FUL.L Regulatory News (FUL)

9 Nov 2005 07:00

Fulcrum Pharma PLC09 November 2005 For immediate release 9 November 2005 FULCRUM PHARMA PLC ("the Group" or "the Company") Preliminary Results for the Year Ended 31 August 2005 Fulcrum Pharma plc (AIM: FUL), the drug development and strategic outsourcingservices company, today announces its preliminary results for the year ended 31August 2005. Highlights > Profitable before exceptional items in second half> Loss before tax of £76,000 (loss of £1.2 million in 2004)> Strategy to improve performance taking effect > Business development reorganisation and new clients won > Group order book strengthening > FY 2005 operating costs (excluding exceptionals) reduced by more than £500,000 Commenting on the results, Chairman Prof. Sir Charles George said: "I am pleased to see that the Group has continued to strengthen its order bookand win new clients. Implementation of our sales and marketing reorganisationhas had a positive impact on the business and, together with improvedperformance, a reduced cost base and strong balance sheet, Fulcrum will focus ontaking the business to the next stage of its development. The Group plans todeepen its expertise in drug substance and formulation management and inpreclinical and regulatory services and is seeking suitable opportunities toincrease scale." FOR FURTHER INFORMATION, PLEASE CONTACT: Fulcrum Pharma PLC Tel: 0870 710 7152Jon Court, Chief Executive Buchanan Communications Tel: 020 7466 5000Mark Court, Mary-Jane Johnson Fulcrum Pharma PLC Preliminary Results for the Year Ended 31 August 2005 Chairman's Report Business Review Since my report last year, the Group has taken considerable steps to improve itsperformance and to grow the core service business. These steps included thereorganisation of the sales and marketing function, the tailoring of businessdevelopment and the continued effort to increase global sales to new clients.The tailored approach to business development has reduced the Group's relianceon networked sales and has strengthened the order book, which, together witheffective cost management and the more efficient use of staff, has resulted inthe return to profitability in the second half of the financial year. Fulcrum's turnover for the year was £12.6m (2004: £11.1m) and the loss beforetax was £76,000 (2004: loss of £1.2 m). The pharmaceutical services sector is emerging from a number of challengingyears and there are signs that the need for outsourcing is gaining momentum.Emerging pharma and biotechs continue to operate in a difficult fundingenvironment and strategic outsourcing is proving to be an important way for themto improve capital efficiency. In particular there is growth in drug substanceand formulation management and preclinical services, where Fulcrum hasconsiderable expertise, and in regulatory services where new opportunities arearising. In addition, our global service model enables companies to operateoutside of their domestic market. For example the orphan drug regulations inEurope allow US clients to create value and extend exclusivity in the marketplace. Additionally, large pharma clients in Japan continue to seek faster tomarket solutions by outsourcing development to the US and to Europe. Results The results for the year ended 31 August 2005 show a loss before exceptionalitems of £315,000 (2004: £862,000). Operating costs, excluding exceptional credits and charges, are £3.0m comparedto £3.6m in 2004. Included in these costs is an exchange gain of £5,000 (2004:loss of £114,000). The exceptional credit of £239,000 represents the income from the surrender ofthe lease on the UK office less the costs associated with relocation to newpremises. The agreement to surrender the lease was signed in March 2005. Theexceptional charge in 2004 represents the costs of the subsidiary, FulcrumVentures Limited, which was set up to in-licence rights to mid-to-late oncologyproducts and develop them. The retained loss for the year was £89,000 (2004: £1.4m) and the loss per sharewas 0.07p (2004: 0.93p). The Group's balance sheet remains strong overall with net cash at 31 August 2005of £1.5m (2004: £2.2m). No interim dividend was paid (2004: 0.2p per share) and no second half dividendis recommended. Operating Review Business Development