YGEN.L Regulatory News (YGEN)

Premaitha Health plc

("Premaitha" or the "Company")

Final results

Manchester, UK - 30 September 2016 - Premaitha Health plc (AIM: NIPT), developer of the leading CE-marked complete non-invasive prenatal screening system, announces final results for the year ended 31 March 2016.

Financial Highlights:

· Revenues of £2.5m (2015: £132k) from the IONA® test in its first full year of commercialisation

· Operating loss £5.9m (2015: £4.3m) before one-off and non-cash items of £6.2m (2015: £3.2m)

· Strong balance sheet with cash at year-end of £5.3m (2015: £2.7m)

· £13.0m investments secured in period

o £8.0m Placing (July 2015)

o £5.0m Thermo Fisher investment in loans and warrants (December 2015)

· Further £4.0m loan/warrants by Thermo Fisher post year-end (September 2016)

· Provision for anticipated litigation costs increased for strongest possible defence, £5.4m balance at year-end

Operational Highlights:

· IONA® test sales in excess of 17,000 in the first full year since launch

· Awarded lab contracts with hospitals in the UK, Poland, Switzerland, France, Russia and the Middle East

· Secured service customers across the UK, Asia, Europe and Latin America

· Enhanced relationship with Thermo Fisher - manufacturer of the next generation sequencing instrument on which Premaitha's IONA® test runs - through further strategic investment by Thermo Fisher and ongoing technical work to validate the IONA® test on new instruments

· Benefits of NIPT being recognised by Governments and countries moving towards making NIPT freely available through public health services

· Illumina launched patent infringement proceedings against Premaitha in March and October 2015. Premaitha vigorously defending the actions on grounds of patent invalidity, non-infringement and anti-competitive behaviours. Ongoing European Commission investigation into potentially anti-competitive behaviour by Illumina and others

Corporate Highlights

· Strengthened Board with appointments of Barry Hextall as CFO (June 2015) and William Denman as CMO (October 2015)

· Adam Reynolds appointed Chairman (September 2016)

· finnCap appointed as sole broker to the Company (September 2016)

· A copy of the 2016 Annual Report and Accounts have been posted today to all shareholders. Further copies is available to the public on the Company's website, www.premaitha.com.

Update on post year end commercial progress

· New lab contracts signed in Italy, France and first Asian lab secured in Thailand

· 9 labs operational (up from 4 at 31 March 2016), with further 4 scheduled by the end of 2016

· Reduced reliance on two European customers

· Service laboratory growing, now more than 25 UK and international clients

· Product registrations commenced in Mexico and Canada

Adam Reynolds, Non-executive Chairman, commented:

"The team at Premaitha has worked extremely hard in the first year since the launch of our lead product to raise awareness of the IONA® test's benefits amongst pregnant women and regulatory bodies.

"Awareness of the benefits of NIPT is rising sharply and this is evidenced both in the level of M&A activity in our sector; and in the increasing number of countries moving towards making NIPT freely available through their public health services.

"We firmly believe that NIPT should be available to all pregnant women - not just those at high risk - to reduce the number of women who are required to undergo unnecessary invasive testing which carries the well-documented associated risks.

"In addition to driving widespread availability of the IONA® test, Premaitha is also leveraging its expertise in molecular diagnostics and exploring other high impact applications for our technology in oncology and pre-implantation."

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

For more information, please contact:

About Premaitha

Premaitha is a molecular diagnostics company which uses the latest advances in DNA analysis technology to develop safer, faster and regulatory approved non-invasive screening tests for pregnant women.

Premaitha's lead test - the IONA® test - was launched in February 2015 and is the leading CE marked complete system which estimates the risk of a fetus being affected with Down's syndrome or other genetic conditions. The IONA® test is performed on the mother's blood sample - which contains traces of fetal DNA - and then analysed using next generation DNA sequencing technology from ThermoFisher Scientific.

Unlike existing prenatal screening methods, due to its high level of accuracy, the IONA® test can significantly reduce the number of women subjected to unnecessary stressful and invasive follow-up diagnostic procedures which are costly, resource intensive and carry a risk of miscarriage.

