22 May 2008 07:00
| For Immediate Release | 22 May 2008 |
MINSTER PHARMACEUTICALS PLC
("Minster" or "the Company")
Preliminary Announcement of Audited Results for the year ended 31 March 2008
Minster Pharmaceuticals plc (AIM: MPM), the drug development company specialising in neurological and psychiatric disorders, is pleased to announce its results for the year ended 31 March 2008.
Highlights:
Start of 500-patient Phase IIb TEMPUS study in the US and Canada of tonabersat in the prevention of migraine
TEMPUS study enrolment progressing satisfactorily with trial results expected in Q1 2009
Tonabersat described as "the most promising late-stage migraine specific preventive therapy" in an independent Datamonitor report in September 2007
Pre-tax loss of £4.87 million (2007: £2.12 million loss), reflecting on-going investment in the TEMPUS study of tonabersat
Strong balance sheet with net cash of £11.8 million at the balance sheet date (31 March 2007: £16.5 million)
Post balance sheet events:
Further details of tonabersat's mode of action to be released at the American Headache Society annual scientific meeting in Boston in June 2008
Paul Sharpe, Minster Pharmaceuticals' Chief Executive, said:
"We have made substantial advances with tonabersat during the year, highlighted by progression of the TEMPUS study in the US and Canada. We reached 50 per cent enrolment in this study in April this year with completion of enrolment expected in June. We look forward to the results in Q1 2009 of this study, which has the potential to transform Minster into a significant force in the global migraine market.
"Minster has an active collaboration with Missouri State University from which novel data relating to tonabersat's unique mode of action will be presented at the American Headache Society meeting in Boston in June."
For further information:
| Minster Pharmaceuticals plc | Tel: +44 (0) 1799 506623 |
| Paul Sharpe, Chief Executive Officer |
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| Robert Aubrey, Chief Financial Officer |
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| Buchanan Communications | Tel: +44 (0) 20 7466 5000 |
| Mark Court / Rebecca Skye Dietrich / Catherine Breen | |
| Nomura Code Securities Limited | Tel: +44 (0) 20 7776 1200 |
| Richard Potts / Gerard Harper |
|
Chairman and Chief Executive's joint review
The year to 31 March 2008 was another year of substantial progress for Minster. Shortly before the beginning of the financial year we raised £17 million before expenses, giving us the balance sheet strength to accelerate the progress of our pipeline products and insulating us from the current fundraising environment.
Our primary focus during the year has been on progressing the clinical development of our lead compound tonabersat, which is the leading compound in its class for the preventive treatment of migraine. Known as a selective neuronal gap junction blocker, its mode of action is unique and, in clinical trials completed so far, tonabersat has shown considerable evidence of efficacy along with good tolerability.
We were particularly pleased to begin enrolment to our Phase IIb TEMPUS (Tonabersat Evaluation in Migraine Prevention in the United States) study in October last year. Enrolment into the study has proceeded well, with 50 per cent enrolment achieved in April of this year. Results from this study are expected to be released early in 2009 and will be key in establishing the therapeutic and commercial potential of tonabersat.
Tonabersat is aimed at the market for migraine prevention. Key opinion leaders in the US and in Europe are agreed that an effective and well tolerated compound for migraine prophylaxis would potentially be of benefit to about 30% of migraineurs, which represents a very substantial market. This segment of migraineurs represents the people suffering from frequent migraine attacks each month, each lasting up to two to three days. We believe that a well tolerated compound that significantly reduces the number of migraine attacks will receive widespread acceptance in the US and throughout Europe.
The market for the preventive therapy of migraine is growing and represents an area of significant unmet medical need. We were very pleased to note that this view has been endorsed by a third party. In a report by Datamonitor* in September 2007, it was stated that "the large number of untreated patients and poor tolerability profiles of existing treatments means the prophylactic market will remain highly attractive". The report goes on to say that: "The continued growth of the migraine prophylaxis market should see mounting interest in companies pursuing it (prophylactic therapy) as a primary indication for their investigative compounds."
Minster is such a company and in the view of Datamonitor "Tonabersat is the most promising late-stage migraine specific preventive therapy". This third party endorsement adds considerable weight to the arguments that we have presented to shareholders in the past and underlines the increasing momentum behind the preventive treatment of migraine.
The Phase IIb (TEMPUS) study is a major trial involving 500 patients in 80 centres in the US and Canada. The treatment period, at 20 weeks, is significantly longer than the 12 weeks of our earlier Phase IIa trial. The results of the earlier trial suggested that the therapeutic effect of tonabersat was still increasing at the end of the treatment period indicating that it takes some time for patients to respond optimally to the compound. The TEMPUS trial also includes evaluation of a higher daily dose of tonabersat than previously studied and uses an improved study design. The outcome of this trial has the potential to transform Minster into a significant force in the global migraine market.
This trial has captured the attention of many key opinion leaders in migraine at specialist and general headache centres throughout the US. The principal investigator for TEMPUS is Prof. Richard Lipton, Professor of Neurology at the Albert Einstein College of Medicine in New York. Prof. Lipton is highly regarded in US and European medical circles as well as regulatory circles as an authority on headache. We are lucky to have attracted him to this very important trial.
The Group's strategy is to outlicense tonabersat to a suitable pharmaceutical partner to finance the final stages of the development of the compound to registration. It is the Company's objective to put this in place after the results of TEMPUS are known. During the year, mechanistic studies designed to further define the mode of action of tonabersat continued at key academic centres in the US including Missouri State University. Advances in this knowledge will be released to the medical world at the American Headache Society annual scientific meeting in Boston in June this year. Minster will have a further opportunity to disseminate these findings to the European Headache and Migraine Trust International Congress in London in September. Both of these meetings attract neurologists in large numbers from all over the world. These meetings should focus the attention of neurologists, pharmaceutical companies and investors on the prospects for tonabersat and Minster.
