Final Results

RNS Number : 5940Z

Allergy Therapeutics PLC

21 September 2015

 



21 September 2015

Allergy Therapeutics plc

("Allergy Therapeutics" or "the Company")

Preliminary report for the year ended 30 June 2015

Significant progress made towards becoming a global provider of allergy solutions 

Allergy Therapeutics plc, the fully integrated specialty pharmaceutical company specialising in allergy vaccines, announces preliminary results for the year ended 30 June 2015.

Highlights

·      11% increase in revenue at constant currency* to £46.6m (2014: £42.0m)

·      3% increase in revenue to £43.2m (2014: £42.0m)

·      Gross profit increased 4% to £31.1m (2014: £30.0m)

·      Operating profit increased 50% to £1.8m before impact of revaluation of US dollar cash deposits (2014: £1.2m)

·      Operating profit of £0.7m (2014: £1.2m)

·      Net cash generated by operations increased to £2.5m (2014: £2.3m)

·      £20m fund raising (net of expenses) in March 2015 to fund US clinical study programme

·      Acquisition of Alerpharma S.A. in early June strengthens Spanish business

·      Positive results from Acarovac Plus clinical study demonstrates excellent patient tolerability

·      Continued successful rollout of European probiotic products

Manuel Llobet, Chief Executive Officer, commented:

"This year we have made significant progress towards becoming a global provider of allergy solutions.  Following our successful placing to raise £20 million net in March we have resumed the clinical development programme for Pollinex Quattro Grass in the US.  Pollinex Quattro Grass has the potential to be the first seasonal subcutaneous allergy vaccine to reach the US market, which would be a transformational event for the Company.

We also strengthened our European position, demonstrating double digit growth in a flat market and significantly outperforming our competition.  The acquisition of Alerpharma in June enables the Company to continue to build a strong growth platform in Europe and to further open up the opportunity for an increase in market share in Spain.  Growth in the European markets is expected to be relatively slow in the coming year but with the continued momentum across the Company's activities, the outlook is very positive and we expect to increase our market share into the next year, delivering improved top-line growth.  The Company will continue its plan to consolidate its position in the European markets, as well as progressing with the clinical development programme within the regulated framework in Germany (TAV)."

* Constant currency uses prior year weighted average exchange rates to translate current year foreign currency denominated revenue to give a year on year comparison excluding the effects of foreign exchange movements. See table in financial review for an analysis of revenue.

For further information:

Allergy Therapeutics	[phone]
Manuel Llobet, Chief Executive Officer
Ian Postlethwaite, Finance Director
Panmure Gordon	[phone]
Freddy Crossley / Peter Steel / Duncan Monteith, Corporate Finance
Tom Salvesen, Corporate Broking
FTI Consulting	[phone]
Simon Conway / Victoria Foster Mitchell

Note to editors:

About Allergy Therapeutics

Allergy Therapeutics is a specialty pharmaceutical company focused on allergy vaccination.  It has a growing business achieving revenue in the last financial year of £43 million mainly in Europe through its own sales and marketing infrastructure and further afield through distributors.

CHAIRMAN'S STATEMENT

This year we have made more significant progress towards becoming a global provider of allergy solutions and the Company is now delivering on all three aspects of its growth strategy:

We are resuming the clinical development programme for Pollinex Quattro Grass in the US, having invested US$100 million to date. As previously disclosed, the programme relaunch follows in-depth discussions with the US Food and Drug Administration (FDA) regarding our clinical trial protocols and route to registration for the product.  We plan to submit a Biological Licence Application (BLA) to the FDA for Pollinex Quattro Grass for regulatory approval in 2018, with the anticipated registration of the product in 2019.  The US allergy immunotherapy market is estimated to be worth $2 billion in 2008.

Importantly, our US development plans are fully funded following our successful placing to raise £20 million net in March.  This is a significant milestone for Allergy Therapeutics and introduces new, important institutional investors to the Company.

Pollinex Quattro Grass has the potential to be the first seasonal subcutaneous immunotherapy (SCIT) allergy treatment to receive regulatory approval in the US, as well as becoming the Company's first product to be approved for the US market.  Apart from a proven ability to provide a cure versus symptom relief, the short course of treatment is shown to be superior to alternatives on the market in terms of patient acceptance and compliance, which are key issues in this area and will, we believe, translate into good uptake for the product. We are excited by the transformational opportunity that Pollinex Quattro Grass represents for the Company, as we continue to work hard to address the unmet needs of the US allergy market through our innovative solutions for allergy sufferers.

Inorganic growth is a key focus; in June we announced the acquisition of Alerpharma, a privately owned company based in Spain, spun-out from a leading Spanish biopharmaceutical company, Zeltia S.A.  The acquisition provides Allergy Therapeutics with the opportunity to increase our product range, cross-sell products and strengthen our competitive position in Spain, our second largest market. Alerpharma also brings a newly-built state-of-the-art 2,200 sq. m manufacturing facility in the Alcalá de Henares technological park near Madrid. The initial stage of the integration process is progressing well and is expected to be completed by January 2016.

The multiple paid for Alerpharma, at approximately one times the previous year's sales, provides us with an opportunity to create value for our shareholders. We will continue to seek synergistic consolidation opportunities in the specific immunotherapy (SIT) market or allergy related areas, such as respiratory, dermatology, allergy immunomodulation or diagnostics.

Our established revenue model in Europe is progressing well.  We have demonstrated organic double digit growth in a flat market, significantly outperforming our competition and becoming, once again, the best performer in relation to its competitors in specific immunotherapy in Europe.  This progress is consistent with our ambition to strengthen our European position and build a solid platform for global expansion. Revenues achieved during the year are detailed in the Financial Review.

During the first half of our fiscal year, and as a result of the takeover of CFR Pharmaceuticals by Abbott Laboratories Inc. ("Abbott"), Alejandro Weinstein stepped down from the Board of Allergy Therapeutics and was succeeded by Jean-Yves Pavée, Senior Vice President of Developed Markets for Abbott's Established Products division.  Alejandro joined the Board in 2009 and I would like to take this opportunity to thank him for his contribution, valuable guidance and support.  We are pleased to welcome Jean-Yves to our Board.

In conclusion, I would like to express my appreciation to all Allergy Therapeutics employees for their commitment, dedication and hard work during the year and we look forward to making further significant progress in executing our growth strategy in the coming years. 

Peter Jensen

Chairman

18 September 2015

CHIEF EXECUTIVE OFFICER'S REVIEW

Specific allergy immunotherapy is expected to become a global market of approximately $2-3 billion by 2020, with very few companies well placed to take advantage of this market opportunity.  I am confident that with our highly competent team, coupled with our ultra-short, aluminium free allergy vaccines, we are well positioned to be one of these companies.

