Final Results

Allergy Therapeutics PLC 25 September 2007 25 September 2007 Allergy Therapeutics plc ("Allergy Therapeutics" or "the Company") Preliminary Results Allergy Therapeutics plc (AIM: AGY), the specialist pharmaceutical company focused on allergy vaccination, announces preliminary results for the year ended 30 June 2007. Financial Highlights â€¢ Net sales increased by 9% to Â£25.7m (2006: Â£23.6m) â€¢ Pollinex(R) Quattro named-patient sales increased by 23% â€¢ Core business performance 2007 2006 Â£m Â£m Operating loss (26.8) (6.7) Research and development 25.3 9.6 Strategic costs developing Pollinex Quattro 3.5 0.7 _____ _____ Core business operating profit 2.0 3.6 _____ _____ â€¢ Operating profit before R&D and strategic costs was Â£2.0m (2006: Â£3.6m), 44% lower, due in part to an increase in German rebates â€¢ R&D expenditure increased 165% to Â£25.3m (2006: Â£9.6m) as pivotal Phase III programme progressed â€¢ â‚¬40 million debt facility secured Operational Highlights â€¢ Started two pivotal Phase III studies for Pollinex Quattro Grass and Ragweed â€¢ The world's first global Phase III allergy vaccine development programme â€¢ Promising interim data from Phase I/II study of an oral (sub-lingual) grass allergy vaccine â€¢ New UK manufacturing facility opened as part of an extensive manufacturing upgrade â€¢ However, all clinical activity put on hold by FDA in July â€¢ Impact on timing and potential size of subsequent programmes â€¢ Discussions with FDA are ongoing â€¢ Allergy Therapeutics remains confident of a positive outcome Keith Carter, Chief Executive of Allergy Therapeutics, said: "Given the wealth of evidence supporting the safety and efficacy of Pollinex Quattro we remain confident that the FDA will lift its clinical hold in due course. In the meantime, we have created a flexible development programme to manage the uncertainty around the timing of further clinical activity. Our core business is profitable and sales continue to grow strongly. We have invested during the past year to increase sales and margins going forward and expect to see the first benefits of that investment in the current financial year. Despite the development programme delay, the core business continues to provide the Company with a solid base giving us confidence in the future. We look forward to announcing the results of our 1024 patient pivotal Phase III Pollinex Quattro Grass trial, the world's first global Phase III allergy vaccine study, in the first quarter of 2008." A briefing for analysts will be held at 9.30am today at the offices of Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. Please call Mo Noonan for further details on 020 7269 7116. In addition, the presentation will be made available on the Company's website at www.allergytherapeutics.com For further information Allergy Therapeutics +44 (0) 1903 844 720 Keith Carter, Chief Executive Ian Postlethwaite, Finance Director www.allergytherapeutics.com Financial Dynamics +44 (0) 207 831 3113 David Yates Ben Brewerton Chairman's Statement Allergy Therapeutics is an integrated pharmaceutical company with a core sales and marketing operation selling Â£26 million (â‚¬39 million) of allergy vaccines primarily in the European Union ("EU") with Germany as its most important market. The Company manufactures all of its own vaccines in facilities based in Worthing on the south coast of England. In addition to this core business, Allergy Therapeutics is developing innovative allergy vaccines built upon a novel patented adjuvant, MPL(R). These new products, branded Pollinex(R) Quattro, offer a very attractive profile combining high efficacy in a convenient ultra-short schedule of only four injections. Pollinex Quattro's safety and efficacy has been proven through its use in the treatment of over 100,000 patients in Europe. Allergy vaccination has been practiced in Europe and North America for almost a century; the seminal paper was published in the Lancet in 1911 by Dr Leonard Noon. The treatment described in the Lancet - incremental doses of aqueous allergen extract injected subcutaneously, starting with very low doses and gradually increasing, with injections every few days initially and lasting several months, even extending to years, in duration - could almost be used unaltered to describe the majority of current therapy in the United States and Japan today. While there is efficacy the side effects noted by Noon are still today characteristic of current practice in the United States. These side effects can take the form of systemic reactions, including anaphylactic shock, which can be fatal. No existing allergy vaccine in the United States has Food and Drug Administration ("FDA") approval. Allergy Therapeutics, with Pollinex Quattro, is developing a modern product for all markets which bears little resemblance to the traditional immunotherapy in widespread use in the United States. The allergens in Pollinex Quattro have been chemically modified to reduce their allergenicity and to make rapid updosing possible. The resulting 'allergoid' is adsorbed onto L-tyrosine which is a depot adjuvant that assists the safety by releasing the modified allergens slowly. The inclusion of MPL directs the immune system away from the allergic ' Th2 type' response towards the healthy 'Th1 type'. In short, Pollinex Quattro was developed to offer the many benefits of allergen immunotherapy with more convenient dosing and the potential of greatly reduced risk. Allergy Therapeutics' clinical trials programme was approved by the FDA and designed to permit this modern product to be commercialised in the United States under FDA approval. The readers of this annual report will be aware that Allergy Therapeutics' clinical trials programme was put on hold by the FDA in July 2007. As the government agency charged with public safety in relation to pharmaceuticals in the United States, the FDA's job is a difficult and complex one. This is especially true in the context of trials with innovative products where by definition clinical experience is limited. Allergy Therapeutics' clinical hold resulted from FDA concerns following a reported adverse event in G301, the Phase III study for Pollinex Quattro Grass which is now well into its observation phase. The adverse event at the root of the FDA hold is very rare with a background incidence of about 1 in 100,000 persons per year. The physicians assessing the patient believe that a relationship between the event and participation in the study is unlikely. In other words, the patient's condition is more probably due to another cause and occurred on a Pollinex Quattro study by mere mischance. Strenuous efforts are being directed at addressing the concerns of the FDA and in the opinion of the Board the FDA clinical hold will be lifted in due course. Of Allergy Therapeutics' three main development projects involving Pollinex Quattro - Grass, Tree and Ragweed - it is the Ragweed project that has been most immediately affected by the clinical hold. The pivotal Pollinex Quattro Ragweed study, R301, was compromised as only 379 of the 992 patients recruited at the time the hold was imposed had received a full course of treatment. As a result, Allergy Therapeutics anticipates the completion of the Pollinex Quattro Ragweed development will require further studies in the future. This will mean a delay in the Ragweed programme and the United States launch is now expected in 2010/ 2011 - subject