The geographical focus of our clinical and mechanistic studies has been the US, which represents the world's largest pharmaceutical market and the market where the preventive treatment of migraine is commercially most advanced. There is also a rapidly growing awareness of the importance of migraine and other headache disorders in the UK and Europe.
We were pleased to have been invited to a recent reception of the All Party Committee on Headache at the House of Commons chaired by Mr. Stephen O'Brien MP, Committee Chairman. The reception included the launch of the following early day motion: "That this House notes that up to 15% of the population in the UK suffer from headache disorders and in the wider population headache is an almost universal experience; notes that headaches and migraines are under-diagnosed and inadequately treated in the UK and that quality of life implications are not appreciated; is concerned that there is a lack of research and adequate provision of training and services; and asks the Government to give this urgent consideration."
This early day motion marks the beginning of wider recognition of the personal and economic cost of migraine in the community and we were pleased to have an opportunity to contribute to the debate. Minster continues to evaluate the potential of sabcomeline, its muscarinic agonist compound in the management of schizophrenia. We are working with key opinion leaders in the US to identify the optimal positioning of the compound in relation to existing therapies prior to initiating a definitive proof of concept study. We believe that sabcomeline has the potential to add considerable shareholder value in the medium term.
The outlook for the Group remains very positive. After many years of hard work, and with the valued support of investors, the various threads of the development process are being drawn together to position Minster to extract the potential rewards for shareholders that we believe reside in our development compounds.
Financials
The Group adopted International Financial Reporting Standards (IFRS) with effect from 1 April 2007. Results for the prior year, and assets and liabilities as at 31 March 2007, which were previously disclosed using UK Generally Accepted Accounting Practice (UK GAAP), have therefore been restated in accordance with IFRS in order to give comparability to the financial statements. The effect of these changes is shown in note 24 of the financial statements.
Under IFRS the Group reported a post tax loss of £4.58 million, compared with a post tax loss of £1.97 million in the previous year. Research and development expenditure increased to £4.33 million (2007: £1.22 million), reflecting the commencement of the major Phase IIb trial on tonabersat.
At 31 March 2008 the Group had cash and cash equivalents of £11.84 million (2007: £16.49 million), which the directors consider to be sufficient to finance the Group's development plans for at least the next two financial years.
Finally we offer sincere thanks to our staff and our network of scientific and professional advisers for their dedication and commitment. We are grateful to them and to our investors for their continuing support.
| John Russell Chairman | Paul Sharpe Chief Executive Officer |
| 21 May 2008 | 21 May 2008 |
∗ Independent Market Analyst Datamonitor; Commercial Insight: Migraine
Consolidated Income Statement
Year ending 31 March 2008
| 2008 | 2007 | ||
| Note | £ | £ | |
| Revenue | - | - | |
| Research and development expenses | 3 | (4,330,800) | (1,222,170) |
| Administrative expenses | 3 | ||
| Non recurring professional fees | - | (237,024) | |
| Other expenses | (1,297,682) | (711,626) | |
| (1,297,682) | (948,650) | ||
| Operating loss | 3 | (5,628,482) | (2,170,820) |
| Finance income | 7 | 758,923 | 47,676 |
| Loss on ordinary activities before taxation | (4,869,559) | (2,123,144) | |
| Taxation credit on the results for the year | 8 | 285,899 | 152,880 |
| Loss on ordinary activities after taxation | 17 | (4,583,660) | (1,970,264) |
| Loss per share | 21 | ||
| Basic per 5p share | £0.078 | £0.061 | |
| Fully diluted per 5p share | £0.056 | £0.042 |
All the activities of the Group are classed as continuing.
Consolidated Statement of Changes in Equity
| 2008 | 2007 | ||
| Note | £ | £ | |
| At 1 April 2007 | 28,773,504 | 14,174,904 | |
| Share capital subscribed, including premium, net of expenses of issue | 90,000 | 16,565,874 | |
| Other adjustment | - | (30,522) | |
| Net loss for the year | (4,583,660) | (1,970,264) | |
| Equity settled share-based payments | 128,148 | 33,512 | |
| At 31 March 2008 | 24,407,992 | 28,773,504 |
Consolidated Balance Sheet
At 31 March 2008
| 2008 | 2007 | ||
| Note | £ | £ | |
| Non-current assets | |||
| Intangible assets | 9 | 12,397,754 | 12,397,754 |
| Property, plant and equipment | 10 | 8,470 | 2,336 |
| Total non-current assets | 12,406,224 | 12,400,090 | |
| Current assets | |||
| Trade and other receivables | 12 | 606,800 | 347,478 |
| Cash and cash equivalents | 11,844,722 | 16,492,022 | |
| Total current assets | 12,451,522 | 16,839,500 | |
| Total assets | 24,857,746 | 29,239,590 | |
| Current liabilities | |||
| Trade and other payables | 13 | (449,261) | (360,232) |
| Non-current liabilities | 14 | - | (90,000) |
| Provisions for liabilities | 15 | (493) | (15,854) |
| Total liabilities | (449,754) | (466,086) | |
| Net assets | 24,407,992 | 28,773,504 | |
| Shareholders' equity | |||
| Share capital | 16 | 2,945,066 | 2,918,978 |
| Share premium | 17 | 26,071,249 | 26,007,337 |
| Capital reserve | 17 | 4,837,500 | 4,837,500 |
| Retained earnings | 17 | (9,445,823) | (4,990,311) |
| Total shareholders' equity | 18 | 24,407,992 | 28,773,504 |
Approved by the Board and signed on its behalf by:
Dr Paul Sharpe
Director
21 May 2008
Company Balance Sheet
At 31 March 2008
| 2008 | 2007 | ||
| Note | £ | £ | |
| Non-current assets | |||
| Investment in subsidiary | 11 | 12,097,500 | 12,097,500 |
| Current assets | |||
| Trade and other receivables | 12 | 18,685,595 | 19,220,932 |
| Total assets | 30,783,095 | 31,318,432 | |
| Current liabilities | |||
| Trade and other payables | 13 | (54,435) | (28,354) |
| Non-current liabilities | 14 | - | (90,000) |
