Gunsynd Regulatory News (GUN)

3 Nov 2008 07:00



SYNTOPIX GROUP PLC

("Syntopix" or "the Company")

Preliminary results for the year ended 31 July 2008

Syntopix Group plc (AIM: SYN) the speciality pharmaceutical research and development company focused on dermatological diseases, today announces its preliminary results for the year ended 31 July 2008.

Highlights:

Positive results from Phase II cosmetic study which show significant promise as a new cosmetic treatment for acne.

First commercial exclusive evaluation agreement in oral healthcare signed with major consumer healthcare company.

Joint development agreement, to investigate uses for Syntopix's novel antimicrobial technology, signed with Procter and Gamble, the world's largest consumer goods product company.

Revenue increased to £141,000 (2007: £31,000).

Further £1.5 million of funding raised in August 2008 through a placing of new shares to support further clinical studies.

Dr Rod Adams (Chairman) and Dr Stephen Jones (Chief Executive Officer) commented: "We are pleased with the progress made by the group this year. We believe that our antimicrobial technology has the potential to improve the effectiveness of consumer healthcare brands. We are broadening the number of potential markets available to the antimicrobial expertise of Syntopix and are optimistic that further commercial opportunities will arise during the next 12 months."

Enquiries

Notes to editors

About Syntopix Group plc

Syntopix is a group focused on the discovery and development of drugs for the topical treatment of dermatological diseases. The company was founded in 2003 as a spin-out from the University of Leeds by Dr Jon Cove and Dr Anne Eady, two of the leading experts in skin microbiology, with initial funding from The Wellcome Trust.

Syntopix' strategy is to seek to reduce the risks and costs of drug discovery and development by discovering novel uses for known compounds. The company concentrates on compounds and combinations of compounds that have a history of use in man; and that have well characterised properties, for example antimicrobials and anti-inflammatories. The Group currently has 12 pending UK patent applications.

Syntopix is currently concentrating on acne and Staphylococcus aureus infections and has identified a pipeline of lead drug candidates that it intends to take through pre-clinical and, as appropriate, clinical trials. The Group intends to out-license products to commercial partners on obtaining proof of principle and to seek co-development partnerships.

The Group is based at the Institute of Pharmaceutical Innovation in Bradford, giving access to the expertise in skin biology, formulation and toxicology at the universities of Bradford and Leeds.

Syntopix' shareholders include IP2IPO Limited, IP Venture Fund and Techtran Group Limited (subsidiaries of IP Group plc), The Wellcome Trust Limited, University of Leeds Limited and Ridings Early Growth Investment Company Limited. Syntopix joined the AIM market of the London Stock Exchange in March 2006.

For further information please visit www.syntopix.com.

Joint Statement from the Chairman and Chief Executive Officer

Introduction The third year of operations, following our AIM flotation in March 2006, has allowed Syntopix to make good progress in positioning itself as a speciality pharmaceutical research and development company. We seek to identify antimicrobial compounds and develop products for healthcare and dermatological pharmaceutical applications, principally acne and staphylococcal infections including those due to methicillin resistant Staphylococcus aureus (MRSA). Syntopix searches for antimicrobial compounds and synergistic combinations of compounds that already have a history of use in man. We aim to reduce the high risks and costs of early drug discovery and reduce the lead-time to market normally associated with conventional drug development. We are committed to improving the health and appearance of our consumers by offering safe and effective treatments of the highest quality, thereby creating value for our shareholders and employees. The prescription market for dermatologicals is in excess of $11 billion, with the market for acne representing over $2.5 billion of these sales. The medicated skin care market is worth another $10 billion, with sales for acne treatments in excess of another $1 billion. Only 10% of all patients with acne are referred to a doctor; therefore we are developing both over the counter and prescription medicines.

