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e-therapeutics plc

Full Year Results

27 March 2018:  e-therapeutics plc (AIM: ETX, "e-therapeutics" or the "Company"), the drug discovery company, announces its full year results for the year ended 31 January 2018.

Highlights

New leadership and subsequent strategic review

Dr. Ray Barlow joined as the Company's new CEO on 6 April 2017 and undertook a systematic review with a panel of commercial and scientific experts from big pharma and successful biotechs, which confirmed the novelty, utility and productivity of e-therapeutics' Network-Driven Drug Discovery ("NDD") platform.

Focusing the business on the right value-add activities

Our resources are now focused on:

a) two NDD-derived immuno-oncology programmes (tryptophan catabolism and immune checkpoint modulation)

b) new partner-ready NDD programmes in high value areas (e.g. fibrosis)

c) enhancing the capabilities of our NDD platform (e.g. genomics)

d) two new artificial intelligence ("AI") collaborations with Intellegens and Biorelate

Emphasis on marketing and business development

The business was rebranded during the year and the Company has presented at international conferences to showcase e-therapeutics' technologies and assets to major industry players. We initiated a systematic business development process in September 2017, initially focused on the NDD platform.

The Company is actively seeking collaborations and commercial deals and is in late-stage discussions with a number of potential partners.

Financial highlights

· Cash and deposits of £9.6m (FY17: £14.0m)

· Cash and deposits reduction in the year of £4.4m (FY17: £10.8m)

· Operating loss of £6.8m (FY17: loss of £16.3m)

· R&D tax credit of £1.4m (FY17: £3.1m)

Iain Ross, Chairman of e-therapeutics, said:

"During the last 12 months, Ray and his team have systematically reorganised our internal resources and external support, and focused our portfolio of programmes. Ray has also used his extensive contacts in the industry to enable e-therapeutics to have visibility and meaningful interactions with a wide range of pharmaceutical and biotech companies around the world."

Ray Barlow, CEO of e-therapeutics, said:

"During the course of the year, we have continued the turnaround of the business. We are now focused on the right activities. With prudent cost control, we are creating as many opportunities for value creation as our current resources allow. Our business development efforts are beginning to bear fruit and we are now viewed as a serious and credible innovator with a unique set of technologies and assets.

"In the coming year, we will continue to take a pragmatic approach to explore all avenues of value creation for our Shareholders. We are increasingly optimistic about our future."

-Ends-

For more information, please contact:

About e-therapeutics plc

e-therapeutics is an Oxford-based company with a unique and powerful computer-based drug discovery platform and specialised approach to network biology.

Its novel methodology and discovery engine allow the Company to discover new and better drugs in a more efficient and effective way.

For more information about the Company, please visit www.etherapeutics.co.uk 

Chairman's Statement

In April 2017, when Ray Barlow was appointed as CEO, he made it clear from the outset that he intended to create a business that was capable of being highly valued by the healthcare industry.

Accordingly, during the last 12 months, Ray and his team have undertaken a 'root and branch' review of our business, fundamentally refocused our internal activities and worked tirelessly on developing our external profile and presence. Ray has systematically organised our internal resources and external support, focused our portfolio of programmes and used his extensive contacts in the industry to enable e-therapeutics to have visibility and meaningful interactions with a wide range of pharmaceutical and biotech companies around the world.

Ray has ensured that the Company, its technologies and its programmes are being seen as 'state-of-the-art and relevant' in the eyes of the industry. As a consequence, the Company now has a number of interesting third-party discussions ongoing, which, if successful, will lead to a validation of the Company's unique NDD platform and potentially lead to the commencement of some valuable third-party collaborations.

The Board will continue its aim to create value through organic growth. However, e-therapeutics is operating within the dynamic area of drug discovery and therefore regularly sees a variety of prospects which could improve the business. The Board monitors these on merit with respect to augmenting our NDD platform or taking our NDD-derived programmes through to significant inflection points and, as a consequence, we remain alert to external opportunities to accelerate the development of this business.

During the period, we completed the transition of the Board and management and we now have a leaner, more efficient and focused organisation, better equipped to deal with the challenges ahead. On 1 November 2017, we announced that Brad Hoy had retired from the Board after nine years of committed service. Concurrently, Christine Soden, an experienced financial executive, was appointed as a Non-Executive Director and Chair of the Audit Committee. I would like to thank Brad for his service to the Company and particularly for his personal support during my initial tenure as Chairman, and welcome Christine to the team.

As we look ahead, the next 12 to 18 months will clearly be an important period for e-therapeutics as we progress the development of our NDD platform and our in-house programme initiatives. We anticipate continued positive progress across all facets of the business and expect to see further validation of our  discovery capabilities. Coupled with an active investor-relations strategy, we believe this will translate to positive interest from the Market.