| Provisions for liabilities | 15 | (493) | (15,854) |
| Total liabilities | (54,928) | (134,208) | |
| Net assets | 30,728,167 | 31,184,224 | |
| Shareholders' equity | |||
| Share capital | 16 | 2,945,066 | 2,918,978 |
| Share premium | 17 | 26,071,249 | 26,007,337 |
| Capital reserve | 17 | 4,837,500 | 4,837,500 |
| Retained earnings | 17 | (3,125,648) | (2,579,591) |
| Total shareholders' equity | 18 | 30,728,167 | 31,184,224 |
Approved by the Board and signed on its behalf by:
Dr Paul Sharpe
Director
21 May 2008
Consolidated Cash Flow Statement
Year ending 31 March 2008
| 2008 | 2007 | ||
| Note | £ | £ | |
| Cash flows from operating activities | |||
| Operating loss | (5,628,482) | (2,170,820) | |
| Professional fees written off against share premium | - | (1,034,125) | |
| Depreciation charges | 2,582 | 1,295 | |
| Decrease in provisions | (15,361) | (14,668) | |
| Equity settled share options | 128,148 | 33,512 | |
| Change in receivables | 26,577 | (23,711) | |
| Change in payables | 89,029 | 145,402 | |
| Cash outflow from operating activities | (5,397,507) | (3,063,115) | |
| Cash flow statement | |||
| Cash flows from operating activities | |||
| Cash outflow from operating activities | (5,397,507) | (3,063,115) | |
| Taxation received | - | 142,308 | |
| Net cash outflow from operating activities | (5,397,507) | (2,920,807) | |
| Cash flows from investing activities | |||
| Purchase of plant and equipment | 10 | (8,716) | (1,573) |
| Interest received | 19 | 758,923 | 47,676 |
| Cash flows from financing activities | |||
| Issue of equity share capital | 19 | - | 17,600,000 |
| Net increase/(decrease) in cash and cash equivalents | (4,647,300) | 14,725,296 | |
| Cash and cash equivalents at beginning of year | 16,492,022 | 1,766,726 | |
| Cash and cash equivalents at end of year | 11,844,722 | 16,492,022 |
Notes to the Financial Statements
Year ending 31 March 2008
The financial information for the year ended 31 March 2008 is audited and was approved by the Board of Directors on 21 May 2008. The audited group financial information incorporates the audited financial information of the Company and its subsidiary for the financial year ended 31 March 2008. The financial information set out in this announcement does not constitute the Group's statutory accounts for the year ended 31 March 2008 and the year ended 31 March 2007 but is derived from the accounts for those years. Statutory accounts for 31 March 2007 have been delivered to the Registrar of Companies in England and Wales, and those for 31 March 2008 will be delivered following the Company's annual general meeting. The auditors have reported on the 31 March 2007 accounts; their report was unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985.
1. Basis of Preparation
These consolidated financial statements are for the financial year ended 31 March 2008 and have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
These are the Group's first annual financial statements to be prepared based on the recognition and measurement principles of IFRS and have been prepared in accordance with the accounting policies set out below. The comparative figures for the year ended 31 March 2007 have been restated to reflect changes in accounting policies in accordance with IFRS 1 and the financial effect of these changes are set out in note 24 below.
At the date of approval of these financial statements the following standards and interpretations have been issued but are not yet effective.
IFRS 2 - Share based payment (Revised 2005)
IAS 1 - Presentation of financial statements
IAS 23 - Borrowing costs
IAS 27 - Consolidated and separate financial statements
IAS 28 - Investments in associates
IAS 31 - Interests in joint ventures
IAS 32 - Financial instruments: Presentation
It is not considered that future adoption of these Standards and Interpretations will have any material impact on the future financial statements of the Group.
Judgements and Estimates used in Preparation of the Financial Statements
In preparing the financial statements the Directors are required to make judgements and estimates in their application of the Group's accounting policies. These judgements and estimates are based on the Directors' knowledge of current relevant facts, past history and anticipated future trends. Any change in such estimates is recognised in the accounting period in which such estimates are revised.
Critical judgements and estimates applicable to these financial statements are as follows:
Valuation of Intangible Assets
The Group's intangible asset comprises intellectual property rights and licenses in respect of the drug compounds being developed by the Group. In preparing these financial statements, the Directors are required to review the carrying value of this asset to assess whether any impairment provision might be required. This assessment is dependent upon the Directors' assessment of the potential future commercial value of the compounds which is in turn dependent upon the successful conclusion of the development and testing programme. At the balance sheet date the Directors are of the opinion that no provision is required in this respect.
Research and Development
The Directors are required to judge whether the Group's development programme has reached the stage where the conditions for capitalisation of research and development costs as set out in IAS 38 have been met. In the Directors' opinion the future commercial success of the drug development programme has yet to be firmly established and consequently it would be imprudent to capitalise such costs which accordingly continue to be written off to revenue as incurred.
Deferred Taxation
The Directors are required to judge whether the potential future value of corporation tax losses existing at the balance sheet date should be recognised as an asset in the financial statements. Under IAS 12 this would be appropriate if the Directors considered it probable that sufficient future taxable profits would accrue to the group to enable the tax losses to be utilised. In the Directors' opinion, the future success of the Group's drug development programme is insufficiently certain for it to be appropriate to recognise a deferred tax asset in respect of existing tax losses.
