Ixico Regulatory News (IXI)

8 May 2006 07:02

Phytopharm PLC08 May 2006 8th May 2006 Interim Results Phytopharm plc (PYM: London Stock Exchange) ("Phytopharm", the "Group" or the "Company") today announces its interim results for the six-month period ended 28February 2006. Key Points - Operational • Successful completion of the first stage and progression into second stage of the Joint Development Agreement for Hoodia gordonii extract with Unilever. Second stage includes clinical studies. • Commitment by Unilever to pay a further £3.5 million out of a potential total of £21 million in payments to Phytopharm. • Good overall safety and tolerability demonstrated in 256 patient Phase IIa clinical study for PYM50028 (Cogane(TM)) in mild to moderate Alzheimer's disease patients. • Sub-analysis of the Phase IIa data in a smaller number of patients with more moderate Alzheimer's disease disclosed today shows an emerging trend for slower disease progression in patients taking Cogane(TM)compared with placebo. • Exclusive global marketing and distribution agreement with Schering-Plough Animal Health (Schering-Plough) for Phytopica • Launch of Phytopicaafter end of period: Phytopharm responsible for manufacture and Schering-Plough Animal Health for marketing and distribution. Key Points - Financial • Revenue of £0.88 million (H1 2005 £6.34 million) • Loss of £3.64 million (H1 2005 profit of £0.43 million) • Cash balance of £8.07 million (H1 2005 £3.67 million) Dr Richard Dixey, Chief Executive of Phytopharm, said: "We are delighted with the successful progression of our products with ourpartners Unilever and Schering-Plough. We have been encouraged by our data setfor Cogane(TM) in moderate Alzheimer's patients. This has allowed us toactively seek global partners and preliminary discussions have commenced withsuitable licensees to undertake longer term studies with this potentiallydisease modifying product." Enquiries: Phytopharm plc Today: 07867 782000Dr Richard Dixey, Chief Executive Thereafter: 01480 437697 Dr Daryl Rees, Chief Operating Officer Tel: 01480 437697 Mobile: 07710 479626Financial DynamicsDavid Yates / Ben Atwell Tel: 0207 831 3113 A recording of the analyst conference call and presentation can be found on thehome page of the Company website by 2pm today and available for one month. www.phytopharm.com Operational Review Phytopharm is a pharmaceutical company with a plant extract division. TheCompany's strategy is to develop first-in-class products through 'proof ofprinciple' clinical testing, and then secure partners for late stagedevelopment, sales and marketing. Phytopharm has two operating divisions. The pharmaceutical division is dedicatedto the discovery and development of novel chemical entities as prescriptionmedicines and the plant extract division is focussed on the development of plantextracts as functional foods and veterinary products. This business model generates a lean cash burn, and the Company is configured ina semi-virtual manner with low staff overheads to capitalise on this advantage.As the greatest part of the cash burn occurs during the later phases of productdevelopment, Phytopharm seeks to finance the further development of its productsthrough licensing or partnering arrangements with third parties. Pharmaceutical Division The progress of our pharmaceutical products over the period, each at differentstages of development, is described below. Alzheimer's disease Our lead product, Cogane(TM) (coded PYM50028) is being developed as a potentialdisease modifying agent for Alzheimer's and Parkinson's disease. This novelsynthetic chemical is orally active and has neuroprotective and neurotrophicproperties. Cogane(TM) restores the learning and memory ability in Alzheimer'sdisease models and thereby offers the potential to arrest or reverse thesymptoms of Alzheimer's disease. In late November 2005 we announced the preliminary results obtained from thePhase IIa clinical study of Cogane(TM) in mild and moderate Alzheimer's diseasepatients. The Oxford Project to Investigate Memory and Ageing (OPTIMA) was thelead clinical centre and 15 other sites in the UK participated in the study. Two hundred and fifty six subjects with Alzheimer's disease ranging in severityfrom mild to moderate were randomly allocated to receive either Cogane(TM) (n =127) or a placebo (n = 129) orally once daily for 12 weeks. The majority ofpatients enrolled had mild disease. The baseline demography data confirmed thatthe treatment groups were well balanced for factors such as age, gender andseverity of disease. The overall safety data confirm that Cogane(TM) administered orally once dailyfor up to 12 weeks is well tolerated and has a good overall clinical safetyprofile. There were no substantial differences in the adverse event andlaboratory safety data for each group. The prospectively defined primary efficacy measure was the change in word recallscore, assessed using the Hopkins verbal learning test. The baseline scores andchanges over time were not significantly different between the groups. Although the Phase IIa clinical trial was not of a sufficient duration toobserve deterioration in cognitive function in the group of Alzheimer's patientswhose disease severity included both mild and moderate disease, a subsetanalysis on the smaller number of patients with moderate Alzheimer's diseaseshowed a trend towards deterioration in the placebo group, with no significantdeterioration observed in the Cogane(TM) group. This encouraging emerging trend for slower disease progression in more moderateAlzheimer's patients with Cogane(TM) confirms the need for longer term studiesfor efficacy determination. Further work has now been initiated in preparationfor a 12 month Phase IIb study planned for calendar H2 2007 and preliminarydiscussions have commenced with potentially suitable licensees to undertakethese longer term studies. Motor neurone disease Myogane(TM) (coded PYM50018) is being developed for amyotrophic lateralsclerosis (ALS; also known as Lou Gehrig's disease). ALS is the most commonmotor neurone disease and results from progressive degeneration of both upperand lower motor neurones. Although the precise molecular pathways that cause thedeath of motor neurones in ALS remain unknown, possible mechanisms includemitochondrial alterations and glutamate mediated excitotoxicity. In pre-clinical studies, the single chemical Myogane(TM) protects