of course to the FDA hold being lifted. The Grass and Tree programmes, which are global allergens found across the main markets of Europe and Japan as well as North America, are likely to be less affected partly owing to this geographical picture and partly owing to their clinical status. The Phase III Grass trial (G301) had already completed the treatment phase when the FDA imposed its hold and continues as planned. The associated safety study can only begin when the FDA hold is lifted, but this study is conducted outside the pollen season and can, therefore, start soon after the FDA hold is lifted. Tree is in Phase II and the current study (T204) is in an environmental challenge chamber in Canada. In the meantime, patients across the EU continue to benefit from Pollinex Quattro on a named patient basis and the registration of Pollinex Quattro Grass and Pollinex Quattro Tree in the EU remains a core objective for the Company, enhancing existing markets and entering into new ones. In view of the safety issues inherent in the current treatment practices in the United States, the likely resolution of the adverse event at the origin of the clinical hold and the 100,000 patient registry which shows a very strong safety profile for Pollinex Quattro, Allergy Therapeutics is confident that this innovative, efficacious and safe product will eventually be granted licensure and be widely used in the United States and elsewhere. Ignace Goethals Chairman 24th September 2007 Chief Executive's Review During the year to the end of June 2007, Allergy Therapeutics has made great progress in executing the plans which will culminate in the launching onto worldwide markets of our transformational allergy vaccine products. In every area of our operations important steps forward were made and pieces of the overall strategy for globalising the Pollinex Quattro brand were put into place. We faced great challenges in the past few months, especially those related to the FDA, and we will work to meet these challenges during the coming year. Allergy Therapeutics' core business is a robust Â£25.7 million annual turnover commercial operation with sales in Germany, Italy, Spain, Austria, United Kingdom and Central Europe and manufacturing based in the United Kingdom. This core business is a solid enterprise with double digit growth rates and pre-tax profits before development and strategic costs in the region of Â£2.0 million. In addition to providing valuable cash for strategic investments mainly aimed at the development and manufacture of Pollinex Quattro - expenditure on these items took the overall group result to a loss of Â£23.8 million - this core business represents a window onto the world of pharmaceutical commercialisation. In Europe it is a base to build upon and launch our new products. In other markets, our in-house expertise provides valuable confidence in implementing the future commercialisation of Pollinex Quattro. As the Pollinex Quattro launch phase approaches we have made a start at investing in these sales and marketing operations and have commenced with a sales force optimisation project carried out by a leading external consultancy firm. As a result of this exercise we have also strengthened the team in Germany through the appointment of a new General Manager, Peter Keysers, three district managers and several new sales representatives. The strength of our core business was given excellent third party validation in May when the Royal Bank of Scotland signed a â‚¬40m loan facility with Allergy Therapeutics. The funding provided by this facility is earmarked for the strategic development initiatives of the Company, but the facility is secured on the cash flows from the core business and we were pleased at this vote of confidence from one of the country's highest quality relationship lenders. In preparation for the launch of Pollinex Quattro as a fully registered product in all the major markets world-wide, Allergy Therapeutics has made and continues to make significant investments in the manufacturing infrastructure in Worthing. In February our new manufacturing facility, the Noon Building, was formally opened by Professor Tony Frew, President of the European Academy of Allergology and Clinical Immunology. This facility was inspected by the United Kingdom's MHRA - the Medicines and Healthcare products Regulatory Agency - and commenced full operations in March. The opening of the Noon Building allowed us to commence in earnest the upgrading and refurbishment of our original facility, now called the Freeman Building. We are improving many of our processes along the way and are creating a world class sterile manufacturing capability. Our facilities are named after Dr Leonard Noon and Dr John Freeman, the joint ' fathers of immunotherapy' whose pioneering work was carried out in London's St Mary's Hospital in the early years of the 20th century. In the clinic, we successfully recruited over 2,000 patients into our pivotal Phase III studies. The Pollinex Quattro Ragweed study (R301) and Pollinex Quattro Grass study (G301) are the two largest clinical trials ever to be undertaken in the field of allergy vaccination. R301 was targeted to recruit 1074 patients and had achieved 992 at the time of the FDA clinical hold. G301 included 1024 patients in total and these patients were recruited in nearly 100 centres across North America and Europe. The G301 participants have been recording their symptom experience and their intake of symptomatic medication using electronic diaries throughout the grass pollen season this year and the trial is scheduled to produce preliminary results by the end of Q1 2008. US launch timing is subject to when the FDA hold is lifted and to meeting the FDA requirements for a safety database. For Pollinex Quattro Tree, Allergy Therapeutics has commenced an interesting Phase II study in an environmental challenge chamber, T204, of similar design to our successful R204 study. 120 patients were included in the first phase of this study and a further 180 are required to complete the study. In addition to completing the FDA's Phase II requirements and preparing the move of this product into global phase III, T204 was designed to provide important cross-reactivity data. The study is to explore the efficacy of the product for patients suffering allergy to oak pollen as well as birch pollen. The vaccine contains allergoids of birch, alder and hazel pollens, which are of the same taxonomic order (fagales) as oak and which, in laboratory experiments, display common main allergen components. If this part of the trial is successful it would potentially expand the commercial potential for Pollinex Quattro Tree considerably, especially in North America where allergy to oak pollen is common. FDA clinical holds are unusual but not rare. In our case it has, as is clear from the foregoing, had a profound impact upon Allergy Therapeutics' development programmes. It is hard to predict when, and on what terms, the clinical hold will be lifted. The ultimate implications, both financial and clinical, for the Company remain uncertain. The directors remain of the view that - given the status of the programme before the imposition of the clinical hold, the imminent availability of Phase III efficacy data, the ongoing partnering discussions, and the strength of the core business - there will be multiple funding and development options for the future once the clinical