2. Accounting Policies
Basis of Consolidation
The financial statements consolidate the financial statements of the parent company, Minster Pharmaceuticals Plc and its subsidiary, Minster Research Limited. Subsidiaries are undertakings controlled by the Group and control is deemed to exist where the Company has the power to govern the financial and operating policies of the undertaking so as to benefit from its activities. Where necessary, adjustments are made to the financial statements of subsidiary companies to bring their accounting policies in to line with those of the Group and all inter-group transactions, balances and income and expenditure are eliminated on consolidation.
Property, Plant and Equipment
Property, plant and equipment is included at cost, net of depreciation and any provision for impairment. Depreciation has been provided on the straight-line basis on all property, plant and equipment in order to write off the assets over their estimated useful lives, which are:
Computer equipment 3 years
Other office equipment 4 years
Intangible Assets
Intangible assets are identified and capitalised where they are separable and arise from contractual and other legal rights acquired from third parties. Purchased intellectual property rights, patents and licences are included at fair value and amortised over their useful economic lives once each asset is brought into use to generate income for the Group. Up to that point in time, the carrying value of each asset is reviewed annually for impairment.
Non-current Investments
Investments in subsidiaries are stated at cost, less provision for permanent impairment.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash.
Taxation
The tax credit or charge in the income statement comprises both current and deferred taxation. Current taxation comprises amounts currently payable or repayable based on the profit or loss for the year as adjusted for income and costs which are deferred to later periods or are never taxable or deductible. Deferred taxation is the tax expected to be payable or repayable based on differences between the carrying amount of assets and liabilities in the financial statements and their corresponding value for taxation purposes and is calculated on the liability method.
Deferred taxation is calculated at the rates of tax that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax assets are recognised to the extent that it is probable that they will be recovered.
Research and Development
Research costs are charged to the income statement in the year in which they are incurred.
Development costs are capitalised as intangible assets when all the following conditions are met:
Completion of the development is technically feasible
The Group intends to complete the development
The Group has the ability to use or sell the developed product
The development will generate probable future economic benefits
There are adequate technical and financial resources to complete the development
Expenditure attributable to the development can be reliably identified and measured
Where these conditions are not met, development costs are charged to the income statement in the year in which they are incurred.
Foreign Currencies
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Profits and losses arising from exchange differences are included in the income statement for the year.
Pensions
Pension contributions to a group stakeholder pension plan in respect of certain Directors and employees are charged to the income statement as incurred.
Operating Leases
Rentals applicable to operating leases, where substantially all the benefits and risks of ownership remain with the lessor, are charged to the income statement as incurred.
Share-based Incentives
Incentives in the form of share options are provided to certain Directors and employees and are measured at fair value at the date of grant. The fair value of the services is charged as an expense on a straight line basis over the period during which the services are provided after making allowance for the proportion of options expected to be exercised. The fair value of the options granted is computed using the Black-Scholes model taking into account the particular circumstances of the Group.
Impairment of Property, Plant and Equipment and Intangible Assets
At the year end date, the Directors review the carrying value of property, plant and equipment and intangible assets to assess whether those assets have suffered an impairment in value. Where any such impairment is identified the recoverable amount of the asset is estimated to determine the extent of any impairment provision required.
The recoverable amount is the higher of its fair value less costs to sell and its value in use. The value in use is assessed by estimating future cash flows to be derived from the asset, discounted to reflect the time value of money and risks specific to the asset to the extent not already reflected in the estimated future cash flows.
Where any such impairment is identified the carrying value of the asset is written down to its estimated recoverable amount.
3. Operating Loss
| 2008 | 2007 | ||
| £ | £ | ||
| The operating loss is stated after charging: | |||
| Depreciation of plant and equipment | 2,582 | 1,295 | |
| Research and development | 4,330,800 | 1,222,170 | |
| Auditors' remuneration - audit of Group | 14,000 | 6,000 | |
| Auditors' remuneration - subsidiary | 6,000 | 4,000 | |
| Auditors' remuneration - corporate finance services | - | 35,000 | |
| Auditors' remuneration - other services | 18,800 | 3,620 | |
| Directors' remuneration | 592,321 | 337,319 | |
| Non-recurring professional fees | - | 237,024 | |
| Operating lease rentals | 13,334 | 14,259 | |
| And crediting foreign exchange | (23,671) | - |
The accounts do not include the individual income statement for the Company. The Company made a loss before and after taxation of £546,057 (2007: £464,889).
4. Directors' Remuneration and Share Options
Remuneration
The Directors were paid salaries and benefits through the subsidiary, Minster Research Limited, as follows:
| 2008 | 2007 | ||
| £ | £ | ||
| Salaries | 483,525 | 301,000 | |
| Pension contributions paid in respect of one director | 20,000 | 12,000 | |
| Benefits in kind | - | - | |
| Share-based payments | 88,796 | 24,319 | |
| 592,321 | 337,319 |
The highest paid Director received a salary of £200,000 (2007: £126,667), share-based payments of £Nil (2007: £Nil) and pension contributions of £20,000 (2007: £12,000).
During the year Dr A N Karabelas was granted an option over 200,000 ordinary shares at 46.75p per share.
5. Personnel Expenses
Staff numbers and costs for the year, including Directors, were as follows:
| 2008 | 2007 | ||
| Average number | 10 | 7 |
| 2008 | 2007 | ||
| £ | £ | ||
| Salaries | 647,883 | 372,542 | |
| Social security costs | 74,762 | 43,277 | |
| Pensions | 28,092 | 13,800 | |
| Equity settled share-based payments (note 6) | 128,148 | 33,512 | |
| 878,885 | 463,131 |
The Group operates a stakeholder pension plan for certain Directors and employees. The assets of the plan are held separately from those of the Group. The pension cost charged in the income statement represents payments made in the year and amounted to £28,092 (2007: £13,800).
