Gunsynd Regulatory News (GUN)

24 Apr 2008 07:00

Syntopix Group plc24 April 2008 Immediate release 24 April 2008 SYNTOPIX GROUP PLC ("Syntopix" or "the Company") Interim results for the six months ended 31 January 2008 Syntopix Group plc (AIM: SYN) the speciality pharmaceutical research anddevelopment company focused on dermatological diseases, today announces itsinterim results for the six months ended 31 January 2008. Highlights: • Positive results from our first Phase II study. • First commercial exclusive evaluation agreement with a major consumer healthcare company. • Strengthening prospects for further licensing and joint development agreements with other healthcare and dermatological companies. • Expanding library of compounds and combinations of compounds. • Growing intellectual property portfolio with three granted patents and 12 patent applications. Dr Stephen Jones (Chief Executive Officer) commented: "I am pleased with theGroup's progress over the last 6 months. We are expanding the use of ourantimicrobial pipeline and are attracting commercial interest in new areas ofconsumer healthcare. Our Phase II proof of concept study yielded positiveresults, which has enabled us to progress discussions with severaldermatological companies. I am also pleased to report that we signed our firstcommercial agreement in December 2007 with a major healthcare company and wehave expectations for further commercial opportunities in the next 12 months." Enquiries Syntopix Group plc + 44 (0) 845 125 9204Dr Rod Adams, ChairmanDr Stephen Jones, Chief ExecutiveOfficer Buchanan Communications Limited + 44 (0) 20 7466 5000Mark CourtCatherine Breen KBC Peel Hunt Ltd + 44 (0) 20 7418 8900Capel Irwin Notes to editors About Syntopix Group plc Syntopix is a group focused on the discovery and development of drugs for thetopical treatment of dermatological diseases. The company was founded in 2003 asa spin-out from the University of Leeds by Dr Jon Cove and Dr Anne Eady, two ofthe leading experts in skin microbiology, with initial funding from The WellcomeTrust. Syntopix' strategy is to seek to reduce the risks and costs of drug discoveryand development by discovering novel uses for known compounds. The companyconcentrates on compounds and combinations of compounds that have a history ofuse in man; and that have well characterised properties, for exampleantimicrobials and anti-inflammatories. The Group currently has 3 grantedpatents and 12 further pending patent applications. Syntopix is currently concentrating on acne and Staphylococcus aureus infectionsand has identified a pipeline of lead drug candidates that it intends to takethrough pre-clinical and, as appropriate, clinical trials. The Group intends toout-license products to commercial partners on obtaining proof of principle andto 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 atthe universities of Bradford and Leeds. Syntopix' shareholders include Techtran Group Limited (a subsidiary of IP Groupplc), The Wellcome Trust Limited, University of Leeds Limited and Ridings EarlyGrowth Investment Company Limited. Syntopix joined the AIM market of the LondonStock Exchange in March 2006. For further information please visit www.syntopix.com. Chairman and Chief Executive's Statement We are pleased to report the interim result for the six months to 31 January2008. Since our last annual report, we have continued to work on the discovery ofcompounds for use in the treatment of acne and the prevention and treatment ofsuperficial skin infections due to Staphylococcus aureus including methicillinresistant strains (MRSA). We are also expanding into new areas of consumerhealthcare where our ability to detect novel activities of known compounds andbeneficial interactions between compounds is of potential commercial interest. We have conducted and reported a Phase II clinical study in subjects withacne-prone skin and have also evaluated a range of compounds for activityagainst MRSA in a model system. Additionally, we have signed and reported a12-month exclusive evaluation agreement with a major consumer healthcare companyin the field of oral healthcare. Finally, we are in an advanced stage ofdiscussions with another major consumer healthcare company to evaluate the useof our antimicrobial pipeline in another area of personal healthcare. Development Programme We have completed the Phase II proof-of-concept clinical study in 130 subjectswith acneic skin that we reported as just having started in the last AnnualReport. This randomised, blinded trial began in July 2007 and was conducted inGermany. Two Syntopix preparations were investigated: SYN 0126, a compound usedin cosmetic preparations; and a combination of SYN 0126 with SYN 0091, abacteriostatic agent used in soaps and cosmetics. The study had positive (anexisting marketed product) and negative (vehicle) controls, and the productswere used once a day for eight weeks. The combination preparation containing SYN 0126 and SYN 0091 ranked as moreeffective than the marketed product and as most effective overall withstatistically significant reductions in inflammatory and non-inflammatorylesions (spots) from week 2 to the end of the study. By week 8, this preparationhad reduced the total number of lesions by 27% and the acne severity grade by38%; reductions for the marketed product