £3.0m (2017: £3.8m), based primarily on the prevailing UK and overseas tax rates. This charge is calculated as £7.4m based on the adjusted profit of £36.7m, offset by a credit of £4.4m in respect of the adjusted items.

The Group's adjusted effective tax rate (ETR) decreased to 20.6% (2017: 21.5%) due to the higher proportion of earnings in the UK and the reduction in the UK corporation tax rate. The adjusted ETR also takes account of the reduction in the corporation tax rate going forward in the US.

Earnings per share

Adjusted basic EPS, calculated excluding amortisation of acquired intangibles and products, and other non-underlying items, increased by 9% to 23.0p (2017: 21.2p). The increase reflects the Group's higher adjusted profit from operations, offset by dilution and higher finance costs following the acquisitions and the related placing and debt refinancing.

Reported basic EPS was 7.7p (2017: 10.2p). The decrease is due to the additional amortisation and exceptional costs arising from the acquisitions.

Dividend

The Board is committed to a sustainable and progressive dividend policy and expects interim and final dividend payments to be split approximately one-third to two-thirds respectively.

In view of the good first half results, the Board has increased the interim dividend by 11% to 1.95p per share (2017: 1.76p).

The interim dividend will be paid on 12 April 2019 to shareholders on the register on 22 March 2019.

Cash flow and net debt

Cash flow performance continues to be strong, with operating cash flow of £36.9m (2017: £32.7m). Net working capital increased by £2.3m in the period (excluding the effect of acquisitions, non-underlying items, and exchange adjustments) due to the growth in the business. The low levels of working capital in the business reflect a strong focus on credit control and general working capital management.

Capital expenditure (excluding product acquisitions) was £9.5m (2017: £5.1m), which includes £2.8m on new product development, £2.4m related to the Group ERP system, £2.3m related to warehouse, IT and other infrastructure investments, including preparation for the introduction of serialisation in February 2019 and £2.1m related to the development of owned products. Capital expenditure is expected to remain at an elevated level this year due to the ERP implementation and then it is expected to decrease in the following financial year.

During the period, the Group made two corporate acquisitions; CSM, acquired on 2 October 2018, and iQone on 9 October 2018. To fund these acquisitions, the Group's bank facility was refinanced (as detailed in the treasury management section) and £80m of equity finance was raised through a placing.

For CSM, the Group paid initial consideration of £115.5m (US$151.9m) in cash with additional contingent consideration which had a fair value of £31.5m (US$40.2m). For iQone, the Group paid initial consideration of £6.9m (€7.7m) cash and £2.2m (€2.5m) shares in Clinigen Group plc, with additional contingent consideration payable in five years which had a fair value of £5.2m (€5.8m).

The Group also spent £23.2m on two product acquisitions, Proleukin (ex US rights) and Imukin, and Foscavir bags.

The other main cash flows were tax paid of £6.1m (2017: £7.0m), interest paid of £3.4m (2017: £1.3m) and dividends paid of £5.1m (2017: £4.2m).

As a result of the acquisitions, net debt increased during the period by £55.9m to £192.4m and will increase further in the second half due to the planned acquisition of the US rights to Proleukin, as announced on 13 February 2019.

Treasury management

The Group's operations are financed by retained earnings and bank borrowings, and on occasion, the issue of shares to finance acquisitions.

During the period, the debt facilities have been refinanced as part of the financing arrangements for the acquisition of CSM. The new financing increased the debt facility from £220m to £300m, extending the facility to October 2023. The facility includes an unsecured £150m term loan with a single repayment in 2023 and an unsecured revolving credit facility of up to £150m.

During the period, there were two covenants that applied to the bank facility: interest cover of not less than 4.0x and net debt/adjusted EBITDA cover of not more than 3.25x. As at 31 December 2018, interest cover was 14.1x and the net debt/adjusted EBITDA leverage was 2.2x.

Following the period end, the debt facilities have subsequently been increased to finance the acquisition of the US rights to Proleukin. The facility was increased by £75m to £375m which is composed of an unsecured £150m term loan with a single repayment in 2023 and an unsecured revolving credit facility of up to £225m.

The Group's bank covenant leverage** on completion of the acquisition of Proleukin in April 2019 is expected to be around 2.4x net debt / EBITDA. Leverage is expected to reduce towards 2.0x by 31 December 2019.

Borrowings are denominated in a mixture of sterling, euros and US dollars, and are managed by the Group's UK-based treasury function, which manages the Group's treasury risk in accordance with policies set by the Board.

The Group reduces its exposure to currency fluctuations on translation by typically managing currencies at Group level using bank accounts denominated in foreign currencies. Where there is sufficient visibility of currency requirements, forward contracts are used to hedge exposure to foreign currency fluctuations. The Group's treasury function does not engage in speculative transactions and does not operate as a profit centre.