6. Share-based Payments
The Company granted share options to certain Directors and key employees in February and May 2005 and in March and September 2007. Where certain conditions are met, these options have been granted under the terms of an HM Revenue & Customs approved Enterprise Management Incentives share option scheme. Where conditions are not met, the options are granted as unapproved options.
The share options granted in February 2005 are exercisable immediately on grant and lapse if not exercised by the tenth anniversary of grant. The share options granted in May 2005 are subject to a two year vesting period and lapse if not exercised by the tenth anniversary of the date of grant. The share options granted in March and September 2007 are subject to a two year vesting period and lapse if not exercised by the fifth anniversary of the date of grant.
Details of the share options outstanding during the year are as follows:
| Share options | ||
| Outstanding at 1 April 2007 | 2,302,000 | |
| Granted | 737,500 | |
| Expired/cancelled | (10,750) | |
| Exercised | - | |
| Outstanding at 31 March 2008 | 3,028,750 | |
| Exercisable at 31 March 2008 | 1,102,000 | |
| At 31 March 2008 | ||
| Weighted averaged exercise price | £0.80 | |
| Range of exercise prices for options outstanding | £0.375 - 1.75 | |
| Weighted average remaining contractual life, years | 5.18 | |
The estimated fair values of share options are calculated by applying the Black-Scholes model. The assumptions used in the model are as follows:
| Share price | £0.375-0.70 | |
| Exercise price | £0.375-1.75 | |
| Expected volatility | 30% | |
| Expected option life, years | 2.35-4.90 | |
| Expected dividend yield | 0% | |
| Risk free interest rate | 4.38-5.16% |
The expected life used in the model has been based on exercise restrictions. The risk free rate is based on a 5 Year UK Gift Rate.
The total charge for the year relating to employee share-based payments was £128,148 (2007: £33,512) all of which related to equity settled share-based payment transactions. The aggregate of the estimated fair values of the existing options granted is £430,674.
7. Finance Income
| 2008 | 2007 | ||
| £ | £ | ||
| On refund of corporation tax | - | 174 | |
| On bank deposits | 758,923 | 47,502 | |
| 758,923 | 47,676 |
8. Taxation
No UK Corporation Tax is payable on the results for the year due to losses. The taxation credit in the consolidated income statement comprises payable enhanced research and development tax credits claimed by the subsidiary company, Minster Research Limited.
In accordance with the Group's accounting policy on taxation, any potential deferred tax asset is calculated by the Directors and then reviewed for its likelihood of recoverability. As this recoverability is affected adversely by uncertainty regarding the timing of future profits, the Directors have not created a deferred tax asset in the Group balance sheet.
| 2008 | 2007 | ||
| £ | £ | ||
| Taxation credit on the results for the year | 285,899 | 152,880 |
Factors affecting the tax charge for the period:
The difference between the tax assessed for the period and the standard rate of corporation tax is explained as follows:
| 2008 | 2007 | ||
| £ | £ | ||
| Loss on ordinary activities before tax | (4,869,559) | (2,123,144) | |
| Standard rate of corporation tax in the UK | 30% | 30% | |
| Loss on ordinary activities multiplied by the standard rate of corporation tax | (1,460,868) | (636,943) | |
| Effects of: | |||
| Expenses not deducted for corporation tax purposes | 39,696 | 82,036 | |
| Timing differences | (397) | 63 | |
| Adjustment for research and development tax credit | (168,785) | 31,199 | |
| Losses carried forward to future years | 1,304,455 | 370,765 | |
| Taxation credit for the year | (285,899) | (152,880) |
There are tax losses carried forward in the Group of approximately £7.47 million (2007: £3.12 million).
9. Intangible Assets
| Group 2008 | |||
| £ | |||
| Cost 1 April 2007 | 12,397,754 | ||
| Addition during the year | - | ||
| Cost 31 March 2008 | 12,397,754 | ||
| Amortisation 1 April 2007 | - | ||
| Amortisation for the year | - | ||
| Amortisation 31 March 2008 | - | ||
| Net book value 31 March 2008 | 12,397,754 | ||
| Net book value 31 March 2007 | 12,397,754 |
Intangible assets comprise intellectual property rights and licences held by the subsidiary company, Minster Research Limited.
10. Property, Plant and Equipment
| Group 2008 | |||
| £ | |||
| Cost 1 April 2007 | 5,637 | ||
| Additions | 8,716 | ||
| Cost 31 March 2008 | 14,353 | ||
| Depreciation 1 April 2007 | 3,301 | ||
| Charge for the year | 2,582 | ||
| Depreciation 31 March 2008 | 5,883 | ||
| Net book value 31 March 2008 | 8,470 | ||
| Net book value 31 March 2007 | 2,336 |
The property, plant and equipment is held by the subsidiary company, Minster Research Limited, and comprises computers and office equipment.
11. Investments
| Company | Company | ||
| 2008 | 2007 | ||
| £ | £ | ||
| Investment in subsidiary undertaking | |||
| At 1 April 2007 and at 31 March 2008 | 12,097,500 | 12,097,500 |
The Company owns 100% of the issued Ordinary share capital of shares of 10p each in Minster Research Limited, which is incorporated in England and Wales.
Its principal activity consists of the development of pharmaceutical compounds under licence from the patent holders.