As the Company generates commercial traction over the coming year, we believe that Shareholder value will reflect the considerable upside offered by the Company's unique technologies. Your Board and management are committed through a strong commercial programme to ensuring that the value proposition of e-therapeutics is better recognised.

Finally, I would like to extend my personal thanks to our CEO, Ray Barlow, together with his leadership team, and to our patient Shareholders for your support and contribution to our Company during a very challenging period.

Iain G Ross

Non-Executive Chairman

26 March 2018

Chief Executive Officer's Statement

It is a privilege to provide my first full-year report to you as the CEO of e-therapeutics plc.

We provided detailed business updates to Shareholders after my 100-day strategic review (24 July 2017) and at the half-year results (26 September 2017).

In these communications, we highlighted the need for a turnaround of the business by focusing on the right activities, controlling the cash spend on the right programmes and beginning to promote the business in a professional manner. Today, I am pleased to report that we continue to execute well against our strategic and tactical plans and we are making material progress in all areas where we believe there is potential to create value for our Shareholders.

As articulated in the Annual Report, there is a clear need for our NDD technologies and our NDD-derived assets, which provide a clear solution to some of the industry's most pressing problems in the research and development of new drugs.

Our technologies are disruptive. We firmly believe that the combination of our proprietary biological data, network science, advanced analytical methods and techniques, such as machine learning and AI, is truly unique. NDD offers the industry potential benefits in terms of reduced time, reduced cost, novelty and quality over other approaches to drug discovery.

Business plan

Our organic business plan is focused on commercialisation of the NDD platform and NDD-derived assets, and is founded on three main pillars:

1. Creating and licensing partner-ready programmes: executing NDD platform deals with biopharmaceutical companies, which will create new drugs in commercially relevant areas.

2. Out-licensing of our own NDD-derived assets: discover, develop and partner new and better, IP-protected drugs in commercially-relevant disease areas.

3. Continuously updating and improving our NDD platform: offering a unique combination of convergent technologies to biopharmaceutical companies and a new breed of technology companies working to disrupt drug R&D.

Assets

To execute our plan, we need to be continually developing our asset and capability base.

During the year, we have generated good and commercially attractive data on our two NDD-derived pre-clinical, small molecule immuno-oncology projects. Specifically, we are now optimising leads in our tryptophan catabolism programme that are more active than the existing clinical agents and appear to be novel, first-in-class compounds that act by a new Mechanism of Action ("MoA"). Our immune checkpoint modulation programme has addressed some highly challenging and complex biology to generate two classes of novel compound that are able to overcome tumour-induced T-cell exhaustion, thereby restoring their ability to kill cancer cells.

We have focused resources to generate partner-ready programmes in exciting, industry-relevant, high-value discovery areas in cancer and inflammation such as fibrosis, tumour micro-environment and macrophage polarisation.

We have also been able to develop potential new functionalities for our NDD platform, including the use of genomic data to drive patient segmentation, and the use of NDD to uncover the MoA of NDD-derived and other drugs.

We are in the process of filing a number of patent families for our NDD platform and our NDD-derived assets. If granted, these patents will protect the products and provide us, and licensees, with the opportunity to secure sustained commercial protection in the future.

Business development

We started a detailed, systematic externalisation exercise of business development in September 2017. The initial wave focused on the NDD platform itself and, in March 2018, we began the initial marketing of our NDD-derived immuno-oncology assets.

The interest in the NDD platform is real and we are in late-stage discussions with a number of parties which we hope will enable us to announce a number of different types of deal during the next 12 months.

Science never stands still and we are constantly looking at ways to augment our capabilities. The recently-announced collaborations with Intellegens and Biorelate are examples of deals which enable us to access the very latest innovations in AI. We are currently exploring other collaborations of this type.

Cost control

In executing our strategy, we are mindful of our finite resources. Our operating loss for the year ended 31 January 2018, of £6.8m, was significantly below the £16.3m operating loss reported for 2017. This reflects a keen control on costs and the focus of our R&D resources on fewer, higher value, commercially-relevant projects.

We run a virtual development model and outsource our chemistry and biology work to skilled contract research organisations with whom we have developed deep relationships with over the years. Internally, we have developed a 'killer experiment' mentality under which projects that do not have the potential to be highly competitive commercially are stopped, so we can pursue those that have better prospects.

Remaining adaptable to change

Entering the new financial year, we need to be realistic and pragmatic about our business strategy and cash position. The current reality is that we cannot afford to invest in all the NDD-derived programmes we have created and we will need to go out to the industry earlier than perhaps ideal to seek commercial funding.