At a commercial level, we have once again been the best performing company in our competitive European markets, with an evolution index of 107 (where every unit above 100 represents 1% growth above the market's growth) and sales growth of 11% in constant currency.  This strong organic growth and market penetration highlights our focus on ensuring three important building blocks for the business:

a)   We have the right products with our range of short course and ultra-short course, aluminium free allergy vaccines, which are patient-friendly, save time and are, therefore, highly convenient.  Our products are becoming increasingly accepted in all our key markets and represent a potential, early indicator of the fast penetration that our products could have in the US allergy market.

b)   We have the right sales teams in place.  The team consistently delivers at or above management's expectations and receives on-going training to be the best scientific partner for our doctors.

c)   We have the right marketing strategies and our messages are well understood by our base of prescribers.

With Pollinex Quattro we have developed an efficient solution to address the seasonal allergy market, with grass, tree and ragweed being the most predominant allergens.  Now that this franchise is in late stage clinical development and has proven to be commercially successful (in Europe on a named patient basis), our Product Development team is working to expand our product portfolio by developing an ultra-short franchise in the perennial allergy market, where house dust mite is one of the most important allergens.

We are currently developing Acarovac Quattro, a potential breakthrough ultra-short course treatment for house dust mite allergy, using a similar technological platform to Pollinex Quattro (allergoid + microcrystalline tyrosine (MCT) + monophosphoryl lipid A (MPL)) to replicate the success of our Pollinex Quattro product range. 

Last year, we launched Acarovac Plus, a short course allergy product to treat house dust mite allergy, in Spain, which became our fastest growing product in that country this year.  This rapid commercial acceptance, along with the positive results in symptom reduction scores of more than 50% (as announced in July¹), increases our confidence in the market penetration prospects for Acarovac Quattro.

The activity within our strengthened R&D department has been exceptional.  The scientific team has been running our clinical programmes in Europe and planning the resumption of our clinical activities in the US. Our team has also been working on new and improved products and has designed a comprehensive programme of clinical trials to continue the development of our innovative product portfolio. 

Another significant project has been the work done with MCT which is a depot/adjuvant system used in our products with the potential to be used in other vaccines. Depot adjuvants are used in vaccines to act as a carrier for the antigen, enabling presentation to the immune system over an extended period of time, therefore maximising the immune response before the body clears the antigen. MCT is a patented depot adjuvant formulation of the biodegradable amino acid tyrosine that combines the optimal drug stability profile of our short course vaccine delivery with extensive safety data consistent with its natural origin.  MCT has been designed to provide defined particle size and structure along with a strong antigen binding capacity to enhance its use as a powerful immune system potentiator.

We have invested in our Medical Department which continues to provide support for our entire product range in all commercial markets but has also been handling the new body of regulation in the pharmacovigilance area, while our back office departments - Supply Operations, Quality Control, Quality Assurance - have ensured the Company has remained compliant and maintained high standards of reliability.

Summary and outlook

Immunotherapy is expected to be the fastest growing segment in the allergic rhinitis treatment market, estimated at $12 billion by 2016 (Visiongain). It is expected that over the next seven years, the immunotherapy market will more than double its size, growing at a compound annual growth rate of around 11%.  The key driver of this growth will be the development of the US registered products market, where three oral vaccines were launched last year.  Now that we have resumed our clinical programme in the US, we have the potential to be the first seasonal SCIT allergy vaccine to reach the US market, which is predominantly a SCIT market.  This puts Allergy Therapeutics in a privileged position to become a global leading provider of allergy solutions, as shown by Pollinex Quattro Grass.

Growth in the European allergy market is expected to be relatively flat in the coming year but with the continued momentum across the Company's activities, the outlook is very positive and we expect to continue to increase our market share into the next year delivering improved top line growth.  The Company will continue its plan to consolidate its position in the European markets as well as progressing its clinical development programme within the Therapieallergene-Verordnung (TAV) framework in Germany.

Finally, we are very excited by the opportunity in the US market. We have made good progress in appointing a contract research organisation (CRO) and during the next year plan to advance rapidly to the Phase III challenge chamber study for MATA MPL Grass, keeping us on our time-line of submitting a BLA during 2018. This would be a transformational opportunity for the company.

We are a thriving company with a healthy product pipeline with an on-going mission to improve the lives of millions of allergy sufferers worldwide.

Manuel Llobet

CEO

18 September 2015

¹ Roger, A., Depreux, N., Jurgens Y., Heath M, Garcia G., Skinner M, A novel and well tolerated mite allergoid subcutaneous immunotherapy: Evidence of clinical and immunologic efficacy. Immunity, Inflammation and Disease, 2014; 2 (2); 92-98

FINANCIAL REVIEW

Overview

The results for the twelve months to 30 June 2015 demonstrate continuing profitability despite difficult market conditions and continued investment in clinical studies, with an operating profit of £0.7 million (2014: £1.2 million).  Operating profit includes a non-cash charge of £1.1m for the revaluation at the balance sheet date of US dollar cash deposits held for the US clinical studies. Operating profit before this charge was £1.8m (2014: £1.2m), a 51% improvement. During the year investment in clinical studies was maintained at £1.3 million (2014: £1.5 million). The acquisition of the Alerpharma group for €3.8m plus deferred consideration, expected to be around €0.2m, took place in June 2015 (note 11). The Alerpharma group added revenue of £0.2m and no profit, for the period consolidated.

Revenue

Despite weak allergy vaccine markets in Europe, revenue at constant currency* was 11% better at £46.6 million (2014: £42.0 million).  This can be seen in the table below:

	2015	2015	2015	2014	2014	2014
	Germany	Other	Total	Germany	Other	Total
	£m	£m	£m	£m	£m	£m
Revenue	27.1	16.1	43.2	25.8	16.2	42.0
Add rebates	2.9	-	2.9	3.8	-	3.8
Gross revenue	30.0	16.1	46.1	29.6	16.2	45.8
Adjustment to retranslate at prior year foreign exchange rate	2.5	1.1	3.6
Gross revenue at constant currency*	32.5	17.2	49.7	29.6	16.2	45.8
Revenue	27.1	16.1	43.2	25.8	16.2	42.0
Adjustment to retranslate at prior year foreign exchange rate	2.2	1.2	3.4
Revenue at constant currency*	29.4	17.2	46.6	25.8	16.2	42.0
* Constant currency uses prior year weighted average exchange rates to translate current year foreign currency denominated revenue to give a year on year comparison excluding the effects of foreign exchange movements.

Despite a weaker EUR: GBP weighted average exchange rate during the year compared to the prior year, revenue increased by 3% to £43.2 million (2014: £42.0 million).  The weighted average EUR: GBP exchange rate in the year was 1.27 compared to 1.17 in the previous year; the weaker Euro negatively impacted revenue by £3.4 million.  The Group has continued to grow its revenue in markets outside Germany in order to reduce its reliance on the German market, but, with the company's strong performance in Germany this year, revenue from Germany grew from 61% of the total reported revenue to 63%, although it is still significantly lower than that reported in 2009 of 73%.  The key flagship product Pollinex Quattro, which accounts for 49% of total sales, grew very well in the year at a constant currency growth rate of 7.5%.  In addition to the sale of allergy vaccines, the Group has continued to look to increase its revenue from other products, which includes probiotic sales.  Total sales from other products contributed £3.2 million for the year ended 30 June 2015 (2014: £3.0 million).