12. Receivables
| Group | Company | Group | Company | |
| 2008 | 2008 | 2007 | 2007 | |
| £ | £ | £ | £ | |
| Amounts owed by Group undertaking | - | 18,677,534 | - | 19,214,932 |
| Prepayments and other receivables | 129,994 | 8,061 | 131,641 | 6,000 |
| VAT | 33,424 | - | 58,354 | - |
| Tax credits receivable | 443,382 | - | 157,483 | - |
| 606,800 | 18,685,595 | 347,478 | 19,220,932 |
Amounts due after more than one year included in:
| Group | Company | Group | Company | |
| 2008 | 2008 | 2007 | 2007 | |
| £ | £ | £ | £ | |
| Prepayments and other receivables | 71,888 | - | 93,188 | - |
13. Current Liabilities: Trade and Other Payables
| Group | Company | Group | Company | |
| 2008 | 2008 | 2007 | 2007 | |
| £ | £ | £ | £ | |
| Trade payables | 310,062 | - | 131,084 | - |
| Taxes and social security costs | 27,598 | 1,478 | 22,506 | 1,478 |
| Accruals | 111,601 | 52,957 | 206,642 | 26,876 |
| 449,261 | 54,435 | 360,232 | 28,354 |
14. Non-current Liabilities: Trade and Other Payables
| 2008 | 2007 | ||
| £ | £ | ||
| Unsecured convertible loan notes | - | 90,000 |
The above loan notes were converted into Ordinary shares during the year (see note 16).
15. Non-current Liabilities: Provisions for Liabilities
| 2008 | 2007 | ||
| £ | £ | ||
| National insurance provision options | |||
| At 1 April 2007 | 15,854 | - | |
| Credited in year | (15,361) | - | |
| Transferred from Special Reserve | - | 15,854 | |
| At 31 March 2008 | 493 | 15,854 |
The provision comprises national insurance that potentially arises on exercise of certain options granted over shares in the Company.
16. Called up Share Capital
| 2008 | 2007 | ||
| Authorised: | |||
| Ordinary shares of 5p each | Number | 100,000,000 | 100,000,000 |
| Value | £5,000,000 | £5,000,000 |
| 2008 | 2007 | ||
| Allotted, called up and fully paid: | |||
| Ordinary shares of 5p each | Number | 58,901,312 | 58,379,573 |
| Value | £2,945,066 | £2,918,978 |
The Company made two issues of Ordinary shares during the year:
On 6 April 2007 the Company issued 463,768 Ordinary shares of 5p each on the conversion of £80,000 of Convertible Unsecured Zero Coupon Loan Notes. On 15 May 2007 the Company issued 57,971 Ordinary shares of 5p each on the conversion of the outstanding £10,000 of Convertible Unsecured Zero Coupon Loan Notes.
At 31 March 2008 the following potential issues of Ordinary shares of 5p each were outstanding:
| (i) | A further 12,900,000 Ordinary shares are issuable at 37.5p per share as secondary consideration to the former shareholders of the subsidiary Minster Research Limited, on the acceptance by the Company of an arm's length written offer to license any part of the intellectual property rights owned by or licensed by Minster Research Limited, subject to such licence complying with certain conditions including conditions relating to the identity of the licensee and to the economic value attributable to such licence |
| (ii) | 20,000 Ordinary shares are issuable under a warrant instrument which is exercisable at 17.25p per 5p Ordinary share before 6 April 2009. |
| (iii) | Options over 5p Ordinary shares granted as follows: |
Granted February 2005:
600,000 Ordinary shares at 175p per share
400,000 Ordinary shares at 37.5p per share
These options can be exercised before 25 February 2015.
Granted May 2005:
102,000 Ordinary shares at 70p per share
These options can be exercised before 10 May 2015.
Granted March 2007:
880,000 Ordinary shares at 65p per share
320,000 Ordinary shares at 73.75p per share
These options can be exercised before 26 March 2012.
Granted September 2007:
726,750 Ordinary shares at 46.75p per share
These options can be exercised before 28 September 2012.
10,750 Ordinary shares at 46.5p per share, which lapsed in the year.
17. Share Premium and Reserves
| The Group | Share | ||
| Premium | Capital | Retained | |
| Account | Reserve | Earnings | |
| £ | £ | £ | |
| At 1 April 2007 | 26,007,337 | 4,837,500 | (4,990,311) |
| Retained loss for the year | - | - | (4,583,660) |
| Equity settled share-based payments (see note 6) | - | - | 128,148 |
| On shares issued during the year | 63,912 | - | - |
| At 31 March 2008 | 26,071,249 | 4,837,500 | (9,445,823) |
| The Company | Share | ||
| Premium | Capital | Retained | |
| Account | Reserve | Earnings | |
| £ | £ | £ | |
| At 1 April 2007 | 26,007,337 | 4,837,500 | (2,579,591) |
| Retained loss for the year | - | - | (546,057) |
| On shares issued during the year | 63,912 | - | - |
| At 31 March 2008 | 26,071,249 | 4,837,500 | (3,125,648) |
The capital reserve arose as a result of the secondary consideration referred to in note 16(i) and represents 12,900,000 shares at 37.5p per share.
18. Statement of Changes in Equity
| Group | 2008 | 2007 | |
| £ | £ | ||
| At 1 April 2007 | 28,773,504 | 14,174,904 | |
| Share capital subscribed, including premium, net of expenses of issue | 90,000 | 16,565,874 | |
| Other adjustments | - | (30,522) | |
| Net loss for the year | (4,583,660) | (1,970,264) | |
| Equity settled share-based payments | 128,148 | 33,512 | |
| At 31 March 2008 | 24,407,992 | 28,773,504 |
| Company | 2008 | 2007 | |
| £ | £ | ||
| At 1 April 2007 | 31,184,224 | 15,113,761 | |
| Share capital subscribed, including premium, net of expenses of issue | 90,000 | 16,565,874 | |
| Adjustment re national insurance provision | - | (15,854) | |
| Special reserve | - | (14,668) | |
| Net loss for the year | (546,057) | (464,889) | |
| At 31 March 2008 | 30,728,167 | 31,184,224 |
19. Cash Flows
| 2008 | 2007 | ||
| £ | £ | ||
| Cash flows from investing activities | |||
| Interest received | 758,923 | 47,676 | |
| 758,923 | 47,676 | ||
| Cash flows from financing activities | |||
| Issues of share capital for cash | - | 17,600,000 | |
| - | 17,600,000 |
20. Financial instruments
The Group's financial instruments comprise cash and borrowings in the form of unsecured convertible zero coupon loan notes together with trade payables that derive directly from its operations. There were no trade receivables.