hold is lifted. The challenges imposed by the current FDA position reconfirm the robustness of Allergy Therapeutics' integrated pharmaceutical company business model. Allergy Therapeutics has broad intellectual property rights to the use of MPL in vaccines administered subcutaneously (by injection) and sublingually (under the tongue). We recently completed a Phase I/II study which recorded a number of firsts: it was the first ever examination of oral delivery of MPL in humans and it was the first time that any adjuvant has ever been clinically tested in an oral allergy vaccine. The results were very encouraging, showing a clear benefit from inclusion of 'high dose' MPL with allergens in an oral allergy vaccine. The potential exists, therefore, to develop a sublingual equivalent of Pollinex Quattro: an oral vaccine with comparable efficacy but far more convenient dosing than the currently available products which require many months of daily dosing. Further work on this exciting project is definitely justified. Finally, a truly heartfelt thank you is owed to the many talented and dedicated people at Allergy Therapeutics who made all the great achievements of this year happen and have risen to the challenges created by the FDA's clinical hold. Keith Carter Chief Executive Officer 24th September 2007 Financial Review The following review should be read in conjunction with the Group's consolidated financial statements and related notes appearing elsewhere in this annual report. Turnover For the year ended 30 June 2007 turnover was Â£25.7m (2006: Â£23.6m), an increase of 9% over the previous year; before statutory rebates in the German market, gross sales increased by 13% to Â£27.4 m (2006: Â£24.4m). Statutory rebates are payable by pharmacies in Germany on all state-funded pharmaceutical products and the rebates are refunded by the pharmaceutical companies. Own markets The Group competes directly in 8 European markets, including 3 of Europe's 4 most important for allergy vaccination: Germany, Italy and Spain. The Group has the third largest allergy vaccine company in Germany, which is the largest market in the world for 'finished form' allergy vaccines. The allergy vaccine market in Germany continued to grow at the rate of 9% (2006: 7%) during the year. The annual turnover in Germany was Â£17.1m (2006: Â£16.2m); gross sales, before statutory rebates, were Â£18.9m (2006: Â£17m), an increase of 11%. The rebate on pharmaceutical sales, which is market wide, changed on 1 May 2006 when it was announced that any price rise since 1 November 2005 would be added to the rebate. With approximately 70% of the Group's sales originating in Germany, the charge for the year increased to Â£1.6m (2006: Â£0.8m). Spain demonstrated a solid performance with sales of Â£1.7m (2006: Â£1.5m) an increase of 13% over the previous year. Italy maintained annual sales of Â£2.3m (2006: Â£2.3m). New operations in the UK, the Czech and Slovak Republics, Poland and Austria - set up in the previous year - performed well, contributing Â£1.4m to sales (2006: Â£0.9m). Licensees The Group also sells through licensees and distributors, accounting for 11% of gross sales. Total sales for the year were Â£3.0m (2006: Â£2.7m), an increase of 11% on the previous year. Included in licensee sales are milestone receipts from the Company's Canadian licensee for Pollinex Quattro; in the year milestones totalling Â£1.2m (2006: Â£0.8m) were received, triggered by reaching certain development objectives. Product sales The Group's flagship product, Pollinex Quattro continued to sell well, with gross sales of Â£9.5m (2006 Â£7.7m), an increase of 23% over the previous year. Cost of sales and net operating expenses In general, manufacturing costs have increased as a result of higher fuel costs and an increase in compliance with recommended good manufacturing practice (GMP). Costs increased further as the headcount in the manufacturing area increased by 31 full time equivalents, an increase of 26% in the year, to support the growth of the business and prepare for world-wide market launches of Pollinex Quattro. Moreover, investments in new plant and machinery and a second manufacturing facility have led to increased depreciation costs. This investment will help provide greater capacity for the current named-patient sales of Pollinex Quattro, whilst at the same time enabling the existing building to be upgraded without interfering with supply. As a consequence of the environmental cost increases and improvements for the future, cost of goods sold was Â£10.1m (2006: Â£6.5m) an increase of 55% over the previous year. Investments in the commercial strategy, including US market analysis, new market spend and business development, plus continued support for existing markets, increased the marketing and promotion spend - the main component of distribution costs - by 15% to Â£11.3m (2006: Â£9.8m). Administrative expenses have increased by 28% to Â£5.9m (2006: Â£4.6m), due mainly to a benefit in the previous period from foreign currency exchange gains, the release of a bad debt provision and the inclusion this year of an increased charge in respect of the German pension scheme. As the development programme for Pollinex Quattro moved forwards into Phase III in the year, costs have increased by 165% to Â£25.3m (2006: Â£9.6m). Most of the activity relates to the extensive Phase III programme for Grass and Ragweed. Results of operation As a consequence of investment in the development programmes in preparation for the launch of Pollinex Quattro on a world-wide basis, the Group recorded an operating loss on ordinary activities of Â£26.8m (2006: loss Â£6.7m). However, before development costs and strategic costs (defined as costs associated with the objective of launching Pollinex Quattro) of Â£28.8m (2006: Â£10.3m), the operating profit including milestones was Â£2.0m (2006: Â£3.6m), which allows for a more reasonable appreciation of the core business performance this year. This operating profit is down on the previous year due to the increase in rebates in Germany and the benefits outlined in the administration costs taken in the previous year. Taxation As a result of its investment in research and development, the Company has benefited from making R&D claims. These claims have given the Company enhanced deductions for tax purposes and the possibility of benefiting from the receipt of R&D tax credits. An R&D tax credit of Â£2.5m has been received for the years ending 2005 and 2006. The Budget announcement in April 2006 put forward proposals to revise the definition for small and medium sized entities regarding the number of employees, the number being increased from 250 to 500. The Group's average headcount for this year is below the 500 threshold, so allowing it to make an R&D tax credit claim for the year under the new proposals. However, the Budget proposals have yet to be approved by the European Commission and any claim will remain outstanding until approval is granted. The Group in total has tax losses to carry forward of Â£39m. As the losses carried forward by the German company are lower than for other entities in the Group and will probably be utilised earlier, it is likely that corporation tax will fall due in Germany sooner than elsewhere. Net assets Net assets at 30 June 2007 were Â£8.4m (2006: Â£32.7m), a decrease of Â£24.3m due primarily to investments in R&D. Intangible assets comprise goodwill and know-how and