Revenue in Germany grew well in the year with revenue at constant currency increasing to £29.4 million (2014: £25.8 million); an increase of 14%.  During the year, the Group was subject to the full rebate charge in Germany. In the prior year, the rebate charge in H1 was 16% of sales, reducing to 6% in January 2014, before finally being set at a new on-going level of 7% in April 2014.

On 23 February 2015, the Company received notification that The Federal Office for Economics and Export ("BAFA") had made a decision to reverse their preliminary exemption to the increased manufacturers rebate in Germany for the period July to December 2012. The Company was granted a preliminary exemption to the increased rebate for this period by BAFA in 2013. The Company recognised revenue of €1.4 million (£1.1 million) against this exemption in the year ended 30 June 2013. All other preliminary exemptions (granted for periods up to 30 June 2012) have previously been ratified as final by BAFA. After taking legal advice, the Company has lodged an appeal against this decision and is confident that the exemption will be re-instated. Therefore, as at 30 June 2015, no provision has been recognised for the repayment of the rebate refund. This position will be kept under review.

In Spain (excluding the newly acquired Alerpharma S.A.) and Italy, sales at constant currency increased by 8%, which is a strong result given the weak market during the year.  Similarly, Austria showed strong growth in sales of 10% in the year at constant currency.

Gross Profit

Despite the increased sales, tight management of manufacturing helped minimise increases in cost of sales to £12.2 million (2014: £12.0 million).  This, together with the revenue increase of £1.3 million, increased the gross margin percentage by 30 basis points to 71.8%, leading to a gross profit of £31.1 million (2014: £30.0 million).

Operating Expenses

Total overheads are £1.5 million higher against the prior year at £30.4 million (2014: £28.9 million).  Distribution costs, which are mainly European sales and marketing costs, were positively impacted by a weaker Euro, decreasing by £0.8 million to £17.1 million (2014: £17.9 million).  However, administration expenses increased to £10.2 million (2014: £8.0 million), an increase of £2.2 million on the prior year. The major driver behind this increase was foreign exchange;  the company booking a non-cash loss of £1.1m on its US dollar cash deposits due to the weakening dollar netted with a small gain on the fair valuation of Euro assets of £0.4 million (2014: £0.7 million). The remainder of the increase was due to increased support costs on the Company's IT systems to comply with new German banking requirements, acquisition fees relating to the Alerpharma purchase and staff employment costs.  Further work relating to the dose ranging study for Pollinex Quattro Birch continued during the year as well as the commencement of the US study programme, and these were the main factors behind the year's R&D costs of £3.1 million (2014: £3.0 million).

Tax

The current year tax charge is predominately made up of the reversal of the brought forward deferred tax asset, on the assumption that in future years the Company will be loss making as a result of increased investments in the US clinical program, and provisions for tax in the Italian and German subsidiaries. The tax charge in the prior year relates mainly to the Italian subsidiary.

Balance Sheet

Property, plant and equipment increased by £1.8 million to £8.8 million as a result of the acquisition of Alerpharma. Excluding this, the depreciation charge for the period equalled new equipment purchases. Goodwill increased to £3.0 million with the acquisition of Alerpharma (2014: £2.5 million), whilst other intangible assets have risen by £0.7 million, again mainly as a result of the Alerpharma purchase.

Total current assets excluding cash have increased by £0.4 million to £12.6 million (2014: £12.2 million).  This is mainly due to an increase in fair value of derivative financial instruments.

Retirement benefit obligations, which relate solely to the German pension scheme, increased to £6.8 million (2014: £6.4 million).  The increase in the liability was driven by a fall in German bond yields at the year-end compared to the previous year.

Net cash generated by operations remained positive, increasing slightly, with a reported inflow of £2.5 million (2014: £2.3 million).

Financing

In March 2015, 94,117,650 new ordinary shares of 0.1 pence each ("Ordinary Shares") were placed with institutional and other investors  raising proceeds of £20.8 million before expenses; £20.0 million to the Company after expenses. The net proceeds of the placing will be used to fund the clinical development of Pollinex Quattro Grass through to a BLA to obtain FDA regulatory approval in the US. Pollinex Quattro Grass could become the first licensed seasonal SCIT allergy vaccine authorised for marketing in the US, where the value of the market is estimated at $2 billion.

At the same time, the convertible loan notes which were issued by the Company on 30 March 2012, to CFR International SpA, were converted into 41,674,938 new Ordinary Shares (the "Conversion Shares") at 9.7 pence per Ordinary Share.

The Group had no debt on its balance sheet at the close of the financial year other than the loans acquired as a result of the Alerpharma acquisition (£1.7 million). The annual overdraft had been fully repaid in November 2014 and has been renewed for a further 12 months to cover the seasonal funding requirements over the summer of 2015.

The Directors believe that the Group will have adequate facilities for the foreseeable future and accordingly they continue to adopt the going concern basis in preparing the full year results.

Ian Postlethwaite

Finance Director

18 September 2015

CONSOLIDATED INCOME STATEMENT

for the year ended 30 June 2015

			Year to  30 June		Year to  30 June		Year to  30 June		Year to  30 June
			2015		2015		2014		2014
			£'000		£'000		£'000		£'000
	Note
Revenue	3				43,230				41,955
Cost of sales					(12,179)				(11,951)
Gross profit					31,051				30,004
Sales, marketing and distribution costs					(17,060)				(17,922)
Administration expenses - other			(10,218)				(7,986)
Research and development costs			(3,121)				(2,963)
Administration expenses					(13,339)				(10,949)
Other income					73				76
Operating profit					725				1,209
Finance income	6				147				170
Finance expense	5				(218)				(295)
Profit  before tax					654				1,084
Income tax					(546)				(343)
Profit for the period					108				741
Earnings per share	7
Basic (pence per share)					0.02p				0.16p
Diluted (pence per share)					0.02p				0.16p
Consolidated Statement of Comprehensive Income for the year ended 30 June 2015
						Year to  30 June				Year to  30 June
						2015				2014
						£'000				£'000
Profit for the period						108				741
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of net defined benefit liability						(932)				(271)
Remeasurement of investments - retirement benefit assets						8				(10)
Items that will be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations						(119)				(191)
Total comprehensive (loss)/profit						(935)				269