were 12% and 24% respectively. Fromweek 4 onwards the Syntopix product reduced the total number of acne spots to asignificantly greater extent than the currently marketed acne treatment. Following these positive study results, several major dermatological companieshave approached us. It is the Group's intention to investigate the possibilityof a licensing agreement with a suitable partner in the cosmetics or consumerhealthcare industries. We have also conducted a study, in Canada, using a model system to determine theeffectiveness of SYN 0017, SYN 0854, SYN 0564 and SYN 0017 in combination withSYN 0710 against the carriage of MRSA. Compared to vehicle, SYN0017 produced agreater reduction in numbers of MRSA than the positive control and ranked as themost effective treatment. The commercial significance of this result is beingevaluated. Commercial agreements In December 2007 we announced that we had signed a 12-month exclusive evaluationagreement with a major consumer healthcare company. Under this agreement,Syntopix will evaluate the Group's library of compounds for their potentialusefulness in oral healthcare. The full financial details of the agreement areconfidential, although Syntopix has received an upfront payment at the start ofthe exclusivity period and will receive further payments for any compoundssubject to additional evaluation. Commercialisation of a compound would besubject to a licensing agreement to be negotiated separately. We have also been in discussions with another major consumer healthcare company,concerning the use of antimicrobial compounds in a different area of personalhealthcare. These discussions will be completed over the next few months, and weare very confident that this will result in a Joint Development Agreement toevaluate Syntopix compounds in order to improve the effectiveness of a majorconsumer healthcare brand. Discussions are underway with this company regardinga commercial contract. Lead candidate development programmes It is our intention to conduct another human use study in 2008 with a new testcompound. This will utilise the experience gained from the previous studies andwill use the same clinical model that was used so successfully for our firstPhase II study. We anticipate results will be available before the end of thecalendar year. Pipeline The Group continues its research activities to generate further potentialpromising synergistic combinations. We continue to screen single compounds andcombinations of compounds and now have over 1,400 compounds in our library.Approximately 20% of these compounds show antimicrobial activity againstPropionibacterium acnes and/or Staphylococcus aureus. We are also extending therange of microbes that we use to evaluate antimicrobial activity, in line withthe commercial interest we are receiving from several healthcare companies andanticipate that this will result in more commercial opportunities. Our intellectual property portfolio continues to grow: Syntopix has a patentportfolio that currently comprises three granted patents and a further 12 patentapplications. Each application is continually re-evaluated for commercialrelevance, and in the last 12 months we have filed a new application on averageevery six to eight weeks. Financial summary Since our last Annual Report, the Group has continued its development programmeand we have completed the Phase II study in Germany and the MRSA study inCanada. Total research and development costs during the six months to 31 January2008 were £668,883 (six months to 31 January 2007: £490,763). The increase ispartly attributable to the additional studies undertaken in this period andpartly due to additional expenditure on patent protection for our growingintellectual property portfolio. Towards the end of this accounting period we signed our first commercial deal.The group has received upfront payments for an exclusivity and evaluationagreement amounting to £145,000. In accordance with our revenue recognitionaccounting policy, this is initially treated as deferred income and is beingrecognised in revenue over the period of the agreement. Consequently, revenuerecognised in this accounting period amounts to £36,666 and the remainingdeferred income of £108,334 will be recognised over the next 10 months. The Group is well positioned for establishing further revenue streams fromcommercial deals going forward. At 31 January 2008, the Group had cash reserves of £724,505 (31 January 2007:£2,501,993) and net assets of £798,024 (31 January 2007: £2,636,275). As inprevious periods we anticipate further Research and Development tax credits inthe coming months. The Group continues to carefully monitor overhead costs. In our 2007 Annual Report, we stated that the Group will need additional fundingduring the next financial period to enable the planned development programme tocontinue and to ensure that the Group has sufficient financial resources tosustain the trading operations until the Group becomes cash generative as aresult of revenues from royalties, milestones and other commercial deals. Thedirectors remain confident that the Group will be able to raise sufficientadditional funds. This is the first accounting period in which the Group is required to complywith International Financial Reporting Standards and consequently this report isprepared in