FUL.L Regulatory News (FUL)

9 Nov 2006 07:01

Fulcrum Pharma PLC09 November 2006 FULCRUM PHARMA PLC ("the Group" or "the Company") Preliminary Results for the Year Ended 31 August 2006 Fulcrum Pharma plc (AIM: FUL), the drug development and strategic outsourcingservices company, today announces its preliminary results for the year ended 31August 2006. Highlights • Profit before tax of £154,000 (2005: loss of £76,000, £315,000 before exceptional) • Fee sales improved by 34% to £8.3m (2005: £6.2m) • Successful acquisition and integration of Quadramed Ltd, a regulatory services business • Headcount increased by circa 50% and management team strengthened • Strong sales performance in Europe • Disappointing sales performance in US. New General Manager appointed • Good contribution to sales by Japan Commenting on the results, Chairman Prof. Sir Charles George said: "We continueto focus on building Fulcrum to a sufficient scale to deliver sustainableprofits. We remain committed to growing our services business, in particular inpharmaceutical regulatory affairs, both organically and by acquisition. Finally,I would like to thank the management and staff for all their efforts in bringingthe company back into profit this year." For further information, please contact: Fulcrum Pharma PLCJon Court, Chief Executive Tel: 0870 710 7152 Fulcrum Pharma PLC Preliminary Results for the Year Ended 31 August 2006 Chairman's Report Business ReviewI am pleased to report the Group returned to profitability in this year and hasmaintained a strong balance sheet with net funds at 31 August 2006 of £1.9m(2005 £1.5m). Fulcrum's results show a profit before tax for the full year of£154,000 compared to last year's loss before tax of £76,000 (£315,000 lossbefore exceptional credit). Since last year's results the Group has successfully evolved to the next stageof its development. Group fee sales have grown by 34%, the management team hasbeen strengthened and staff numbers have increased by nearly 50% through organicgrowth and company acquisition. Pharmaceutical services remain a growth sectorin which changes in the regulatory environment have increased the demand forregulatory services and know-how. Fulcrum has capitalised on this marketopportunity through the successful acquisition of Quadramed Limited("Quadramed"), a regulatory services company based in the UK. The enhancedperformance of this company since acquisition has confirmed the strategic fit ofthese services with Fulcrum's evolving business model. Financial ResultsThe Group made a profit before tax of £154,000 (2005: loss of £76,000).Amortisation relating to the acquisition of Quadramed was £51,000. The retainedprofit for the year was £142,000 (2005: loss £89,000) and the basic earnings pershare was 0.12p (2005: loss per share 0.07p). Fee sales increased by 34% to £8.3m (2005: £6.2m). Net operating costs,excluding exceptional credits, were £3.9m compared to £3.0m last year. Theexceptional credit in the prior year of £239,000 represented income from thesurrender of the lease on the UK office less the cost associated with relocationto new premises. The balance sheet remains strong with net funds at 31 August2006 of £1.9m (2005: £1.5m). Operating Review Commercial, Sales and Business DevelopmentOver the past year Fulcrum has grown in size and increased the range of servicesit offers the pharmaceutical industry. Fee sales have increased in the full yearby 34% and in the second half sales were £4.6m compared to £3.7m in the firsthalf year. The Group has concentrated on strengthening the Fulcrum brand and hassponsored and presented at major biotechnology and partnering conferences in theUS, Europe and Japan such as BIO 2006, BECIF, ASCO, DIA and Bio Business. Netoperating costs have increased, reflecting investment in the scale up of thebusiness, recruitment of staff and associated infrastructure. The Group isincreasing sales and marketing resource to capitalise on its expandedoperational capacity. Establishing long term business relationshipsFulcrum has developed frameworks to manage long term strategic outsourcingrelationships with clients. This enables Fulcrum to grow client accounts,improve productivity and mitigate risk. Fulcrum continues to provide expertiseand support to Medicines for Malaria Venture ("MMV"), including for thedevelopment of the pyronaridine artesunate combination for treating acuteuncomplicated malaria. The latter project was nominated as MMV Project of theYear 2005. In April 2006, long term business relationships were announced withCeltic Pharma Development Services Bermuda Limited ('Celtic Pharma') andNanoCarrier Co. Limited ('NanoCarrier'). Celtic Pharma is a leading globalprivate equity firm focused on pharmaceutical and biotechnology products.NanoCarrier is a Japanese biotechnology