The Group has applied hedge accounting where permissible to match hedges to the transactions to which they relate thereby reducing volatility in the results which may arise from gains and losses on hedging instruments.

Principal risks facing the business

Clinigen operates an embedded risk management framework, which is monitored and reviewed by the Board. There are a number of potential risks and uncertainties that could have a material impact on the Group's financial performance and position. These include risks relating to competitive threat, the regulatory environment, political environment, counterfeit products penetrating the supply chain, reliance on technology, reputational risk, and foreign exchange. These risks and the Group's mitigating actions are set out on pages 42 to 45 of the Annual Report 2018.

**Bank covenant leverage is calculated by dividing adjusted EBITDA of the Group for the last 12 months by net debt at the period end. Adjusted EBITDA includes the EBITDA from the businesses and assets acquired during the last 12 months, including on a pro forma basis the period prior to it becoming a member of the Group. 

Condensed consolidated income statement

Condensed consolidated statement of comprehensive income

All amounts relate to continuing operations.

Condensed consolidated statement of financial position

Condensed consolidated statement of cash flows

Condensed consolidated statement of changes in equity

Notes forming part of the condensed consolidated financial statements

1. General information

Clinigen Group plc ('the Company') and its subsidiaries (together, 'the Group') is a specialty global pharmaceutical and services group headquartered in the UK, with offices in the US, South Africa, Australia, New Zealand, Japan, Hong Kong, Singapore, Greece, Belgium, Switzerland, France and Germany.

The company is a public limited company, which is listed on the Alternative Investment Market of the London Stock Exchange and incorporated and domiciled in the UK. The address of its registered office is Pitcairn House, Crown Square, First Avenue, Burton-on-Trent, DE14 2WW, United Kingdom.

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 June 2018 were approved by the board of directors on 26 September 2018 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. These condensed interim financial statements have been reviewed, not audited.

2. Basis of preparation

These condensed interim financial statements for the six months ended 31 December 2018 have been prepared in accordance with International Accounting Standard 34 'Interim financial reporting' ('IAS 34') as adopted by the European Union (the 'EU'). The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 30 June 2018, which have been prepared in accordance with International Financial Reporting Standards ('IFRS' or 'IFRSs') as adopted by the EU.

The Group meets its day-to-day working capital requirements through its bank facilities. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities. After making enquiries and having reassessed the principal risks, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis of accounting in preparing the condensed interim financial statements.

The financial information in the condensed consolidated financial statements has been prepared on a basis consistent with that adopted for the year ended 30 June 2018.

The preparation of interim consolidated financial statements in compliance with IAS 34 requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in the notes to the Group's statutory consolidated financial statements for the year ended 30 June 2018 in note 2 on page 56 and in the notes to these interim condensed consolidated financial statements.

From 1 July 2018, the Group adopted IFRS 15 'Revenue from Contracts with Customers' and IFRS 9 'Financial Instruments'. As disclosed in the Annual Report for the year ended 30 June 2018, the Group has not identified any material differences on adopting the new standards and therefore no restatement of prior periods has been made.

There have been no other accounting standards, amendments and interpretations that are effective for the first time in respect of the Group condensed interim financial statements for the six months ended 31 December 2018 and which have had a material impact on these financial statements.

3. Segment information

The Group's reportable segments are strategic operating business units that provide different products and service offerings into different market environments. They are managed separately because each operational business requires different expertise to deliver the different product or service offering they provide.

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker during the reporting period. The Chief Operating Decision Maker has been identified as the Executive Directors.

Following the acquisition of CSM, the Clinical Trial Services segment has been renamed to Clinical Services. There have been no other changes to the reported segments during the period.

Operating segment results

The Group evaluates performance of the operational segments on the basis of gross profit from operations.

4. Non-underlying items

Non-underlying items have been reported separately in order to provide the reader of the financial statements with a better understanding of the operating performance of the Group. These items include amortisation of intangible assets acquired through business combinations and acquired products, and one-off costs principally relating to the acquisitions. The associated tax impact is also reported as non-underlying.

a) Under IFRS 3, inventory acquired in a business combination is valued at fair value on acquisition, which includes the profit margin in the inventory's carrying value. The £1.1m recognised in the prior period represents the profit margin on the inventory sold in that period which was acquired with the Quantum business.

b) The acquisition costs relate to CSM and iQone comprising legal, corporate finance, due diligence advice and costs for securing 'certain funds' for the CSM acquisition.

c) Restructuring costs have been incurred during the period in respect of the integration of acquired businesses primarily relating to redundancy costs.

d) Following the acquisition of Quantum in the prior period, a settlement was agreed in Quantum's favour in relation to a legal claim with the vendors of a business acquired by Quantum pre-acquisition.

e) Deferred consideration on Proleukin, Imukin, CSM, and iQone are all denominated in foreign currency. The revaluation of these liabilities is treated as non-underlying as they relate to one-off items and do not reflect the underlying trading of the Group.

f) The amortisation of intangible assets acquired as part business combinations (namely brand, trademarks and licences, customer relationships, and contracts) and acquired products, is included in non-underlying due to its significance and to provide the reader with a consistent view of the underlying costs of the operating Group.

g) The non-cash unwind of the discount applied to the deferred consideration on the acquisitions of Foscavir Bags, Proleukin, Imukin, CSM, and iQone (2017: Link).

h) The tax credit in respect of non-underlying items reflects the tax benefit on the costs incurred. 