accordance with the new requirements. The effect of implementing thenew standards is largely presentational and there is no significant impact onthe reported results or net assets. Outlook The Group has made significant progress during the six months to 31 January2008. We have entered into our first commercial deal and the positive resultsfrom the Phase II study have enabled us to progress discussions with severalmajor dermatological companies. Consequently, we believe that the Group is wellpositioned to capitalise on the development activity undertaken in this period. Dr Rod Adams, ChairmanDr Stephen Jones, Chief Executive Officer 23 April 2008 Condensed consolidated interim income statement - unauditedFor the six months ended 31 January 2008 Six months Six months Year ended ended ended 31 January 31 January 31 July 2008 2007 2007 Note £ £ £ Turnover 36,666 2,500 30,962Administrative expenses: Research and development costs (668,883) (490,763) (1,398,092)Other administrative expenses (369,859) (356,355) (628,785) (1,038,742) (847,118) (2,026,877)Other operating income 13,085 20,000 21,921 Operating loss (988,991) (824,618) (1,973,994)Financial income 22,784 54,186 99,741 Loss before tax (966,207) (770,432) (1,874,253)Income tax credit 72,000 92,207 133,561 Loss for the period (894,207) (678,225) (1,740,692) Loss per shareBasic and diluted 4 (15.6p) (11.9p) (30.6p) All Group activities relate to continuing operations. Condensed consolidated interim balance sheet - unauditedAs at 31 January 2008 At At At 31 January 31 January 31 July 2008 2007 2007 £ £ £AssetsNon-current assetsProperty, plant and equipment 95,553 117,470 112,401 Current assetsTrade and other receivables 197,451 87,161 208,110Income tax 72,000 92,207 133,561Cash and cash equivalents 724,505 2,501,993 1,494,018 Total current assets 993,956 2,681,361 1,835,689 Total assets 1,089,509 2,798,831 1,948,090 LiabilitiesCurrent liabilitiesTrade and other payables (291,485) (162,556) (306,001) Total liabilities (291,485) (162,556) (306,001) Net assets 798,024 2,636,275 1,642,089 Capital and reserves attributable to equityholders of the companyShare capital 573,260 568,398 573,260Share premium reserve 3,379,046 3,379,046 3,379,046Merger reserve 337,935 337,935 337,935Share-based payments reserve 182,453 69,378 132,311Retained losses (3,674,670) (1,718,482) (2,780,463) 798,024 2,636,275 1,642,089Minority interest - - - Total equity 798,024 2,636,275 1,642,089 Consolidated statement of changes in equity - unauditedFor the six months ended 31 January 2008 Share based Retained Share Share Merger Payments (losses)/ Capital Premium Reserve Reserve Earnings Total £ £ £ £ £ £ Balance at 1 August 568,398 3,379,046 337,935 16,832 (1,040,257) 3,261,9542006Loss for the sixmonth period ended31 January 2007 - - - - (678,225) (678,225) Total recognised(expense) for theperiod - - - - (678,225) (678,225)Share option charge - - - 52,546 - 52,546in the period Balance at 31 January 2007 568,398 3,379,046 337,935 69,378 (1,718,482) 2,636,275 Balance at 1 August 2006 568,398 3,379,046 337,935 16,832 (1,040,257) 3,261,954Loss for the yearended 31 July 2007 - - - - (1,740,692) (1,740,692) Total recognised(expense) for theyear - - - - (1,740,692) (1,740,692)Share option charge in the year - - - 115,965 - 115,965Adjustment foroptions subsequentlyexercised - - - (486) 486 -Shares issued in the year 4,862 - - - - 4,862 Balance at 31 July 2007 573,260 3,379,046 337,935 132,311 (2,780,463) 1,642,089 Balance at 1 August 2007 573,260 3,379,046 337,935 132,311 (2,780,463) 1,642,089Loss for the sixmonth period ended31 January 2008 - - - - (894,207) (894,207) Total recognised(expense) for theperiod - - - - (894,207) (894,207)Share option charge in the period - - - 50,142 - 50,142 Balance at 31 January 2008 573,260 3,379,046 337,935 182,453 (3,674,670) 798,024 Condensed consolidated interim statement of cash flows - unauditedfor the six months ended 31 January 2008 Six months Six months Year ended ended ended 31 January 31 January 31 July 2008 2007 2007 £ £ £Cash flows from operationsLoss for the period (894,207) (678,225) (1,740,692)Adjustments for:Interest received (22,784) (54,186) (99,741)Income tax credit (72,000) (92,207) (133,561)Depreciation 18,068 15,931 33,332Share option expense 50,142 52,546 115,965Decrease/(increase) in trade and other receivables 10,659 (49,354) (170,303)(Decrease)/increase in trade and other payables (14,516) (67,936) 75,508 Net cash from operating activities (924,638) (873,431) (1,919,492)Income tax received 133,561 86,168 86,169 Net cash flows used in operating activities (791,077) (787,263) (1,833,323) Cash flows used in investingactivitiesInterest received 22,784 54,186 99,741Purchase of property, plant and equipment (1,220) (12,360) (24,692) Net cash flows used in investing activities 21,564 41,826 75,049 Cash flows from financing activitiesShare issue - - 4,862 Net cash flows used in financing activities - - 4,862 Net decrease in cash and cash equivalents (769,513) (745,437) (1,753,412)Cash and cash equivalents at start of period 1,494,018 3,247,430 3,247,430 Cash and cash equivalents at end of period 724,505 2,501,993 1,494,018 Notes to the consolidated interim reportFor the six months ended 31 January 2008 1. Accounting Policies Basis of preparation From 1 August 2007, the Group has adopted