Synairgen Regulatory News (SNG)

27 Sep 2005 07:01

Synairgen plc27 September 2005 27 September 2005 Synairgen plc Preliminary Results for the year ended 30 June 2005 Synairgen plc ('Synairgen' or the 'Company'), the drug discovery company focusedon identifying the underlying causes of, and discovering new treatments for,asthma and chronic obstructive pulmonary disease ('COPD'), today announces itsPreliminary Results for the year ended 30 June 2005. Financial highlights • Successful flotation in October 2004 on the Alternative Investment Market which raised £10.0 million for the Company (£9.0 million net of expenses) • Turnover was £202k (55 weeks ended 30 June 2004: £82k) • Retained loss for the year was £610k (55 weeks ended 30 June 2004: loss of £153k) • Cash at 30 June 2005 of £8.7 million (30 June 2004: £0.4 million) Operational highlights • Lead proprietary programme (inhaled interferon beta) on track for commencement of initial clinical trial in final quarter of 2005 • Patent applications for growth factor (September 2004) and barrier function screening assays (post year-end) filed by University of Southampton and exclusively licensed to Synairgen • New collaborations with an undisclosed North American biotechnology company and Centocor (part of J&J) • Scale-up of Biobank activity Commenting on the results Simon Shaw, Chairman of Synairgen, said:"Synairgen's first period as a public company has been successful with anincrease in collaborative partnerships and good progress being made on ourproprietary programmes. We enter the new financial year with the technical andfinancial resources both to pursue our current exciting programmes and togenerate new opportunities from our proprietary research engine." -Ends- For further information please call: Synairgen Tel: 02380 512 800Simon Shaw, ChairmanRichard Marsden, Managing Director Hogarth Partnership Tel: 020 7357 9477Melanie Toyne-Sewell / Charlie Field CHAIRMAN'S STATEMENT OverviewThis is Synairgen's first set of Preliminary Results following its initialpublic offering ('IPO') on the Alternative Investment Market ('AIM') of theLondon Stock Exchange on 26 October 2004. The IPO raised £10 million for theCompany (£9.0 million net of expenses) and we are using these funds to enhanceour research capabilities, invest in our proprietary programmes and develop ourBiobank of disease-relevant samples. Synairgen is a drug discovery company focused on identifying and out-licensingnew pharmaceutical products which address the underlying causes of asthma andchronic obstructive pulmonary disease ('COPD'). There are a limited number oftherapies currently available to treat the very significant target markets ofsevere asthma and COPD. Since asthma and COPD are diseases in which there is agenetic predisposition, our research focuses on the use of disease-derived humantissue in complex in vitro models. Thus, unlike traditional animal-based models,these models enable us to replicate important aspects of the actual humandisease in the laboratory as a basis for research. We are progressing a portfolio of programmes, some collaboratively, which webelieve will generate intellectual property and offer out-licensingopportunities. It is our intention to out-license this intellectual property atan early stage rather than committing significant capital resources tolate-stage clinical trials. During the year we have made significant progress in developing our leadproprietary programme for inhaled interferon beta ('IFN-BETA'), which seeks toprotect severe asthmatics from the debilitating attacks and frequenthospitalisations induced by the common cold virus (rhinovirus). We have alsoentered into a number of new collaborations with pharmaceutical andbiotechnology companies. Based as it is on the world class respiratory research capabilities at theUniversity of Southampton, Synairgen is not short of opportunities tocollaborate with significant academic institutions and commercial organisationson interesting research opportunities. During this first period as a publiccompany with reasonable capital to invest, your Board has created a system ofreview which is designed to ensure that Synairgen selects only thoseopportunities which have the potential to impact significantly upon thetreatment of our target lung diseases and which will, if successful, createsignificant value for shareholders and partners alike. Revenue for the year ended 30 June 2005 amounted to £202,000 (2004: £82,000) andthe retained loss was £610,000 (2004: loss of £153,000). Our cash outflow beforefinancing was £704,000 (2004: outflow of £216,000) and we ended the year withcash balances