Genedrive Regulatory News (GDR)

10 Oct 2007 07:01

EpiStem Holdings plc10 October 2007 Preliminary Results to 30th June 2007 Epistem Holdings Plc (LSE: EHP), the UK epithelial stem cell company, announced today its preliminary results for the period to 30th June 2007. A Year of Progress for Epistem A strong turnover that positions us well for the future The 2006/07 financial year saw Epistem's transition from a biotechnologystart-up to an AIM-listed plc company with outstanding opportunities in itschosen field. The maiden results for the Company were also impressive withyear-on-year turnover up 50%. Epistem's shares were well received in the marketwith the stock post flotation showing a 20% premium on the admission price. The forecast outlook for 2007/08 anticipates strong advances in Epistem'srevenue. These forecasts are based on growing demand for Epistem's stem celltechnology based products and services, an experienced management team, and theincreased number of commercial opportunities now beginning to emerge. Thisconfluence of activities will define Epistem as one of the foremost and excitingcompanies in the biotechnology sector. Highlights • Admitted to AIM; £3m funds raised • 50% increase in revenues • Strengthened Management Team • New biomarker development programme with AstraZeneca plc • Radiation Damage Models for Intestinal Stem Cells chosen for the US National Institute of Health bio-defence programme and successful completion of the initial series of tests • Commenced manufacture of 250 candidate therapeutic proteins • Novel Therapies division enters its first out-licensing agreement • Protocol finalised and tested for plucked human hair model for use as a non-invasive bio-marker in oncology For further details please contact: Matthew WallsChief Executive Officer - EpiStem Ltd +44 (0)161 606 7258 Thilo HoffmannLandsbanki Securities (UK) Limited +44 (0) 20 7426 9000 Mike Wort, Anna DunphyMC Bio-Communications Limited +44 (0)20 7744 7711 The Chairman's Statement: Dear Shareholder, I am delighted to present the maiden annual report for the Company following itsadmission to AIM on 4 April 2007. The overall report has been designed to provide a summary of the year's progressand to explain the background and opportunity behind our scientific andcommercial plans for the exploitation of our unparalleled knowledge of adultepithelial stem cells. The financial results for the Group as presented in this report are preparedusing merger accounting, thus reflecting the results for the Group's solesubsidiary for the year to 30 June 2007 and for the comparative period to 30June 2006. Fuller details of the results for the period are covered in the CEO's reviewbut, operationally and financially, the year to 30 June 2007 saw the Companygenerate revenues of £1.4m (2006: £0.9m). With a net CRO contribution of £0.25m(2006: £0.2m), and research and other operating costs of £1.5m (2006: £1.2m),the after tax loss reported for the year was £1.0m (2006: £0.9m). Cash held in the company at the end of June 2007 was £2.3m. During the year, the Group made significant progress on a number of key fronts: • Contract Research revenues grew by 50% to £1.4m (2006: £0.9m)underpinned by a three-year contract signed with the University of Maryland aspart of a US government bio-defence initiative. • The first biomarker contracts were signed with both a large pharma andan emerging US biotech company. The rate of commercial progress has been rapidand the key risks lie in the technical execution and the validation of theunderlying hypothesis that mRNA analysis of the plucked hair is a surrogate forwhat is happening to epithelial stem cells in the small intestine. • The first commercial contract for the exploitation of one of Epistem'sidentified proteins was signed with an early stage UK biotechnology company.Whilst the initial sums of money are not significant, it has demonstratedinitial proof of principle, that even for a new use for a well known drug,Epistem can commercialise its output from its Novel Therapies division. Thisaugurs well for the future. • Management was significantly strengthened through the appointment ofMatthew Walls as CEO, who brings a welcome blend of experience, energy andcommitment to the Group. • In April, Epistem achieved a successful flotation on the LSE AIMMarket, one of the few biotech companies to do this during 2007 in the UK, andthis was achieved through a dedicated team effort. Allied to the move to AIM,the Company strengthened its Board in July 2007 with the appointment of Dr RogerLloyd as a non-executive director. Roger's wealth of experience as Head ofLicencing at Astra Zeneca will be invaluable to the Group as it moves forwardits discussions with large pharma for the commercial exploitation of its proteintherapeutic targets. Current Trading Trading in the first three months of the new financial year has been buoyant andis at least 30% ahead of the comparative period last year. The outlook for Epistem is very positive, although we remain vigilant of the keychallenges ahead. This positive outlook is driven, in particular, by theprogress made with the biomarker programme and the substantial level of interestnow being generated. The biomarker interest has also created a complementaryplatform to help support discussions around our Novel Therapies developmentprogramme. The Board recognises that the development of its novel proteintherapies will require the support and participation of like-minded drugdevelopment companies to partner closely