continue to be amortised over 15 years. Capital expenditure on tangible fixed assets in the year was Â£3.2m (2006: Â£2.2m); contributing to the increase in the value of tangible fixed assets to Â£5.9m from Â£3.6m. The main components of this spend were: Â£1.3m on plant and machinery, including a cold store for the Noon building and a new MATA processing system; Â£0.6m on further refurbishment costs for both the Freeman and Noon buildings; Â£0.4m on other fixtures and fittings; and Â£0.9m on computer equipment and software, including compliance software. Stock value increased by 34% during the year to Â£4.9m (2006: Â£3.7m). The strategy initiated last year to invest in manufacturing and ensure supply to growing markets has resulted in higher levels of key stock items being held. Creditors falling due within 1 year were higher at the year end by 117% at Â£10.7m (2006: Â£4.9m), primarily due to an increase in accruals and trade creditors relating to development activities at the end of the year. Excluding these development-related items, creditors at the end of June 2007 were Â£5.3m. In prior years the pension scheme in Germany has been accounted for as a defined contribution scheme. Since further information has become available the nature of the scheme in Germany has been reassessed; based on the new evidence the pension has been reclassified as a defined benefit scheme. We do not consider this to be a fundamental error and therefore a prior period adjustment is not appropriate. The pension charge of Â£0.3m for the year has been taken to the profit and loss account for the first time while cumulative actuarial gains and losses relating to the current and previous years have been reported in the statement of recognised gains and losses. The scheme liability is valued at Â£2.9m, with planned assets of Â£0.7m giving a net liability of Â£2.2m. Non pledged assets, valued at Â£1.0m are shown as investments. The net effect of including the pension scheme on the balance sheet is to reduce net assets by Â£1.2m Capital structure The Group finances its operations through cash generated from its core business, the net proceeds raised from the placing of shares in May 2006 and bank lines. The Group arranged a new senior debt facility with its bank, RBS, in May 2007 for Euro 40m, to fund the development programme and strategic initiatives of the Group. The loan is to be drawn down over a 2 year period conditional upon the operating business performance. The Group's funding requirements depend on a number of factors, including the Group's product development programmes, which increased further in activity this year and are set to continue further in the next financial year. Cash flows As at the 30 June 2007 cash totalled Â£5.7m, a decrease of Â£18.2m from Â£23.9m at 30 June 2006, due primarily to the significant investment in the year in the development programme of Â£25.3m (2006: Â£9.6m). Net cash outflow from operating activities in the year amounted to Â£20.3m (2006: Â£8.1m). Ian Postlethwaite Finance Director 24th September 2007 Consolidated Profit and Loss Account for the year ended 30 June 2007 Year ended Year ended Year ended Year ended 30 June 2007 30 June 2007 30 June 2006 30 June 2006 (restated*) (restated*) Note Â£'000 Â£'000 Â£'000 Â£'000 Turnover 2 25,742 23,558 Cost of sales (10,068) (6,513) _____ _____ Gross profit 15,674 17,045 Distribution costs (11,312) (9,833) Administrative expenses - other (5,887) (4,626) Research and development costs (25,343) (9,560) _____ _____ Administrative expenses (31,230) (14,186) Other operating income 32 260 _____ _____ Operating loss (26,836) (6,714) Interest receivable and similar income 647 545 Interest payable on loans and overdrafts (29) (4) Other finance costs 6 (102) - _____ _____ 516 541 _____ _____ Loss on ordinary activities before tax 3 (26,320) (6,173) Tax on loss on ordinary activities 8 2,503 - Retained loss for the financial year 20,22 (23,817) (6,173) _____ _____ Basic and diluted loss per share 10 (29.1p) (9.3p) *Restated for adoption of FRS 20 All amounts relate to continuing activities Consolidated Balance Sheet at 30 June 2007 Note 30 June 2007 30 June 2006 Â£'000 Â£'000 (restated*) Fixed assets Intangible assets 11 Goodwill 1,967 2,326 Other intangible assets 714 829 _____ _____ 2,681 3,155 Tangible assets 12 5,931 3,637 Investments 13 1,011 - _____ _____ 9,623 6,792 Current assets Stocks 14 4,911 3,651 Debtors 15 3,373 3,577 Cash at bank and in hand 5,696 23,860 _____ _____ 13,980 31,088 Creditors: amounts falling due within one year 16 (10,714) (4,939) _____ _____ Net current assets 3,266 26,149 _____ _____ Total assets less current liabilities 12,889 32,941 Creditors: amounts falling due after one year 17 (2,352) (239) _____ _____ Net assets excluding pension liability 10,537 32,702 Retirement benefit obligation 6 (2,182) - _____ _____ Net assets 8,355 32,702 _____ _____ Capital and reserves Called up share capital 19 92 92 Share premium account 20 33,173 33,173 Other reserves - shares issued by subsidiary 20 40,128 40,128 Other reserves - shares held in EBT 20 (36) (60) Other reserves - share based payments 20 675 306 Revaluation reserve 20 226 - Profit and loss account 20 (65,903) (40,937) _____ _____ Shareholders' funds 22 8,355 32,702 _____ _____ *Restated for adoption of FRS 20 These financial statements were approved by the board of directors on 24th September 2007 and were signed on its behalf by: K Carter I Postlethwaite Chief Executive Officer Finance Director Company Balance Sheet at 30 June 2007 30 June 2007 30 June 2006 Note Â£'000 Â£'000 (restated*) Fixed assets Investments 13 51 51 Current assets Debtors: amounts falling due within one year 15 203 14 Creditors: amounts falling due within one year 16 (76) (312) _____ _____ Net current assets/(liabilities) 127 (298) Total assets less current assets/(liabilities) 178 (247) _____ _____ Net assets/(liabilities) 178 (247) _____ _____ Capital and reserves Called up share capital 19 92 92 Share premium 20 33,173 33,173 Other reserves - shares held in EBT 20 (36) (60) Other reserves - share based payments 20 675 306 Profit and loss account 20 (33,726) (33,758) _____ _____ Shareholders' funds/(deficiency) 22 178 (247) _____ _____ *Restated for adoption of FRS 20 These financial statements were approved by the board of directors on 24th September 2007 and were signed on its behalf by: K Carter I Postlethwaite Chief Executive Officer Finance Director Consolidated Cash Flow Statement for the year ended 30 June 2007 Year to Year to Year to Year to 30 June 2007 30 June 2007 30 June 2006 30 June 2006 Note Â£'000 Â£'000 Â£'000 Â£'000 Cash outflow from operating activities 23 (20,303) (8,099) Returns on investment and servicing of finance Interest received 647 545 Interest paid (29) (4) _____ _____ 618 541 Taxation 8 2,503 - Capital expenditure and financial investment Purchase of tangible fixed assets 12 (3,167) (2,192) _____ _____ Cash outflow before financing (20,349) (9,750) Financing 24 Gross funds raised on issue of shares - 19,000 Net funds from bank loan 2,664 - Issue of shares from EBT 24 262 Expenses paid in connection with issue of shares - (732) _____ _____ 2,688 18,530 _____ _____ (Decrease)/increase in cash in year (17,661) 8,780 _____ _____ Reconciliation of Net Cash Flow to Movement in Net Funds Year to Year to 30 June 2007 30 June 2006 Â£'000 Â£'000 (Decrease)/increase in cash in year (17,661) 8,780 Net loans advanced (2,664) - _____ _____ Movement in net funds in year 25 (20,325) 8,780 Net funds at beginning of year 23,860 15,080 _____ _____ Net funds at end of year 25 3,535 23,860 _____ _____ Consolidated Statement of Total Recognised Gains and Losses for the year ended 30 June 2007 Year to Year to 30 June 2007 30 June 2006 Â£'000 Â£'000 (restated*) Loss for the financial year (23,817) (6,173) Currency translation differences on foreign currency net investment (48) 29 Actuarial loss arising on pension schemes (1,101) - Gain on revaluation of investments 226 - _____ _____ Total recognised gains and losses relating to the year (24,740) (6,144) _____ _____ *Restated for adoption of FRS 20 Notes to the Financial Statements 1 Accounting policies Change in accounting policies In preparing the financial statements for the current year, the Company has adopted the following Financial Reporting Standard: - FRS 20 'Share Based Payments' (IFRS2) FRS 20 'Share Based Payments' The Group has adopted FRS 20 with effect from 1 July 2006. FRS 20 requires the recognition of a charge to the profit and loss account for all applicable share based payments, including share options, SAYE schemes and share based Long Term Incentive Plans. The Group has equity-settled share based payments but no cash-settled share based payments. All share based payment awards granted after 7 November 2002 which had not vested prior to 1 July 2006 are recognised in the financial statements. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets). If vesting periods or non-market based vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of share options expected to vest. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. If market based vesting conditions apply, the expense is allocated over the relevant period, usually the period over which performance is measured. Vesting assumptions and resulting expenses are fixed at the date of grant, regardless of whether market conditions are actually met. Any adjustment for options which lapse prior to vesting is recognised in the current period. All equity-settled share based payments are ultimately recognised as an expense in the profit and loss account with a corresponding credit to 'other reserves'. The adoption of FRS 20 requires a prior period adjustment to be made for awards granted before 1 July 2006. This has created a reserve for share based payments at 30 June 2007 of Â£675,000. Of this amount Â£369,000 relates to the year ended 30 June 2007, Â£232,000 relates to the year ended 30 June 2006 and Â£74,000 relates to earlier years. The share based payments reserve replaces the Long Term Incentive Plan reserve of Â£178,000 held at 30 June 2006 and recognised under UITF17. The profit and loss reserve account has been adjusted as follows: Previously reported Restated Â£'000 Â£'000 Profit and loss reserve at 1 July 2005 (34,719) (34,793) Profit and loss reserve at 30 June 2006 (40,809) (40,937) Basis of preparation The financial statements have been prepared in accordance with applicable United Kingdom accounting standards and under the historical cost convention except that they have been modified to include the revaluation of certain fixed asset investments. The accounts are prepared on a going concern basis. 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 sensitivity on the Company'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 taken account of the actions that could be taken to offset the impact of any shortfall in operating performance and the availability of funding under the â‚¬40 million loan facility provided by RBS. Basis of consolidation The consolidated financial statements have been prepared using merger accounting principles and include the financial statements of the Company and its subsidiary undertakings made up to 30 June 2007. 'Other reserves - shares issued by subsidiary' relates to the premium on shares previously issued by Allergy Therapeutics (Holdings) Ltd. The profit and loss reserve includes all profits and losses for the Group formerly headed by Allergy Therapeutics (Holdings) Ltd prior to its merger with the Company in October 2004. Goodwill Purchased goodwill (representing the excess of the fair value of the consideration given over the fair value of the separable net assets acquired) arising on consolidation in respect of acquisitions is capitalised. Positive goodwill is amortised to nil by equal instalments over its estimated useful life (15 years). Intangible fixed assets and amortisation Intangible fixed assets are valued at cost. Non-competing know-how is amortised over four years reflecting its estimated useful life to the Group. Acquired trademarks, licences, patents and manufacturing know-how are capitalised and amortised over their estimated useful economic lives (15 years). Any development costs which are incurred by the Group and are associated with an acquired trademark, licence, patent and know-how are written off to the profit and loss account when incurred. Depreciation Tangible fixed assets are recognised at cost less deprecation. All assets except land are depreciated. Depreciation has been provided on a straight line basis in order to write off the cost less the estimated residual value of depreciable fixed assets over their estimated useful lives. The rates applicable are: Plant and machinery 5-10 years Fixtures and fittings 5 years Motor vehicles 4 years Computer equipment 3-7 years Buildings 10 years Operating leases Costs in respect of operating leases are charged on a straight line basis over the lease term. Retirement benefits Defined Contribution Pension Scheme The pension costs for the group personal pension scheme charged against operating profits are the contributions payable to the scheme in respect of the accounting period. Defined Benefit Pension Scheme Scheme assets are measured at fair values. Scheme liabilities are measured on an actuarial basis using the projected unit method and are discounted at appropriate high quality corporate bond rates. The net surplus or deficit, adjusted for deferred tax, is presented separately from other net assets on the balance sheet. A net surplus is recognised only to the extent that it is recoverable by the group. The current service cost and costs from settlements and curtailments are charged against operating profit. Past service costs are spread over the period until the benefit increases vest. Interest on the scheme liabilities and the expected return on scheme assets are included in other finance costs. Actuarial gains and losses are reported in the statement of total recognised gains and losses. Retirement benefits other than pensions are accounted for in the same way. Stock valuation Stocks have been valued at the lower of cost and net realisable value. Costs include materials, direct labour and an appropriate proportion of manufacturing overheads based on normal levels of activity. Research and development Laboratory equipment used for research and development is capitalised as plant and equipment and written off in accordance with the Group's depreciation policy. Other research and development expenditures are written off in the year they occur. Foreign currencies Transactions in foreign currencies, including those covered by forward exchange contracts, are recorded using the rate of exchange ruling at the preceding month-end. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account. The assets and liabilities of overseas subsidiary undertakings are translated at the closing exchange rates. Profit and loss accounts of such undertakings are consolidated at the average rates of exchange during the period. Gains and losses arising on these translations are taken to reserves. Deferred taxation Deferred tax is recognised without discounting in respect of all timing differences, in the following year, between the treatment of certain items for taxation and accounting purposes, which have arisen but not reversed by the balance sheet date except as otherwise required by FRS 19. Investments Investments in shares in subsidiary undertakings are included at cost less amounts written off. Investments in long term insurance policies are included at market value. Turnover Turnover represents the amounts (excluding value added tax) derived from the provision of goods and services to third party customers, net of statutory rebates paid in Germany, and milestone payments received from third parties. Statutory rebates are payable by pharmacies in Germany on all state-funded pharmaceutical products and the rebates are refunded by the pharmaceutical companies. They do not apply to prescriptions to patients of private sickfunds. The effective rate is currently 6% of the gross sales price plus 100% of any price increase applied since November 2005. The rebates are reduced by the applicable rate of VAT in Germany. Milestone payments are amounts received from our licensee in Canada, which become due when certain development activities are reached. Revenue recognition Revenue is recognised when contractual obligations are met and a right to consideration is earned. Where a right to consideration is dependent on the occurrence of a critical event (i.e. when the Group has fulfilled all relevant conditions to be entitled to the revenue), such as for milestone payments, revenue is not recognised until that event occurs. Cash and liquid resources Cash, for the purpose of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Employee Benefit Trust (EBT) The financial statements include the assets and liabilities of a trust, set up for the benefit of the Group's employees. The Employee Benefit Trust has acquired shares in the Company and these are deducted from shareholders funds on the balance sheet within 'Other reserves' initially at the cost that the shares were acquired. The net proceeds received from the issue of these shares through the exercise of options are recognised through this reserve Financial instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. A financial liability exists where there is a contractual obligation to deliver cash or another financial asset to another entity, or to exchange financial assets or financial liabilities under potentially unfavourable conditions. In addition, contracts which result in the entity delivering a variable number of its own equity instruments are financial liabilities. Shares containing such obligations are classified as financial liabilities. Finance costs and gains or losses relating to financial liabilities are included in the profit and loss account. The carrying amount of the liability is increased by the finance cost and reduced by payments made in respect of that liability. Finance costs are calculated so as to produce a constant rate of charge on the outstanding liability. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its financial liabilities. Dividends and distributions relating to equity instruments are debited direct to equity. Compound instruments comprise both a liability and an equity component. The elements of a compound instrument are classified in accordance with their contractual provisions. At the date of issue, the liability component is recorded at fair value, which is estimated using the prevailing market interest rate for a similar debt instrument without the equity feature. Thereafter, the liability component is accounted for as a financial liability in accordance with the accounting policy set out above. The residual is the equity component, which is accounted for as an equity instrument. Research and development tax credits Research and development tax credits are recognised in the profit and loss account when received. 2 Segmental analysis Turnover is attributable to the principle activities of the Group, as defined in the Directors' Report. An analysis of turnover by geographical destination and country of origin, and operating loss and net assets by country of origin is given below. Year to Year to 30 June 2007 30 June 2006 Â£'000 Â£'000 Turnover by geographical destination Germany 17,069 16,155 Rest of Europe 6,505 5,666 North America 1,845 1,430 Asia 323 307 _____ _____ 25,742 23,558 _____ _____ Turnover by country of origin Germany 17,281 16,155 Rest of Europe 4,176 3,823 UK 4,285 3,580 _____ _____ 25,742 23,558 _____ _____ (Loss)/profit before tax by country of origin Germany (435) (21) Rest of Europe (71) 180 UK (25,814) (6,332) _____ _____ (26,320) (6,173) _____ _____ Net assets /(liabilities) by country of origin Germany (583) 771 Rest of Europe 82 185 UK 8,856 31,746 _____ _____ 8,355 32,702 _____ _____ Turnover by country of origin for the UK is net of inter segment sales of Â£20,825,000 (2006: Â£19,206,000) 3 Loss on ordinary activities before tax Loss on ordinary activities before tax is stated after charging: Year to Year to 30 June 2007 30 June 2006 Â£'000 Â£'000 (restated) Fees payable to the Company's auditor for the audit of the financial 13 7 Fees payable to the Company's auditor and its associates for other services: Audit of the financial statements of the Company's subsidiaries pursuant to legislation 79 89 Other services relating to taxation 17 31 All other services 60 41 Depreciation of tangible assets 840 668 Amortisation of intangible assets 448 450 Research and development 25,343 9,560 Operating lease rentals - land & buildings 350 235 - other 382 364 Foreign currency exchange loss/(gain) 27 (350) Equity-settled share-based payments 369 232 4 Prior year adjustment As disclosed in the accounting policies section, a new accounting standard FRS 20 (IFRS 2) 'Share-based Payments' was adopted in the year. The financial effect of this has been analysed below. In the prior year equity-settled share-based payment arrangements were accounted for under UITF Abstract 17. Under that Abstract, the intrinsic value of the options granted, measured at the date of grant, was expensed to the profit and loss account. Charges under UITF Abstract 17 were Â£178,000. FRS 20 has been adopted for the first time during the current year. FRS 20 has been applied retrospectively to all equity instruments granted after 7 November 2002 that were unvested as at 1 July 2006. For the year ended 30 June 2006, the change in accounting policy has resulted in a net increase in the loss for the year of Â£54,000. The balance sheet at 30 June 2006 has been restated to reflect a share options reserve of Â£306,000. For the year ended 30 June 2007 the change in accounting policy has resulted in a charge to the profit and loss account of Â£369,000. At June 2007 the share options reserve amounted to Â£675,000. 5 Remuneration of directors Year to Year to 30 June 2007 30 June 2006 Â£'000 Â£'000 Directors' emoluments 775 789 Pension contributions 73 74 _____ _____ 848 863 _____ _____ Emoluments of highest paid director (Â£'000) 201 189 Group contribution to pension plan: Pension contributions paid by the Group for highest paid director (Â£'000) 21 20 The number of directors for whom pension payments are made 4 5 Gains made by directors on exercise of options (Â£'000) - 2,395 6 Pension costs Defined Contribution Scheme The Group operates a defined-contribution personal pension scheme for certain employees in the UK. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged against profits represents the contributions payable to the scheme in respect of the accounting period. Defined benefit scheme In prior years the pension scheme in Germany has been accounted for as a defined contribution scheme. Since further information has become available the nature of the scheme in Germany has been reassessed; based on the new evidence the pension has been reclassified as a defined benefit scheme. We do not consider this to be a fundamental error and therefore a prior period adjustment is not appropriate. The pension charge of Â£0.3m for the year has been taken to the profit and loss account for the first time while cumulative actuarial gains and losses relating to the current and previous years have been reported in the statement of recognised gains and losses. The scheme liability is valued at Â£2.9m, with planned assets of Â£0.7m giving a net liability of Â£2.2m. Non pledged assets, valued at Â£1.0m are shown as investments. The net effect of including the pension scheme on the balance sheet is to reduce net assets by Â£1.2m An actuarial valuation for the purposes of FRS 17 was carried out at 30 June 2007 by Swiss Life Pensions Management GmbH. The major assumptions used by Swiss Life were: At 30 June 2007 At 30 June 2006 Retail Price Inflation 2.0% 2.0% Salary increases 3.5% 3.5% Pension increases in payment 2.0% 2.0% Discount rate at beginning of year 4.6% 4.0% Discount rate at end of year 5.0% 4.6% Expected return on assets 4.1% 4.1% Increase of Social Security Contribution ceiling 3.25% per annum 3.25% per annum Information for year ended 30 June 2007 The assets in the scheme and the expected rates of return were: 2007 2007 Expected return Fair value % p.a. Â£'000 Insurance policies 4.1% 718 _____ Total market value of assets 718 Present value of scheme liabilities (2,900) _____ Deficit in the scheme (2,182) Related deferred tax asset * - _____ Net pension liability (2,182) _____ * The pension charge generates an unrecognised deferred tax asset of Â£546,000, however this is unrecognised in the Group accounts as there is uncertainty over the recoverability. Analysis of the amount charged to operating loss 2007 Â£'000 Current service cost 194 _____ Analysis of the amount included in other finance costs 2007 Â£'000 Expected return on pension scheme assets (27) Interest on pension scheme liabilities 129 _____ Net charge 102 _____ Analysis of the amount recognised in the statement of total recognised gains and losses (STRGL) 2007 Â£'000 Actual return less expected return on pension scheme assets (11) Experience gains and losses arising on scheme liabilities (30) Changes in assumptions underlying the present value of scheme liabilities 174 _____ Total amount relating to year 133 Opening cumulative gains & (losses) recognised in 2007 (1,234) _____ Actuarial loss recognised in STRGL (1,101) Movement in related deferred tax asset - _____ Net movement recognised in STRGL (1,101) _____ Movement in deficit during the year 2007 Â£'000 Deficit in scheme at beginning of year (2,210) Foreign currency differences 127 Current service cost & finance cost (296) Contributions 54 Benefits paid 10 Actuarial gain 133 _____ Deficit in scheme at end of year (2,182) _____ Illustrative information for year ended 30 June 2006 The actuaries have provided illustrative information for the scheme for the year ended 30 June 2006 on the basis that the Group had always adopted the revised accounting treatment. 2006 2006 Expected return Fair value % p.a. Â£'000 Insurance policies 4.1% 697 _____ Total market value of assets 697 Present value of scheme liabilities (2,907) _____ Deficit in the scheme (2,210) Related deferred tax asset - _____ Net pension liability (2,210) _____ Analysis of the amount charged to operating loss 2006 Â£'000 Current service cost 194 _____ Analysis of the amount included in other finance costs 2006 Â£'000 Expected return on pension scheme assets (26) Interest on pension scheme liabilities 112 _____ Net charge 86 _____ Analysis of the amount recognised in the statement of total recognised gains and losses (STRGL) 2006 Â£'000 Actual return less expected return on pension scheme assets (1) Experience gains and losses arising on scheme liabilities (47) Changes in assumptions underlying the present value of scheme liabilities 242 _____ Total amount relating to year 194 Opening cumulative gains & (losses) - _____ Actuarial gain recognised in STRGL 194 Movement in related deferred tax asset - _____ Net movement recognised in STRGL 194 _____ Movement in deficit during the year 2006 Â£'000 Deficit in scheme at beginning of year (2,113) Foreign currency differences (74) Current service cost & finance cost (280) Contributions 53 Benefits paid 10 Actuarial gain 194 _____ Deficit in scheme at end of year (2,210) _____ History of experience gains and losses 2007 2006 Â£'000 Â£'000 Difference between the expected and actual return on scheme assets - amount (Â£'000) (11) (1) - percentage of scheme assets 1.5% 0.1% Experience gains and losses on scheme liabilities - amount (Â£'000) (30) (47) - percentage of scheme liabilities 1.0% 1.6% Changes in assumptions underlying the present value of scheme liabilities - amount (Â£'000) 174 242 Total amount recognised in STRGL - amount (Â£'000) 133 194 - percentage of scheme liabilities 4.6% 6.6% 7 Staff numbers and costs The average number of full-time equivalent persons employed by the Group (including directors) during the year, analysed by geographical location was as follows: Number of employees Year to Year to 30 June 2007 30 June 2006 UK 209 163 Germany 75 70 Rest of Europe 50 42 _____ _____ 334 275 _____ _____ The aggregate payroll costs for these persons were as follows: Year to Year to 30 June 2007 30 June 2006 Â£'000 Â£'000 Aggregate wages and salaries 10,015 8,605 Social security costs 1,553 1,394 Other pension costs 420 378 _____ _____ 11,988 10,377 _____ _____ The average number of employees involved in pension schemes across the Group for 2007 was 193 (2006: 193). 8 Tax on loss on ordinary activities Year to Year to 30 June 2007 30 June 2006 Â£'000 Â£'000 (restated) The taxation credit is made up as follows: UK corporation tax at 30% - - Adjustment in respect of prior years 2,503 - _____ _____ 2,503 - _____ _____ Current tax reconciliation: Loss before tax (26,320) (6,173) _______ _______ Tax at standard rate of 30% on loss for year (7,896) (1,852) Expenses not deductible for tax purposes 227 49 Capital allowances in excess of depreciation (139) (177) Other adjustments not taxable - - Overseas adjustments not taxable - - Utilisation of tax losses (215) (47) Tax losses not utilised 8,110 3,796 Allowances for R&D expenditure (75) (1,036) Relief for shares acquired by employees & directors (12) (733) Tax loss surrendered to R&D tax credit 2,503 - ______ _______ Current tax credit arising in the UK 2,503 - _____ _____ Unrelieved group tax losses of Â£39 million (2006: Â£23 million) remain available to offset against future taxable trading profits. These comprise UK trading losses of Â£34 million, UK non-trading losses of Â£3 million, losses in Germany of Â£0.5 million and losses in Italy and Spain of Â£1.5 million. 