and Sales The reorganisation of sales and marketing on a regional basis has had a positiveimpact on sales. Fee sales increased in the second half of the year to £3.3mfrom £2.9m in the first half year. The Group has won a significant number of newclients in Europe. Market research conducted in the US was used to hone our service offerings tothe biotech community. The knowledge gained was used to execute a targetedcampaign to increase client awareness. This campaign included sponsorship of,and presentations at, major biotechnology and partnering conferences in the US,Europe and Japan such as ASCO, BECIF, Bio Asia and BioBusiness, and has resultedin a strengthening of the pipeline of contracts and prospects. Establishing long term business relationships A core of long term relationships has been established in Europe, which hascontributed more than 60% of European sales in the current financial year. InMay 2005 we announced a long term agreement with Syngenta Biopharma under whichFulcrum continues to provide drug development expertise and is embeddingcritical tools and processes from Fulcrum's "Document Driven Drug Development"platform into the client organisation. In addition, Fulcrum's partnership withAddex Pharmaceuticals S.A. continues to support the delivery of Addex'sportfolio of products to treat disease of the Central Nervous System. We weredelighted that Addex were able to announce that ADX10059 had started clinicalstudies in France. This achievement of getting a drug from discovery into theclinic in less than 3 years is a strong validation of the executionalcapabilities of the partnership. Sales from Japan Our investment in business development in Japan continues to generate sales fromJapan into Europe and the US. Japan has contributed 12% of fee sales in Europeand the US. Our Japanese clients include large pharma and emerging biotechs suchas NanoCarriers Co., Ltd. These companies utilise our skillsets and resources inthe European and US subsidiaries. Fulcrum has also won contracts from emergingEuropean companies seeking the opportunity to create value in the Japanesemarket. Regional Performance Europe The sales pipeline and order book strengthened throughout the year.Encouragingly our business development team has won a significant number of newclients in the second half year and has delivered cross sales to the US officeand Japan. Whilst sales in Europe have decreased by 10% over the previous yearas a result of the weak order book at the start of the year, the performance inthe second half has been good. Significant cost savings have been achieved in this financial year. Thisincludes £230,000 of permanent annual savings, the majority of which relate tothe reorganisation of sales and marketing and the remainder to the rentdifferential on relocation of the UK office. US The US subsidiary has continued to grow through its domestic customer base, fromcross sales from Japan and from the provision of resources to the Europeansubsidiary. The latter has allowed efficient use of global resources. Overall USfee sales have grown by circa 20% compared with the same period last year. Japan The Japanese Group has matured into a specialist oncology CRO and regulatorygroup to meet the needs of the local market. Japan had a slow start to the yearbut made a substantial recovery in the second half. Our specialist oncology CROhas gained significant orders for the next 2 years including a phase II studywith a major US biotech (unnamed) which was won as a result of delivering asuccessful pilot project. Board changes The resignation of Dr Bruce McCreedy was announced in September 2005. To drivethe Company's global service model further forward, it is intended to strengthenthe Board during the coming year with more expertise from the service sector. Future Strategy Having returned to profitability in the second half, Fulcrum is continuing todeepen its expertise in key drug development areas and grow the business to thenext stage. The cornerstones of the Group's strategy remain: 1. Grow the service business in 3 regions and develop the global service model2. Increase scale - Regulatory, preclinical, drug substance and formulation3. Add further value through - Long term relationships - Risk sharing Prospects & Outlook The pharma and biotech