with Epistem to achieve our therapeuticgoals. Finally I would like to thank both the Group's employees for their passion andcommitment in ensuring Epistem's continued progress and you as shareholderswhose support has underpinned a year of marked achievement. David EvansChairman The Chief Executive's Review: Over the past year, Epistem has taken significant technical and commercial stepsin developing itself as a globally-recognised drug discovery and early-stagedevelopment company, focused in the areas of cancer, gastrointestinal (GI) andother epithelial diseases. There have been a number of notable milestones in 2007, including a 50%year-on-year growth in company revenues, the commencement of our bio-defencecollaboration with the US government, feasibility studies for a new proprietaryplucked hair biomarker, signed heads of terms for the out-licencing of our firstproprietary therapeutic and our recent well-received admission to AIM and £3.0mfundraising. Each of the Company's divisions has developed strongly over the past year and Iam pleased to report that these developments have met fully with our 2007business plan. Combined business model Epistem operates a combined business model that offers significant out-licencingopportunities from its drug and biomarker developments (Novel Therapiesdivision), in addition to lower-risk activities providing drug testing servicesfor third parties (Contract Research Services division). This combined business model also enables the Company to integrate itsdivisional expertise to produce a drug discovery and testing house for its own,proprietary novel protein therapeutics. Financial Review The Company reports turnover of £1.4m (2006: £0.9m) for the year ended 30 June2007. This revenue figure is drawn almost entirely from the Contract ResearchServices division where increased demand for the Company's efficacy testingassays was the prime driver for the year-on-year growth. Revenues for the Company were mainly generated across the UK and US markets,with mainland Europe beginning to generate revenues resulting from new dedicatedbusiness development support for this territory. On a standalone basis, Contract Research Services' contribution increased yearon year by 28% to £0.25m. Investment in our Novel Therapies (includingBiomarkers) and central administration increased year on year by £0.3m, to£1.5m, due to increased headcount in senior management and production costinvestment in our protein therapeutics. The loss reported for the financial year(net of a £0.2m R&D tax credit) was £1.0m (2006: £0.9m). Headcount in theCompany is now 30 (2006: 29). The Company was admitted to the UK LSE: AIM market on 4 April 2007 raising £3.0m(2.5m net of listing expenses) at a listing price of £1.24. Demand for theCompany's stock has remained firm and the stock has subsequently out-performedthe market indices. Cash balances at the June 2007 financial Year End were£2.3m. The Company annual Audit was completed in October 2007 by HW, CharteredAccountants, and their Audit report is included in the annual accounts. Contract Research Services The Contract Research Services division provides specialist epithelial testingfor companies wishing to evaluate their cancer, GI and dermatological drugsagainst a wide range of both normal and diseased epithelial tissues includinglung, colon, breast, prostate and skin, all of which have been wellcharacterised, over many years, by the Company. The Contract Research Services team has built an enviable record of working withmajor international pharmaceutical and biotechnology companies. During 2007, the Contract Research Services team saw the initiation of theCompany's first major contract with the US National Institute of Health (NIH) totest treatments for radiation sickness following a nuclear terrorist attack.Epistem is the major provider of these services, which identify novel drugs thatcan improve the repair of the GI tract following exposure to radiation. Thereare currently no medications approved by the FDA to treat this condition.Epistem is an established provider of similar GI services for oncologysupportive care. The contract with the US NIH is expected to develop furtherover the forthcoming year. The tests performed by Epistem are also likely to identify agents with oncologysupportive care applications. These agents will reduce mucositis - severeulceration and diarrhoea experienced by patients during radio- and chemotherapy. Product development remains a vital part of our specialist assay service and theCompany is currently developing novel stem cell services for drug efficacytesting. The division is also extending its Inflammatory Bowel Disease portfolioof assays to meet with increased customer demand. The 2007 year saw greater visibility and awareness of the Company's assays andservices, which resulted in an increase in the number of contractual serviceagreements with our pharmaceutical and biotechnology partner companies.Increased awareness of the Company's core expertise and know-how is stillunfolding and customer numbers are set to grow further in 2008. Biomarkers The Company's biomarker technology is based on gene expression profiles whichmeasure how a single plucked hair can provide a means of evaluating howeffectively a drug is targeting a particular gene or set of genes in a signalpathway. Epistem's biomarker technology is at the forefront of cancer drugdevelopment and provides an innovative approach to quickly assessing cell andtissue exposure to a drug. Epistem commenced