company. Both relationships are expectedto deliver significant revenue over the next three years. Fulcrum also continuesto support the delivery of the Addex Pharmaceuticals SA ("Addex") portfolio ofproducts. Addex successfully achieved a further round of funding in August 2006. Regional PerformancePharmaceutical regulatory services are integral to all parts of Fulcrum'sbusiness in Europe, US and Japan. Following the acquisition of Quadramed, theGroup has focused on growing regulatory services and products including latestage electronic submissions. In tandem the management team has beenstrengthened by new leadership appointments in Europe, US and RegulatoryServices. EuropeFee sales in Europe have strengthened throughout the year, and, excluding thecontribution from Quadramed, have increased by 38% over the previous year. Toenable the company to execute the additional work, there has been investment,particularly in the second half of the year, in the recruitment of staff,expansion into new office premises in Strasbourg and the opening of a new officein Edinburgh. Under the leadership of the recently appointed General Manager forEurope, Sarah Arbe-Barnes, it is planned that the sales team will be furtherstrengthened. The relocation of the UK office in Hemel Hempstead, which wasplanned to take place in mid December 2005, had to be postponed following theexplosion at the Buncefield Oil Depot. The relocation is expected to take placein December 2006 and the original foreseen savings can then be achieved. USFee sales in the US fell by 11% where the sales performance in the second halfhas been disappointing. Overall this position has been mitigated by the USproviding key resources to support European contracts. A new General Manager,John Seman, was appointed in October 2006 to lead the US business. The Groupremains committed to the strategy of delivering services globally and theobjective of achieving a significant proportion of its income from the US. JapanUnder the leadership of Teruyoshi Okuda and Kiyoshi Fujimaru, fee sales fromFulcrum's two Japanese companies have increased by 17%. The business model of aspecialist oncology clinical research organisation and regulatory group hasbegun to develop into a sustainable, profitable business. During the period,several Government funded contracts with academia have been won. In addition,the continued investment in business development has generated £1.4m of feesales from Japanese clients for Fulcrum in Europe and US and begun to create feeincome for Fulcrum Regulatory Services. Fulcrum Regulatory Services ("FRS")FRS is based around the nucleus of Quadramed, acquired in February 2006. PhilBirch has been recruited to grow the existing regulatory services, as well asbuilding a complementary regulatory compliance offering. Quadramed itself hashad a successful initial seven months of trading within the group and its feesales show a 39% increase over the same period last year. This improvement insales demonstrates the strategic fit of these services with Fulcrum's evolvingbusiness model and the potential for synergy with the rest of the Group. The acquisition of Quadramed enables the Group to focus on growing regulatoryservices across the business, and to offer electronic submission capability forregulatory documents. As the regulatory agencies, such as FDA and EMEA, aremoving to a position where they will only accept electronic submissions, thiscapability gives Fulcrum a strong position in this changing market. Management IncentivesIt is proposed to introduce a long term incentive plan to align seniormanagement with future goals for profitability and growth. Full details will beprovided to shareholders for approval. Board ChangesAs announced last year, it remains the intention of the Company to furtherstrengthen the Board with more expertise within the service sector. Dr AngusBell joined the board in March 2006 as a non-executive director and Dr DavidClough, who had been a non-executive director since the company was listed onAIM in 2000, retired in May 2006. Future Strategy and OutlookFollowing the return to profitability, the Group has refined the strategy setout last year: 1. Grow the service business within the four business units and further develop the global service model.2. Increase scale, particularly in pharmaceutical regulatory affairs, through acquisition and organic growth.3. Grow the business and its profitability with - • Expanded sales effort and business development. • Developing long term client relationships. • Focusing on growing the most profitable, highest demand elements of Fulcrum's services The historic factors of capital efficiency and improved productivity continue todrive drug developers towards outsourcing. ConclusionFulcrum continues to focus on building the business to a sufficient