CONSOLIDATED BALANCE SHEET

			30 June	30 June
			2015	2014
		Note	£'000	£'000
Assets
Non-current assets
Property, plant and equipment			8,750	7,030
Intangible assets - goodwill			2,980	2,480
Intangible assets - other			2,020	1,291
Investments - retirement benefit asset			3,160	3,212
Deferred taxation asset			-	174
Total non-current assets			16,910	14,187
Current assets
Trade and other receivables			5,060	5,368
Inventories		8	6,747	6,469
Cash and cash in hand Derivative financial instruments			21,199 783	2,029 345
Total current assets			33,789	14,211
Total assets			50,699	28,398
Liabilities
Current liabilities
Trade and other payables			(7,169)	(6,425)
Current borrowings		9	(251)	(49)
Total current liabilities			(7,420)	(6,474)
Net current assets			26,369	7,737
Non-current liabilities
Retirement benefit obligations			(6,755)	(6,418)
Deferred taxation liability			(298)	(136)
Non-current provisions Other non-current liabilities Long term borrowings		9	(211) (113) (1,433)	(222) (73) -
Total non-current liabilities			(8,810)	(6,849)
Total liabilities			(16,230)	(13,323)
Net assets			34,469	15,075
Equity
Capital and reserves
Issued share capital		10	556	420
Share premium			91,463	67,716
Merger reserve - shares issued by subsidiary			40,128	40,128
Reserve - EBT			67	67
Reserve - share based payments			591	465
Reserve - convertible loan notes			-	3,652
Revaluation reserve			1,178	1,178
Foreign exchange reserve			(140)	(21)
Retained earnings			(99,374)	(98,530)
Total equity			34,469	15,075

These financial statements were approved by the Board of Directors on 18 September 2015 and were signed on its behalf by

Manuel Llobet	Ian Postlethwaite
Chief Executive Officer	Finance Director
Registered number: 05141592

Consolidated Statement of Changes in Equity

	Issued Capital	Share premium	Merger reserve - shares issued by subsidiary	Reserve - shares held in EBT	Reserve - share based payment	Reserve - convertible loan note	Revaluation reserve	Foreign exchange reserve	Retained earnings	Total  equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30 June 2013	420	67,716	40,128	67	679	3,652	1,178	170	(99,339)	14,671
Exchange differences on translation of foreign operations	-	-	-	-	-	-	-	(191)	-	(191)
Remeasurement of net defined benefit liability	-	-	-	-	-	-	-	-	(271)	(271)
Remeasurement of investments - retirement benefit assets	-	-	-	-	-	-	-	-	(10)	(10)
Total other comprehensive income	-	-	-	-	-	-	-	(191)	(281)	(472)
Profit for the period after tax	-	-	-	-	-	-	-	-	741	741
Total comprehensive income	-	-	-	-	-	-	-	(191)	460	269
Transactions with shareholders -Convertible loan note	-	-	-	-	-	-	-	-	(49)	(49)
Share based payments	-	-	-	-	184	-	-	-	-	184
Shares issued	-	-	-	-	-	-	-	-	-	-
Transfer of lapsed options to retained earnings	-	-	-	-	(398)	-	-	-	398	-
At 30 June 2014	420	67,716	40,128	67	465	3,652	1,178	(21)	(98,530)	15,075
Exchange differences on translation of foreign operations	-	-	-	-	-	-	-	(119)	-	(119)
Remeasurement of net defined benefit liability	-	-	-	-	-	-	-	-	(932)	(932)
Remeasurement of investments - retirement benefit assets	-	-	-	-	-	-	-	-	8	8
Total other comprehensive income	-	-	-	-	-	-	-	(119)	(924)	(1,043)
Profit for the period after tax	-	-	-	-	-	-	-	-	108	108
Total comprehensive income	-	-	-	-	-	-	-	(119)	(816)	(935)
Transactions with shareholders -Convertible loan note	-	-	-	-	-	-	-	-	(86)	(86)
Conversion of loan note to equity	42	3,832	-	-	-	(3,652)	-	-	(222)	-
Share based payments	-	-	-	-	406	-	-	-	-	406
Shares issued	94	19,915	-	-	-	-	-	-	-	20,009
Transfer of lapsed options to retained earnings	-	-	-	-	(280)	-	-	-	280	-
At 30 June 2015	556	91,463	40,128	67	591	-	1,178	(140)	(99,374)	34,469

Consolidated Cash Flow Statement

			Year to  30 June	Year to  30 June
			2015	2014
			£'000	£'000
		Note
Cash flows from operating activities
Profit before tax			654	1,084
Adjustments for:
Finance income		6	(147)	(170)
Finance expense		5	218	295
Non cash movements on defined benefit pension plan			290	160
Depreciation and amortisation			1,293	1,287
Charge for share based payments			406	184
Movement in fair valuation of derivative financial instruments			(438)	(669)
Disposal of intangible assets and property, plant and equipment			-	1
(Increase)/ decrease in trade and other receivables			(448)	1,689
(Increase) in inventories			(424)	(625)
Increase/ (decrease) in trade and other payables			1,079	(911)
Net cash generated by operations			2,483	2,325
Interest paid			(304)	(102)
Income tax			(174)	(50)
Net cash generated by operating activities			2,005	2,173
Cash flows from investing activities
Interest received			65	71
Investments Acquisition of Alerpharma Group			(275) (2,653)	(281) -
Cash acquired on acquisition of Alerpharma Group			1,301	-
Payments for intangible assets			(13)	(22)
Payments for property plant and equipment			(1,091)	(898)
Net cash used in investing activities			(2,666)	(1,130)
Cash flows from financing activities
Proceeds from issue of equity shares (net of issue costs)			20,079	-
Net cash generated by financing activities			20,079	-
Net increase in cash and cash equivalents			19,418	1,043
Effects of exchange rates on cash and cash equivalents			(248)	(78)
Cash and cash equivalents at the start of the period			2,029	1,064
Cash and cash equivalents at the end of the period			21,199	2,029

Cash at bank and in hand			21,199	2,029
Bank overdraft			-	-
Cash and cash equivalents at the end of the period			21,199	2,029

NOTES TO THE FINANCIAL STATEMENTS

1.  BASIS OF PREPARATION

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.

Allergy Therapeutics is a specialty pharmaceutical company focused on allergy vaccination.

Allergy Therapeutics plc is the Group's parent company. The Company is a limited liability company incorporated and domiciled in England. The address of Allergy Therapeutics plc's registered office and its principal place of business is Dominion Way, Worthing, West Sussex and its shares are listed on the Alternative Investment Market (AIM).

The consolidated financial statements for the year ended 30 June 2015 (including comparatives) have been prepared under the historical cost convention except for land and buildings and derivative financial instruments which have been measured at fair value. They were approved and authorised for issue by the Board of Directors on 18 September 2015.