Non-invasive prenatal screening is an emerging, multi-billion dollar global market and Premaitha's complete CE marked system enables laboratories and health care practitioners to offer an approved, non-invasive prenatal screening system in-house.

Premaitha is based in Manchester Science Park, United Kingdom and its shares trade on the AIM market of the London Stock Exchange (AIM: NIPT). For further information please visit www.premaitha.com. Follow us on twitter @PremaithaHealth.

Chairman's Statement

Premaitha has made significant progress in its first full trading year with customer contracts operational across Europe and being installed in the Middle East. The in-house service laboratory achieved CQC registration and is offering excellent service levels to a growing roster of clinicians in the UK and internationally.

We continue to feel the unwanted attentions of a dominant market player who clearly fears fair competition from a superior offering. We continue to defend the technical claims and we are pleased that the EU Competition Commission are starting to look at market behaviour of the aggressors (see principal risks and uncertainties section).

Feedback from customers and front-line medical professionals is extremely positive and we are building a supportive base from which to expand the company in the coming years. This dialogue has enabled the development of product and service enhancements which will continue to keep the IONA® test at the forefront of non-invasive prenatal testing.

Focused strategy underpinned by strong clinical foundations

The Group's strategy remains to apply DNA-based technological advances to significant medical challenges, initially by delivering a rapid take-up of DNA-based prenatal screening solutions. We develop, produce and sell molecular diagnostic products and services to prenatal screening and genetics laboratories internationally. These products and services are developed and delivered to the highest quality standards, and are supported by strong clinical studies and collaborations with knowledge leaders in the field.

Highly capable team assembled

We have retained an exceptional team of leading scientists and experienced professionals in all disciplines at our Manchester headquarters and have continued to assemble an outstanding commercial team with true global reach to generate revenues and support our expanding international client base.

I would like to thank all of those individuals for their efforts in delivering the impressive achievements to date.

Financial position

Financially, the Group is at the early stages of its journey. The fundraising in July 2015 demonstrated strong shareholder support for our strategy and the subsequent investments by Thermo Fisher in December 2015 and September 2016 was further corroboration of the exciting potential for the IONA® test and Premaitha.

Outlook

Premaitha has been a public company for just over two years and from a standing start with zero revenue has made substantial progress. During the current financial year we will continue this growth trajectory.

The outlook for the current financial year is dominated by three separate but related strands: 

· Litigation

· Commercial Opportunities

· Strategic Relationship

Litigation

The litigation by Illumina has been a significant challenge for the Company in terms of the consumption of managerial time and financial resource. The Board firmly believes in the strength of its case and ultimately this will be resolved in a Court of Law in the United Kingdom in the second half of 2017, unless our opponents see sense in the meantime. Depending on the outcome of that case the Court has indicated a preparedness to consider an action by the Company to pursue an anti-trust case against Illumina. The Board believes it has substantive evidence to support its claims. 

We have been greatly encouraged by the European Commission's investigation into anticompetitive conduct by Illumina and Sequenom. We understand that the Commission is investigating the background to - and creation of - the Pooled Patent Agreement and the Claimants behaviour since then infringes Articles 101 and or 102 TFEU. We also believe that the Commission is examining whether the licensing practices of Illumina raise competition law concerns.

The costs for the defence of our position as well as the costs for assisting the European Commission's investigation into potential anti-competitive conduct have been fully provided for in our 2015 /16 accounts, and we believe we have appropriate funding in place to support this and our commercial plans. We are confident of our position and believe the market should not be dominated by one monopolistic player. Their conduct is denying choice and access to high quality localized NIPT screening, and we are sure the appropriate authorities will reach the same view.

Commercial opportunities

We finished the 2015/16 financial year strongly and have seen this momentum continue into the current financial year. We are seeing continued growth in our installed base within Europe and what is very encouraging is the growth and momentum we are experiencing for IONA® within the Middle East and Asia. I believe during the course of the next twelve months these territories will become very dominant for us in terms of revenue growth and where we do not face the same litigation issues as in Europe.

We have built an extremely robust business with substantial global opportunities, I am very proud of what we have achieved and becoming a global business. Although the short to medium term focus will be partially centered on the litigation and its distractions, one must not forget the progress we have made and the substantial growth opportunities we have ahead of us.