outsourcing market remains competitive. However,companies increasingly need to demonstrate efficient use of capital and improvedproductivity. These factors are driving drug developers towards outsourcing as acore strategy. With stronger order books over last year the Group looks toimprove profitability further. Conclusion Fulcrum continues to concentrate on strengthening its order book and now intendsto improve performance and focus on taking the business to the next stage of itsdevelopment. With a reduced cost base and strong balance sheet, Fulcrum plans todeepen its expertise in drug substance and formulation management and inpreclinical and regulatory services and is seeking suitable opportunities toincrease scale. Consolidated Profit & Loss Account for the year ended 31 August 2005 Year Ended Year Ended 31 August 31 August 2005 2004 Unaudited Audited Note £'000 £'000 Turnover 2 12,626 11,085 Cost of sales (10,014) (8,434) Gross profit 2,612 2,651 Selling expenses (654) (810) Administrative expenses (2,320) (2,752) Exceptional administrative credit/(expenses) 3 239 (348) Total administrative expenses (2,081) (3,100) Operating loss (123) (1,259) Interest receivable and similar income 56 58Interest payable and similar charges (9) (9) Loss on ordinary activities before taxation (76) (1,210) Tax on loss on ordinary activities 4 (13) 88 Loss on ordinary activities after taxation (89) (1,122) Dividends 5 - (244) Loss for the year transferred to reserves (89) (1,366) Loss per share (pence) 6 Basic and diluted (0.07p) (0.93p) Adjusted basic and diluted (0.23p) (0.69p) Statement of Total Group Recognised Gains and Losses for the year ended 31August 2005 2005 2004 £'000 £'000 Unaudited Audited Loss on ordinary activities after taxation (89) (1,122) Exchange adjustments offset in reserves (8) (82) Adjustment in respect of employee share schemes (8) 16 Total recognised gains and losses since last annual report (105) (1,188) Consolidated Balance Sheet as at 31 August 2005 2005 2004 Unaudited Audited £'000 £'000Fixed assetsTangible assets 460 584Investments 172 85 632 669 Current assetsDebtors 3,335 3,351Short term investments 1,193 1,423Cash at bank and in hand 678 1,045 5,206 5,819 Creditors: amounts falling due within one year (2,481) (2,831) Net current assets 2,725 2,988 Total assets less current liabilities 3,357 3,657 Creditors: amounts falling due after more than one year (31) (226) Net assets 3,326 3,431 Capital and reservesCalled up share capital 1,219 1,219Share premium account 4,370 4,370Merger reserve (454) (454)Profit and loss account (1,809) (1,704) Equity shareholders' funds 3,326 3,431 Consolidated Cash Flow Statement for the year ended 31 August 2005 Note 2005 2004 £'000 £'000 Unaudited AuditedNet cash outflow from operating activities 7 (492) (843)Returns on investment and servicing of financeInterest received 56 58Interest paid (9) (9)Net cash inflow from returns on investments and servicing of 47 49financeTaxationCorporation tax (paid)/received (3) 176Capital expenditure and financial investmentPurchase of own shares for employee share options and awards (29) (43)Purchase of equity investments (87) (85)Purchase of tangible fixed assets (69) (293)Net cash ouflow from capital expenditure and financial investment (185) (421)DividendsEquity dividends paid to shareholders 5 - (244)Net cash outflow before management of liquid resources and (633) (1,283)financingManagement of liquid resourcesDecrease in short term investments 230 1,402FinancingNew finance leases - 58Increase in borrowings 100 152Capital element of finance lease payments (37) (32)Bank loan repayments (26) (23) 37 155(Decrease)/increase in cash 7 (366) 274 Reconciliation of net cash flow to movement in net funds Note 2005 2004 £'000 £'000 Unaudited Audited(Decrease)/increase in cash (366) 274Increase in bank loans (74) (129)Decrease in short term investments (230) (1,402)Increase/(decrease) in finance leases 30 (26)Change in net funds from cash flows (640) (1,283)Net funds at 1 September 2,179 3,462Net funds at 31 August 7 1,539 2,179 1 Financial Information The results for the year ended 31 August 2005 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 2004. The comparative information contained in the reportfor the year ended 31 August 2004 