New standards adopted

There are no IFRS or IAS interpretations that are effective for the first time in this financial period that have had a material impact on the Group.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group in the 30 June 2015 financial statements

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective. Not all of these have yet been adopted by the EU. The Group has not adopted any of these pronouncements early. The new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements are as follows:

IFRS 9 Financial Instruments (effective 1 January 2018)

This IFRS replaces IAS39 and addresses the usefulness for users of financial statements by simplifying the classification and measurement requirements for financial instruments. Management are currently assessing the detailed impact on the Group's financial statements.

IFRS 15 Revenue from Contracts with Customers (issued in May 2014 and effective 1 January 2018)

IFRS 15 supersedes current revenue recognition guidance including IAS 18, Revenue, and specifies how and when entities recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers.

Management anticipate that the above pronouncements will be adopted in the Group's financial statements in line with the effective dates stated above. Management are currently assessing their detailed impact on the Group's financial statements.

Other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements.

Going concern

For the year ended 30 June 2015, and for the sixth year in succession, the Group has reported an operating profit and an operating cash inflow. Operating profit in the period was £0.7 million (2014: £1.2 million); net cash from operations was £2.5 million (2014: £2.3 million).

The Group has prepared detailed budgets, including cash flow projections, for the periods ending 30 June 2016 and 30 June 2017. These projections include assumptions on the trading performance of the operating business and the continued availability of the existing overdraft facilities. After making appropriate enquiries, which included a review of the annual budget, by considering the cash flow requirements for the foreseeable future and the effects of sales and other sensitivities on the Group's funding plans, the Directors continue to believe that the Group will have adequate resources to continue in operational existence for the foreseeable future and accordingly have applied the going concern principle in drawing up the financial statements. In reaching this view, the Directors have considered and prioritised the actions that could be taken to offset the impact of any shortfall in operating performance.

2.  ACCOUNTING POLICIES (extract)

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented unless otherwise stated.

Consolidation

The Group's financial statements consolidate those of the parent company and all of its subsidiaries drawn up to 30 June 2015. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated on the date control ceases.

Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated except for unrealised losses if they show evidence of impairment.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with those used in the Group.

The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred.

The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree's financial statements prior to the acquisition. Assets acquired and liabilities assumed are measured at their acquisition-date fair values.

Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.

Goodwill

Goodwill arising from business combinations is the difference between the fair value of the consideration paid and the fair value of the assets and liabilities and contingent liabilities acquired. It is initially recognised as an intangible asset at cost and is subject to impairment testing on an annual basis or more frequently if circumstances indicate that the asset may have been impaired. Details of impairment testing are described in the accounting policies.

Intangible assets acquired as part of a business combination

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses. Intangible assets are amortised over their useful economic life as follows

Trade names	15 years
Customer relationships	5 years
Know-how and patents	10 years
Distribution agreements	15 years/ period of contract

Externally acquired intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

Intangible assets are amortised over their useful economic life as below and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for intangible assets is reviewed at least at each financial year end.

Computer software	7 years
Other intangibles	15 years

Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets is recognised in income statement in the expense category consistent with the function of the intangible asset.

Internally generated intangible assets

An internally generated intangible asset arising from development (or the development phase) of an internal project is recognised if, and only if, all of the following have been demonstrated:

·              the technical feasibility of completing the intangible asset so that it will be available for use or sale

·              the intention to complete the intangible asset and use or sell it

·              the ability to use or sell the intangible asset

·              how the intangible asset will generate probable future economic benefits

·              the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset

·              the ability to measure reliably the expenditure attributable to the intangible asset during its development

The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised, research and development expenditure is charged to the income statement in the period in which it is incurred.

Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation shall begin when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

Amortisation of all intangible assets is calculated on a straight line basis over the useful economic life using the following annual rates: 

Manufacturing know-how	15 years
Non-competing know-how	4 years
Other intangibles	15 years

These periods were selected to reflect the assets' useful economic lives to the Group.

The cost of amortising intangible assets is included within administration expenses in the consolidated income statement.

Revenue recognition

Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied and services provided, net of statutory rebates paid in Germany and excluding value added tax.  Revenue is recognised upon the performance of services or transfer of risk to the customer.

 

Sale of goods

Revenue from the sale of goods is recognised when all the following conditions have been satisfied:

·              the Group has transferred to the buyer the significant risks and rewards of ownership of the goods, which is generally when the customer has physically received the goods.

·              the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold which is again when the customer has physically received the goods.

·              the amount of revenue can be measured reliably.

·              it is probable that the economic benefits associated with the transaction will flow to the Group, and

·              the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Where the Group provides services to new distributors, which mainly include marketing and customer information, in exchange for an up-front lump sum fee, revenue is recognised in line with these services being delivered. Services are fair valued and pro-rated to agree to the total fee receivable.  Where there is an on-going responsibility to provide services, the balance relating to those services is recognised in future periods as the service is performed.

Part of the Group's overseas sales are made through distributors and agents.

Arrangements for sales through distributors

For all distributor arrangements, the distributor is invoiced at the time of delivery and title to the product passes upon full and final settlement of the invoice to which the delivery relates. The distributor has full discretion over the setting of the final selling price to the end customer and is responsible for all customer returns of product.

It is considered that the significant risks and rewards of ownership of the product are transferred to the distributor at the point of delivery and therefore revenue is recognised at this point in accordance with IAS 18.

Where the Group sells to distributors at initially low margin and there is further consideration receivable by the group, this deferred consideration forms part of the fair valuation of consideration receivable by the Group for goods supplied. In these instances the deferred consideration is accrued at a discounted value at the point of delivery.

Arrangements for sales through agents

For all agreements with agents, the agent places orders with the Group, and goods are then shipped to them. The Group however, holds title to these products until they are sold on to a third party. The selling price to the end user is set by the relevant Government body and the agent receives a fixed percentage of this selling price. The agent notifies the Group monthly on stock levels and this is reconciled to a statement which generates an invoice for payment by the agent. The Group is responsible for any customer returns of product.

It is considered that the significant risks and rewards of ownership of the product are not transferred from the Group until the agent has sold the product to a third party and therefore revenue on these sales is recognised only at this point by the Group in accordance with IAS 18.16.

Statutory Rebates

In Germany, Pharmaceutical companies are required to pay a manufacturer's rebate to the government as a contribution to the cost of medicines paid for by the State and private health funds. This is similar to a sales tax and the rebate is therefore treated as a deduction from revenue in accordance with IAS18.8.

Rebates have been in the region of 6% (inclusive of VAT). However, in 2010 the German government increased the rate to 16%. In certain circumstances, companies could apply for an exemption from the rebate increase, for limited periods at a time. If the application for the exemption is successful, a preliminary exemption is normally granted to be converted to a final exemption at a later date when audited financial statements are available.

Allergy Therapeutics plc has been successful in obtaining preliminary exemptions up to 30 June 2012, which have been subsequently confirmed as final.