against neuronaldamage, reverses the decrease of neuronal growth factors and reverses neuronaldegeneration observed in motor neurones. Myogane(TM) also increases neuriteoutgrowth, reverses oxidative damage and reverses neuronal apoptosis in vitro. When administered orally to a transgenic preclinical model of ALS, Myogane(TM)delays the loss of muscle strength and extends survival time. In 2004, we successfully completed a Phase Ia clinical study to evaluate thesafety, tolerability and pharmacokinetic profile of Myogane(TM). This residentialclinical study was conducted under an investigational new drug (IND) filed withthe United States Food and Drug Administration (FDA) and confirmed that theproduct was well absorbed with a good safety profile. We also announced that theFDA had granted Orphan Drug and Fast Track designation to Myogane(TM) for thetreatment of ALS. Building on this success we have further developed newformulations suitable for ALS patients and are completing safety studies tosupport further clinical studies planned for calendar Q1 2007. Preliminarydiscussions have commenced with potentially suitable licensees to undertakethese studies. Parkinson's disease PYM50028 is also being developed for Parkinson's disease. A consistent featureof the disease is the loss of dopamine-containing cells in the substantia nigraarea of the brain. Current drugs can mitigate many of the symptoms for a whilebut do not alter the prognosis of steady decline. Recent studies suggest thatone important mechanism involved in neuronal degeneration of the substantianigra is the production of toxic free radicals. Phytopharm has generated datademonstrating that PYM50028 reverses free radical neurotoxicity produced by1-methyl-4-phenylpyridium (MPP+) in dopaminergic neurones and reverses thedecrease of neuronal growth factors and dopamine receptors in the brain. Once 'proof of principle' has been demonstrated with this compound in patients withAlzheimer's disease (see above) it is anticipated that we will undertakeclinical studies in Parkinson's disease patients. Asthma and other inflammatory disorders Asthma is a chronic inflammatory disorder of the airways that causes recurrentepisodes of wheezing, breathlessness, chest tightness and coughing. Inaddition, asthma is usually associated with widespread but variable airflowobstruction. Inhibition of inflammation and relaxation of airway smooth muscleare therefore key components of asthma treatment. Steady progress has been madein identifying novel synthetic molecules that can be developed as apharmaceutical medicine for the treatment of asthma and other inflammatorydisorders. Pre-clinical studies have demonstrated anti-inflammatory andanti-spasmodic activity in several models of asthma and inflammation. Weanticipate that further proof of concept studies will be investigated in 2006 inpre-clinical models of asthma and anticipate lead candidate selection incalendar H1 2007. The programme is currently in the pre-clinical developmentstage. Obesity and metabolic syndrome Obesity leads to a cluster of metabolic alterations and as a result is a majorrisk factor for insulin resistance, type 2 diabetes, coronary artery disease,hypertension, stroke, osteoarthritis and certain forms of cancer. Weight isgained when energy intake exceeds energy expenditure. The excess energy isstored as fat, and if there is an extended period of positive energy balance,obesity will result. The mechanism of action of the chemical series based onthe active components of our Hoodia gordonii extract (see below) is underinvestigation. Proteomic research is helping to define novel targets and thedesign of new molecules as pharmaceutical candidates for metabolic syndrome.This programme is currently in the pre-clinical development stage. Plant Extract Division The progress of our plant extract products over the period is described below. Obesity Our obesity functional food product is based on an extract of the succulentplant, Hoodia gordonii, which contains a novel appetite suppressant that reducescaloric intake in overweight subjects, as demonstrated in our double-blind,placebo-controlled clinical study announced in December 2001. Extracts ofHoodia gordonii and the active molecules therein are the subject of a globalpatenting programme, with major patents granted in the US, UK and Japan andpending in Europe and all other major territories. In December 2004, we announced that we had granted an exclusive global licencefor the Hoodia gordonii extract to Unilever plc. Under the terms of theagreement, Phytopharm and Unilever are collaborating on a five-stage researchand development programme of safety and efficacy studies with a view to bringingnew weight management products to market. In April 2006 we announced that we had successfully completed the first stage ofour Joint Development Agreement. We also announced that we are now progressingthrough the second stage which includes clinical studies. As part of the agreement, Unilever committed to initial payments ofapproximately £6.5 million for the first stage and for the second stage have nowcommitted to a further £3.5 million out of a potential total of £21 million inpayments to Phytopharm. In addition Phytopharm will receive an undisclosedroyalty on sales of all products containing the extract. Unilever is alsomanaging a separate agronomy programme and supporting the international patentprogramme for the products. Phytopharm and Unilever have also become aware of many companies that areselling products over the Internet and in some stores claiming to contain Hoodiaand causing weight loss. Phytopharm and Unilever are in discussion with therelevant authorities concerning this development. Canine skin health Phytopica(TM) is a natural three plant product that provides a novel 3 in 1approach to help maintain a normal healthy immune system, support normal whitecell function and provide anti-oxidant benefits. Following the success in 2004of our European multi-centre study in canine atopic dermatitis, we launchedPhytopica(TM) as a complementary pet food. Canine dermatological disorders arewell recognised by veterinarians to be a major problem in small animal practice,with an estimated 15% of the UK dog population (around 900,000 dogs) affected byskin conditions due to allergy (Source: Animal Pharm). Maintenance of a healthyskin and coat and alleviation of itching are of major importance to caninegeneral