We remain completely committed to our core business strategy of investing our resources, and cash, into our own drug discovery platform and chosen drug discovery programmes (for as long as positive data are being created). Following this strategy is expected to result in continuing losses until revenues from external sources exceeds our investment in R&D and infrastructure. However, if required, we also have the flexibility to quickly reallocate our resources and to focus on maintaining our core NDD-platform.

We are now in a better position to be proactive and open to considering potential M&A opportunities that could augment our core technology platform or provide downstream skills, capabilities or cash to further develop NDD-derived assets. We also need to be ready to react to a potential wave of consolidation that may occur in the next industry cycle.

As such, we will look carefully at all opportunities which could add value to our Shareholders. In the medium term, if we wish to continue to follow this business model we may need to raise additional funds. To raise our international profile, we have initiated a round of non-deal investor roadshows in the USA, mainland Europe, Israel and Asia. Our plan is to attract new investors that share our belief in the future potential of the business.

We look forward to the future with increasing optimism and commit to maintaining an open dialogue with our Shareholders during the coming year.

Ray Barlow

Chief Executive Officer

26 March 2018

Financial review

One of the fundamental objectives of management over the last 12 months was to focus on the Group's costs and, by association, its cash burn. Importantly, this was done without negatively impacting the Group's commercial prospects. This ongoing focus on cost remains core to management and is evidenced by the fact that the operating loss in the second half of the last financial year, of £3.1m, was below that of the first half, of £3.7m.

Looking at the overall performance of the Group in the year to 31 January 2018, the full year operating loss was £6.8m, £9.5m lower than the prior year (2017: £16.3m). The main reason for the reduced loss was a £5.9m fall in R&D spend to £5.0m (2017: £10.9m). This reduction in R&D spend was due to a combination of fewer internal drug discovery assets and a material decrease in spend on drug development as the remaining clinical trial is being wound down.

At the time of our preliminary results last year, we announced an investment in the functionality of the core computational discovery platform with the recruitment of three additional employees in this part of the Group. However, overall, staff costs fell by £0.9m to £2.6m for the year ended 31 January 2018. If we achieve commercial success, we will recruit additional staff to support new work.

Drug discovery spend for the year ended 31 January 2018 was reduced by £3.2m to £4.4m (2017: £7.6m). The reduction in spend related to the focused external costs on our two NDD-derived drug discovery projects. We entered the financial year with six active projects (12 at the time of our 2016 results) and this was further reduced to two following the strategic review last summer. These remaining projects are both in areas of immuno-oncology and we anticipate ongoing investment in these projects in the coming financial year.

Spend on drug development in the year to 31 January 2018 fell by £2.7m to £0.6m (2017: £3.3m). We announced the orderly closure of the remaining clinical trial in March 2016 and at the time of writing this report, two patients remain in the study. The trial is expected to close in August 2018 at the latest.

Administrative spend in the year to 31 January 2018, of £1.7m, was £1.6m lower than the prior year (2017: £3.3m). The two main reasons for this were a fall in patent cost write-offs and a reduction in exceptional management costs. Following the closure of the clinical trials in the prior year, we took the decision at that time to write-off all associated patent costs, amounting to £0.7m; similar patent cost write-offs in the last 12 months were less than £0.1m. Management changes in the year to 31 January 2017 resulted in £0.6m of compensation payments; this compares to £0.1m in the year to 31 January 2018. Underlying administrative costs, excluding these two items, decreased by £0.4m. This was driven primarily by a reduction in ongoing staff costs.

Year end cash and fixed-term deposits amounted to £9.6m; this was £4.4m lower than the opening position of £14.0m. During the year, we received R&D tax credit payments totalling £3.0m. We anticipate the receipt of a smaller R&D tax credit in relation to the current year, of £1.4m, which reflects the reduced amount of allowable R&D spend during the year.

A further reduction to the cost run-rate is possible in the coming financial year, but this would involve reducing investment in our two core NDD-derived discovery assets and it is our current belief that continued investment in these programmes will generate additional Shareholder value. The cost base remains under constant review and, whilst we are currently planning external discovery projects at similar levels to last year, all our contract research organisations are operating under short notice periods so that we can remain flexible in the way we are able to deploy this investment.

Subject to ongoing active management of the cost base and reducing spend, for example on NDD-derived discovery programmes, we believe we are capable of extending the cash runway into 2020.

