FUL.L Regulatory News (FUL)

Introduction

I am pleased to report strong growth in operating profit and significant cash generation during the first half of the year. The trading highlights for the period from 1 September 2009 to 28 February 2010 are:

·; Revenue essentially unchanged at £8.1 million (compared to H1 2009 of £8.2 million) despite closure of business segments in 2009

·; Gross profit increased by 7% to £3.7 million (compared to H1 2009 of £3.5 million)

·; Operating profit before exceptional items increased by 237% to £411,000 and operating profit increased by 170% to £330,000 (compared to H1 2009 of £122,000)

·; EBITDA before exceptional items increased by 92% to £594,000 (compared to H1 2009 of £310,000)

·; Cash balances increased by 54% to £3.1 million (compared to year end balance in August 2009 of £2.0 million and by 13% compared to the H1 2009 balance of £2.7 million)

·; The EU business re-structuring programme implemented in H2 2009 has significantly increased operational efficiency in H1 2010

Business review

Fulcrum Pharma has continued to pursue its clear strategy to deliver a growing, sustainable and profitable business. The actions taken by management in 2009 allow the Group to function more efficiently in 2010. The benefits of the reorganisation undertaken during H2 2009, coupled with subsequent strong control of costs, have resulted in a very good interim result compared to last year. The second half will be affected by the early termination of a significant project by a client that has decided not to continue its development plan but your Board remains confident of the Group's prospects overall based on current trading conditions and an increasing volume of business development enquiries and proposals.

Despite the financial environment in calendar year 2009, the Group has continued to predict an increased trend to outsourcing driven, inter alia, by larger pharma and biotechnology companies and underpinned for the Group by its expertise in the neglected diseases / not-for-profit sector. The second half of calendar year 2009 showed a pick up in business development enquiries and proposals providing encouragement that the business would continue to grow in 2010. In response to the turbulent financial environment, management has continued targeting business development activities and have managed costs strictly. The principal risks and uncertainties to the business remain unchanged from those described in the Directors' report in the Group's last annual report and are not expected to change significantly in the second half of the year.

In November 2009, the Company announced that an approach had been made to acquire the entire issued share capital of Fulcrum Pharma. After protracted discussions and negotiation, your Board came to the conclusion that the best short term return for shareholders would be achieved by recommending the offer for the Company by Gold Medal Acquisitions UK Ltd, an acquisition vehicle of SV Life Sciences and The Halifax Group, that was announced today.

Financial results

Revenue for the Group was essentially unchanged at £8,099,000 (2009: £8,246,000), a very positive result given the reorganisation in the second half of the 2009 financial year and the closure of some business segments. Gross profit increased 7% to £3,727,000 (2009: £3,498,000) and operating profit after exceptional items increased 170% to £330,000 (2009: £122,000). Before exceptional items operating profit shows a greater than three-fold increase on the same period last year to £411,000. Retained profit is £225,000 (2009: £120,000).

Earnings before interest, tax, depreciation and amortisation ('EBITDA') were £594,000 (2009: £310,000) before exceptional items. Underlying basic earnings per share ("EPS") was 0.18p and the actual basic EPS was 0.13p (2009: 0.07p).

The Group has incurred an exceptional charge of £81,000 primarily as a result of the approach to acquire the issued share capital of the Company. Additional costs of dealing with the approach will arise in the second half of the year.

The Group's half year tax charge is increasing as accumulated tax losses in the overseas subsidiaries have been fully utilised against profits in the prior year.

The balance sheet remains strong with cash and cash equivalents of £3,104,000 (2009: £2,744,000).

The Directors do not propose a dividend (2009: £nil).

Average headcount for the period decreased to 133 from 148, reflecting the reorganisation in the last financial year. 134 staff were in post at the period end.

Forward-looking statements

Certain statements in this interim report are forward-looking statements that reflect the Group's current expectations regarding future events. Forward-looking statements inherently involve risks and uncertainties. Actual events could differ materially from those expected and depend on a number of factors including the general economic outlook and successful BD activity. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Operating review

·; EU / PDC

Revenue in the EU business in H1 2010 was 5% lower than in H1 2009. Despite the reduction in sales, operating profit was £467,000 greater than last year, demonstrating the positive result of the re-structuring programmed undertaken in the latter half of the last financial year. Market conditions have remained slow during the period but appear to be improving, with a number of large multi year contracts being won and others being discussed with major customers. The Company has also celebrated the final submission for the anti-malarial drug Pyramax. Fulcrum Pharma, in conjunction with the not-for-profit organisation Medicines for Malaria, has been involved in the development of Pyramax for over seven years, taking it through all stages of drug development including CMC, preclinical and clinical, and the final submission to EMA in March 2010.