Strategic relationship

We have built the foundations of a strong relationship with Thermo Fisher Scientific in terms of our own commercial and product development on the Ion Torrent platform. We see ourselves as a key content provider to Thermo Fisher and its Life Technologies and Brahms subsidiaries and we want to further build upon this in the coming year.

Board change

Finally I would like to take this opportunity to thank David Evans for guiding Premaitha as Chairman over the past four years. The next phase of Premaitha's growth strategy should see significant expansion opportunities within the Far-East over the next twelve months and I look forward to updating shareholders shortly on our progress.

Strategic and financial review

We have made substantial progress in the year to launch the IONA® prenatal screening test, demonstrate its excellent clinical credentials and build a highly capable international molecular diagnostics business.

The IONA® prenatal screening test has made an impressive start since its launch in February 2015. Over 17,000 tests were sold in its first trading year as CE-IVD kits to customers in the UK and Europe, and as tests performed in our own CQC-registered service laboratory. Customer feedback has been extremely positive and published clinical results show it is a market-leading test that is well-positioned for the prenatal screening industry. Product development continues apace to ensure we meet the evolving needs of the screening community across the world.

The business is now fully operational with manufacturing, service and commercial activities focused on delivering consistently high quality products and support to an expanding international customer base. There is still much to do to realise the significant potential of the Company, and the IONA® test, not least to resist the obstacles placed in our way by aggressive competitors, and we remain focused on the addressing the challenges and realising the opportunities this entails.

Strategy

Our published clinical results and early contract wins confirm our strategy of providing product-based screening solutions to our laboratory customers to enable the rapid dissemination of NIPT technology. The IONA® test has been specifically designed to allow clinical laboratories, even without a background in DNA analysis technology, to offer the new NIPT tests thereby ensuring broad uptake and access to pregnant women. Supporting these customers to build sustainable 'hub and spoke' business models is a key part of our ongoing strategy.

We are confident that our model of providing the highest consistent quality products to localised screening laboratories, and from our own CQC-registered service laboratory, is ideally suited to the needs of the international markets for prenatal screening, and we are pleased to see this strategy being corroborated by a broad range of customers across the world.

Market development

By the end of the financial year, Premaitha had established the IONA® test in four customer laboratories and was installing it in a further six announced contracts. The customers are spread across the UK, Europe and the Middle East and are a mixture of public (NHS) and private providers. Once installed, we support our partners in their demand-building activities through clinical education and promotional activities.

In addition we have established an in-house service laboratory, for which we achieved CQC-registration, to provide prenatal screening services during installation and demand-building phases for our customers. The service laboratory is supporting customer clinicians as far afield as Asia and Latin America.

The decision to adopt NIPT testing remains a complex one for laboratories as it involves significant capital outlay and uncertainty as to how quickly the solution will be adopted by official bodies and patients. The sales process can, therefore, be lengthy. However, we remain confident that ultimately all prenatal screening will include NIPT and that the IONA® test represents the best available solution for pregnant women and the screening clinicians and laboratories who support them. During the year we saw public bodies starting to announce decisions to include NIPT in pregnancy screening pathways and we expect this trend to continue in the coming years.

Product development

The IONA® test is demonstrably fit for purpose in the NIPT screening field and to ensure this continues to be the case we have introduced a number of additional product and software features such as sex determination and fetal fraction, with key attributes that maintain high positive predictive values and low redraw rates. Throughput, cost and ease of use are also important considerations for our laboratory customers and our high throughput kit is one example of how we improve customer economics as they expand the prenatal screening offering and scale.

In addition to these new developments we are also extending the availability of the IONA® test by performing registration studies to allow us to sell the product in territories in Asia and the Americas.

The analysis of cell-free DNA potentially offers clinical advantages in other fields of medicine and we have embarked on initial studies to identify opportunities to leverage our capabilities in the future in areas such as other prenatal conditions and in cancer detection.

Operations

Key performance indicators (KPIs)

The Board recognises the importance of KPIs in driving appropriate behaviours and enabling the monitoring of Group performance. For the current financial year the primary KPIs were the number of IONA® tests sold or performed in-house, and net cash balances. Over 17,000 IONA® tests were sold or performed and cash at the period end was £5,337k (2015: £2,709k). Going forward the Board will evolve appropriate KPIs to drive the commercialisation of the IONA® test, and to ensure robust financial performance.