Revenue is recognised initially net of the full rebate, as at that stage it is not considered probable that any refund of the rebate will be received. When the preliminary exemption is granted, it is considered probable, based on our past experience, that the rebate refund will be received. Therefore, as it is probable that the economic benefits will flow to Allergy Therapeutics Plc, in accordance with IAS 18.14(d), revenue is adjusted at that time.

As of April 2014, the Rebate has been set at 7%.

Inventories

Inventory is carried at the lower of cost or net realisable value. The costs of raw materials, consumables, work in progress and finished goods are measured by means of weighted average cost using standard costing techniques. Cost of finished goods and work in progress comprises direct production costs such as raw materials, consumables, utilities and labour, and production overheads such as employee costs, depreciation, maintenance and indirect factory costs. Standard costs are reviewed regularly in order to ensure relevant measures of utilisation, production lead time and appropriate levels of manufacturing expense are reflected in the standards.

Net realisable value is calculated based on the selling price in the normal course of business less any costs to sell.

Research & Development Investment Credits

Investment credits are directly related to the Group's qualifying research and development expenditure and have a monetary value that is independent of the Group's tax liability. Such investment credits are dealt with in other income in the income statement.

Convertible loan notes

Convertible loan notes are regarded as compound instruments consisting of a liability component and an equity component. At the date of issue the fair value of the liability component is estimated using a discount rate for an equivalent liability without the conversion feature. The difference between the proceeds of issue of the convertible loan note and the fair value assigned to liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity.

Use of accounting estimates and judgements

Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management's best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policies and/or the notes to the financial statements and the key areas are summarised below:

Judgements in applying accounting policies

a)   Capitalisation of development costs requires analysis of the technical feasibility and commercial viability of the project concerned. Capitalisation of the costs will be made only where there is evidence that an economic benefit will accrue to the Group. To date no development costs have been capitalised and all costs have been expensed in the income statement as research and development costs, £3.1 million (2014: £3.0 million)

b)   Where the Group sells to distributors at initially low margin and there is further consideration receivable by the group, this deferred consideration forms part of the fair valuation of consideration receivable by the Group for goods supplied. In these instances the deferred consideration is accrued at a discounted value at the point of delivery.

The directors considered the following points in applying this accounting treatment:

Although a significant portion of the sales price is received upon a further sale to an end customer, substantially all the risks and rewards of ownership are passed to the distributor when the goods are shipped, and the distributor is acting as principal (not merely as agent) when arranging to resell the goods. The directors have reached this conclusion because;

i.    The group does not have any continued managerial involvement in the distributor's onward sale of goods;

ii.    The distributor does not have the right to return any goods.

More information on the reasoning behind the treatment of sales to distributors can be found in the 'Sale of goods' accounting policy description.

c)   Land and buildings are carried at valuation and are re-valued every 2-3 years. The last revaluation of the Italian freehold property took place in June 2013. The directors do not consider the current carrying value to be materially different to the fair value, based on their experience of the local market and enquiries of local valuers. Therefore no impairment provision for this asset is required. The next external valuation will take place in the year to 30 June 2016.  The Freehold property in Spain was revalued in June 2015. The directors do not consider an impairment provision to be required.

d)   The Group had been awarded a provisional exemption to the increased rebate charge in Germany for the period July to December 2012. Revenue of £1.1 million (equivalent of €1.4 million) was recognised in the year ended 30 June 2013 in relation to this exemption and the refund was subsequently collected. In February 2015, the provisional exemption was withdrawn. The group has lodged an appeal and, following legal advice, believe that the exemption will be re-instated.  While the Group is confident that the exemption will be confirmed, there is a possibility that this will not happen. If the exemption is not confirmed then the Group will ultimately have to repay €1.4 million (£1.0 million) with a corresponding impact on net income and net assets.

Sources of estimation uncertainty

a)   Depreciation rates are based on estimates of the useful lives and residual values of the assets involved. There is inherent uncertainty in the useful lives of assets, which means that they are constantly reviewed by management.

b)   Estimates of future profitability are required for the decision whether or not to carry forward a deferred tax asset.

c)   Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating unit to which the goodwill has been allocated. This value in use calculation requires an estimation of the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value.

d)   Inventory standard costs are reviewed regularly in order to ensure relevant measures of utilisation, production lead time and appropriate levels of manufacturing expense are reflected in the standards.

e)   In relation to the accrued additional revenue due from distributors referred to in the Judgements section (point (b) above); there is some uncertainty that the additional revenue will crystallise as it is dependent on a further sale by the distributor. The directors consider that the additional consideration can be measured reliably because it is based on a fixed list price, and our past experience indicates that the distributor will sell the vaccines.

The directors have assessed that the accrued consideration of £0.1 million is recoverable and will crystallise in future periods and has been carried forward in prepayments and accrued income (2014: £0.2m).

f)    The Group operates equity-settled share based compensation plans for remuneration of its employees comprising Long Term Incentive Plan (LTIP) schemes. Employee services received in exchange for the grant of any share based compensation are measured at their fair values and expensed over the vesting period. The fair value of this compensation is dependent on whether the provisional share awards will ultimately vest, which in turn is dependent on future events which are uncertain. The directors use their judgment and experience of previous awards to estimate the probability that the awards will vest, which impacts the fair valuation of the compensation.

3.  REVENUE

An analysis of revenue by category is set out in the table below:

	2015	2014
	£'000	£'000
Sale of goods	43,205	41,871
Rendering of services	25	84
	43,230	41,955

Rendering of services relates to the supply of services to a new distributor to assist them in setting up operations in their territory.

4.  SEGMENTAL REPORTING

The Group's operating segments are reported based on the financial information provided to the Executive Directors, who are defined as the Chief Operating Decision-Maker (CODM), to enable them to allocate resources and make strategic decisions.

The CODM reviews information based on geographical market sectors and assesses performance at an EBITDA (operating profit before interest, tax, depreciation and amortisation) and operating profit level. Management have identified that the reportable segments are Central Europe (which includes the following operating segments; Germany, Austria, Switzerland and the Netherlands), Southern Europe (Italy and Spain), the UK (including Latin America) and Rest of World.

Revenue by segment

	Revenue from External Customers	Inter Segment Revenue	Total Segment Revenue	Revenue from External Customers	Inter Segment Revenue	Total Segment Revenue
	2015	2015	2015	2014	2014	2014
	£'000	£'000	£'000	£'000	£'000	£'000
Central Europe
Germany	27,137		27,137	25,782		25,782
Other	5,997		5,997	5,902		5,902
	33,134		33,134	31,684		31,684
Southern Europe	6,888		6,888	6,718		6,718
UK	1,054	22,900	23,954	927	34,890	35,817
Rest of World	2,154		2,154	2,626		2,626
	43,230	22,900	66,130	41,955	34,890	76,845

Revenues from external customers in all segments are derived principally from the sale of a range of pharmaceutical products designed for the immunological treatment of the allergic condition.