·; US

Revenue in the first half decreased by 10% (7% when adjusted for currency effects) compared to H1 2009, although operating profit has risen by 77% as a result of strict cost control. Funding for early stage research, the traditional focus of the US organisation, remains difficult and this condition has impacted their business development efforts. In order to expand the service offerings of the US organisation into later stage research a Vice President of Clinical has been successfully recruited.

·; Japan

Japanese revenue has increased by 13% compared to H1 2009 (9% when adjusted for currency effects), although operating profit has fallen by 30% following the cancellation of a major contract when a client decided not to continue its development plan. Despite this loss, good cost control has mitigated the potential downside and a replacement contract has been identified which will commence in H2 2010. The Japanese office has been expanded to allow recruitment of additional staff and Fulcrum Pharma is examining options to further grow the business. There also continues to be substantial work generated from Japanese companies for the Fulcrum Pharma EU and US businesses based on the strong local relationships.

Future strategy and outlook

The Board and Management of Fulcrum Pharma remain convinced of the opportunities that exist to grow the business significantly and to improve results, through winning larger projects, building a substantial regulatory business and capitalising on the benefit of the restructuring completed last year and improving market conditions. We would like to make a number of identified acquisitions to add critical mass and expand our service offering but have been unable to achieve the required equity funding from the stock market despite significant efforts to do so. Our small market cap and shareholder structure mean that there is very low liquidity in our shares and the share price is unlikely to reflect the Company's value in the foreseeable future. Your Board has therefore concluded that a greater short term return can be achieved by accepting the recommended offer announced today which represents a substantial premium to the current share price and is in the best interests of shareholders as it brings more immediate access to the growth capital necessary to make the acquisitions that will drive future growth.

Statement of Directors' responsibilities

The Directors confirm that to the best of their knowledge:

·; The condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the EU;

·; The interim management report includes a fair review of the information required by DTR 4.2.7 R (indication of important events during the first six months of the financial year, their impact on the condensed financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year); and

·; The interim management report includes a fair review of the information required by DTR 4.2.8 R (disclosure of material related party transactions and changes therein).

I would like to thank all our staff for contributing to Fulcrum Pharma's success so far in 2010.

At the date of this statement, the Directors in office are those listed in the Group's annual report and accounts 2009.

By order of the Board

Grahame Cook

Chairman

27 April 2010

* Exceptional items primarily relate to costs incurred as a result of the approach to acquire the issued share capital of the Company which was subsequently recommended by the Board (see Note ‎4).

Condensed consolidated statement of comprehensive income

For the period ended 28 February 2010

Condensed consolidated balance sheet As at 28 February 2010

Condensed statement of changes in equity For the period to 28 February 2010

1. General information

Fulcrum Pharma plc (the "Company") and its subsidiaries (together, the "Group") are professional service companies providing clients with expert solutions for the development of therapeutic products. The Company is a public limited company incorporated and domiciled in the United Kingdom. The address of its registered office is Hemel One, Boundary Way, Hemel Hempstead, Hertfordshire, HP2 7YU, UK.

The Company is listed on the London AIM stock exchange.

2. Summary of significant accounting policies

Basis of preparation

The condensed interim financial statements for the six months ended 28 February 2010 are neither reviewed nor audited and do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 and were approved by the Board on 27 April 2010. Statutory accounts for the year ended 31 August 2009 were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and have been reported on by the Company's auditors, PricewaterhouseCoopers LLP, and delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The condensed interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and IAS 34 "Interim Financial Reporting" and should be read in conjunction with the annual report and accounts 2009.

The condensed interim financial statements have been prepared on a going concern basis. The Board is confident that, on the basis of current financial projections and facilities available and after considering sensitivities, the Group has sufficient resources for its operational needs for at least the next 12 months.

The Group has adopted IAS 1 (revised) "Presentation of Financial Statements" in the period. This requires changes in equity to be shown as a primary statement. As a result, changes in equity are disclosed in these condensed interim financial statements in a primary statement rather than in the notes.