Geographical footprint

Premaitha has secured contracts with laboratory customers in the UK, Europe and the Middle East. We have also appointed a key sales leader in Asia Pacific and distributors in a number of territories, and we also have opportunities in the Americas. As new customers come on stream, we will build an appropriate commercial and technical support infrastructure in regional hub locations. 

Application support

We are able to offer training and application support to laboratories that may not be familiar with the technology used in the IONA® test. To deliver this activity, our excellent support team provide exemplary customer service at their laboratories and via our helpdesk.

Clinical laboratory

We have established a laboratory to perform IONA® testing to support client demonstrations and to act as an enabling resource for customers who are installing the IONA® workflow in their own facilities or are building sample volumes with their downstream clinical partners. During the year this laboratory achieved CQC registration and is now delivering very good turnaround times with high accuracy and low redraw rates.

Supply chain

Our supply chain and NGS platform partners coupled with our in-house operational capabilities have scaled quickly whilst maintaining the high quality standards we, and our customers, demand. We remain confident that these partners are aligned culturally and operationally to fulfil the potential we aim to achieve with the IONA® prenatal screening test.

Financial

Income statement

In the first trading year revenues were £2,452k (2015: £132k), predominantly from sales of IONA® test products with also some non-recurring equipment revenues from one customer. General and administrative expenses of £6,573k (2015: £4,468k) were principally incurred on staff costs, sales and marketing and product development expenditure. Research & Development tax credits are anticipated to be £294k (2015: £800k) due to the IONA® test being post-launch throughout the reporting period. The operating loss after general administrative expenses was £5,872k (2015: £4,336k) before the one-off and non-cash items totalling £6,163k (2015: £3,200k) detailed below.

There is a resultant operating loss after one-off and non-cash items of £12,032k (2015: £7,536k).

One-off and non-cash items

Significant one-off and non-cash items have been shown separately in the consolidated statement of comprehensive income and total £6,163k (2015: £3,200k). The principal one-off item is a provision for anticipated costs in the ongoing litigation with Illumina Inc, and others. The litigation provision has been increased by £5,834k (2015: £500k) to reflect the robust defence being prepared in response to the aggressive tactics being adopted by Illumina. 

Also, in July 2015, there was an oversubscribed share placing of £8.0m with associated fundraising expenses of £201k (2015: £739k). In addition, there is a non-cash item in the form of a share-based payments charge of £124k (2015: £346k). As noted in the Company's interim results, the deemed cost of the reverse acquisition in July 2014 has been restated in the prior year to £1,615k.

Finance income / (expenses)

During the period the Group incurred a net finance charge of £84k (2015: net finance income of £88k), with interest and unwinding discounts on the Thermo Fisher loan instrument offsetting interest earned on cash balances.

Taxation

The loss on ordinary activities before taxation of £12,116k (2015: £7,448k) generated a tax loss the benefit of which will not be recognised until the Company can be more certain of recoverability through future profitability.

Foreign exchange

The Group made a loss of £54k (2015: £20k gain) on translation of its foreign subsidiaries to the presentational currency.

Loss per share

The total comprehensive loss of £12,130k (2015: £7,428k) represents a loss per share of 6 pence (2015: 5 pence).

Balance sheet

At the balance sheet date the Group had total assets of £10,490k (2015: £5,646k). Property, plant and equipment increased to £1,936k (2015: £1,347k) due mainly to an additional leasehold unit in Manchester and capital equipment to furnish the new service laboratory. Current assets increased to £8,554k (2015: £4,299k) due to higher cash and debtors, including an £800k R&D tax credit received in May 2016.

Total equity and liabilities increased to £10,490k (2015: £5,646k) with the comprehensive loss offset by the equity fundraising in July 2015 and the loan funding from Thermo Fisher.

Cashflow

The Group had an opening cash position of £2,709k (2015: £50k) and generated a surplus of £2,628k (2015: £2,660k). Cash and cash equivalents at the end of the period was £5,337k (2015: £2,709k).