health and quality of life. In January 2006 we announced that we had entered into an exclusive globalmarketing and distribution agreement with Schering-Plough Animal Health forPhytopica(TM). Under the terms of the agreement, Phytopharm is responsible forthe manufacture and sale of Phytopica(TM) to Schering-Plough. Schering-Ploughis responsible for the global sales, marketing and distribution ofPhytopica(TM). In April 2006 we announced the UK launch by Schering-Plough of Phytopica(TM) asan effective aid to the management of canine atopic dermatitis. Phytopica(TM)has been proven extensively in clinical trials and enjoys strong support fromveterinary dermatologists in the UK. Launched at the world's largest companionanimal congress, the British Small Animal Veterinary Association (BSAVA) inBirmingham, 20-23 April 2006, Phytopica(TM) has an excellent safety profile andis recognised as suitable for all dogs whatever size or breed. Following the UK launch, Schering-Plough will seek to market and distributePhytopica(TM) in Europe and the USA. With Schering-Plough's global presence welook forward to strong growth from this product. Canine joint health In 2004 we announced the launch of Zanthofen(TM) for the maintenance of caninejoint mobility. Pre-clinical studies have demonstrated that the components ofZanthofen(TM) maintain normal white cell function and have anti-oxidantproperties that help maintain joint mobility. Since then Zanthofen(TM) has beenavailable to veterinary practitioners across the UK and is marketed byPhytopharm's marketing partner, Genitrix Ltd, a UK based veterinary productcompany. Income from this product is currently small, and sales growth from thisproduct will require expansion into international markets. Discussions withinterested parties are ongoing. Outlook Phytopharm is making good progress in developing a broad portfolio of productswith substantial potential value. We are progressing to the second stage of ourobesity programme with Unilever and Schering-Plough is in the process oflaunching Phytopica(TM) in the UK as an effective aid to the management ofcanine atopic dermatitis as a part of its global marketing deal. Our plant extract division is now generating significant revenue and we continueto invest in the pharmaceutical division of the Company. Full confidentialdisclosure of the substantial data sets for both Cogane(TM) and Myogane(TM), ourlead products for Alzheimer's and motor neurone disease, are now in progresswith interested potential licensing partners. Overall, with growing revenues from our marketed products, major licensingpartners in place for Hoodia gordonii and Phytopica(TM) and further licensingdiscussions underway with other products in our portfolio, Phytopharm is wellplaced to continue its progress during the coming year. Financial Review The financial performance for the six months to 28 February 2006 reflects theongoing development of the Company's novel pharmaceutical and functional foodproducts. Revenue of £0.84 million for the period was generated from Unileverfor the development of the Hoodia gordonii programme and further revenue of£0.04 million was generated from sales of Phytopica(TM) as a companion animalhealth product. Phytopica(TM) was licensed to Schering-Plough in January 2006and formally launched after the period end, in April 2006. Revenue for thecomparable period (six months to 28 February 2005) included a £4 million (£3.6million net of Japanese withholding tax) milestone payment by YamanouchiPharmaceutical Company Ltd (Yamanouchi) following acknowledgement that thesafety data in relation to the first 60 patents treated with Cogane(TM) in thePhase IIa study had fulfilled the criteria set out in the licensing agreement. Since the successful fundraising in May 2005, expenditure on research anddevelopment has continued as planned for the six months ended 28 February 2006.A total of £3.79 million was spent during the period compared to £4.32 millionfor the six months ended 28 February 2005. 63% of this expenditure has beenincurred on the Alzheimer's and motor neurone disease programmes. This includesthe completion of the Cogane(TM) Phase IIa study and initiation of the worknecessary to prepare for a twelve month Phase IIb study planned to commence inH2 2007 and the development of new formulations and safety studies for Myogane(TM). A further 26% of expenditure has been incurred on the continuingdevelopment of Hoodia gordonii extract which has now progressed into the secondstage of development. The remaining expenditure includes pre-clinical work onthe asthma and metabolic syndrome programmes. Expenditure on selling, general and administration expenses for the six monthsended 28 February 2006 decreased to £1.08 million (H1 2005 £1.24 million) due tothe inclusion of the fundraising costs in the previous period. As a result of the successful fundraising in May 2005, interest receivable hasincreased to £0.22 million for the six months ended 28 February 2006. Non-current assets at 28 February 2006 comprise property, plant and equipment of£0.24 million (H1 2005 £0.16 million). Current assets at 28 February 2006 amounted to £10.33 million and comprisedinventories of £0.72 million, amounts receivable of £1.54 million and cashresources of £8.07 million. Inventories decreased in the six months to 28February 2006 due to product sales and the provision for short-dated finishedgoods and raw materials. Cash resources described as cash and cash equivalentsare initially invested for a period of 90 days or less. The increase in cashresources of £7.97 million between 28 February 2005 and 31 August 2005 reflectsthe fundraising in May 2005 offset by the cash utilised in the business. Thebusiness utilised a further £3.57 million in the six months to 28 February 2006. Amounts receivable have increased to £1.54 million since 31 August 2005 due tothe research and development tax credit recoverable for the six months toFebruary 2006. Amounts receivable at 28 February 2005 were £6.33 million whichincluded the £4 million milestone payment due from Yamanouchi (£3.6 million netof Japanese withholding tax). Current liabilities comprised trade and otherpayables amounting to £2.17 million at 28 February 2006. The net cash used in operating activities for the six months to 28 February 2006was £3.64 million. The net cash generated from investing activities arises frominterest received of £0.22 million