International Financial ReportingStandards (IFRS) as adopted by the EU in the preparation of the consolidatedfinancial statements. Prior to this accounting period, the Group prepared its audited annual financialstatements under UK Generally Accepted Accounting Principles (UK GAAP). Forperiods commencing 1 August 2007, the Group is required to prepare its annualconsolidated financial statements in accordance with IFRS as adopted by theEuropean Union. As the financial statements for the year to 31 July 2008 willinclude comparatives for the year ended 31 July 2007, the Group's date oftransition to IFRS is 1 August 2006 and the comparatives will be restated toIFRS. Accordingly, the financial information for the six months to 31 January2007 has been restated to present the comparative information in accordance withIFRS based on a transition date of 1 August 2006. Note 5 of this interimfinancial information sets out how the Group's previous financial position isaffected by the change to IFRS. The financial information for the six months ended 31 January 2008 and 31January 2007 is unaudited. The financial information does not constitute thefinancial statements for that period within the meaning of Section 240 of theCompanies Act 1985. The comparative figures for the year ended 31 July 2007 werederived from the Group's audited financial statements for that period as filedwith the Registrar of Companies as restated for IFRS. Those accounts received anunqualified audit report which does not contain any statement under Section 237(2) or (3) of the Companies Act 1985. Statement of compliance These condensed consolidated interim financial statements have been prepared inaccordance with International Financial Reporting Standard (IFRS) IAS 34,Interim Financial Reporting. They do not include all of the information requiredfor full annual financial statements and should be read in conjunction with theconsolidated financial statements of the group as at and for the year ended 31July 2007. These condensed consolidated interim financial statements were approved by theBoard of Directors on 23 April 2008. The financial information has been neither audited nor reviewed pursuant toguidance issued by the Auditing Practices Board. Changes in Accounting Policies (a) Standards, amendments and interpretations to published standards effectivein 2007 but which are not relevant to the group The following standards, amendments and interpretations to published standardsare mandatory for accounting periods beginning on or after 1 January 2007 butare currently not relevant to the group's operations: - IFRIC 7, Applying the restatement approach under IAS 29, FinancialReporting in Hyperinflationary Economies (b) Standards, amendments and interpretations to published standards not yeteffective Certain new standards, amendments and interpretations to existing standards havebeen published that are mandatory for the group's accounting periods beginningon or after 1 January 2008 or later periods and which the group has decided notto adopt early. These are: - Revised IAS 1, Presentation of Financial Statements (effective foraccounting periods beginning on or after 1 January 2009, yet to be endorsed bythe EU) - Amendments to IAS 32, Financial Instruments: Presentation and IAS 1Presentation of Financial Statements - Puttable Financial Instruments andObligations Arising on Liquidation (effective for accounting periods beginningon 1 January 2009) - IFRS 8, Operating Segments (effective for accounting periodsbeginning on or after 1 January 2009) - IAS 23, Borrowing Costs (revised) (effective for accounting periodsbeginning on or after 1 January 2009) - IFRIC 11, IFRS 2 - Group and Treasury Share Transactions (effectivefor accounting periods beginning on or after 1 March 2007) - IFRIC 12, Service Concession Arrangements (effective for accountingperiods beginning on or after 1 January 2008) - IFRIC 13, Customer Loyalty Programmes (effective for accountingperiods beginning on or after 1 July 2008) - IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, MinimumFunding Requirements and their Interaction (effective for accounting periodsbeginning on or after 1 January 2008). - Revised IFRS 3, Business Combinations and complementary Amendments toIAS 27, Consolidated and Separate Financial Statements (both effective foraccounting periods beginning on or after 1 July 2009). - Amendment to IFRS 2, Share-based payments: vesting conditions andcancellations (effective for accounting periods beginning on or after 1 January2009). Revenue Revenue is recognised when persuasive evidence of an arrangement exists,delivery has occurred or services have been rendered, prices are fixed ordeterminable and collectability is assured. Certain revenues are generated fromlicensing and exclusivity agreements under which we grant third parties rightsto certain of our products or technologies. Upfront payments and other similarnon-refundable payments received under these agreements are recorded as deferredrevenue and are recognised in the income statement over the performance periodstipulated in the agreement. Non-refundable milestone payments which representthe achievement of a significant technical/regulatory hurdle in the research anddevelopment process, pursuant to collaborative agreements, are recognised asrevenue upon the