5. Net finance expense

6. Income tax

The Group has recognised a tax charge in the income statement based on the current projected full year effective tax rate of 23.8% (2017: 23.6%).

7. Earnings per share

8. Dividends

A final dividend in relation to the year ended 30 June 2018 of 3.84p (2017: 3.4p) per ordinary share was paid on 30 November 2018. This amounted to £5.1m (2017: £4.2m).

An interim dividend of 1.95p (2017: 1.76p) per ordinary share has been approved by the Board. This amounts to £2.6m (2017: £2.2m) and will be paid on 12 April 2019 to all shareholders on the register as at 22 March 2019.

9. Intangible assets

In July 2018, the Group acquired the global rights outside the US to Proleukin from Novartis and the global rights to Imukin outside the US, Canada and Japan from Horizon Pharma. In October 2018, the Group acquired the entire share capital of CSM and iQone and has recognised goodwill and separately acquired intangibles. Further details are provided in note 13.

10. Net debt

During the period, the debt facilities have been refinanced as part of the financing arrangements for the acquisition of CSM. The new financing increased the debt facility from £220m to £300m, extending the facility to October 2023. The facility includes an unsecured £150m term loan with a single repayment in 2023 and an unsecured revolving credit facility (RCF) of up to £150m.

At the period end, there were two covenants that applied to the bank facility: interest cover of not less than 4.0x and net debt/adjusted EBITDA cover of not more than 3.25x. As at 31 December 2018, interest cover was 14.1x and the net debt/adjusted EBITDA leverage was 2.2x. There were no instances of default, including covenant terms, in either the current or the preceding period.

Subsequent to the period end, the debt facilities have been increased to finance the acquisition of the US rights to Proleukin. The revised facility has been increased by £75m to £375m. This comprises an unsecured £150m term loan with a single repayment in 2023 and an unsecured RCF of up to £225m.

The Group's bank covenant leverage on completion of the acquisition of Proleukin in April 2019 is expected to be approximately 2.4x net debt / EBITDA. Given the Group's strong cash flow generation, leverage is expected to reduce towards 2.0x by 31 December 2019.

11. Financial risk management and financial instruments

Financial risk factorsThe Group's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 30 June 2018. There have been no changes in the risk management processes or in any risk management policies since the year end.

Financial instruments

Fair value estimation

Financial instruments are classified as follows: Level 1 instruments are those valued using unadjusted quoted prices in active markets for identical instruments; Level 2 instruments are those valued using techniques based significantly on observable market date; and Level 3 instruments are those valued using information other than observable market data.

Derivative financial instruments at 31 December 2018 and 31 December 2017 comprise forward foreign exchange contracts. These derivatives have been fair valued using forward exchange rates that are quoted in an active market and fall within Level 2 of the fair value hierarchy.

Contingent consideration on acquisitions has been valued using management's latest forecast of the profit of the businesses during the earn out period and falls within Level 3 of the fair value hierarchy.

There are no Level 1 financial instruments at 31 December 2018, and there have been no transfers between valuation levels nor changes in valuation techniques during the period.

12. Share capital

On 27 September 2018, the Group issued 9,467,456 ordinary shares to institutional investors at a price of 845p per share. On 9 October 2018, 241,744 ordinary shares were issued as consideration for the acquisition of iQone which required the application of merger relief under the Companies Act 2006. As a result, the difference between the nominal value and fair value of shares issued has been recognised in the merger reserve. 

13. Business combinations

On 2 October 2018, the Group acquired the entire share capital of CSM Parent, Inc., a company registered in the United States, and its subsidiaries with a presence in the US, Belgium and Germany. The acquisition expands Clinigen's value added capabilities, diversifies Clinical Services' global client and customer base, adds important continental EU infrastructure, and reinforces the links between the Group's three business operations.

On 9 October 2018, the Group acquired the entire share capital of iQone Healthcare Holding, a company registered in Switzerland, and its subsidiaries with a presence in France, Germany, Switzerland, Italy and Spain. This acquisition supports growth of Clinigen's Commercial Medicines portfolio in the EU, differentiates the early access business from its competitors by providing EU medical scientific liaison ('MSL') capability to support and secure long-term unlicensed agreements, and enhances the Group's proposition as a commercial partner for pharmaceutical companies.