its first biomarker feasibilitystudies during 2007 with a number of pharmaceutical partners. Biomarker demandcontinues to build and this has been further buoyed by the US FDA's efforts tofind effective biomarkers for cancer therapeutic development. There are inevitable risks in the development of this technology as it ispositioned to measure the effectiveness of cancer therapeutic agents, but we areconfident, based on recent developments, that we will pioneer a new approach tohelp guide oncology-based drug development. We expect to see the firstpreclinical and clinical results of our efforts in the fourth quarter 2007. We also forecast an increased revenue contribution for the forthcoming financialyear arising from our developments and collaborations in this new business area. Novel Therapies Epistem is focused on the discovery of novel protein therapeutics to control theproduction of epithelial cells. The Company has focused its high resolution geneexpression technology on the discovery and development of novel therapeuticswhich regulate cell production, including inhibition. The development of theseprotein cell regulators will initially target the disease areas of oncology,oncology supportive care (mucositis), GI and other epithelial disorders such aswound healing. During the year, the Company identified and selected a core group of 250proteins from which to find those responsible for controlling cell production.These proteins have advanced through development and the initial subset has nowbeen selected for testing through the Company's established disease efficacymodels. Over the next few months, the Company expects to identify a number of emerginglead candidates with activity and efficacy relevant to our targeted diseaseareas. It is expected that these leads, the Company's discovery programme andour high resolution gene expression platform will form part of a partnershipcollaboration to identify and develop protein therapeutics targeting cancer stemcells. There are risks associated with our therapeutic discovery programme, primarilyin relation to an extended timescale for the identification of robust proteintherapeutic activities. To mitigate these risks, the Company has undertaken toidentify and develop the 250 proteins via a number of routes to maximise theprobability of its success. It will also seek to minimise any developmenttimescale exposure by identifying complementary pharmaceutical or biotechnologypartners to co-develop its protein regulators and other elements of its noveltherapeutic programme. Epistem's protein therapeutic discovery strategy is to develop its protein leadsto late stage preclinical validation and then license and/or co-develop thesenovel therapeutics with its pharmaceutical and biotechnology partner companies. During 2007, the Company entered its first out-licencing agreement, includingmilestone payments, for a small molecule in the area of GI and oncologysupportive care. Intellectual Property Traditionally, Epistem has provided its know-how and expertise on afee-for-service basis. The biomarker technology is proprietary to the Company and any intellectualproperty emerging in relation to this technology will be secured, asappropriate, by the Company. Provision for control over biomarker intellectualproperty arising out of biomarker commercial contracts will also be secured bythe Company. With a pipeline of novel proteins now emerging, the Company will also secure itsvaluable intellectual property rights in relation to these proteins as theyadvance through development on a case-by-case basis. The company's protection ofnormal mucosal tissues patent in relation to its first out-licence is currentlyundergoing patent examination. Outlook Epistem is developing its technology, lead therapies and contract serviceswhilst rapidly growing its revenues and expertise. This requires a carefulmanagement approach, good communication and a close relationship with ourinvestor base. We have a globally recognised and experienced management teamwith strengthening commercial expertise. We are confident that the year aheadwill see a substantial increase in our forecast revenues, supported by ourContract Research Services and Biomarker growth alongside our Novel Therapies'emerging lead candidates. The Company will also consider other complementary technology acquisitions andin-licensing where appropriate to underpin its growth ambitions. Finally, I would like to thank the Board, management and employees for theircontinued commitment in building the success of Epistem, as well as both ourestablished and new investors for their continued close support of our excitingcompany. It has been my privilege to join the board of Epistem and it is ourambition to significantly build shareholder value by providing the nextgeneration of cancer and GI therapies, by exploiting our know-how and expertisein epithelial stem cells. Matthew H WallsChief Executive Officer Consolidated Income AccountFor the year ended 30 June 2007 2007 2006 £000 £000 Revenue 1,357 901 Contract research costs (1,112) (711)Discovery and development costs (1,034) (823)General administrative costs (452) (410) Operating loss (1,241) (1,043) Interest receivable 49 50Interest payable and similar charges (5) (5) Loss on ordinary activities before taxation (1,197) (998) Tax credit on loss on ordinary activities (160) (130) Loss for the financial year (1,037) (868) Earnings per share (pence) (22)p (22)p Consolidated Balance SheetAs at 30 June 2007 2007 2007 2006 2006 £000 £000 £000 £000Non-current AssetsIntangible assets 59 63Plant and equipment 368 292 427 355 Current AssetsTrade and other receivables 357 323Tax receivables 160 131Cash and cash equivalents 2,395 681 2,912 1,135 LiabilitiesCurrent LiabilitiesTrade and other payables 395 214Obligations under finance leases 81 63Bank overdrafts and loans 129 5 Net current assets 2,307 853 Total assets less current liabilities 2,734 1,208 Non-current liabilitiesObligations under finance leases (137) (113) Net Assets 2,597 1,095 Capital and reservesCalled-up equity share capital 98 -Share premium account 7,402 2,532Share options reserve 453 399Reverse acquisition reserve (2,484) -Profit and loss account (2,872) (1,836) Total shareholders' equity 2,597 1,095 Consolidated Statement of Cash FlowsFor the year ended 30 June 2007 2007 2007 2006 2006 £000 £000 £000 £000Cash flows from operating activitiesLoss for the year (1,241) (1,043)Depreciation, amortisation and impairment 109 74Share based payment expense 55 242Operating profit before changes in working capital (1,077) (727)and provisions(Increase)/decrease in trade and other receivables (34) 7Increase/(Decrease) in trade and other payables 181 (155)Net cash outflow from operations (930) (875)Interest paid (5) (5)Interest received 49 50Tax received 131 7 175 52Net cash (outflow) from operating activities (755) (823) Cash flow from investing activitiesAcquisition of fixed assets, net of lease (63) (82)financingNet cash (outflow) from investing activities (63) (82) Cash flows from financing activitiesProceeds from issue of share capital 3,091 119Expenses of share issue (608) (33)Repayment of borrowings (75) (23)Net cash inflow from financing activities 2,408 63 Net increase/(decrease) in cash equivalents 1,590 (841)Cash and cash equivalents at beginning of period 676 1,517Cash and cash equivalents at end of period 2,266 676 Analysis of Net FundsCash at bank and in hand 2,394 681Bank overdrafts (128) (5)Net Funds 2,266 676 Notes to the Preliminary Results to 30 June 2007 1. A Summary of Accounting policies Basis of accounting The financial statements have been prepared under the historical costconvention, modified to include the revaluation of financial instruments and inaccordance with applicable accounting standards. The consolidated financial statements consolidate those of the Company and itssubsidiary (together referred to as the "Group"). The consolidated financial statements have been prepared and approved by theDirectors in accordance with International Financial Reporting Standards asadopted by the EU ("Adopted IFRSs"). Basis of consolidation On 16 March 2007, Epistem Holdings Plc merged with Epistem Limited, and on thatdate the shareholders of Epistem Limited exchanged their shares for equivalentshares in Epistem Holdings Plc. As Epistem Holdings Plc was newly incorporatedat the time of the transaction under the terms of IFRS 3 'BusinessCombinations', this transaction has been accounted for as a reverse acquisition,on the basis that the shareholders of Epistem Limited gained a controllinginterest in the Group. The financial statements therefore represent acontinuation of the financial statements of Epistem Limited. Impact of IFRS 2 - share based payments The Group has adopted IFRS 2 from 1 July 2006 whereby the value of share optionsbased upon fair value at their grant date is calculated. As a result of theadoption of IFRS 2 the results for the year ended 30 June 2006 have beenrestated to reflect the fair value of share options and share warrants issuedbut not vested at 1 July 2005. Revenue recognition The Company generally invoices and reports as sales, 50% of the value of a newcontract on signature. This policy is designed to recognise that, in negotiatingcontracts for new studies, the Company performs specific pre-contract work toestablish the parameters of the study work. When the final report is issued tothe client the remainder of the contract is invoiced and recognised as income,at that date. In other cases where the contract does not provide for incomerecognition on signature, revenue is recognised as the work is invoiced. Research and development Research and development expenditure is written off in the year in which it isincurred. Amortisation Amortisation is calculated so as to write off the cost of an asset, less itsestimated residual value, over the useful economic life of that asset asfollows: Intellectual property - 5% straight line basis Depreciation Depreciation is calculated so as to write off the cost of an asset, less itsestimated residual value, over the useful economic life of that asset asfollows: Plant & machinery - 25% reducing balanceFixtures & fittings - 25% reducing balanceEquipment - 25% reducing balance Taxation Current tax is provided at amounts expected to be paid (or recovered) using thetax rates and laws that have been enacted, or substantially enacted, by thebalance sheet date. 2. Loss per share The basic loss per share is calculated by dividing the earnings attributable toordinary shareholders for the year by the weighted average number of ordinaryshares in issue during the year. The weighted average number of shares in issue during the year was 4,635,934(2006: 4,028,883) For diluted loss per share, the weighted average number of ordinary shares inissue is adjusted to assume conversion of all dilutive potential ordinaryshares. Since the Group is loss-making there is not a dilutive impact. This information is provided by RNS The company news service from the London Stock Exchange