achievement of the specified milestone. The group may alsogenerate revenues from collaborative research and development as well asco-promotion arrangements. Such agreements may consist of multiple elements andprovide for varying consideration terms, such as upfront, milestone and similarpayments, which are complex and require significant analysis by management inorder to determine the most appropriate method of revenue recognition. Suchdeterminations require us to make certain assumptions and judgements. Royalty income is recognised on an accruals basis in accordance with theeconomic substance of the agreement and is reported as part of revenue. Other revenues are recorded as earned or as the services are performed. Basis of consolidation Where the company has the power, either directly or indirectly, to govern thefinancial and operating policies of another entity or business so as to obtainbenefits from its activities, it is classified as a subsidiary. The consolidatedfinancial statements present the result of the company and its subsidiaries("the group") as if they formed a single entity. Intercompany transactions andbalances between group companies are therefore eliminated in full. Business combinations The consolidated financial statements incorporate the results of businesscombinations using the purchase method. In the consolidated balance sheet, theacquiree's identifiable assets, liabilities and contingent liabilities areinitially recognised at their fair values at the acquisition date. The resultsof acquired operations are included in the consolidated income statement fromthe date on which control is obtained. Business combinations that took place prior to 1 August 2006 have not beenrestated. The group has used merger accounting to consolidate the results andassets of its subsidiary company, Syntopix Limited, as this business combinationtook place prior to 1 August 2006. The group has applied the exemptions of IFRS1on transition in prior periods. Segment reporting A business segment is a distinguishable component of an enterprise that isengaged in providing an individual product or service or a group of relatedproducts or services and that is subject to risks and returns that are differentfrom those of other business segments. A geographical segment is adistinguishable component of an enterprise that is engaged in providing productsor services within a particular economic environment and that is subject torisks and returns that are different from those of components operating in othereconomic environments. Financial assets The group classifies its financial assets into one of the categories discussedbelow, depending on the purpose for which the asset was acquired. The group hasnot classified any of its financial assets as held to maturity. The group'saccounting policy for each category is a follows: Fair value through profit or loss: The group does not currently have anyderivative financial instruments. Loans and receivables: These assets are non-derivative financial assets withfixed or determinable payments that are not quoted in an active market. Theyarise principally through the provision of goods and services to customers (e.g.trade receivables), but also incorporate other types of contractual monetaryasset. They are initially recognised at fair value plus transaction costs thatare directly attributable to their acquisition or issue, and are subsequentlycarried at amortised cost using the effective interest rate method, lessprovision for impairment. Impairment provisions are recognised when there is objective evidence (such assignificant financial difficulties on the part of the counterparty or default orsignificant delay in payment) that the group will be unable to collect all ofthe amounts due under the terms receivable, the amount of such a provision beingthe difference between the net carrying amount and the present value of thefuture expected cash flows associated with the impaired receivable. For tradereceivables, which are reported net, such provisions are recorded in a separateallowance account with the loss being recognised within administrative expensesin the income statement. On confirmation that the trade receivable will not becollectible, the gross carrying value of the asset is written off against theassociated provision. The group's loans and receivables comprise trade and other receivables and cashand cash equivalents in the balance sheet. Cash and cash equivalents includes cash in hand, deposits held at call withbanks, other short term highly liquid investments with original maturities ofthree months or less. Financial liabilities The group classes its financial liabilities into different categories, dependingon the purpose for which the asset was acquired. The group's accounting policiesfor each relevant category is as follows: Fair value through profit or loss: The group does not currently have anyderivative financial instruments. Other financial liabilities: Other financial liabilities include the followingitems: Trade payables and other short term monetary liabilities, which are initiallyrecognised at fair value and subsequently at amortised cost using the effectiveinterest method. Share capital Financial instruments issued by the group are treated as equity only to theextent that they do not meet the definition of a financial liability. Thegroup's ordinary shares are classified as equity instruments. Retirement benefits: Defined Contribution Schemes Contributions to defined contribution pension schemes are charged to theconsolidated income statement in the year to which they relate. Share-based payments The group has applied the requirements of IFRS 2 Share-based payments. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments that were unvested as of 1 August 2006. Where equity settled share options are awarded to employees, the fair value ofthe options at the date of grant is charged to the consolidated income statementover the vesting period. Non-market vesting conditions are taken into account byadjusting the number of equity instruments expected to vest at each balancesheet date so that, ultimately, the cumulative amount recognised over thevesting period is based on the number of options that eventually vest. Marketvesting conditions are factored into the fair value of the options granted. Aslong as all other vesting conditions are satisfied, a charge is madeirrespective of whether the market vesting conditions are satisfied. Thecumulative expense is not adjusted for failure to achieve a market vestingcondition. Where the terms and conditions of options are modified before they vest, theincrease in the fair value of the options, measured immediately before and afterthe modification, is also charged to the consolidated income statement over theremaining vesting period. Where equity instruments are granted to persons other than employees, theconsolidated income statement is charged with the fair value of goods andservices received. Leased assets Where substantially all of the risks and rewards incidental to ownership of aleased asset have been transferred to the group (a "finance lease"), the assetis treated as if it had been purchased outright. The amount initially recognisedas an asset is the lower of the fair value of the leased property and thepresent value of the minimum lease payments payable over the term of the lease.The corresponding lease commitment is shown as a liability. The lease paymentsare analysed between capital and interest. The interest element is charged tothe consolidated income statement over the period of the lease and is calculatedso that it represents a constant proportion of the lease liability. The capitalelement reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are nottransferred to the group (an "operating lease"), the total rentals payable underthe lease are charged to the consolidated income statement on a straight linebasis over the lease term. The aggregate benefit of lease incentives isrecognised as a reduction of the rental expense over the lease term on astraight line basis. The land and buildings element of property leases are considered separately forthe purposes of lease classification. Internally Generated Intangible Assets (Research and Development Costs) Expenditure on internally developed products is capitalised if it can bedemonstrated that: • it is technically feasible to develop the product for it to be sold; • adequate resources are available to complete the development; • there is an intention to complete and sell the product; • the group is able to sell the product; • sale of the product will generate future economic benefits; and • expenditure on the project can be measured reliably. Capitalised development costs are amortised over the periods the group expectsto benefit from selling the products developed. The amortisation expense isincluded within the administrative expenses line in the consolidated incomestatement. Development expenditure not satisfying the above criteria and expenditure on theresearch phase of internal projects are recognised in the consolidated incomestatement as incurred. Deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount ofan asset or liability in the balance sheet differs from its tax base, except fordifferences arising from: • the initial recognition of goodwill; • the initial recognition of an asset or liability in a transactionwhich is not a business combination and at the time of the transaction affectsneither accounting or taxable profits; and • investments in subsidiaries and jointly controlled entities where thegroup is able to control the timing of the reversal of the difference and it isprobable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it isprobable that taxable profit will be available against which the difference canbe utilised. The amount of the asset or liability is determined using tax rates that havebeen enacted or substantively enacted by the balance sheet date and are expectedto apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax assets and liabilities are offset when the group has a legallyenforceable right to offset current tax assets and liabilities and the deferredtax assets and liabilities relate to taxes levied by the same tax authority oneither: • the same taxable group company; or • different group entities which intend either to settle current taxassets and liabilities on a net basis, or to realise the assets and settle theliabilities simultaneously, in each future period in which significant amountsof deferred tax assets or liabilities are expected to be settled or recovered. Property, plant and equipment Items of property, plant and