Rest of World revenues include sales through distributors and agents in several markets including Czech and Slovak Republics, Canada and South Korea. These include rendering of services revenues (note 3). Inter-segment revenues represent sales of product from the UK to the operating subsidiaries. The price is set on an arms-length basis which is eliminated on consolidation.

The CODM also reviews revenue by segment on a budgeted constant currency basis, to provide relevant year on year comparisons.

The following revenue table is based on a budget currency rate of € 1.20: £1.00 which was the rate used in the 2015 budget.

	Revenue from External Customers	Revenue from External Customers
	2015	2014
	£'000	£'000
Central Europe
Germany	28,719	25,198
Other	6,193	5,545
	34,911	30,743
Southern Europe	7,290	6,565
UK	1,054	927
Other	2,158	2,626
	45,413	40,861

The Group has no customers which individually account for more than 10% of the Group's revenue.

Depreciation and amortisation by segment

	2015	2014
	£'000	£'000
Central Europe	139	154
Southern Europe	143	105
UK	1,011	1,028
	1,293	1,287

EBITDA by segment

	2015	2014
Allocated EBITDA	£'000	£'000
Central Europe	(452)	(810)
Southern Europe	(93)	(236)
UK	2,562	3,542
Allocated EBITDA	2,017	2,496
Depreciation and amortisation	(1,293)	(1,287)
Operating profit	724	1,209
Finance income	147	170
Finance expense	(218)	(295)
Profit before tax	653	1,084

Total assets by segment

	2015	2014
	£'000	£'000
Central Europe	8,692	8,489
Southern Europe	5,450	3,608
UK	58,809	37,626
	72,951	49,723
Inter-segment assets	(2,691)	(2,572)
Inter-segment investments	(19,561)	(18,753)
Total assets per Balance Sheet	50,699	28,398

Included within Central Europe are non-current assets to the value of £2,980,000 (2014: £2,480,000) relating to Goodwill and within Southern Europe assets to the value of £1,608,000 (2014: £1,085,000) relating to freehold land and buildings.

Total liabilities by segment

	2015	2014
	£'000	£'000
Central Europe	(9,779)	(9,932)
Southern Europe	(4,164)	(1,861)
UK	(4,874)	(4,101)
	(18,817)	(15,894)
Inter-segment liabilities	2,587	2,571
Total liabilities per Balance Sheet	(16,230)	(13,323)

5.  FINANCE EXPENSE

	2015	2014
	£'000	£'000
Interest on borrowing facility	27	39
Change in fair value of derivative financial instrument	-	(13)
Net interest expenses on defined benefit liability	191	206
Other interest and charges	-	63
	218	295

6.  FINANCE INCOME

	2015	2014
	£'000	£'000
Bank interest Interest on investment assets Other finance income	22 82 43	5 99 66
	147	170

Other finance income relates to the unwinding of the discount on accrued revenue.

7. EARNINGS PER SHARE

	2015	2014
	£'000	£'000
Profit after tax attributable to equity shareholders	108	741
	Shares	Shares
	'000	'000
Issued ordinary shares at start of the period	409,867	409,867
Ordinary shares issued in the period Issued ordinary shares at end of the period Ordinary shares to be issued on conversion of loan note (Note 10)	135,981	-
	545,848 -	409,867 41,675
Ordinary shares	545,848	451,542
Weighted average number of shares for the period	475,197	451,542
Potentially dilutive share options	23,045	19,965
Weighted average number of shares for diluted earnings per share	498,242	471,507
Basic earnings per share (pence)	0.02p	0.16p
Diluted earnings per share (pence)	0.02p	0.16p

8.  INVENTORIES

	2015	2014
	£'000	£'000
Raw materials and consumables	1,675	1,854
Work in progress	2,937	3,144
Finished goods	2,135	1,471
	6,747	6,469

The value of inventories measured at fair value less cost to sell was £334,000 (2014: £162,000).

9.  BORROWINGS

	2015	2014
	£'000	£'000
Due within one year
Convertible loan note	-	49
Bank Loans	251	-
	251	49

	2015	2014
	£'000	£'000
Due in more than one year
Bank Loans	1,433	-
	1,433	-

There is an overdraft facility provided by The Royal Bank of Scotland Plc which has a variable limit during the year up to a maximum of £7 million. Interest on the overdraft is at the bank's base rate plus a fixed margin of 2.50%. The facility is secured in favour of The Royal Bank of Scotland Plc by means of debentures granted by the Company and its principal subsidiaries and share pledge agreements relating to Bencard Allergie GmbH, Allergy Therapeutics Italia SRL and Allergy Therapeutics Iberica SL. The overdraft facility is due for renewal in May 2016.

The Convertible loan notes were issued in April 2012 (Note 10) and converted into equity in March 2015. The convertible loan note liability in 2014 related to the interest payable over the next year.

As part of the acquisition of Alerpharma SA, the group acquired loans totalling €2,386,000 (£1,684,000). The loans are secured by way of a charge on land and buildings owned by Alerpharma Group SA.                                                            

			Capital Repayments Due
	Interest rate		<1Year	1-5 Years	>5 Years
			£'000	£'000	£'000
Bank Inter (1)	3 month Euribor + 0.55%		103	411	63
Bank Inter (2)	1 month Euribor + 5.0%		33	131	182
Santander	12 month Euribor + 2.5%		95	380	122
Tecnoalcala	Interest Free		20	82	62
			251	1,004	429

10.  ISSUED SHARE CAPITAL

	2015	2015	2014	2014
	Shares	£'000	Shares	£'000
Authorised share capital
Ordinary shares of 0.10p each
1 July and 30 June	790,151,667	790	790,151,667	790
Deferred shares of 0.10p each
1 July and 30 June	9,848,333	10	9,848,333	10
Issued and fully paid
Ordinary shares of 0.10p
At 1 July	409,866,831	410	409,866,831	410
Issued during the year:
Share options exercised	188,500	-	-	-
Conversion of convertible loan	41,674,938	42	-	-
Share placing	94,117,650	94	-	-
At 30 June	545,847,919	546	409,866,831	410
Issued and fully paid
Deferred shares of 0.10p
At 1 July	9,848,333	10	9,848,333	10
Issued during the year	-	-	-	-
At 30 June	9,848,333	10	9,848,333	10
Issued share capital	555,696,252	556	419,715,164	420

The deferred shares have no voting rights, dividend rights or value attached to them.

Share options were exercised in the year with proceeds of £34,000 (2014: Nil).

In April 2012, Allergy Therapeutics plc issued a convertible loan note to a major investor, CFR Pharmaceuticals SA (CFR). The loan agreement stated that the loan of £4,042,469 would be repaid on 20 April 2014 or an earlier date advised by the note holder (with at least 15 business days' notice). On the repayment date, the loan had to be repaid and on the same date the note holder had to purchase 41,674,938 shares at a fixed price of 9.7p per share. Interest is payable at a rate of 3% per annum during the term of the notes.