of £8.7 million. BoardIn October 2004, we welcomed John Ward as Finance Director of Synairgen. Hejoined us from Profile Therapeutics plc where he was Chief Financial Officer. Wehave also started the process to recruit a new non-executive director to providean additional independent view to the Board. OutlookOver the next year, we anticipate: •completing our first, and commencing the second, safety study on our IFN-BETA asthma programme; •completing our in vitro evaluation of IFN-BETA for treatment of rhinovirus-induced COPD exacerbations; and •progressing our ongoing collaborative programmes. This will be an important year for Synairgen and we enter it with the technicaland financial resources not only to do justice to the existing opportunities wehave created so far, but also to identify new targets out of our proprietaryresearch engine. Simon ShawChairman SCIENTIFIC REVIEW Asthma and COPD - the current unmet needIn the developed world there are some 80 million asthma sufferers. Over 5million people in the UK have asthma, which in 10% of cases is severe and notcontrolled by standard anti-asthma drugs, such as steroids and BETA2-agonists.These patients contribute to the majority of the 1,400 deaths due to asthma inthe UK every year and 70,000 hospital admissions. Asthma costs the NHS around£900 million per year, with severe and unpredictable worsening of the disease('exacerbations') consuming a large proportion of these costs. Theunpredictability and severity of exacerbations is the major concern of patientsthat they liken to "living on a knife edge". Chronic obstructive lung disease (COPD) is another very common lung disorderlinked to chronic exposure to tobacco smoke. The disease passes through severalphases to a state of total incapacitation. As in asthma, approximately 10% ofCOPD patients have severe disease. In COPD, this may be progressive and canaccount for substantial mortality and morbidity in the winter months. Pressureon medical beds in the NHS during the winter is largely due to COPD and relatedlung disease precipitated by virus infection. Globally, COPD is the fourth mostcommon cause of death and in the UK is on the increase, especially in women. For the last three decades the main focus of research into asthma has been uponthe treatment of symptoms rather than underlying causes. This has resulted in arange of therapies which adequately address mild and moderate asthma. However,apart from anti-IgE for the allergic component of severe disease, none of theexisting therapies address the unmet needs of the severe asthma patient. In thecase of COPD there have been no significant new developments other thanimprovement of existing therapies. Our approachI believe that a major part of the reason why there have not been the necessarydrug breakthroughs in asthma and COPD is that small animal models consistentlyfail to reproduce the diseases as they occur in humans, especially theirchronicity and exacerbations. In applying tissue engineering to airway cellsobtained from real patients with well characterised asthma or COPD, Synairgenhas been able to develop a whole new way of identifying drug targets and rapidlyevaluating potential therapies in the test tube. Based on 15 years' research at the University of Southampton and elsewhere, ithas been established that respiratory virus infections are the major cause ofsevere worsening of asthma that lead to the hospitalisation of both children andadults. Of these viruses, the common cold virus (rhinovirus) is detectable inover 60% of cases. Most people can tolerate cold virus infections with onlyupper airway symptoms (such as a runny nose and a sore throat), but in asthmathe situation is very different. Within two to three days of developing a cold,the virus moves to the chest to cause an exacerbation that is poorly responsiveto steroid treatment and may last up to three or four weeks. This aspect ofasthma represents a real unmet clinical need which is especially apparent at thesevere end of the disease spectrum. Building on our clinical research, we have shown that the lining cells(epithelial cells) of asthmatic airways lack the ability to generateinterferon-BETA ('IFN-BETA'), a small protein that is highly effective attriggering elimination of virally infected cells before the virus can replicateand spread. This may explain why asthmatics are more susceptible to the effectsof the common cold. The importance of this study has been strengthened byshowing that the addition of IFN-BETA to asthmatic epithelial cells restorestheir ability to limit replication of common cold viruses. Additionally we areinvestigating early observations