equipment are initially recognised at cost. As wellas the purchase price, cost includes directly attributable costs and theestimated present value of any future unavoidable costs of dismantling andremoving items. The corresponding liability is recognised within provisions. Items of property, plant and equipment are carried at depreciated cost. Depreciation is provided on all items of property, plant and equipment so as towrite off the carrying value of items over their expected useful economic lives.It is applied at the following rates: Computer equipment - 3 yearsLaboratory equipment - 5 years 2. Critical Accounting Estimates and Judgements The group makes certain estimates and assumptions regarding the future.Estimates and judgements are continually evaluated based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. In the future, actualexperience may differ from these estimates and assumptions. The estimates andassumptions that have a significant risk of causing a material adjustment to thecarrying amounts of assets and liabilities within the next financial year arediscussed below. Impairment of Non-Current Assets Property, plant and equipment is depreciated over the useful lives of theassets. Useful lives are based on the management's estimates of the period thatthe assets will generate revenue, which are periodically reviewed for continuedappropriateness. Share-based payments The group has equity settled share-based remuneration schemes for employees. Thefair value of share options is estimated by using the Black-Scholes valuationmodel, on the date of grant based on certain assumptions. These assumptionsinclude, among others, expected volatility, expected life of the options andnumber of options expected to vest. Income taxes The group is recognising research & development tax credits receivable in theconsolidated income statement in respect of the significant expenditure onresearch and development activity during the period. The amount recognised is anestimate of the amount which the group believes it is entitled to claim. Untilthe claim is submitted to the tax authorities and the amounts are actuallyreceived there is a risk that the tax credit claim could be challenged by thetax authorities. The group believes that the receivable for income taxrepayments is appropriate based on its assessment of several factors includingpast experience and interpretations of tax law. To the extent that the final taxoutcome is different from the amounts recorded, such differences will impact onthe income tax expense in the period in which such determination is made. 3. Segmental information The Group has one business segment - the research and development ofpharmaceutical products, with all activities taking place in the UK.Consequently, there are no reportable segments in accordance with IAS 14. 4. Earnings per share The calculation of basic and diluted loss per share is based upon the loss aftertax divided by the weighted average number of shares in issue during the period.Due to the losses incurred there is no dilutive effect from the issue of shareoptions. Loss after Weighted tax average EPS numberBasic and diluted loss per share £ of shares (pence)6 months ended 31 January 2008 (894,207) 5,732,601 (15.6p)6 months ended 31 January 2007 (678,225) 5,683,981 (11.9p)12 months ended 31 July 2007 (1,740,692) 5,697,035 (30.6p) At 31 January 2008, there were 426,298 share options granted but not yetexercised. 5. Explanation of transition to IFRS The Group's financial statements for the year ending 31 July 2008 will be thefirst financial statements that comply with International Financial ReportingStandards (IFRS). The Group's financial statements prior to and including 31July 2007 had been prepared in accordance with Generally Accepted AccountingPrinciples in the United Kingdom (UK GAAP). As required by IFRS 1, the impact of the transition from UK GAAP to IFRS isexplained below. The accounting policies set out above have been appliedconsistently to all periods presented in this interim financial information andin preparing an opening IFRS balance sheet at 1 August 2006 for the purposes oftransition to IFRS. IAS 1 - Presentation of Financial Statements. The form and presentation in theUK GAAP financial statements has been changed to be in compliance with IAS 1.There are no adjustments arising from the transition to IFRS and therefore thereis no impact on the reported Income Statement or Balance Sheet. Consequently, noreconciliation between IFRS and UK GAAP has been provided. IAS 7 - Cash Flow Statements. The IFRS Cash Flow Statement, prepared under IAS7, presents cash flows in three categories: cash flows from operatingactivities, cash flows from investing activities and cash flows from financingactivities. Other than the reclassification of cash flow into the new disclosurecategories, there are no significant differences between the Group's Cash FlowStatement under UK GAAP and IFRS. Consequently, no cash flow reconciliations areprovided. Purchases of tangible fixed assets under UK GAAP have beenreclassified to purchases of property, plant and equipment under IFRS. The Group has elected not to apply IFRS 3 to business combinations that occurredprior to the date of transition. This information is provided by RNS The company news service from the London Stock Exchange