The purpose of these instruments is to provide finance for the Group's operations.
Foreign Currencies
The Company held deposits in euros and US dollars at 31 March 2008 as detailed below. These deposits were created by exchanging sterling deposits into the relevant currencies, and these exchanges were carried out in order to cover the estimated financial values of research programmes contracted during the year in those currencies and thus limit the financial risk on those future liabilities caused by possible future fluctuations in exchange rates.
Interest Rate
The Group finances its operations principally through the cash reserves held, which have arisen as a result of shares being issued. Surplus funds are held on banker's treasury deposits. The unsecured convertible zero coupon loan notes carried no interest charge prior to their conversion into ordinary shares.
Liquidity Risk
The Group manages its liquidity risk through effective working capital management.
Book value of Financial Instruments
In the opinion of the Directors, the book value of the financial instruments is not materially different from their fair values.
Financial assets and liabilities
The financial assets are as follows:
| 2008 | 2007 | ||
| £ | £ | ||
| Cash at bank and in hand - in sterling | 95,468 | 332,022 | |
| Cash at bank and in hand - in euros | 8,023 | - | |
| Cash at bank and in hand - in US dollars | 28,322 | - | |
| Bank treasury deposits - in sterling | 6,470,003 | 16,160,000 | |
| Bank treasury deposits - in euros | 509,453 | - | |
| Bank treasury deposits - in US dollars | 4,733,453 | - | |
| 11,844,722 | 16,492,022 |
The bank treasury deposits accrue interest at the current money market rate.
The financial liabilities were as follows:
| 2008 | 2007 | ||
| £ | £ | ||
| Unsecured convertible loan notes | - | 90,000 |
No interest is due on the unsecured convertible loan notes (see note 14), which were converted into Ordinary shares during the year.
21. Loss Per Share
The calculation of loss per share is based on the following information:
| 2008 | 2007 | ||
| £ | £ | ||
| Loss attributable of shareholders | £4,583,660 | £1,970,264 | |
| Weighted average number of shares of 5p (basic) | 58,887,971 | 32,249,457 | |
| Weighted average number of shares of 5p (diluted) | 81,513,891 | 46,793,196 |
The calculation of the loss per share is based on the loss after taxation and the weighted average of the Ordinary shares in issue during the year.
For the diluted loss per share, the weighted average number of Ordinary shares in issue is adjusted to assume conversion of all dilutive potential Ordinary shares. The Group has share options, warrants convertible loan notes and shares to be issued as secondary consideration in respect of the subsidiary as potentially dilutive.
22. Transactions with Directors
On 1 October 2006 the Company entered into a contract with Thirty Five Limited, a company with which John Russell is associated. The contract provides for the consultancy services of John Russell to be made available on an arm's length basis.
During the year the amount charged to the income statement under this contract was £26,000 (2007: £28,500) and the balance outstanding at 31 March 2008 was £nil (2007: £nil).
On 1 August 2007 the Company engaged Robert Stubbs, to provide consultancy services to the Company on an arm's length basis. During the year the amount charged to the income statement under this contract was £7,500 (2007: £nil) and the balance outstanding at 31 March 2008 was £nil (2007: £nil).
23. Commitments
At 31 March 2008 the Group had an operating lease commitment in respect of land and buildings of £1,235 (2007: £1,276), representing one month's rental of its offices.
The Directors have signed licensing agreements whereby payments become due on the initiation of a first Phase III clinical trial and on the first commercial sale of product in a major market. As no liability arises unless and until these events occur, the Directors believe that it is inappropriate to make a provision. If these events do occur, the Directors are confident that they will be able to secure sufficient funds to make the payments.
24. Reconciliation of Changes to Prior Periods on Adoption of IFRS
As explained in note 1, these are the Group's first financial statements prepared in accordance with International Financial Reporting Standards. This has required a reappraisal of the accounting treatment of the formation of the present group structure, which arose on 25 January 2005 with the combination of the Company with its subsidiary.
Previously, under UK Generally Accepted Accounting Practice, the excess of the fair value of the consideration given over the fair value of the net assets acquired was capitalised as goodwill arising on consolidation and amortised on a straight line basis over its estimated useful economic life, which was estimated to be 20 years.
Under IFRS 3, intangible assets acquired as part of that business combination are separately recognised provided they meet the criteria specified in IAS 38, Intangible Assets. In the opinion of the Directors, the excess of the fair value of the consideration given over the fair value of the assets acquired was wholly attributable to the value of intellectual property rights and licences owned by the subsidiary, Minster Research Limited. Under IAS 38, these assets have been included in the financial statements as intangible assets with effect from the date of formation of the Group.
The Group has adopted a new accounting policy in respect of the amortisation of these intangible assets under which they are amortised over their useful economic lives once such assets are brought into use to generate income for the Group. Up to that point in time, the carrying value of each asset is reviewed annually for impairment.
The effect of the introduction of IFRS is, therefore, to re-classify goodwill as an intangible asset comprising the value of intellectual property rights and licences, with a consequent write back to reserves of all amortisation previously charged in financial statements up until 31 March 2007.