scale todeliver sustainable profits and remains committed to growing services,particularly in pharmaceutical regulatory affairs, both organically and byacquisition. Consolidated Profit & Loss Account for the year ended 31 August 2006 Year Ended Year Ended Year Year 31 August 31 August Ended Ended 31 August 31 August 31 August 31 August 2006 2006 2006 2005 Unaudited Unaudited Unaudited Audited--------------------- ----- --------- -------- --------- -------- Continuing Acquisitions Total--------------------- ----- operations -------- --------- -------- --------- Note £'000 £'000 £'000 £'000--------------------- ----- --------- -------- --------- -------- Turnover 2 14,360 1,091 15,451 12,626Cost of sales (10,818) (620) (11,438) (10,014)--------------------- ----- --------- -------- --------- --------Gross profit 3,542 471 4,013 2,612Selling expenses (540) (23) (563) (654)--------------------- ----- --------- -------- --------- --------Administrative (3,084) (294) (3,378) (2,320)expensesExceptionaladministrative credit 3 - - - 239--------------------- ----- --------- -------- --------- --------Total administrativeexpenses (3,084) (294) (3,378) (2,081)--------------------- ----- --------- -------- --------- --------Other operating 65 - 65 -income ----- --------- -------- --------- -----------------------------Operating profit/ (17) 154 137 (123)(loss)Interest receivableand 59 56similar incomeInterest payable andsimilar charges (42) (9)--------------------- ----- --------- -------- --------- --------Profit/(loss) onordinaryactivities before 154 (76)taxationTax on profit/(loss)on 4 (12) (13)ordinary activities ----- --------- -------- --------- -----------------------------Profit/(loss)for thefinancial year 142 (89)--------------------- ----- --------- -------- --------- -------- Earnings per share(pence) 5Basic 0.12p (0.07p)Diluted 0.10p (0.07p)Adjusted basic 0.12p (0.23p) Statement of Total Group Recognised Gains and Losses for the year ended 31August 2006 2006 2005 £'000 £'000 Unaudited Audited -------- ---------Profit/(loss) on ordinary activities after taxation 142 (89)Exchange adjustments offset in reserves (27) (8)------------------------------- -------- ---------Total recognised gains and losses since last annualreport 115 (97)------------------------------- -------- --------- Consolidated Balance Sheet as at 31 August 2006 -------- ------- 2006 2005 Unaudited Audited £'000 £'000 -------- -------Fixed assetsIntangible assets 1,216 -Tangible assets 552 460Investments 469 172------------------------------ -------- ------- 2,237 632 -------- -------Current assetsDebtors 3,657 3,335Short term investments 524 1,193Cash at bank and in hand 1,571 678------------------------------ -------- ------- 5,752 5,206Creditors: amounts falling due within one year (3,997) (2,481)------------------------------ -------- -------Net current assets 1,755 2,725------------------------------ -------- -------Total assets less current liabilities 3,992 3,357Creditors: amounts falling due after more thanone (422) (31)year -------- -------------------------------------Net assets 3,570 3,326------------------------------ -------- ------- Capital and reservesCalled up share capital 6 1,285 1,219Share premium account 6 4,547 4,370Merger reserve 6 (454) (454)Profit and loss account 6 (1,808) (1,809)------------------------------ -------- -------- -------Equity shareholders' funds 3,570 3,326------------------------------ -------- -------- ------- Consolidated Cash Flow Statement for the year ended 31 August 2006 -------- -------- -------- Note 2006 2005 -------- -------- -------- £'000 £'000 Unaudited Audited -------- -------- --------Net cash inflow/(outflow) from operating 7 795 (493)activities -------- -------- --------------------------------------Returns on investment and servicing of financeInterest received 59 56Interest paid (42) (9)------------------------------ -------- -------- --------Net cash inflow from returns on investments andservicing of finance 17 47------------------------------ -------- -------- --------TaxationCorporation tax paid (72) (3)------------------------------ -------- -------- --------Capital expenditure and financial investmentPurchase of own shares for employee share optionsand (114) (29)awardsPurchase of equity investments (297) (87)Purchase of tangible fixed assets (310) (69)------------------------------ -------- -------- --------Net cash outflow from capital expenditure andfinancial investment (721) (185)------------------------------ -------- -------- --------Acquisitions & disposalsPurchase of subsidiary undertakings (including (123) -costs)Cash acquired with subsidiary 445 ------------------------------- -------- -------- --------Net cash inflow from acquisitions and disposals 322------------------------------ -------- -------- --------Net cash inflow/(outflow) before management ofliquid 341 (634)resources and financing -------- -------- --------------------------------------Management of liquid resourcesDecrease in short term investments 669 230------------------------------ -------- -------- --------FinancingIncrease in borrowings - 100Capital element of finance lease payments (30) (37)Bank loan repayments (87) (26)------------------------------ -------- -------- --------Net cash (outflow)/inflow from financing (117) 37------------------------------ -------- -------- --------Increase/(decrease) in cash 7 893 (367)------------------------------ -------- -------- -------- Reconciliation of net cash flow to movement in net funds -------- -------- -------- Note 2006 2005 £'000 £'000 Unaudited Audited -------- -------- --------Increase/(decrease) in cash 893 (367)Decrease/(increase) in bank loans 87 (74)Bank loan acquired with subsidiary (11) -Decrease in short term investments (669) (230)Decrease in finance leases 30 37Other non-cash movements - (7)------------------------------ -------- -------- --------Change in net funds from cash flows 330 (641)Net funds at 1 September 1,538 2,179------------------------------ -------- -------- --------Net funds at 31 August 7 1,868 1,538------------------------------ -------- -------- -------- 1 Financial Information The results for the year ended 31 August 2006 are unaudited and do notconstitute statutory accounts within the meaning of section 240 of the CompaniesAct 1985. They have been drawn up using accounting policies and principlesconsistent with those applied in the preparation of the audited accounts for theyear ended 31 August 2005. The comparative information contained in the reportfor the year ended 31 August 2005 does not constitute the statutory accounts forthe financial period. Those accounts have been reported on by the Company'sAuditors, PricewaterhouseCoopers LLP, and delivered to the Registrar ofCompanies. The report of the Auditors was unqualified and did not contain astatement under section 237(2) or (3) of the Companies Act. 2 Turnover Turnover represents sales to third parties including fee income and pass throughcosts. Geographical analysis by origin 2006 2005 £'000 £'000 Unaudited Audited -------- --------Europe 5,162 3,082USA 1,349 1,524Japan 1,831 1,571------------------------------------ -------- --------Total fee sales 8,342 6,177Pass through costs 7,109 6,449------------------------------------ -------- --------Turnover 15,451 12,626------------------------------------ -------- -------- Geographical analysis by destination 2006 2005 £'000 £'000 Unaudited Audited -------- --------United Kingdom 2,184 3,245Rest of Europe 4,669 3,290North America 4,136 3,380Japan 4,044 2,698Rest of the World 418 13------------------------------------ -------- --------Turnover 15,451 12,626------------------------------------ -------- -------- 3 Exceptional item The exceptional item in 2005 represents the income from the surrender of thelease on the UK office less the costs associated with the relocation to newpremises. 2006 2005 £'000 £'000 -------- --------Profit/(loss) on ordinary activities before taxation 154 (76)Exceptional administrative credit - (239)------------------------------------ -------- --------Profit/(loss) on ordinary activities before taxation andexceptional items 154 (315)------------------------------------ -------- -------- 4 Tax on profit/(loss) on ordinary activities 2006 2005 £'000 £'000 Unaudited Audited -------- --------UK taxationUK corporation tax at 30% 10 ------------------------------------- -------- --------Overseas taxation 2 13Corporation taxes------------------------------------ -------- --------Total current taxation 12 13------------------------------------ -------- -------- Tax on profit/(loss) on ordinary activities 12 13------------------------------------ -------- -------- 5 Earnings/(loss) per share 2006 2005 Unaudited Audited -------- --------Basic earnings/(loss) per share 0.12p (0.07)pAdjustment for exceptional credit - (0.16)p------------------------------------ -------- --------Adjusted earnings/(loss) per share 0.12p (0.23)pDiluted earnings/(loss) per share 0.10p (0.07)p------------------------------------ -------- -------- 2006 2005 -------------------- ------------------- Profit Profit before before exceptional Exceptional exceptional Exceptional items items Total items items Total £'000 £'000 £'000 £'000 £'000 £'000 Unaudited Unaudited Unaudited Audited Audited Audited ----------- -------- -------- -------- -------- -------- -------Profit/(loss)before 154 - 154 (315) 239 (76)taxationTax onprofit/ (12) - (12) 35 (48) (13)(loss) -------- -------- -------- -------- -------- ------------------Profit/(loss) 142 - 142 (280) 191 (89)after -------- -------- -------- -------- -------- -------taxation----------- 5 Earnings/(loss) per share continued 2006 2005 Number Number Unaudited Audited --------- ---------Weighted average number of shares 125,478,759 121,185,914Weighted average number of shares held by theEmployee Share Ownership Trust (2,013,839) (676,406)--------------------------------- --------- ---------Weighted average number of shares for basicearnings per share 123,464,920 120,509,508Number of share options 23,110,875 ---------------------------------- --------- ---------Weighted average number of shares for diluted EPS 146,575,795 120,509,508--------------------------------- --------- --------- The basic earnings per ordinary share is based on the Group's profit for theyear of £142,000 (2005: loss of £89,000) divided by the weighted average numberof ordinary shares in issue, excluding those shares held by the Employee ShareOwnership Trust ("ESOT"). Exceptional costs or credits charged or credited against operating profit andexceptional tax charges or credits do not relate to the profitability of theGroup on an ongoing basis. Therefore an adjusted basic earnings/(loss) perordinary share is also presented. 6 Reconciliation of movements on reserves and shareholders'funds Called up Share Profit share premium Merger and loss capital account reserve account Total £'000 £'000 £'000 £'000 £'000 ----------------- ------- -------- -------- -------- --------At 1 September2005 1,219 4,370 (454) (1,809) 3,326Retainedprofit foryear - - - 142 142Issue ofordinary share 66 177 - - 243Purchase ofown shares forESOT - - - (114) (114)Unrealisedexchange lossonconsolidation - - - (27) (27)----------------- ------- -------- -------- -------- --------At 31 August2006 1,285 4,547 (454) (1,808) 3,570----------------- ------- -------- -------- -------- -------- 7 Notes to the consolidated cash flow statement Reconciliation of the operating profit/(loss) to net cash inflow/(outflow) fromoperating activities: 2006 2005 £'000 £'000 Unaudited Audited -------- --------Operating profit/(loss) 137 (123)Amortisation 51 -Depreciation 197 197Shares compensation charge - 21Loss on disposal of fixed assets 15 -Exchange loss (13) (8)(Increase)/decrease in debtors (216) 17Increase/(decrease) in creditors 624 (597)------------------------------------ -------- --------Net cash inflow/(outflow) from operating activities 795 (493)------------------------------------ -------- -------- Analysis of net funds As at As at 1 September 31 August 2005 Cash flow Acquisitions 2006 £'000 £'000 £'000 £'000 Audited Unaudited Unaudited Unaudited --------- --------- -------- --------Cash at bank and in hand 678 448 445 1,571Bank loan (270) 87 (11) (194)Short term investment 1,193 (669) - 524Finance lease (63) 30 - (33)--------------------- --------- --------- -------- -------- 1,538 (104) 434 1,868 --------- --------- -------- -------- Major non -cash transactionsThe only major non-cash transaction that occurred during the period was theissue of 6,666,667 ordinary shares to satisfy part of the consideration on theacquisition of Quadramed Limited. The details are set out in note 8. 8 Acquisition On 8 February 2006, the Company acquired the entire issued share capital ofQuadramed Limited for an initial consideration of £1,090,000, of which £50,000was paid in cash and £690,000 was paid by the issue of loan notes, £500,000 ofwhich are guaranteed, £250,000 was paid by the issue of 6,666,667 ordinaryshares of 1 pence each and £100,000 was paid in other consideration. Furtherdeferred consideration, based on the turnover of Quadramed Limited during thefirst twelve months following completion of the acquisition, and estimated to be£400,000, will be payable in convertible loan notes. ----------------------------------------------- Book value and fair value of net assets acquired in Quadramed Limited £'000 ----------------------------------------------- Fixed assets 8Debtors 165Cash 445Creditors - amounts falling due within one year (329)------------------------------------ ---------Net assets 289------------------------------------ ---------Consideration------------------------------------ ---------Cash consideration 50Consideration in shares 250Consideration in loan notes 690Other consideration 100Deferred consideration in convertible loan notes 400Acquisition costs 66------------------------------------ ---------Total Consideration 1,556------------------------------------ --------- Capitalised goodwill 1,267------------------------------------ ------- --------- 9 Copies of Annual Report Copies of the Annual Report are being sent to the shareholders and will beavailable to the public at the registered office of Fulcrum Pharma plc, 5thFloor, Kodak House, Station Road, Hemel Hempstead, Hertfordshire, HP1 1JY. 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