offset by net expenditure on fixed assets of£0.15 million. In the twelve months to 31 August 2005 additional cash wasgenerated of £0.61 million arising from the repayment by Unilever of advances tocertain suppliers made by the Group in 2004. Implementation of International Financial Reporting Standards The financial results for the six months ended 28 February 2006 are the firstresults prepared in accordance with International Financial Reporting Standards("IFRS"). Prior to these results the Group prepared its audited annual financialstatements in accordance with UK Generally Accepted Accounting Practices ("UKGAAP"). In accordance with IFRS1 the results for the six months ended 28 February 2005and year ended 31 August 2005 included in these interim results have beenrestated in accordance with IFRS. The impact of the restatement is described indetail in note 2 to the financial statements. The principal adjustments relate to: 1. Share based payments. Under IFRS, a charge to the income statement is made to reflect the fair value of awards at grant date. 2. Holiday pay. Under IFRS, a provision for holiday entitlement not taken is required. The profit for the six months ended 28 February 2005 was decreased from £0.74million to £0.43 million principally due to the charge for the fair value ofshare option grants. This charge increased the loss for the year ended 31 August2005 by £0.65 million to a total of £3.33 million and the loss for the sixmonths to 28 February 2006 by £0.23 million to a total of £3.64 million. Other than holiday pay, there have been no adjustments under IFRS affecting thenet assets of the Group. All comparisons above refer to the results reported under IFRS. Dr Richard DixeyDirector Independent review report to Phytopharm plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 28 February 2006 which comprises the unaudited consolidatedinterim balance sheet as at 28 February 2006 and the related unauditedconsolidated interim statements of income, cash flows and changes inshareholders' equity for the six months then ended and related notes. We haveread the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with accounting standards adopted for use in theEuropean Union. The interim report has been prepared in accordance with thebasis set out in note 1. The accounting policies are consistent with those that the Directors intend touse in the next annual financial statements. As explained in note 1, there is,however, a possibility that the Directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with accounting standards adopted for use in the European Union.The IFRS standards and IFRIC interpretations that will be applicable and adoptedfor use in the European Union at 31 August 2006 are not known with certainty atthe time of preparing this interim financial information. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for theCompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 28 February 2006. PricewaterhouseCoopers LLPCambridge5 May 2006 Notes: a. The maintenance and integrity of the Phytopharm plc website is theresponsibility of the Directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the website. b. Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. Unaudited consolidated income statementFor the six months ended 28 February 2006 Unaudited Unaudited Unaudited Six months Six months Twelve months ended ended ended 28 February 28 February 31 August 2006 2005 2005 (restated) (restated) note £ £ £ Revenue 3 879,420 6,340,644 7,378,110 Cost of sales (239,434) (371,054) (399,842) _____ _____ _____ Gross profit 639,986 5,969,590 6,978,268 Research and development expenses (3,790,941) (4,317,226) (8,910,005)Selling, general and administrative expenses (1,076,732) (1,239,847) (2,006,794) _____ _____ _____ Operating (loss)/profit (4,227,687) 412,517 (3,938,531) Interest receivable and similar income 223,087 93,356 338,212Interest payable and similar charges - (296) (295) _____ _____ _____ (Loss)/profit on ordinary activities before (4,004,600) 505,577 (3,600,614)taxation UK tax credit on (loss)/profit on ordinary 4 367,544 328,208 674,341activitiesForeign tax charge 4 - (400,000) (400,000) _____ _____ _____ (Loss)/profit for the period (3,637,056) 433,785 (3,326,273) _____ _____ _____ Basic (loss)/earnings per share (pence) 5 (7.1) 1.0 (7.3)Diluted (loss)/earnings per share (pence) 5 (7.1) 1.0 (7.3) Unaudited consolidated statement of changes in shareholders' equityFor the six months ended 28 February 2006 Share Share Other Retained Total capital premium reserves earnings £ £ £ £ £ Balance at 1 September 2004 427,488 38,134,657 (204,211) (33,079,538) 5,278,396Profit for the six-month period - - - 433,785 433,785 _____ _____ _____ _____ _____ Total recognised income and expense for 427,488 38,134,657 (204,211) (32,645,753) 5,712,181the period Issue of equity share capital 3,509 154,384 - - 157,893Equity share options charge - - - 344,089 344,089 _____ _____ _____ _____ _____ Balance at 28 February 2005 430,997 38,289,041 (204,211) (32,301,664) 6,214,163 _____ _____ _____ _____ _____ Loss for the six-month period - - - (3,760,058) (3,760,058) _____ _____ _____ _____ _____ Total recognised income and expense for - - - (3,760,058) (3,760,058)the period Issue of equity share capital 80,812 8,867,667 - - 8,948,479Equity share options charge - - - 411,141 411,141 _____ _____ _____ _____ _____ Balance at 31 August 2005 511,809 47,156,708 (204,211) (35,650,581) 11,813,725 _____ _____ _____ _____ _____ Loss for the six-month period - - - (3,637,056) (3,637,056) _____ _____ _____ _____ _____ Total recognised income and expense for 511,809 47,156,708 (204,211) (39,287,637) 8,176,669the period Equity share options charge - - - 228,018 228,018 _____ _____ _____ _____ _____ Balance at 28 February 2006 511,809 47,156,708 (204,211) (39,059,619) 8,404,687 _____ _____ _____ _____ _____ Unaudited consolidated balance sheetAs at 28 February 2006 Unaudited Unaudited Unaudited Six months Sixmonths Twelve months ended ended ended 28 February 28 February 31 August 2006 2005 2005 (restated) (restated) note £ £ £ Non-current assetsProperty, plant and equipment 242,474 154,628 146,002 _____ _____ _____ Non-current assets 242,474 154,628 146,002 Current assetsInventories 6 722,258 347,574 947,221Trade and other receivables 7 1,538,712 6,325,063 1,339,430Cash and cash equivalents 8,070,426 3,671,502 11,640,739 _____ _____ _____ Current assets 10,331,396 10,344,139 13,927,390 _____ _____ _____ Current liabilitiesTrade and other payables 8 (2,169,183) (4,284,604) (2,259,667) _____ _____ _____ Net current assets 8,162,213 6,059,535 11,667,723 _____ _____ _____ Net assets 8,404,687 6,214,163 11,813,725 _____ _____ _____ Share capital 511,809 430,977 511,809Share premium 47,156,708 38,289,041 47,156,708Other reserves (204,211) (204,211) (204,211)Retained deficit (39,059,619) (32,301,664) (35,650,581) _____ _____ _____ Shareholders' funds 8,404,687 6,214,163 11,813,725 _____ _____ _____ Unaudited consolidated cash flow statementFor the six months ended 28 February 2006 Unaudited Unaudited Unaudited Six Six Twelve months months months ended ended ended 28 February 28 February 31 August 2006 2005 2005 (restated) (restated) £ £ £ Cash flow from operating activitiesOperating (loss)/profit (4,227,687) 412,517 (3,938,531)Depreciation 54,327 44,752 89,605Loss/(gain) on disposal of property, plant and equipment 1,304 (1,437) (1,150)Option charge 228,018 344,088 755,230 _____ _____ _____ (3,944,038) 799,920 (3,094,846)Changes in working capitalDecrease/(increase) in trade and other receivables 18,262 (5,019,018) (317,552)(Decrease)/increase in trade and other payables (89,085) 1,611,724 (14,612)Decrease/(increase) in inventories 224,963 2,960 (596,687) _____ _____ _____ Cash used in operations (3,789,898) (2,604,414) (4,023,697) Taxation received 150,000 - 630,300Foreign taxation paid - - (400,000)Interest paid - (296) (295) _____ _____ _____ Net cash used in operating activities (3,639,898) (2,604,710) (3,793,692) Cash flows from investing activitiesPurchase of tangible fixed assets (178,854) (29,126) (62,845)Sale of tangible fixed assets 26,750 9,000 9,000Repayment of advances to suppliers - 613,929 613,929Interest received 223,087 93,356 338,212 _____ _____ _____ Net cash generated from investing activities 70,983 687,159 898,296 Cash flows from financing activitiesIssue of shares - 157,893 10,259,384Share issue costs - - (1,153,012)Capital element of finance leases (1,398) - (1,397) _____ _____ _____ Net cash (used in)/generated from financing activities (1,398) 157,893 9,104,975 _____ _____ _____ Movements in cash and cash equivalents in the period (3,570,313) (1,759,658) 6,209,579Cash and cash equivalents at the beginning of the period 11,640,739 5,431,160 5,431,160 _____ _____ _____ Cash and cash equivalents at end of period 8,070,426 3,671,502 11,640,739 _____ _____ _____ Notes to the financial statementsFor the six months ended 28 February 2006 1 Accounting policies and basis of preparation Basis of preparation Prior to 2006 the Group prepared its audited financial statements under UKGenerally Accepted Accounting Practices (UK GAAP). For the year ended 31 August2006, the Group is required to prepare its annual consolidated financialstatements in accordance with accounting standards adopted in the European Union(EU). As such those financial statements will take account of the requirementsand options in IFRS1 "First-time adoption of International Financial ReportingStandards (IFRS)" as they relate to the comparatives included herein. The financial information for the six months ended 28 February 2006 is unauditedand has been prepared in accordance with the Group's accounting policies basedon IFRS, that are expected to apply for 2006. The financial information for thesix months ended 28 February 2005 and the year ended 31 August 2005 is alsounaudited and has been restated under IFRS. An explanation of how the transition from UK GAAP to IFRS has affected theGroup's financial position, income statement and cash flow is set out in note 2.The reconciliations set out in note 2 are based on the IFRS expected to beapplicable as at 31 August 2006 and the interpretations of those standards. TheIFRS and IFRIC interpretations that will be applicable at 31 August 2006 are notknown with certainty. These interim consolidated statements are based onmanagement's understanding of issued standards and interpretations and currentfacts and circumstances, which may change. For example, amended or additionalstandards or interpretations may be issued by the IASB. IFRS is currently beingapplied in the United Kingdom and in a large number of other countriessimultaneously for the first time. The interim financial information has not been audited and does not constitutestatutory accounts within the meaning of Section 240 of the Companies Act 1985but has been reviewed by the auditors in accordance with Bulletin 1999/4 issuedby the Auditing Practices Board. The Company's statutory accounts for the yearended 31 August 2005, prepared under UK GAAP have been delivered to theRegistrar of Companies; the report of the auditors on these accounts wasunqualified and did not contain a statement under section 237 (2) or (3) of theCompanies Act 1985. Accounting policies The accounting policies set out below have been applied consistently to all ofthe periods covered in the interim financial information. Basis of consolidation The acquisition by the Company's subsidiary, Phytotech Limited (formerlyPhytopharm Limited), of Phytodevelopments Limited on 21 March 1996 has beenaccounted for as a merger in the consolidated financial statements, and alltransactions between the two companies have been eliminated. On 3 April 1996 the Group structure was reorganised and a new holding Companyestablished by way of a share exchange. This has been accounted for as a mergerin the consolidated accounts, and all transactions within the Group have beeneliminated. There has been no change to the basis set out as a result of the implementationof IFRS. Share-based payments The Group makes equity-settled share-based payments to its employees andDirectors. Equity-settled share-based payments are measured at fair value at thedate of grant and are expensed on a straight line basis over the vesting periodof the award. At each balance sheet date, the Group revises its estimate of thenumber of options that are expected to become exercisable. The share-basedpayment charge is allocated to research and development expenses and selling,general and administrative expenses on the basis of staff numbers. Cash and cash equivalents Cash and cash equivalents include cash in hand, bank deposits repayable ondemand and other short-term highly liquid investments with maturities of 90 daysor less. Property, plant & equipment The cost of property, plant & equipment is its purchase cost, together with anyincidental expenses of acquisition. Depreciation is calculated so as to writeoff the cost of property, plant & equipment, less its estimated residual value,on a straight line basis over the expected useful economic lives of the assetsconcerned. The principal rates used for this purpose are: Plant and machinery 20%Computer equipment 33%Fixtures and fittings 2%Motor vehicles 25% Leasehold improvements are amortised over the shorter of the lease term and theasset's useful economic life. Impairment of assets Non-current assets are reviewed for impairment at each reporting date. Animpairment loss is recognised for the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverable amount is the higher ofan asset's fair value less costs to sell and value in use. Research and development expenditure All on-going research expenditure is currently expensed in the period in whichit is incurred. Due to the regulatory and other uncertainties inherent in thedevelopment of the Group's products, the criteria for development costs to berecognised as an asset, as prescribed by IAS 38 "Intangible assets", are not metuntil the product has been submitted for regulatory approval and it is probablethat future economic benefit will flow to the Group. The Group does notcurrently have any such internal development costs that qualify forcapitalisation as intangible assets. Finance and operating leases Costs in respect of operating leases are charged on a straight line basis overthe lease term. Where fixed assets are financed by leasing agreements, whichtransfer to the Group substantially all the benefits and risks of ownership, theassets are treated as if they had been purchased outright and included intangible fixed assets. The capital element of the leasing commitments is shownas obligations under finance leases. The lease rentals are treated asconsisting of capital and interest elements. The capital element is applied toreduce the outstanding obligations and the interest element is charged againstprofit in proportion to the reducing capital element outstanding. Assets heldunder finance leases are depreciated over the shorter of the lease term and theuseful lives of equivalent owned assets. Foreign currencies Transactions denominated in foreign currencies are translated into sterling,being the functional currency of the Group, at actual rates of exchange rulingat the date of transaction. Monetary assets and liabilities expressed in foreigncurrencies are translated into sterling at rates of exchange ruling at the endof the financial year. All foreign currency exchange differences are taken tothe income statement in the year in which they arise. Revenue Revenue, which excludes value added tax, represents the invoiced value of goodsand services supplied, net of certain promotional activity. Amounts received or receivable in respect of research and development contracts,collaborative research agreements, licence fees or milestone payments arerecognised as revenue when the licence rights are granted or the specificconditions stipulated in the agreements have been satisfied. These amounts areshown gross of any withholding tax. Cost of sales and operating expenses Cost of sales comprises the proportion of milestone and royalty income earned bythe Group and due to third parties under licence agreements and the direct costof goods sold including distribution costs. All research and development costs,whether funded by third parties under licence and development agreements or not,are included within operating expenses and classified as research anddevelopment costs. Deferred taxation Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated financial statements inaccordance with IAS 12 "Income taxes". Deferred tax assets and liabilities arenot discounted. Deferred tax is not accounted for if it arises from initialrecognition of an asset or liability in a transaction, other than a businesscombination, that at the time of the transaction affects neither the accountingnor taxable profit or loss. Valuation allowances are established againstdeferred tax assets where it is more likely than not that some or all of theasset will not be realised. Pension costs The Group contributes a percentage of employees' gross salary costs to definedcontribution money purchase schemes. Employees may opt out of the State schemeif they wish. The pension costs charged to the income statement represent theamount of contributions payable to the pension schemes in respect of theaccounting period. The Group provides no other post retirement benefits to its employees. Inventory Inventory including raw materials, work in progress and finished goods is statedat the lower of cost and net realisable value. Cost represents direct materialsand where applicable production overheads. Where necessary, provision is madefor obsolete, slow-moving or defective inventory. 2 Explanation of transition to IFRS Reconciliation of equity and loss This is the first time that the Group has prepared interim financial informationunder IFRS as defined in note 1. The following disclosures are required in theperiod of transition. For the purposes of this financial information the lastinterim statements were for the six months ended 28 February 2005, the lastannual financial statements were for the year ended 31 August 2005 and the dateof transition to IFRS was 1 September 2004. IFRS1 "First Time Adoption of International Financial Reporting Standards" setsout the rules which must be applied when IFRS is adopted for the first time. Thestandard sets out certain mandatory exemptions to retrospective application andcertain optional exemptions. The most significant optional exemption available taken by the Group is theadoption of the exemption in IFRS1 which allows a first-time adopter to applyIFRS2 only to share options granted after 7 November 2002, that have not vestedby 1 January 2005. Reconciliation of equity: 31 August 28 February 31 August 2004 2005 2005 note £ £ £ Net assets under UK GAAP 5,292,048 6,229,190 11,828,743Holiday pay accrual a (13,652) (15,027) (15,018) _____ _____ _____ Net assets under IFRS 5,278,396 6,214,163 11,813,725 _____ _____ _____ Reconciliation of profit/(loss): 28 February 31 August 2005 2005 note £ £ Profit/(loss) under UK GAAP 734,999 (2,680,457)Share option charge b (298,838) (644,450)Holiday pay accrual a (1,376) (1,366) _____ _____ Net assets under IFRS 433,785 (3,326,273) _____ _____ Reconciliation of equity at 31 August 2004 (date of transition to IFRS) UK GAAP IFRS Effect IFRS note £ £ £ Non-current assetsProperty, plant and equipment 177,817 - 177,817 _____ _____ _____ Non-current assets 177,817 - 177,817 Current assetsInventories 350,534 - 350,534Trade and other receivables 1,591,766 - 1,591,766Cash and cash equivalents - 5,431,160 5,431,160Short term investments e 5,237,452 (5,237,452) -Cash at bank and in hand e 193,708 (193,708) - _____ _____ _____ Current assets 7,373,460 - 7,373,460 _____ _____ _____ Current liabilitiesTrade and other payables a (2,259,229) (13,652) (2,272,881) _____ _____ _____ Net current assets 5,114,231 (13,652) 5,100,579 _____ _____ _____ Net assets 5,292,048 (13,652) 5,278,396 _____ _____ _____ EquityShare capital 427,488 - 427,488Share premium 38,134,657 - 38,134,657Other reserves (204,211) - (204,211)Retained deficit a, b (33,065,886) (13,652) (33,079,538) _____ _____ _____ Shareholders' funds 5,292,048 (13,652) 5,278,396 _____ _____ _____ Reconciliation of equity at 28 February 2005 UK GAAP IFRS Effect IFRS note £ £ £ Non-current assetsProperty, plant and equipment 154,628 - 154,628 _____ _____ _____ Non-current assets 154,628 - 154,628 Current assetsInventories 347,574 - 347,574Trade and other receivables 6,325,063 - 6,325,063Cash and cash equivalents - 3,671,502 3,671,502Short term investments e 3,524,233 (3,524,233) -Cash at bank and in hand e 147,269 (147,269) - _____ _____ _____ Current assets 10,344,139 - 10,344,139 _____ _____ _____ Current liabilitiesTrade and other payables a (4,269,577) (15,027) (4,284,604) _____ _____ _____ Net current assets 6,074,562 (15,027) 6,059,535 _____ _____ _____ Net assets 6,229,190 (15,027) 6,214,163 _____ _____ _____ EquityShare capital 430,997 - 430,997Share premium 38,289,041 - 38,289,041Other reserves (204,211) - (204,211)Retained deficit a, b (32,286,637) (15,027) (32,301,664) _____ _____ _____ Shareholders' funds 6,229,190 (15,027) 6,214,163 _____ _____ _____ Reconciliation of equity at 31 August 2005 UK GAAP IFRS Effect IFRS note £ £ £ Non-current assetsProperty, plant and equipment 146,002 - 146,002 _____ _____ _____ Non-current assets 146,002 - 146,002 Current assetsInventories 947,221 - 947,221Trade and other receivables 1,339,430 - 1,339,430Cash and cash equivalents - 11,640,739 11,640,739Short term investments e 11,600,359 (11,600,359) -Cash at bank and in hand e 40,380 (40,380) - _____ _____ _____ Current assets 13,927,390 - 13,927,390 _____ _____ _____ Current liabilitiesTrade and other payables a (2,244,649) (15,018) (2,259,667) _____ _____ _____ Net current assets 11,682,741 (15,018) 11,667,723 _____ _____ _____ Net assets 11,828,743 (15,018) 11,813,725 _____ _____ _____ EquityShare capital 511,809 - 511,809Share premium 47,156,708 - 47,156,708Other reserves (204,211) - (204,211)Retained deficit a, b (35,635,563) (15,018) (35,650,581) _____ _____ _____ Shareholders' funds 11,828,743 (15,018) 11,813,725 _____ _____ _____ Reconciliation of loss for the six months ended 28 February 2005 UK GAAP IFRS Effect IFRS note £ £ £ Revenue 6,340,644 - 6,340,644 Cost of sales (371,054) - (371,054) ______ ______ ______ Gross profit 5,969,590 - 5,969,590 Research and development expenses b (4,109,707) (207,519) (4,317,226)Selling, general and administrative a, b (1,146,152) (93,695) (1,239,847)expenses ______ ______ ______ Operating profit/(loss) 713,731 (301,214) 412,517 Interest receivable and similar income 93,356 - 93,356Interest payable and similar charges (296) - (296) ______ ______ ______ Profit/(loss) on ordinary activities before 806,791 (301,214) 505,577taxation UK tax credit on (loss)/profit on ordinary 328,208 - 328,208activitiesForeign tax charge (400,000) - (400,000) ______ ______ ______ Profit/(loss) for the period 734,999 (301,214) 433,785 ______ ______ ______ Reconciliation of loss for the year ended 31 August 2005 note £ £ £ Revenue 7,378,110 - 7,378,110 Cost of sales (399,842) - (399,842) _____ _____ _____ Gross profit 6,978,268 - 6,978,268 Research and development expenses b (8,462,098) (447,907) (8,910,005)Selling, general and administrative a, b (1,808,885) (197,909) (2,006,794)expenses _____ _____ _____ Operating profit/(loss) (3,292,715) (645,816) (3,938,531) Interest receivable and similar income 338,212 - 338,212Interest payable and similar charges (295) - (295) _____ _____ _____ Profit/(loss) on ordinary activities before (2,954,798) (645,816) (3,600,614)taxation UK tax credit on (loss)/profit on ordinary 674,341 - 674,341activitiesForeign tax charge (400,000) - (400,000) _____ _____ _____ Profit/(loss) for the period (2,680,457) (645,816) (3,326,273) _____ _____ _____ Notes to the reconciliation of equity and loss a) Holiday pay - under IAS 19 "Employee Benefits" a provision for holidayto which staff are entitled but have not yet taken is required. This charge wasnot conventionally made under UK GAAP. b) Share-based payments - under IFRS 2 "Share-based Payments" a charge isrequired for all share-based payments including share options. The charge in theincome statement is based on the fair value of the awards at grant date. Thischarge was not required under UK GAAP. Explanation of the principal differences between the cash flow statementspresented under UK GAAP and the cash flow statement under IFRS The cash flow statement has been prepared in conformity with IAS 7 "Cash FlowStatements". The principal differences between the 2005 cash flow statementspresented in accordance with UK GAAP and the cash flow statement presented inaccordance with IFRS for the same periods are as follows: c) Under UK GAAP, net cash flow from operating activities was determinedbefore considering cash flows from (a) returns on investments and servicing onfinance, and (b) taxes paid. Under IFRS, net cash flow from operating activitiesis determined after these items. d) Under UK GAAP, capital expenditure, financial investments andacquisitions were classified separately, while under IFRS they are classified asinvesting activities. e) Under UK GAAP, movements in short-term investments were not included incash but classified as management of liquid resources. Under IFRS short-terminvestments with maturity of 90 days or less at the date of acquisition areincluded in cash and cash equivalents. 