that patients with COPD may also have a relateddefect in their response to respiratory virus infection and this may lead to apotential therapy in this disease area. Having revealed such an important role for IFN-BETA in protecting the lung fromrespiratory viruses, we are in an excellent position to move this forward intoclinical trial especially since we have a seamless interface between our basicand clinical science. Further discoveries are emerging from our disease-relatedin vitro cell cultures, including a defect in the lung's natural "barrier"function that we are already evaluating with potential "repair" therapies.Synairgen is well positioned to develop further these novel discoveries into anew class of therapeutic for asthma and COPD that increases the airwayepithelial resistance to environmental insults, rather than waiting forinflammation and symptoms to occur and then trying to reverse them. For the last ten years the Southampton team has been at the forefront of thechanging approach to research into respiratory disease. Synairgen is leading theimplementation of the new approach which is directly linked to studying thedisease in humans. Synairgen's scientific team, comprising both scientists andpractising chest specialists, fundamentally believes that the future managementtools for chronic lung disease will come out of this novel approach. We haverecorded some early successes which show genuine promise in areas of great unmetneed. Professor Stephen HolgateFounder and non-executive director MANAGING DIRECTOR'S REPORT With our IPO, the progression of our proprietary programmes, the execution offour collaborative contracts and the scaling-up of our operations, this has beena very busy year for the Company. This report outlines the operational andfinancial progress we have made during this period. Proprietary Programmes • Interferon Beta ('IFN-BETA') Synairgen is investigating a novel application of inhaled IFN-BETA to reducecold virus-induced asthma exacerbations. This virus is a major trigger for theworsening of asthma symptoms, with eight out of ten exacerbations in childrenand six out of ten in adults being associated with these viral infections.Currently there are no satisfactory treatments available to address thissignificant unmet need. Since flotation, we are delighted with the progress of our IFN-BETA programme.Following the patent filing in March last year, describing a novel use forIFN-BETA in protecting severe asthmatics from exacerbations induced by thecommon cold virus, Professor Donna Davies (one of Synairgen's founders) and herteam published data in the Journal of Experimental Medicine in March 2005. Acopy of the paper is available via the Journal of Experimental Medicine website:http://www.jem.org. The clinical team has completed the necessary regulatory processes and hasreceived UK Clinical Trial Authorisation for the initial clinical trial ofIFN-BETA which will commence in the final quarter of 2005. We have selected aformulation of IFN-BETA suitable for inhalation and an appropriate aerosoldelivery system for these early stage trials. The outcome of this initial trialwill be important as it will dictate the extent of safety studies required aheadof the proof of concept clinical trial. In July of this year, we hosted our inaugural advisory panel meeting of worldexperts on asthma and rhinovirus as a cause of asthma exacerbations, comprisingProfessors Jim Gern (Wisconsin, USA), Sebastian Johnston (London, UK), PeterSterk (Leiden, The Netherlands) and Ratko Djukanovic (Southampton, UK). Thepanel members will assist us in our IFN-BETA programme, increasing ourunderstanding of rhinovirus infections in asthma, and it is intended that theirinstitutions will also participate as trial sites in due course. The Company is also exploring the use of IFN-BETA for the treatment of COPD, forwhich early laboratory data appear very encouraging. • Growth Factor Synairgen believes that severe asthma can be regarded as a chronic "wound" ofthe conducting airways in which there is an increased susceptibility of thelining of the asthmatic airway (the 'epithelium') to injury and a delayed orimpaired epithelial repair response. In September last year, initial researchwas completed and, as a result, the University of Southampton filed a patentdescribing a novel growth factor with potential utility to help the asthmaticlung repair itself and rebuild the barrier that protects the lung from damagingenvironmental factors. This has been exclusively licensed to Synairgen. Sincethis time, we have identified another growth factor with potential utility andwe are currently advancing