The reconciliation between UK GAAP and IFRS for the Group's profit and income statements and cash flow for the year ended 31 March 2007 and the total equity and balance sheets as at 1 April 2006 (the date of transition) and 31 March 2007 are presented below:
Reconciliation of income statement for the year ended 31 March 2007
| UK GAAP | IFRS effect | IFRS | |
| £ | £ | £ | |
| Revenue | - | - | - |
| Research and development expenditure | (1,222,170) | - | (1,222,170) |
| Administrative expenses | |||
| Amortisation | (619,888) | 619,888 | - |
| Non-recurring professional fees | (237,024) | - | (237,024) |
| Other expenses | (711,626) | - | (711,626) |
| (1,568,538) | 619,888 | (948,650) | |
| Operating loss | (2,790,708) | 619,888 | (2,170,820) |
| Finance income | 47,676 | - | 47,676 |
| Less on ordinary activities before taxation | (2,743,032) | 619,888 | (2,123,144) |
| Taxation credit on the results for the year | 152,880 | - | 152,880 |
| Loss on ordinary activities after taxation | (2,590,152) | 619,888 | (1,970,264) |
Reconciliation of balance sheet presentation at 1 April 2006 (date of transition to IFRS)
|
| UK GAAP | IFRS effect | IFRS |
| £ | £ | £ | |
| Non-current assets | |||
| Intangible asset | 11,720,588 | 677,166 | 12,397,754 |
| Property, plant and equipment | 2,058 | - | 2,058 |
| Total non-current assets | 11,722,646 | 677,166 | 12,399,812 |
| Current assets | |||
| Trade and other receivables | 313,196 | - | 313,196 |
| Cash and cash equivalents | 1,766,726 | - | 1,766,726 |
| Total current assets | 2,079,922 | - | 2,079,922 |
| Total assets | 13,802,568 | 677,166 | 14,479,734 |
| Current liabilities | |||
| Trade and other payables | (214,830) | - | (214,830) |
| Non-current liabilities | (90,000) | - | (90,000) |
| Provisions for liabilities | - | - | - |
| Total liabilities | (304,830) | - | (304,830) |
| Net assets | 13,497,738 | 677,166 | 14,174,904 |
| Shareholders' equity | |||
| Share capital | 1,563,286 | - | 1,563,286 |
| Share premium | 10,797,155 | - | 10,797,155 |
| Capital reserve | 4,837,500 | - | 4,837,500 |
| Special reserve | 54,572 | 54,572 | |
| Retained earnings | (3,754,775) | 677,166 | (3,077,609) |
| Total shareholders' equity | 13,497,738 | 677,166 | 14,174,904 |
Reconciliation of balance sheet presentation at 31 March 2007
| UK GAAP | IFRS effect | IFRS | |
| £ | £ | £ | |
| Non-current assets | |||
| Intangible asset | 11,100,700 | 1,297,054 | 12,397,754 |
| Property, plant and equipment | 2,336 | - | 2,336 |
| Total non-current assets | 11,103,036 | 1,297,054 | 12,400,090 |
| Current assets | |||
| Trade and other receivables | 347,478 | - | 347,478 |
| Cash and cash equivalents | 16,492,022 | - | 16,492,022 |
| Total current assets | 16,839,500 | - | 16,839,500 |
| Total assets | 27,942,536 | 1,297,054 | 29,239,590 |
| Current liabilities | |||
| Trade and other payables | (360,232) | - | (360,232) |
| Non-current liabilities | (90,000) | - | (90,000) |
| Provisions for liabilities | (15,854) | - | (15,854) |
| Total liabilities | (466,086) | - | (466,086) |
| Net assets | 27,476,450 | 1,297,054 | 28,773,504 |
| Shareholders' equity | |||
| Share capital | 2,918,978 | - | 2,918,978 |
| Share premium | 26,007,337 | - | 26,007,337 |
| Capital reserve | 4,837,500 | - | 4,837,500 |
| Retained earnings | (6,287,365) | 1,297,054 | (4,990,311) |
| Total shareholders' equity | 27,476,450 | 1,297,054 | 28,773,504 |
Reconciliation of equity as at 1 April 2006 (date of transition) and 31 March 2007
| 1 April | 31 March | ||
| 2006 | 2007 | ||
| £ | £ | ||
| Total equity under UK GAAP | 13,497,738 | 27,476,450 | |
| Write back amortisation of non-current assets | 677,166 | 1,297,054 | |
| Total equity under IFRS | 14,174,904 | 28,773,504 |
Reconciliation of cash flow at 31 March 2007
| UK GAAP | IFRS effect | IFRS | |
| £ | £ | £ | |
| Cash outflow from operating activities | (3,063,115) | - | (3,063,115) |
| Taxation | 142,308 | - | 142,308 |
| Net cash flow from operating activities | (2,920,807) | - | (2,920,807) |
| Investing activities | |||
| Interest received | 47,676 | - | 47,676 |
| Purchase of plant and equipment | (1,573) | - | (1,573) |
| Financing activities | |||
| Issue of equity share capital | 17,600,000 | - | 17,600,000 |
| Net increase in cash and cash equivalents | 14,725,296 | - | 14,725,296 |
| Cash and cash equivalents at beginning of year | 1,766,726 | - | 1,766,726 |
| Cash and cash equivalents at end of year | 16,492,022 | - | 16,492,022 |
25. Report and Accounts
The annual report and accounts for the year ended 31 March 2008 will be posted to shareholders shortly. Additional copies will be available from the Company Secretary at the Company's registered office, Audley End Business Centre, The Old Forge, London Road, Wendens Ambo, Saffron Walden CB11 4JL and may be viewed on the Company's website at www.minsterpharma.com <http://www.minsterpharma.com> .