The Group has also adopted IFRS 8 "Operating Segments" in the period. IFRS 8 amends the segmental reporting disclosure and requires a "management approach" to be adopted so that segment information is presented on the same basis as that used for internal reporting purposes.

In addition, the Group has adopted the following new financial reporting standards, interpretations and amendments to published standards in the period, which have not had a material effect on the results or the financial position of the Group for the six months ended 28 February 2010:

·; IAS 23 (revised) "Borrowing Costs"

·; IFRS 1 (revised) "First-time Adoption of International Financial Reporting Standards"

·; IFRS 2 (revised) "Share-based Payments"

·; IAS 32 (revised) "Financial Instruments: Presentation" and IAS 1 (revised) "Presentation of Financial Statements - Puttable Instruments and Instruments with Obligations Arising on Liquidation"

·; IAS 39 (revised) "Financial Instruments: Recognition and Measurement"

·; IFRIC 14 "The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction"

·; IFRIC 15 "Agreements for the Construction of Real Estate"

·; IFRIC 18 "Transfer of Assets from Customers"

Apart from the above changes, the accounting policies adopted in these condensed interim financial statements are consistent with those set out in the Group's annual report and accounts for the year ended 31 August 2009. 

3. Segmental reporting

The Group has three reportable segments, EU, US, Japan; they are regional subsidiaries with separate management teams, each providing professional services to clients for the development of therapeutic products.

Results of activities considered incidental to the Group's main operations as well as unallocated revenues, expenses, liabilities and assets are reported separately under the caption "Corporate and Eliminations". These amounts principally include interest income and expenses, goodwill, intangible assets and amortisation and foreign exchange gains and losses on consolidation. In addition, eliminations of gains and losses related to transactions between the operating segments are included in Corporate and Eliminations.

The Chief Operating Decision Maker of the Group is the Business Management Team ("BMT"), consisting of the CEO, FD and the regional heads of department. The BMT evaluates the performance of the Group and allocates resources to its operating segments based on revenue and operating income, considered before finance costs and exceptional items. The accounting policies of the Group's segments are the same as those for the Group as described in Note ‎2. Corporate administrative costs and assets are not allocated to operating segments; instead, operating segments are charged for direct corporate services.

The Group has adopted IFRS 8 for the period commencing 1 September 2009 and comparative figures are therefore being reported for the first time.

3. Segmental reporting (continued)

4. Exceptional items

The Group separately presents exceptional items in the current year primarily relating to costs incurred as a result of the approach to acquire the issued share capital of the Company which was subsequently recommended by the Board. In the prior year, exceptional items related to reorganisation costs and acquisition expenses in respect of an acquisition under negotiation during the year which has not been completed. In the judgement of the Directors, these need to be disclosed separately by virtue of their size and incidence in order for the reader to obtain a proper understanding of the financial information.

5. Finance income and costs

6. Income tax expense

7. Dividends

The Directors do not propose to pay an interim dividend (2009: £Nil per share).

8. Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity shareholders by the weighted average number of ordinary shares in issue during the year. The weighted average number of shares used excludes those shares held by the ESOP Trust on behalf of the Group. For diluted earnings per share the weighted average number of shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares arising from unvested share-based awards including share options. Underlying earnings per share figures are presented below in addition to the basic and diluted earnings per share as the Directors consider this gives a more relevant indication of underlying business performance and reflects the adjustments to basic earnings per share for the impact of exceptional items.

Shares under option have not been included in the calculation of diluted earnings per share for the year ended 31 August 2009 because doing so would have an anti-dilutive effect.

9. Tangible and intangible fixed assets

Goodwill acquired on business combinations is not amortised but is reviewed for impairment on an annual basis, or more frequently if there are any indications that the goodwill may be impaired. There have been no events that would indicate any impairment to the carrying value of goodwill or the intangible assets held.

There are no commitments to purchase property, plant and equipment after the end of the period.

10. Borrowings

Bank loans and overdrafts are unsecured. There is no difference between the fair value and carrying value of borrowings.

11. Related party transactions

There are no material related party transactions requiring disclosure under IAS 24 "Related Party Disclosures", other than compensation of key management personnel which will be disclosed in the Group's annual report for the year ending 31 August 2010.