our understanding of the way these factors work inour in vitro models. • Barrier Function Epithelial barrier function has been shown to be lower in asthma. In September2005, after period-end, we have in-licensed from the University of Southampton aNorth American patent which describes an in vitro model assay (test) which canbe used to screen compounds capable of normalising barrier function in asthma.In the first instance we are using this assay to test the utility of theaforementioned growth factors. CollaborationsSynairgen started the year with two collaboration agreements: the first withCambridge Antibody Technology Limited ('CAT') and the second with Merck FrosstCanada & Co. In July 2004, we embarked upon a potentially significantcollaboration agreement with a major unnamed US biotechnology company, and inMarch 2005, we announced a new collaboration with Centocor, Inc., part of theJohnson & Johnson group of companies. The CAT collaboration is now completed, as scheduled. Work with Merck FrosstCanada & Co, the major unnamed US biotechnology company and Centocor, Inc.continues in line with our expectations. Synairgen continues to consider andpursue potential projects with both existing and new partners. We look forwardto commencing new projects when it is appropriate to do so, given the resourcerequirements of our proprietary programmes. BiobankIn order to recreate features of the asthmatic and COPD lung in the laboratoryfor research purposes (as described in the Scientific Review), we have beenbuilding a Biobank comprising samples of tissue, blood and sputum fromvolunteers with varying degrees of asthma and COPD, as well as healthyvolunteers to act as experimental controls. The ability of Synairgen to callupon stocks of samples for experiments is an attractive proposition forcollaborative partnerships and our own proprietary research programmes as itsaves substantial time in the experimental process. The extent of work on the Biobank - collecting and storing samples anddeveloping further our in vitro models using disease-derived cells - hasincreased significantly, with the recruitment of additional staff and we willshortly begin to collaborate with further sites in the UK and in continentalEurope to extend the Biobank capability. Intellectual PropertyIt is fundamental for the Company to protect its technology platform through theuse of patents. Therefore, we are pleased to report that both our proprietaryprogrammes' (IFN-BETA and Growth Factor) patents, which are exclusively licensedfrom the University of Southampton, have proceeded to the Patent CooperationTreaty ('PCT') stage. In addition, as described above, Synairgen has recently licensed a patent fromthe University of Southampton which protects some of the in vitro models used asscreening assays. Financial Review IntroductionThe financial information comprises the consolidated results of the Company andSynairgen Research Limited (together the 'Group'), prepared in accordance withUK Generally Accepted Accounting Principles ('GAAP'). In order to effect the IPO, a technical restructuring was required with theformation of a new holding company. This group reconstruction has been accountedfor using merger accounting principles and accordingly proforma financialinformation has been prepared to show the position as if the Company had been inexistence and the parent of Synairgen Research Limited throughout the currentand prior periods. The IPO on 26 October 2004 raised £10 million (£9.0 million after expenses)through the issue of 7,692,308 shares at a placing price of 130p. 400,000 shareswere also placed on behalf of Southampton Asset Management Limited to meetinstitutional demand for the shares. Profit and loss accountRevenue for the year ended 30 June 2005 was £202k (55 weeks ended 30 June 2004:£82k) and was generated from four contracts. The operating loss for the year was£908k (2004: loss of £166k), in line with our expectations. Research anddevelopment expenditure increased from £123k to £557k as the Group built itsresearch and clinical teams up to a total of 10 staff and progressed a widerportfolio of research projects, including the regulatory preparation for theIFN-BETA clinical trial programme. The increase in other administrative costsfrom £107k to £418k reflects the recruitment of additional senior managementpersonnel and the scaling-up of the Group's activities, including the ongoingcosts of being a quoted company. Interest receivable increased from £13k to£298k on account of the flotation funds raised. The Group considers that it isentitled to claim research and development tax credits in respect of the