Additionally, the consumer healthcare market is an alternative sector for use of antimicrobial compounds. For example, the oral hygiene market is worth over $24 billion per annum, with the 3 leading brands each having sales in excess of $1 billion (74% of Americans have an episode of gingivitis each year), and the hair care market has global sales of $20 billion (50% of the world's population have dandruff four times a year). Both of these are examples of the types of conditions that can be treated with the antimicrobial compounds being discovered and developed at Syntopix. The global markets for the compounds we are identifying and developing are large. However, they lack innovation, principally due to the large cost of discovering safe compounds with the required efficacy. In addition, many of the antimicrobial compounds presently being used are increasingly being linked to concerns about environmental toxicity and/or bacterial resistance. Syntopix is making considerable progress in providing cost-effective alternative compounds which overcome these problems. Additionally, we continue to seek alternative uses for our antimicrobial expertise, thereby expanding the commercial potential of our compounds. Research and Development During the year we have added selectively to our library of potential drug candidates, which is now in excess of 1,400 compounds. We have continued to use the Syntopix screening process and have shown that approximately 30% of these compounds exhibit antimicrobial activity against two of the key organisms, i.e. Staphylococcus aureus and Propionibacterium acnes. Additionally, we have expanded our screening programmes to include the identification of antimicrobial compounds for use in oral care and other consumer healthcare applications in areas such as wound care, body odour and fungal infections. We are also using more sophisticated screens to help us assess the fitness for purpose of candidate compounds for different applications. We can now offer bespoke compound assessments for customers with specific requirements.

We have made good progress in moving our lead compounds from research into clinical development. Earlier this year we reported the completion of our Phase II proof-of-concept clinical study in 130 subjects with acneic skin. Two Syntopix preparations were investigated: SYN 0126, a compound used in cosmetic preparations; and a combination of SYN 0126 with SYN 0091, a bacteriostatic agent used in soaps and cosmetics. 

The study had positive (an existing marketed product) and negative (vehicle) controls, and the products were used once a day for 8 weeks. The combination preparation containing SYN 0126 and SYN 0091 ranked as more effective than the marketed product and as most effective overall. By week 8, this preparation had reduced the total number of lesions by 27% and the acne severity grade by 38%; reductions for the marketed product were 12% and 24% respectively. From week 4 onwards the Syntopix product reduced the total number of acne spots to a significantly greater extent than the currently marketed acne treatment. 

Following these positive study results, several major dermatological companies have approached us. It is the Group's intention to investigate the possibility of a licensing agreement with a suitable partner in the cosmetics or consumer healthcare industries. Additionally, and building on the success of this study, SYN 0126 in combination with (a) SYN 0040 and (b) SYN 0040 and SYN 0854, will be the subject of another Phase II proof-of-concept clinical study, starting in January 2009.

We have also reported on a study, in Canada, using a model system to determine the effectiveness of SYN 0017, SYN 0854, SYN 0564 and SYN 0017 in combination with SYN 0710 against the carriage of MRSA. Although none of the treatments reduced the numbers of MRSA to a significantly greater extent than the vehicle, SYN 0017 was more effective than the positive control (Bactroban Nasal) and was the only treatment that produced a greater reduction than the vehicle. The commercial significance of this result, and next steps, are being evaluated. All of these data will form the basis of commercial partnerships with third parties, and will build upon the relationships that we are developing with our key customers. Licensing discussions will be initiated as soon as the clinical programme confirms the activity of our lead compounds. We continue to build and foster good relationships with potential partners in the pharmaceutical and consumer healthcare industries, and routinely update them on our progress. Commercial agreements In December 2007 we announced that we had signed a 12-month exclusive evaluation agreement with a major consumer healthcare company in the field of oral healthcare. During the year Syntopix has received an upfront payment at the start of the exclusivity period and further payments for compounds subject to additional evaluation. Commercialisation of a compound would be subject to a licence agreement to be negotiated separately. 

In July 2008 we announced that we had entered into a joint development agreement with Procter & Gamble, the world's largest consumer goods product company. Under the terms of the agreement, Syntopix and Procter & Gamble will investigate the use of Syntopix's novel antimicrobial technology with the objective of improving the efficacy of one of Procter & Gamble's major brands. Procter & Gamble will have the opportunity to commercialise the Syntopix technology developed under the joint development agreement.  These agreements emphasise Syntopix's strategy of leveraging its antimicrobial compound library and intellectual assets into markets outside dermatological disease and into broader consumer healthcare markets. We will continue to look for antimicrobial opportunities in the field of healthcare where we believe we can make an innovative contribution that leads to a product.