During the period the Group had cash used in operating activities of £7,042k (2015: £5,026k) due to higher operating losses and increased net working capital. Investing activities generated a deficit of £1,131k (2015: surplus £149k) due to capital expenditure. The July 2015 fundraising exercise and the December 2015 Thermo Fisher loan generated a financing surplus of £10,800k (2015: £7,537k).

Dividends

No dividend is recommended (2015: £nil) due to the early stage nature of the Group.

Capital management

The Board's objective is to maintain a balance sheet that is both efficient at delivering long-term shareholder value and also safeguards the Group's financial position in light of variable economic cycles and the principal risks and uncertainties outlined in this report. As at 31 March 2016 the Group had cash of £5,337k (2015: £2,709k) with no short-term borrowings (2015: £Nil). The Thermo Fisher loan was an initial drawdown of £2,760k in December 2015 which will rise to £5.0m which is repayable by December 2023. Interest is allowed to accumulate throughout the term of this loan. The Board continues to monitor its balance sheet to ensure it has an adequate capital structure. 

Post-balance sheet events

After the balance sheet date there were a number of further procedural hearings in the patent litigation process. We believe that these developments were largely positive for the Company and resulted in changes to the way the cases will be heard, additional collaboration with a third party defending similar claims and the formal identification of anti-trust objections by Premaitha. Whilst generally favourable developments, the impact on cost estimates is significant should the various cases proceed to trial. Full provision for these costs has been included in the litigation provision (see principal risks section and note 18). In September 2016 we announced additional loan funding from Thermo Fisher with associated warrants being issued, thereby giving us the funding to continue our commercial progress and product development pipeline whilst mounting the strongest possible defence.

Consolidated statement of comprehensive income

Consolidated statement of changes in equity

Consolidated statement of financial position as at 31 March 2016

Consolidated statement of cash flows for the year ended 31 March 2016

Basis of preparation

This financial information has been prepared in accordance with International Financial Reporting Standards (IFRS), adopted for use in the European Union and including IFRIC interpretations issued by the International Accounting Standards Board (IASB) and the Companies Act 2006.

The Group has applied all accounting standards and interpretations issued relevant to its operations for the year ended 31 March 2016. The consolidated financial statements have been prepared on a going concern basis.

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined by section 434 and 435 of the Companies Act 2006. The financial information for the year ended 31 March 2016 has been extracted from the Group's financial statements upon which the auditor's opinion is unmodified and does not include any statement under section 498(2) or 498(3) of the Companies Act 2006. The statutory accounts for the year ended 31 March 2016 will be delivered to the Registrar of Companies following the Annual General Meeting.

The consolidated financial information has been prepared on the basis of accounting policies set out in the Group's financial statements for 2016.

Going concern

Following a detailed review of the Group's financial plans, the Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The detailed review process looked at key commercial and operational drivers of financial performance and in particular liquidity. These forecasts were predicated on the current litigation strategy and on securing the loan funding from Thermo Fisher announced in September 2016. The underlying business forecasts were compiled on the same basis as the Group's budgeting process and updated for performance in the first few months of the 2017 financial year. The forecasts are sensitive to revenue growth as well as to working capital controls and spending decisions. Operational plans are in progress to improve cash efficiency, much Group expenditure remains discretionary and revenues are monitored closely to allow for responsive decision-making to balance cash expectations with available funds. As further mitigation for potential downsides the Group has identified potential funding facilities for additional resilience if and when required. 

The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

Segmental analysis

In the opinion of the directors, the Company has one class of business in two geographic locations, a molecular diagnostics business based in the UK which sells into the UK and Rest of World geographic areas.

Revenue, analysed by category, was as follows:

Revenue and non-current assets, analysed by geographical area, was as follows:

During 2016, the first year of trading revenues for the Group, £2,047,219 (83.5%) (2015: £Nil) of the Group's revenue depended on two customers who each represented more than 10% of Group revenues. £1,560,319 (63.6%) related to one customer and £486,900 (19.9%) related to the other.

Operating loss

The following items have been included in arriving at the operating loss for continuing operations:

Separately disclosed items

· Fundraising expenses relate to professional and other fees relating to the issuing of shares and warrants.