yearended 30 June 2005. As this is the Group's first claim, it will be recognised inthe profit and loss account when it has been agreed with HM Revenue & Customs.The retained loss for the year was £610k (2004: loss of £153k) and the loss pershare was 3.26p (2004: loss of 1.52p). Balance sheet and cash flowAt 30 June 2005, net assets amounted to £8.8 million (30 June 2004: £0.5million) including cash and deposit balances of £8.7 million (2004: £0.4million). The principal elements of the £8.3 million increase in cash and deposit balanceswere: •share issues (net of expenses) £8,980k (2004: £623k) •operating cash outflow of £840k (2004: £78k outflow); •capital expenditure of £60k (2004: £151k); and •interest received of £196k (2004: £13k). Capital expenditure comprised investment of £42k in laboratory and IT equipmentand £18k on patent and licence costs. Adoption of International Financial Reporting Standards ('IFRS')The Company is considering the impact of the adoption of IFRS on its financialreporting, however it is likely that the Company will take advantage of theexemptions granted to AIM-quoted companies in deferring full adoption untilaccounting practice under certain standards has become clearer and custom andpractice amongst smaller quoted companies in respect of the adoption of IFRS hasemerged. StaffThis year has been one of step change for the Company. We have continued todevelop a strong relationship with the University of Southampton. This hasallowed us to retain our "lean" philosophy, with our headcount increasing duringthe period to 13 staff. I would like to thank all staff for their time andcommitment to Synairgen's exciting programmes and the collective effort shown todevelop our business. Richard MarsdenManaging Director Consolidated Profit and Loss Accountfor the year ended 30 June 2005 Proforma Proforma Year 55 weeks ended ended 30 June 30 June 2005 2004 Notes £000 £000 Turnover 202 82Cost of sales (135) (18) --------- -------Gross profit 67 64 --------- ------- Administrative expenses----------------------- --------- -------Research and development expenditure (557) (123)Other (418) (107)----------------------- --------- ------- Total (975) (230) --------- -------Operating loss (908) (166)Bank interest receivable 298 13 --------- ------- Loss on ordinary activities before taxation (610) (153)Tax on loss on ordinary activities - - --------- -------Loss on ordinary activities after taxation andretained loss for the year (610) (153) ========= ======= Loss per ordinary shareBasic and diluted loss per share (pence) 3 (3.26)p (1.52)p ========= ======= During the year the Group carried out a corporate restructuring including theintroduction of a new holding company. The profit and loss account has beenprepared using merger accounting and is presented on a proforma basis as if thenew holding company had been in existence throughout both the current and priorperiods. Further information is given in Note 1. There are no recognised gains and losses other than the loss above and thereforeno separate statement of total recognised gains and losses has been presented. All amounts relate to continuing activities. Consolidated Balance Sheetas at 30 June 2005 Proforma 30 June 30 June 2005 2004 Notes £000 £000Fixed assetsIntangible assets 21 4Tangible assets 154 145 --------- --------- 175 149Current assetsStocks 55 -Debtors 325 77Investments: short-term deposits 8,605 350Cash at bank and in hand 78 57 --------- --------- 9,063 484Creditors: amounts falling due within one year (398) (163) --------- ---------Net current assets 8,665 321 --------- --------- Total assets less current liabilities 8,840 470 ========= ========= Capital and reservesCalled up share capital 217 113Share premium account 8,903 -Merger reserve 483 510Profit and loss account (763) (153) --------- ---------Equity shareholders' funds 4 8,840 470 ========= ========= Consolidated Cash Flow Statementfor the year ended 30 June 2005 Proforma Proforma Year 55 weeks ended ended 30 June 30 June 2005 2004 Notes £000 £000 Net cash outflow from operating activities 5 (840) (78) Returns on investments and servicing of financeInterest received 196 13 Capital expenditure and financial investmentPurchase of intangible fixed assets (18) (4)Purchase of tangible fixed assets (42) (147) -------- -------Net cash outflow from capital expenditure (60) (151) -------- ------- Net cash outflow before management of liquidresources and (704) (216)financing Management of liquid resourcesIncrease in short-term deposits (8,255) (350) FinancingIssues of ordinary share capital 77 1Share premium received on share issues 9,923 649Share issue