Intellectual Property  Our intellectual property portfolio is critical for our success in licensing compounds, and continues to focus and to grow. We adopt an ongoing filing process that has resulted in five granted UK patents and seven published patents, all of which are strengthened by sixteen unpublished applications in key international territories. Furthermore, we also have a further five unpublished UK applications at an early stage. Each case in our portfolio is continually re-evaluated for commercial value, which has resulted in several applications being abandoned at an early stage over the last six months.

Financials The Group has continued to invest in its research and development programme. Total expenditure on research and development activity amounted to £1,050,000 (2007: £1,398,000). The reduction in expenditure is due to completion of ongoing projects which had already commenced in the prior year. Included within these costs are the costs of maintaining and supporting our patent portfolio which is strengthening each year.

During the year the Group entered into its first revenue-generating commercial agreement and this has increased revenue from £31,000 in 2007 to £141,000 in 2008. In addition, the Group has deferred income of £56,000 which will be recognised within the income statement during the year ending 31 July 2009.

Operational administrative expenses have increased by £42,000 to £671,000 (2007: £629,000). However, this increase is mainly due to the apportionment of staff costs between administrative expenses and research and development. Consequently, there has been no additional cash expenditure on overheads.

As a result of increased revenue and lower overall operating costs, the loss for the year has reduced to £1,403,000 (2007: £1,741,000).

The continuation of our research and development programme during the year has reduced cash balances to £437,000 at 31 July 2008 (2007: £1,494,000). In previous financial statements, we indicated that further funding would be required to allow our programme to continue. Consequently, during the latter half of the financial year the directors held fundraising discussions with shareholders and potential new investors.

The result of these discussions was that an additional £1,489,000 of new investment was secured immediately after the year end in August 2008 through a new share issue. This funding will be utilised for further studies during 2009 and to provide additional working capital for the Group.

Outlook  We continue to invest in our discovery pipeline to fuel our development programmes and take the most promising candidates into human use studies. We are very confident that these studies will deliver data that will convince potential partners that our compounds have a commercial future in treating the dermatological conditions we are targeting. Additionally, the agreements that we have signed with two of the world's largest consumer healthcare companies validates our belief that the antimicrobial compounds we are identifying and developing have a broad range of applications in these very large commercial markets. We enter the current year optimistic that commercial opportunities will result from the Syntopix programmes over the next 12 months.

Dr Rod Adams, Chairman

Dr Stephen Jones, Chief Executive Officer

Consolidated income statement 

for the year ended 31 July 2008 

All of the above activities are continuing.

  Consolidated balance sheet 

at 31 July 2008 

Consolidated statement of changes in equity

for the year ended 31 July 2008

  Consolidated cash flow statement 

for the year ended 31 July 2008 

Notes to the preliminary announcement

1. (a) Basis of preparation

This is the first time the company has prepared its financial statements in accordance with IFRSs, having previously prepared its financial statements in accordance with UK GAAP accounting standards. Details of how the transition from UK accounting standards to EU adopted IFRS has affected the group and company's reported financial position, financial performance and cash flows are given in note 1. (c) below.

The financial information on the Group set out above does not constitute 'statutory accounts' within the meaning of section 240 of the Companies Act 1985.

This preliminary report was approved by the Board of Directors on 31 October 2008. The statutory accounts for the year ended 31 July 2008 have not been filed with the Registrar of Companies, but will be delivered to the Registrar of Companies following the Group's Annual General Meeting and will also be available on the Group's website at www.syntopix.com.

The financial information for the year ended 31 July 2008 has been extracted from the Group's audited consolidated statutory accounts upon which the auditors issued an unqualified opinion. The report did not contain a statement under section 237(2) or (3) of the Companies Act 1985 and did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report.

The figures for the year ended 31 July 2007 have been extracted from the statutory accounts which have been filed with the Registrar of Companies. The auditors' report for the 2007 accounts was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. Their report for 31 July 2007 included reference to the material uncertainty in respect of going concern to which the auditors drew attention by way of emphasis without qualifying their report.