· The deemed cost of reverse acquisition is the aggregate deemed fair value of the consideration paid, assets and liabilities acquired and resulting charge to the income statement in respect of the acquisition of Premaitha Limited by Premaitha Health Plc.

· The litigation expenses relate to additional provision provided for the expected total costs of defending the company against a claim of patent infringement

· Share-based payment costs relate to the provision made in accordance with IFRS 2 'Share-based payment' following the issue of share options issued to employees and other persons subsequent to admission to AIM.

Taxation on profits from ordinary activities

The reason for the difference between the actual tax credit for the period and the standard rate of corporation tax in the UK applied to losses for the period are as follows:

The Research and development tax credit of £294,189 (2015: £800,454) is shown as a deduction against general administrative expenses.

The Group is required to estimate the income tax in each of the jurisdictions in which it operates. This requires an estimation of the current tax liability together with an assessment of the temporary differences which arise as a consequence of different accounting and tax treatments. These temporary differences result in deferred tax assets or liabilities which are included within the statement of financial position. Deferred tax assets and liabilities are measured using substantially enacted tax rates expected to apply when the temporary differences reverse. Management judgement is required to determine the total provision for income tax. Amounts accrued are based on management's interpretation of country specific tax law and the likelihood of settlement.

Factors that may affect future tax charges

The Group has estimated trading losses of £8,228,622 (2015: £2,463,894), estimated excess management fees of £6,082,666 (2015: £5,251,864), non-trade loan relationship deficits of £100,063 (2015: £Nil) and capital losses of £1,934,399 (2015: £1,934,399).

The tax losses have resulted in a potential deferred tax asset of approximately £3,258,350 (2015: £1,930,031) which has not been recognised as it is uncertain the future taxable profits will be sufficient to utilise the losses.

ViaLogy LLC may be entitled to further tax losses not reflected in the above. The maximum amount of losses available is $6,000,000, however this is subject to an annual limitation which is estimated at $250,000 per year. At the reporting date the accrued potential losses claimable are estimated at $2,250,000 (2015: $2,000,000). The losses disclosed in relation to the US have not been agreed with the US taxation authorities and thus are the best estimate of management as at 31 March 2016.

Prior period adjustments

The comparatives for the year-ended 31 March 2015 have been amended in these financial statements to reflect an error in the accounting for the reverse acquisition of Premaitha Health Plc and its subsidiaries.

The deemed fair value of the consideration for this reverse acquisition was previously stated at £2,308,094. Subsequent to the prior period adjustment this has been amended to a fair value of £2,958,409. The resulting charge to the income statement in respect of the acquisition has, consequently, increased from £964,967 to £1,615,282.

This increase in the fair value also causes a decrease in the reverse acquisition reserve from £40,597,348 to £39,947,033.

This adjustment, and the consequential increase in the loss after tax attributable to the parent company for the year to 31 March 2015, results in an increase in the basic loss per share to £0.05 compared to the previously reported loss of £0.04 per share.

Loss per share

Basic

Basic loss per share is calculated by dividing the loss after tax attributable to the equity holders of the parent company for the period of £12,130,461 (2015: loss £7,427,954) by the weighted average number of ordinary shares in issue during the period 218,109,064 (2015: 151,891,657).

Diluted

Diluted earnings per share dilute the basic earnings per share to take into account share options and warrants. The calculation includes the weighted average number of ordinary shares that would have been issued on the conversion of all the dilutive share operations and warrants into ordinary shares. 58,993,088 options and warrants (2015: 33,307,884) have been excluded from this calculation as the effect would be anti-dilutive.

Provisions

Litigation provision

Premaitha is defending two patent infringement litigation claims filed in the English courts which claim that Premaitha's non-invasive pre-natal test infringes patents owned or licensed by the claimants. The first claim was filed in March 2015 by the claimants Illumina, Inc., Seequenom, Inc. and Stanford University. The second claim was filed in September 2015 by the claimants Illumina, Inc. and the Chinese University of Hong Kong. The cases are due to be heard in the UK High Court in 2017.