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 2005 2004 £'000 £'000 Unaudited AuditedEurope 3,082 3,414USA 1,524 1,305Japan 1,571 1,192Total Fee Income 6,177 5,911Pass through costs 6,449 5,174Turnover 12,626 11,085 Geographical analysis by destination 2005 2004 £'000 £'000 Unaudited AuditedUnited Kingdom 3,245 4,218Rest of Europe 3,290 1,448North America 3,380 2,904Japan 2,698 2,515Rest of the World 13 -Turnover 12,626 11,085 3 Exceptional items The Group has reported a loss before tax and exceptional items of £315,000(2004: £862,000). The Group has recorded an exceptional credit to administrative expenses of£239,000 (2004: a charge of £348,000). The exceptional credit represents theincome from the surrender of the lease on the UK office less the costsassociated with the relocation to new premises. The agreement to surrender wassigned in March 2005. The charge in 2004 represents the cost of the Group's enterprise, FulcrumVentures Limited, which was set up to in-licence rights to mid-to-late clinicalstage oncology products and develop them. 2005 2004 £'000 £'000 Unaudited AuditedLoss on ordinary activities before tax (76) (1,210)Exceptional administrative (credit)/expenses (239) 348Loss on ordinary activities before taxation and exceptional items (315) (862) 4 Tax on loss on ordinary activities 2005 2004 £'000 £'000 Unaudited AuditedUK taxationUK corporation tax at 30% - (63)Adjustment in respect of prior year - 18 - (45) 13 - Overseas taxation Corporation taxesTotal current taxation 13 (45) Deferred taxationOrigination and reversal of timing differences - (43)Tax on loss on ordinary activities 13 (88) No UK tax charge has arisen due to losses carried forward. The tax on theexceptional gain is set off against tax losses arising in the year. 5 Dividends No interim dividend was declared or paid during the year (2004: £244,000,representing 0.2p per share). The dividend was paid from the distributablereserves of Fulcrum Pharma plc. No final dividend has been proposed (2004:£nil). 6 Loss per share 2005 2004 Unaudited AuditedBasic loss per share (0.07)p (0.93)pAdjustment for exceptional costs 0.16p 0.24pAdjusted loss per share (0.23)p (0.69)p 2005 2004 Profit before Exceptional Total Profit Exceptional Total exceptional items before items items exceptional items £'000 £'000 £'000 £'000 £'000 £'000 Unaudited Unaudited Unaudited Audited Audited AuditedLoss before taxation (315) 239 (76) (862) (348) (1,210)Tax on loss 35 (48) (13) 25 63 88Loss after taxation (280) 191 (89) (837) (285) (1,122) 2005 2004 Number Number Unaudited AuditedWeighted average number of shares for basic and fully diluted EPS 121,185,914 121,151,541 The basic loss per ordinary share is based on the Group's loss for the year of£89,000 (2004: £1,122,000) divided by the weighted average number of ordinaryshares in issue, excluding those shares held by the Employee Share OwnershipTrust ("ESOT"). In 2005 and in 2004, the number of shares used in the calculation of dilutedloss per share was the same as that used in the calculation of basic loss pershare as the Group incurred a loss. Exceptional items within operating profit and exceptional tax charges or creditsdo not relate to the results of the Group on an ongoing basis. Therefore anadjusted loss per ordinary share is presented based on the Group's loss beforeexceptional items of £280,000 (2004: £837,000), divided by the weighted averagenumber of ordinary shares in issue, excluding those shares held by the ESOT. 7 Notes to the consolidated cash flow statement Reconciliation of the operating loss to net cash outflow from operatingactivities: 2005 2004 £'000 £'000 Unaudited AuditedOperating loss (123) (1,259)Depreciation 197 238Disposal of shares in ESOT 20 59Loss on disposal of fixed assets 1 -Exchange loss (7) (82)Decrease/(increase) in debtors 17 (549)(Decrease)/increase in creditors (597) 750Net cash outflow from operating activities (492) (843) Analysis of net funds As at As at 1 September 31 August 2004 Cash flow 2005 £'000 £'000 £'000 Audited Unaudited UnauditedCash at bank and in hand 1,045 (366) 679Bank loan (196) (74) (270)Short term investment 1,423 (230) 1,193Finance lease (93) 30 (63) 2,179 (640) 1,539 8 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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