costs (1,020) (27) -------- -------Cash inflow from financing 8,980 623 -------- ------- Increase in cash 21 57 ======== ======= Notes 1. Corporate restructuringSynairgen plc was incorporated on 16 September 2004 and 2 ordinary shares of 1peach were issued. On 11 October 2004 Synairgen plc acquired the entire issuedshare capital of Synairgen Research Limited by issuing 13,999,998 ordinaryshares of 1p each on the basis of issuing 100 shares for each ordinary share of1p each held in Synairgen Research Limited. The directors have accounted forthis group reconstruction using the merger accounting principles as set out inFinancial Reporting Standard 6. Accordingly proforma financial information hasbeen prepared to show the position as if Synairgen plc had been in existence andthe parent of Synairgen Research Limited throughout the current and priorperiods. The proforma information has been compiled by taking the results ofSynairgen Research Limited before the restructuring and adjusting for thecapital structure of the new group. 2. Basis of preparationThe financial information on the Group set out above does not constitute"statutory accounts" within the meaning of section 240 of the Companies Act1985. The financial information for the year ended 30 June 2005 has beenextracted from the Group's audited consolidated statutory accounts, which willbe delivered to the Registrar of Companies for England and Wales in due course.The report of the auditors on these accounts was unqualified and did not containa statement under Section 237 (2) or (3) of the Companies Act 1985. Comparativefigures are for the 55 weeks ended 30 June 2004 on the basis set out in Note 1. The annual report will be posted to shareholders in October 2005 and will belaid before shareholders at the Annual General Meeting on 15 November 2005. The accounts have been prepared in accordance with UK Generally AcceptedAccounting Principles. 3. Loss per ordinary share Year 55 weeks ended ended 30 June 30 June 2005 2004 Loss on ordinary activities after taxation (£000) (610) (153)Weighted average number of ordinary shares in issue 18,730,993 10,075,980 The loss attributable to ordinary shareholders and weighted average number ofordinary shares for the purpose of calculating the diluted earnings per ordinaryshare are identical to those used for basic earnings per share. This is becausethe exercise of share options would have the effect of reducing the loss perordinary share and is therefore not dilutive under the terms of FinancialReporting Standard 14. The comparative figures are proforma based on the numberof shares that would have been in issue had the capital structure of the newparent company always been in place. 4. Reconciliation of movements in reserves and shareholders' funds Share capital Share premium Merger reserve Profit and loss Shareholders' account account funds £000 £000 £000 £000 £000 At 10 - - - - -June 2003Issue ofordinaryshares 113 - 510 - 623Loss forthe - - - (153) (153)period ------ ------- ------ -------- ---------- At 30June 2004 113 - 510 (153) 470Issue ofordinaryshares 104 9,923 (27) - 10,000Shareissue - (1,020) - - (1,020)costsLoss forthe - - - (610) (610)year ------ ------- ------ -------- ----------At 30June 217 8,903 483 (763) 8,8402005 ====== ======= ====== ======== ========== The issue of 140,000 1p ordinary shares by Synairgen Research Limited prior toits acquisition by Synairgen plc has been restated to reflect the 100 for 1share for share exchange which was effected in October 2004. In accordance withthe principles of merger accounting the difference between the nominal value ofthe shares issued in the share exchange and sum of the amounts standing to theissued share capital and share premium accounts has been taken to a mergerreserve. 5. Reconciliation of operating loss to net cash outflow from operating activities Year 55 weeks ended ended 30 June 30 June 2005 2004 £000 £000 Operating loss (908) (166)Depreciation & amortisation 34 2Increase in stocks (55) -Increase in debtors (146) (77)Increase in creditors 235 163 --------- ---------Net cash outflow from operating activities (840) (78) ========= ========= 6. Reconciliation of net cash flow to movement in net funds Year 55 weeks ended ended 30 June 30 June 2005 2004 £000 £000 Increase in cash in year 21 57Increase in short-term deposits 8,255 350 --------- -------- Change in net funds resulting from cash flows and movementin net funds 8,276 407Net funds at start of year 407 - --------- --------Net funds at end of year 8,683 407 ========= ======== This information is provided by RNS The company news service from the London Stock Exchange