The Group has assessed the expected costs of defending these claims, and has provided in full for the expected litigation costs. The Group recognised a provision in the prior year financial statements of £500,000 for expected litigation costs in respect of the first claim. Following the filing of the second claim, and a re-assessment of the Group's legal strategy and the litigation costs expected to be incurred in defending both claims, the provision has been increased to £5,386,326.

As the Group cannot reliably estimate what proportion of the litigation costs will be paid after more than 12 months from the reporting date, the amount is classified as current.

Dilapidation provision

As part of the Group's property leasing arrangements there is an obligation to return the premises in the same state that they were received and repair damages which incur during the life of the lease, such as wear and tear. The cost is charged to profit and loss as the obligation arises. The provision is expected to be utilised between 2016 and 2021 as the leases terminate.

Other interest bearing loans and borrowings

This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost.

The secured loan provided by Life Technologies Corporation (LTC), part of the Thermo Fisher Scientific Group, is accruing interest at a rate of 6% on the principal capital balance of £2,760,000 and is secured by way of a fixed and floating charge over intellectual property of the Group. This loan is wholly repayable in more than 5 years.

This loan is part of the provision of a total of £5,000,000 of secured loan facilities from LTC to the Group with £1,770,363 recognised as the fair value on grant of 20,325,204 warrants to the lender.

An additional £323,450 of the loan facility was used to settle legal costs during the year. The remaining £1,916,550 loan facility retention is to be drawn down against future milestones.

The implied effective interest rate on the amount allocated to the loan as a liability is 19.21%.

Share capital

On 2 July 2015 the Company issued 40,000,000 new Ordinary shares of £0.10 each at £0.20 raising £8 million before expenses.

All ordinary shares in issue have equal voting rights and rights to dividends or other distributions. The deferred shares rank equally in all respects but do not have any voting rights or rights to receive dividends or other distributions and will not have any return on capital on a winding up.

Thermo Fisher Scientific loan and warrants

On 11 December 2015, the Group entered into a loan agreement with Life Technologies Limited ("Thermo Fisher"), under the terms of which Thermo Fisher provided a loan facility of £5m to the Group. The term of the loan is 8 years and the rate of interest applied to the loan is 6%. 

The loan is secured by a fixed and floating charge against the intellectual property of the Group.

The Group simultaneously entered into a share warrant agreement with Thermo Fisher. The Group assessed the accounting treatment of the loan and warrant agreements and have concluded that, although they are separate financial instruments, it is necessary to allocate the initial proceeds received between the loan and the warrants based on their fair values, because the instruments were entered into at the same time.

Having considered the terms of the warrants, it has been concluded that they represent an equity instrument. The warrants are accounted for at fair value on inception in accordance with IAS 32. The loan is initially recognised at fair value on inception and subsequently measured at amortised cost using the effective interest rate method, in accordance with IAS 39.

The Group allocated the initial proceeds of the loan of £2,760,000 (the remainder is yet to be drawn down), according to the respective fair values of the loan and warrant instruments as follows:

The warrants are accounted for as an equity instrument under IAS 32, and are not subsequently re-measured. As the loan is subsequently measured at amortised cost using the effective interest rate method, an accretion charge is recognised over the life of the loan to restore its carrying value to the amount drawn down. The charge recognised in the year is as follows:

On 11th December 2015 the Group also issued warrants over 20,325,204 shares to Thermo Fisher. The warrants have an exercise price of 24.6p per share, and have a term of 8 years.

Initial consideration received was £2,760,000. Per IAS 32, the Group estimated the allocation of the initial consideration between the loan and the warrants.

At 31 March 2016, the following warrants were outstanding in respect of Ordinary shares:

The fair values of the warrants granted were determined using a variation of the Black-Scholes model, incorporating the dilutive effects of the warrants. The following principal assumptions were used in the valuations:

Warrants and weighted average exercise prices are as follows for the reporting periods presented:

Post balance sheet events

The Group has evaluated all events or transactions that occurred after 31 March 2016 up to the date of signing of the financial statements.

On 22 September 2016, the Group entered into a loan agreement with Thermo Fisher for a further facility of £4,000,000. The Group simultaneously entered into a further warrant agreement with Thermo Fisher.

No other material subsequent events have occurred that would require adjustment to or disclosure in the financial statements.