Steve Medlicott

Finance Director

26 March 2018

Consolidated Income Statement

For the year ended 31 January 2018

Consolidated Statement of Comprehensive Income

For the year ended 31 January 2018

Consolidated Statement of Changes in Equity

For the year ended 31 January 2018

Company Statement of Changes in Equity

For the year ended 31 January 2018

Balance Sheets

As at 31 January 2018

Statements of Cash Flow

For the year ended 31 January 2018

Notes

1. Status of Audit

The financial information presented in this statement does not constitute the Company's statutory accounts for the year ended 31 January 2018 or the year ended 31 January 2017 but is derived from those accounts. Statutory accounts for the year ended 31 January 2017 have been delivered to the Registrar of Companies and those for the year ended 31 January 2018 will be delivered following the Company's Annual General Meeting. The Auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their reports, and did not contain statements under s498(2) or (3) of the Companies Act 2006. 

2. Basis of preparation

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards, as adopted by the European Union (EU) ("IFRS"), this announcement does not in itself contain sufficient information to comply with IFRS. This preliminary announcement has been prepared using the accounting policies that are expected to be published in the Group's accounts for the year ended 31 January 2018, which are consistent with the accounting policies published in the Group's accounts for the year ended 31 January 2017 and that are available on the Company's website at www.etherapeutics.co.uk, with the exception of those new standards, interpretations and amendments which became effective during the year and were adopted by the Group, albeit with no impact on the Group's loss for the year or equity.

The Directors have, at the time of approving the statutory accounts, a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the statutory accounts, from which the financial information presented in this statement is derived.

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. The Company undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations. 

3. Accounting judgements and sources of estimation uncertainty 

The preparation of financial statements requires the Directors to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities and income and expenses.

The following are the key judgements that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in these financial statements:

• The Directors consider the continued adoption of the going concern basis appropriate, notwithstanding the fact that no revenue was recognised in the current or prior year. The Directors consider that the current position of the Group is not unusual for a drug discovery business. The Group has prepared detailed financial forecasts for the next two financial years, which show that the Group should be able to operate within the level of its current cash balances and continue in operational existence for the foreseeable future.

The following are the key assumptions concerning estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

• Intangible assets and goodwill have been reviewed for impairment and further details of this testing can be found in Note 7.

• The current tax receivable, as disclosed in Note 5, represents an R&D tax credit based on an advance claim with HMRC. The final receivable is subject to judgement and the correct application of complex R&D tax rules. Historically, claims have been successful, and the Group expects the current year to be successful too. 

4. Staff numbers

The average number of persons employed by the Group and the Company (including Executive Directors and excluding Non-Executive Directors) during the year, analysed by category, was as follows:

5. Taxation

Reconciliation of effective tax rate:

The Group has accumulated losses available to carry forward against future trading profits of £23,938,000 (2017: £20,650,000). No deferred tax has been recognised in respect of tax losses since it is uncertain at the Balance Sheet date as to whether future profits will be available against which the unused tax losses can be utilised. The estimated value of the deferred tax asset not recognised, measured at a standard rate of 17%, is £4,075,000 (2017: £3,533,000).

The decrease in the current year tax credit is due to a decreased R&D credit, as a result of lower qualifying expenditure during the year. The current year R&D credit has not yet been approved by HMRC and, therefore, there is a risk that this claim may not be successful.

Expenses not deductible include amortisation and impairment of goodwill and intangible assets.

During the year, there was a reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017). 

6. Loss per share

The analysis of loss per share is as follows:

Diluted EPS is calculated in the same way as basic EPS but also with reference to reflect the dilutive effect of share options in existence at the year end over 17,052,500 (2017: 15,601,052) ordinary shares. The diluted loss per share is identical to the basic loss per share, as potential dilutive shares are not treated as dilutive since they would reduce the loss per share. 

7. Goodwill and intangible assets

Amortisation

Amortisation has been charged on patents for which the registration process is complete. Where the process is incomplete no charge has been raised.

Impairment testing

The Group carries out a review at each Balance Sheet date to establish the economic value of each asset in the patent portfolio. If the economic value of a patent is believed to be lower than the carrying value, the carrying value is reduced accordingly. The economic value is based on estimated future income potential taking into account technical and commercial risks and external information on the likely market demand and penetration for the drugs for which the Group has patents.

The goodwill in the Company Balance Sheet arose following the hive up of the trade and assets of InRotis Technologies Limited on 15 November 2007. The goodwill is allocated to the drug discovery activities of the Group. In assessing goodwill impairment, recoverable amount is based on fair value less costs to sell. The carrying value of goodwill is compared to the market capitalisation of the Group as part of the impairment assessment.

8. Property, plant and equipment - Group and Company

9. Capital and reserves

The Company has one class of ordinary shares, which carry no right to fixed income.