3. Segmental analysis Six months Six months Twelve months ended ended ended 28 February 28 February 31 August 2006 2005 2005Revenue - by business activity: £ £ £ Licensing and development 840,855 6,266,426 7,248,721Product sales 38,565 74,128 129,389 _____ _____ _____ 879,420 6,340,554 7,378,110 _____ _____ _____ 4. Tax on loss on ordinary activities Foreign tax relates to the 10% Japanese withholding tax suffered in the yearended 31 August 2005 on the £4 million income from the Yamanouchi milestone. There is no corporation tax charge because of the incidence of tax losses. TheCompany has taken advantage of the Research and Development corporation taxcredits introduced in the Finance Act 2000 whereby a company may surrendercorporation tax losses incurred on research and development expenditure for acorporation tax refund at the rate of 24 pence on the pound of actualexpenditure. 5 Loss per share The loss per share is based on losses of £3,637,056 and 51,180,893 ordinaryshares, being the weighted average number of shares in issue during the period. The diluted earnings per share for the six months ended 28 February 2005 wasbased on the weighted average number of ordinary shares in issue diluted toassume conversion of all dilutive potential ordinary shares. The Group has twoclasses of dilutive potential ordinary shares: those share options granted toemployees where the exercise price is less than the average market price of theCompany's ordinary shares during the period and the contingently issuable sharesunder the Group's long-term incentive plan. At 28 February 2005, the performance criteria for the vesting of the awardsunder the incentive scheme had not been met and consequently these shares inquestion are excluded from the diluted EPS calculation. As the Group was loss-making in the six months ended 28 February 2006 and theyear ended 31 August 2005, there were no dilutive potential ordinary shares. 6 Inventory Six months Six months Twelve months ended Ended ended 28 February 28 February 31 August 2006 2005 2005 £ £ £ Raw materials and consumables 303,335 203,017 525,916Work in progress 418,923 - 293,025Finished goods and goods for resale - 144,557 128,280 _____ _____ _____ 722,258 347,574 947,221 _____ _____ _____ In the six months ended 28 February 2006, finished goods to the value of £28,500have been recognised as an expense (six months ended 28 February 2005 - £21,054;twelve months to 31 August 2005 - £49,842) and provision of £205,837 has beenmade against obsolete raw materials, work in progress and finished goods (sixmonths ended 28 February 2005 - £nil; twelve months to 31 August 2005 - £nil). 7 Trade and other receivables Six months Six months Twelve months ended ended ended 28 February 28 February 31 August 2006 2005 2005 £ £ £ Trade debtors 264,795 4,924,933 226,076R & D tax credit 891,885 958,508 674,341Other debtors 85,495 173,346 227,743Prepayments and accrued income 296,537 268,276 211,270 _____ _____ _____ 1,538,712 6,325,063 1,339,430 _____ _____ _____ 8 Trade and other payables Six months Six months Twelve months ended ended ended 28 February 28 February 31 August 2006 2005 2005 £ £ £ Trade creditors 342,487 2,008,605 589,922Obligations under finance leases - - 1,399Other creditors 153,222 613,278 77,492Accruals and deferred income 1,673,474 1,662,721 1,590,854 _____ _____ _____ 2,169,183 4,284,604 2,259,667 _____ _____ _____ 9 Related party transactions The Group was obliged, during the financial year ended 31 August 2005, to pay tothe Inland Revenue £157,731 arising in respect of personal tax on the exerciseby the Chief Executive Officer of 288,889 share options on 3 December 2004, nearthe end of the exercise period. At 28 February 2005 and 31 August 2005 Dr Dixeywas accordingly obliged to reimburse such amount to the Company includinginterest charges at 5%, being the Inland Revenue Approved Rate. Subsequent to 31August 2005 the Remuneration Committee agreed to waive the repayment of theamount due from Dr Dixey, who will instead receive no bonus for the 2005 and2006 financial years. The Group has therefore recognised in the income statementfor the six months ended 28 February 2006 a charge of £314,126 in respect ofthis arrangement, being the impairment of the receivable relating to theoriginal tax on share option gains and the additional tax liability on thebenefit arising from the waiver. At 28 February 2006 there is no outstandingbalance with a related party relating to these arrangements. 10 Performance share award On 14 December 2005 the Remuneration Committee made a performance share award of400,000 ordinary shares at par to Dr D D Rees. The Remuneration Committeeconsidered that there was a considerable risk of Dr Rees leaving the Company ashis existing share option awards were at option prices significantly in excessof the current share price and this performance share award was granted, aspermitted by Listing Rule 9.4.2 (2) to retain the services of Dr Rees. The awardis subject to performance conditions and the benefits are not pensionable. Theperformance conditions are based on Total Shareholder Return (TSR) over a threeyear period (with no retesting opportunities) when compared to a peer groupcomprising 25 other listed UK biotech and pharmaceutical companies for 266,664shares and compared to the FTSE SmallCap index for the remaining 133,336 shares.In each case 25% of the shares awarded will vest for median performance againstthe comparator group rising to 100% for upper decile and above performance. Noneof the shares awarded will vest for below median performance. TSR is consideredby the Remuneration Committee to be the most robust method of measuring companyperformance over the period. The terms of the award will not be amended to thebenefit of Dr Rees without seeking shareholder approval. 11 Post balance sheet events Phytopharm announced on 10 April 2006 that it had successfully completed thefirst stage of the Joint Development Agreement for Hoodia gordonii extract withUnilever and will now progress to the second stage which includes clinicalsafety studies. Phytopharm announced on 24 April 2006 the UK launch by Schering-Plough AnimalHealth (Schering-Plough) of Phytopica(TM), a unique 3 plant extract that offersan effective aid to the management of canine atopic dermatitis. Phytopharm announced on 26 April 2006 the appointment of Teather & GreenwoodLimited as joint financial adviser and stockbroker. This information is provided by RNS The company news service from the London Stock Exchange