In order to fund the cash element of the consideration, the Group's borrowing facilities were increased as detailed in note 10.

The provisional fair value of assets acquired and liabilities assumed on the acquisitions are as follows:

The total consideration for CSM of £147.0m is made up of initial cash consideration of £114.0m (US$150.0m), payment for working capital of £1.5m (US$1.9m) and contingent consideration of £31.5m (US$40.2m).

The contingent consideration is payable in the year ending 30 June 2020 and is contingent on the adjusted EBITDA generated by CSM in the 12 months to 31 December 2019. The undiscounted fair value of the contingent consideration as of the acquisition date has been estimated at US$45.7m based on current forecasts and could be in the range of nil to US$90m.

The total consideration for iQone of £14.3m is made up of initial cash consideration of £6.9m (€7.7m) cash, an issue of 241,744 shares in Clinigen Group plc which had a fair value of £2.2m (€2.5m), and contingent consideration of £5.2m (€5.8m).

The contingent consideration is payable in the years ending 30 June 2023 and 2024 which is contingent on the adjusted EBITDA generated by iQone in the 12 months to 31 December 2022 and 2023. The undiscounted fair value of the contingent consideration as of the acquisition date has been estimated at €12.3m and could be in the range of nil to €50.0m.

As all of the contingent consideration is payable in more than 1 year from the balance sheet date it is included in non-current liabilities. The liability falls within Level 3 of the fair value hierarchy.

The fair value of the acquired identifiable intangible assets in CSM consists of £4.0m attributable to brand, £55.0m attributable to customer relationships and £1.4m attributable to some proprietary software together with a related deferred tax liability of £16.7m. In iQone, the only identifiable acquired intangible assets are customer relationships which have been valued at £1.2m with an associated £0.2m deferred tax liability. These values have been assessed by an independent third party valuation expert.

Goodwill represents the synergies, assembled workforces and future growth potential of the acquired businesses. The goodwill arising in the period of £102.9m is not deductible for tax purposes.

The loss before tax is stated after the charge for amortisation of acquired intangibles.

14. Post balance sheet events

Subsequent to the period end, the Group signed an agreement to acquire the US rights and assignment of the current distribution and promotion agreement of Proleukin from Novartis. On acquisition, which is expected to take place in April subject to US anti-trust clearance, the Group will be the only global supplier of Proleukin and with its current sales revenues, it will become the largest product in the Commercial Medicines portfolio.

Although Proleukin is indicated for metastatic melanoma and metastatic renal cell carcinoma within the US, it is also being used in around 80 active studies within the US across multiple disease areas indicating its potential application in the treatment of other cancers and future potential for revitalisation. The acquisition further diversifies the Group's oncology and infectious disease portfolio of acquired niche hospital-only and critical care products.

Total consideration is up to US$210m, comprising initial consideration of US$120m, deferred consideration of US$60m over the 12 months following completion, and a further $30m contingent consideration based on sales milestones. In the year to 30 June 2018, in the US, Proleukin generated revenue of US$60m according to IQvia (IMS). Gross profit margin is expected to be similar to other specialty medicines within the Commercial Medicines division. The acquisition will be modestly EPS accretive in the current financial year as the product transitions to Clinigen, and at least 25% accretive in the first full financial year.

In order to finance this acquisition, the debt facilities available to the Group have been increased. The revised facility of £375m is composed of an unsecured £150m term loan with a single repayment in 2023 and an unsecured RCF of up to £225m.

The Group's bank covenant leverage on completion of the acquisition of Proleukin in April 2019 is expected to be approximately 2.4x net debt / EBITDA. Given the Group's strong cash flow generation, leverage is expected to reduce towards 2.0x by 31 December 2019.

Independent review report to Clinigen Group plc

Report on the consolidated interim financial statements

Our conclusion

We have reviewed Clinigen Group plc's consolidated interim financial statements (the "interim financial statements") in the half-yearly report of Clinigen Group plc for the 6-month period ended 31 December 2018. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

What we have reviewed

The interim financial statements comprise:

the Condensed consolidated statement of financial position as at 31 December 2018;

the Condensed consolidated income statement and Condensed consolidated statement of comprehensive income for the period then ended;

the Condensed consolidated statement of cash flows for the period then ended;

the Condensed consolidated statement of changes in equity for the period then ended; and

the explanatory notes to the interim financial statements.

The interim financial statements included in the half-yearly report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The half-yearly report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly report in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

Our responsibility is to express a conclusion on the interim financial statements in the half-yearly report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the AIM Rules for Companies and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLPChartered AccountantsEast Midlands27 February 2019