  1. (b) Changes in Accounting Policies - First time adoption

In preparing the financial statements, the Group has elected to apply the following transitional arrangements permitted by IFRS 1 'First-time Adoption of International Financial Reporting Standards':

Business combinations effected before 1 January 2006, including those that were accounted for using the merger method of accounting under UK Accounting Standards, have not been restated.

IFRS 2 'Share-based payments' has been applied to employee options granted after 7 November 2002 that had not vested by 1 January 2006.

The Group has made estimates under IFRSs at the date of transition, which are consistent with those estimates made for the same date under UK GAAP unless there is objective evidence that those estimates were in error, i.e. the Group has not reflected any new information in its opening IFRS balance sheet, but reflected that new information in its income statement for subsequent periods.

1. (c) Explanation of transition to IFRS

The Group and Parent company's financial statements for the year ended 31 July 2008 are the first financial statements that comply with International Financial Reporting Standards (IFRS). The financial statements prior to and including 31 July 2007 had been prepared in accordance with Generally Accepted Accounting Principles in the United Kingdom (UK GAAP).

As required by IFRS 1, the impact of the transition from UK GAAP to IFRS is explained below. The accounting policies set out above have been applied consistently to all periods presented in this financial information and in preparing an opening IFRS balance sheet at 1 August 2006 for the purposes of transition to IFRS.

Presentational adjustments:

IAS 1 - Presentation of Financial Statements. The form and presentation in the UK GAAP financial statements has been changed to be in compliance with IAS 1. There is no impact on the balance sheet at date of transition or at 31 July 2008 nor on the loss for the year ended 31 July 2007.

Adjustments to reported loss and net assets:

There are no adjustments arising from the transition to IFRS and therefore there is no impact on the reported Income Statement for both the Company and the Group for the year ended 31 July 2007, nor on the Balance Sheet for the Company and Group at 31 July 2007 and 31 July 2006. Consequently, no reconciliation between IFRS and UK GAAP has been provided.

IAS 7 - Cash Flow Statements. The IFRS Cash Flow Statement, prepared under IAS 7, presents cash flows in three categories: cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. Other than the reclassification of cash flow into the new disclosure categories, there are no significant differences between the Group and parent company's Cash Flow Statement under UK GAAP and IFRS. Consequently, no cash flow reconciliations are provided. Purchases of tangible fixed assets under UK GAAP have been reclassified to purchases of property, plant and equipment under IFRS.

The Group has elected not to apply IFRS 3 to business combinations that occurred prior to the date of transition.

1. (d) Basis of consolidation

The Group's financial statements consolidate the financial statements of Syntopix Group plc and all its subsidiaries made up to 31 July 2008. No separate profit and loss account is presented for Syntopix Group plc as permitted by Section 230 of the Companies Act 1985. The Company loss for the period includes a loss after taxation of £3,311,000 (2007: £139,000) which is dealt with in the financial statements of the parent company.

2. Basic and diluted earnings per share

Basic earnings per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume the conversion of all dilutive potential ordinary shares. The Group has one class of potentially dilutive ordinary shares: those share options granted to employees where the exercise price is less than the average market price of the company's ordinary shares during the year. However, due to losses incurred in the year there is no dilutive effect from the potential exercise of these share options.

3. Events after the balance sheet date 

On 12 August 2008, the Company issued 1,985,230 new ordinary shares of 10p each pursuant to a placing of shares to raise additional working capital for the Group. The shares were issued at a price of 75p per share for total cash consideration of £1,489,000.

On 6 August 2008, the Company cancelled 326,828 unexercised share options in issue to certain executive directors. These options had an exercise price of £1.78 per share and were exercisable during 2009. These options have been replaced with 380,165 new share options with an exercise price of 86.5p and which can be exercised from 6 August 2010. In addition a further 223,981 new share options were granted to the remaining executive and non-executive directors. These share options were issued following the decision by the non-executive directors to waive in full their directors' fees from 1 August 2008 and for the executive directors who also took a reduction in salary.