The Directors concluded that the repayment of the principal and the mandatory investment were linked such that in substance this represents the conversion of the loan into a fixed number of shares, and hence the loan note was split into a liability and an equity component. The liability component of £222,000 represented the present value of the interest payments on the loan, with the balance of £3,820,000 treated as equity.

Before the conversion date of the loan, CFR and Allergy Therapeutics plc mutually agreed to amend the agreement to defer the repayment date until 31 March 2015.  The only substantive effect of this amendment was the agreement to pay further interest of £135,000 over the remaining period of the loan. This is effectively a loss on the remeasurement of the debt. As this was incurred with an equity shareholder, it was treated as a transaction with owners and dealt with directly in the statement of changes in equity (2015: £86,000, 2014: £49,000).

On 31 March 2015 the convertible loan was repaid and on the same date 41,674,938 shares at a fixed price of 9.7p per share were issued to the note holder in accordance with the loan agreement.

On 31 March 2015 94,117,650 new ordinary shares of 0.1 pence each were placed with institutional and other investors at a fixed price of 22.1p per share, raising £20 million net for the purpose of investing in a number of US clinical studies.

11.  ACQUISITIONS

As part of its strategy to strengthen its sales base outside Germany, on 5 June 2015, Allergy Therapeutics plc acquired 100% of the issued share capital of Alerpharma SA via a subsidiary.  Alerpharma S.A. wholly owns the Spanish-based allergy immunotherapy company Instituto de Immunologia y Alergia, S.A.U. ("Inmunal"). Inmunal is Alerpharma's principal operating subsidiary, and is highly regarded with well-established product lines in immunotherapy vaccines, bacteriological vaccines and diagnostics and was established in 1989.

The initial consideration for the acquisition of €3.8 million was paid to the vendor in cash at completion, funded from the Company's operational cash flows.  The total consideration includes a potential earn-out payment based on certain 2016 sales performance criteria, payable to the vendor in 2017. It is not possible to calculate exactly how much will be payable but the group do not expect it to exceed €650,000. The Group's best estimation of the amount payable, is €205,000.

The allocation of the purchase price to the assets and liabilities of Alerpharma S.A at the acquisition date was as follows:

	Pre-acquisition Carrying amount	Adjustment to fair value	Recognised at acquisition date
	£'000	£'000	£'000
Property, plant and equipment	1,219	670	1,889
Intangible assets	26	830	856
Total non-current assets	1,245	1,500	2,745
Trade and other receivables	81	-	81
Inventories	122	-	122
Cash and cash equivalents	1,301	-	1,301
Total Assets	2,749	1,500	4,249
Trade and other payables	(1,952)	-	(1,952)
Net deferred taxation asset/ (liability)	387	(555)	(168)
Net identifiable assets and liabilities	1,184	945	2,129
Goodwill			637
Cost of acquisition			2,766

The cost of acquisition above includes the cash paid £2,653,000 (€3,758,000) plus the discounted future contingent consideration of £113,000 (€160,000).

The contingent consideration will be determined by the future sales performance of the Alerpharma group and has been classified as level 3 in the fair valuation hierarchy. The estimated cash outflow before discounting is £145,000 (€205,000) and reflects management's estimates of Alerpharma's sales performance in the 12 months to December 2016. The discount rate used is 17% based on the Company's weighted average cost of capital related to the Spanish CGU. The effects on the fair value of risk and uncertainty in the future cash flow are dealt with by adjusting the estimated cashflow rather than adjusting the discount rate. If Alerpharma's sales performance were to be 10% better than expected then the discounted liability would increase by £276,000 (€391,000). If Alerpharma's sales performance were to be 5% or more below expectation then the discounted liability would reduce to Nil.

Legal and professional fees associated with the acquisition amounted to £205,000 and were expensed in the year ended 30 June 2015. These were shown under administration costs within the consolidated income statement.

In relation to trade debtors that existed at the acquisition date, there are no balances which are not expected to be collected.

The acquisition gave rise to goodwill due to the value derived from intangible assets in perpetuity, beyond their recognised useful lives; the value of the assembled workforce; and the synergies that can be realised now that Alerpharma is part of an enlarged global group.

The intangible assets, which are recognised at fair value, comprise the following:

i)          Trade names

The Company's marketing-related intangible asset was valued by means of the royalty savings (relief-from-royalty) method of the income approach. Under this premise, it is assumed that a company, without a similar asset, would license the right to use the marketing-related intangible asset and pay a royalty related to turnover achieved.

ii)          Customer relationships

The Customer related intangible asset was valued using the replacement cost method. At the valuation date, the Company had existing relationships with a number of doctors in the medical industry. The valuation captures the effort that would be required to replace such relationships.

iii)         Know-how and patents

The technology related intangible asset was valued using the royalty savings (relief-from-royalty) method. Under this premise, it is assumed that a company, without a similar asset, would license the right to use the technology-based intangible assets and pay a royalty related to turnover achieved.

The acquisition of Alerpharma S.A took place on 5 June 2015 and as a consequence traded for three weeks as a member of the Group. It contributed £0.2 million in revenue and £0.0 million of the Group's operating profit. 

12.  CONTINGENT LIABILITIES

Allergy Therapeutics (UK) Ltd, a subsidiary of Allergy Therapeutics plc, has given a guarantee in lieu of deposits for leases on cars and rented office space of Bencard Allergie GmbH. The amount as at 30 June 2015 was €107,426; £75,839 (2014: €107,426; £85,996).

A cross-guarantee exists between Allergy Therapeutics (Holdings) Ltd, Allergy Therapeutics (UK) Ltd, Bencard Allergie GmbH, Allergy Therapeutics Italia srl. and Allergy Therapeutics Iberica SL. in which the liabilities of each entity to the Royal Bank of Scotland Plc are guaranteed by all the others.

The European Commission has concluded its investigation into whether the exemption of pharmaceutical manufacturers from the increase in rebates in Germany constitutes state aid. The European Commission has determined that the exemptions do not constitute state aid, and consequently there is no contingent liability to disclose.

On 23 February 2015, the Company received notification that The Federal Office for Economics and Export ("BAFA") had made a decision to reverse their preliminary exemption to the increased manufacturers rebate in Germany for the period July to December 2012. The Company was granted a preliminary exemption to the increased rebate for this period by BAFA in 2013. The Company recognised revenue of €1.4m (£1.1m) against this exemption in the year ended 30 June 2013. All other preliminary exemptions (granted for periods up to 30 June 2012) have previously been ratified as final by BAFA. After taking legal advice, the Company has lodged an appeal against this decision and is confident that the exemption will be re-instated. Therefore, as at 30 June 2015, no provision has been recognised for the repayment of the rebate refund. This position will be kept under review.

13. ULTIMATE CONTROL

There is no overall ultimate controlling party.

 

END

 

 

FR SEWEFSFISELU