9 Loss for the financial period The parent company has taken advantage of s.230 of the Companies Act 1985 and has not included its own profit and loss account in these financial statements. The parent company's profit for the period was Â£32,000. 10 Loss per share Year to Year to 30 June 2007 30 June 2006 Loss for the year (Â£'000) (23,817) (6,173) Weighted number of shares in issue 81,950,632 66,117,299 Diluted weighted number of shares in issue n/a n/a Basic and diluted loss per share (pence) (29.1) (9.3) 11 Intangible fixed assets - Group Goodwill Manufacturing Non- Other Total at know-how competing intangibles 30 June 2007 know-how Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Cost Cost brought forward 4,977 1,000 3,046 960 9,983 Exchange difference (58) - (68) (6) (132) _____ _____ _____ _____ _____ Balance carried forward 4,919 1,000 2,978 954 9,851 _____ _____ _____ _____ _____ Amortisation Balance brought forward 2,651 537 3,046 594 6,828 Charge for year 333 63 - 52 448 Exchange difference (32) - (68) (6) (106) _____ _____ _____ _____ _____ Balance carried forward 2,952 600 2,978 640 7,170 _____ _____ _____ _____ _____ Net book value At 30 June 2007 1,967 400 - 314 2,681 _____ _____ _____ _____ _____ At 30 June 2006 2,326 463 - 366 3,155 _____ _____ _____ _____ _____ The fair values of intangible assets acquired as part of a business are determined by the realisable market value. The directors consider each acquisition separately for the purpose of determining the amortisation period of any goodwill and other intangible assets that arise. The following sets out the periods over which intangible assets are amortised and reasons for the periods chosen: â€¢ Goodwill, manufacturing know-how and other intangible assets arising on the acquisition of Allergy Therapeutics Limited and Bencard Allergie GmbH in June 1998 have been amortised over 15 years. The directors have estimated that this is the useful economic life of the assets, reflecting the expected financial benefits. 'Other intangibles' comprises trademarks and associated acquisition costs. 12 Tangible fixed assets - Group Plant & Fixtures & Motor Machinery Fittings Vehicles Â£'000 Â£'000 Â£'000 Cost Balance brought forward 2,941 1,960 8 Additions 1,300 972 12 Disposals (60) (2) (4) Exchange difference (2) (10) - _____ _____ _____ Balance carried forward 4,179 2,920 16 _____ _____ _____ Depreciation Balance brought forward 1,383 563 7 Charge for period 272 292 2 Disposals (38) (2) (4) Exchange difference (1) (5) - _____ _____ _____ Balance carried forward 1,616 848 5 _____ _____ _____ Net book value At 30 June 2007 2,563 2,072 11 _____ _____ _____ At 30 June 2006 1,558 1,397 1 _____ _____ _____ Tangible fixed assets - Group (continued from table above) Computer Freehold Equipment Land & Total at Buildings 30 June 2007 Â£'000 Â£'000 Â£'000 Cost Balance brought forward 3,090 270 8,269 Additions 883 - 3,167 Disposals (1,318) - (1,384) Exchange difference (18) (7) (37) _____ _____ _____ Balance carried forward 2,637 263 10,015 _____ _____ _____ Depreciation Balance brought forward 2,464 215 4,632 Charge for period 243 31 840 Disposals (1,317) - (1,361) Exchange difference (15) (6) (27) _____ _____ _____ Balance carried forward 1,375 240 4,084 _____ _____ _____ Net book value At 30 June 2007 1,262 23 5,931 _____ _____ _____ At 30 June 2006 626 55 3,637 _____ _____ _____ 13 Investments Investments - Group Group Insurance policies Â£'000 At 1 July 2006 - Additions 1,034 Investment loss (23) _____ At 30 June 2007 1,011 _____ This insurance policy is designed to contribute towards the obligation in respect of the defined benefit pension scheme (note 6). Investments - Company Company Shares in subsidiary undertaking Â£'000 Cost Investment brought forward and carried forward 51 _____ Provision Provision brought forward and carried forward - _____ Net book value At 30 June 2007 51 _____ At 30 June 2007 the Company's subsidiary undertakings were: Subsidiary undertaking Country of Principal activity Percentage of Class of incorporation shares held shares held Allergy Therapeutics (Holdings) Ltd UK Holding company 100% ordinary and deferred Allergy Therapeutics (UK) Ltd UK Manufacture and sale of pharmaceutical products 100% ordinary Allergy Therapeutics Development Ltd UK Dormant 100% ordinary Bencard Allergie GmbH Germany Sale of pharmaceutical products 100% ordinary Bencard Allergie (Austria) GmbH Austria Sale of pharmaceutical products 100% ordinary Allergy Therapeutics Italia s.r.l. Italy Sale of pharmaceutical products 100% ordinary Allergy Therapeutics Iberica S.L. Spain Sale of pharmaceutical products 100% ordinary Allergy Therapeutics (Canada) Ltd, a former subsidiary of Allergy Therapeutics (Holdings) Ltd, was liquidated before 30 June 2007. Allergy Therapeutics (Holdings) Ltd is fully owned by Allergy Therapeutics plc. All other subsidiary undertakings except Bencard Allergie (Austria) GmbH, are fully owned by Allergy Therapeutics (Holdings) Ltd. Bencard Allergie (Austria) GmbH is fully owned by Bencard Allergie GmbH. 14 Stocks Group 30 June 2007 30 June 2006 Â£'000 Â£'000 Raw materials and consumables 1,706 1,081 Work in progress 2,452 2,029 Finished goods 753 541 _____ _____ 4,911 3,651 _____ _____ There is no material difference between the value of stock above and its replacement cost. 15 Debtors Group Company 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Â£'000 Â£'000 Â£'000 Â£'000 Amounts falling due within one year Trade debtors 1,802 1,777 - - Amounts owed by subsidiary undertakings - - 199 - Taxation and social security 718 435 - - Prepayments and accrued income 722 1,095 - 14 Other debtors 131 270 4 - _____ _____ _____ _____ 3,373 3,577 203 14 _____ _____ _____ _____ 16 Creditors: amounts falling due within one year Group Company 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Â£'000 Â£'000 Â£'000 Â£'000 Trade creditors 4,612 1,671 - - Taxation and social security 446 893 66 93 Accruals and deferred income 5,499 2,225 10 219 Other creditors 157 150 - - _____ _____ _____ _____ 10,714 4,939 76 312 _____ _____ _____ _____ 17 Creditors: amounts falling due after more than one year Group 30 June 2007 30 June 2006 Â£'000 Â£'000 Bank loan 2,161 - Other long term creditors 191 239 _____ _____ 2,352 239 _____ _____ In May 2007 the Company entered into a loan agreement with the Royal Bank of Scotland. The facility consists of a seven year term loan of â‚¬40,000,000 (Â£26,896,000). The loan can be drawn down in variable amounts on variable dates during the first 2 years of the agreement against agreed costs, provided specific financial covenants are met. Repayment of the principal is by instalments and commences after completion of the R&D programme, after the full amount of the loan has been drawn down or from the end of June 2009, whichever is sooner. At the end of June 2007 â‚¬4,970,000 (Â£3,342,000) had been drawn down. Interest on the loan is at 2.75% above Euribor. An interest rate swap has been entered into starting 2 July 2007 to convert 60% of the notional interest payable from a floating to fixed rate of 4.95% plus margin. A commitment fee of 0.65% is payable from the date of the agreement on the undrawn amount of the loan. Interest and commitment fees are payable quarterly in arrears. An arrangement fee of â‚¬1,250,000 (Â£840,000) is payable in two tranches: the first tranche of â‚¬750,000 (Â£509,000) was paid on 25 May 2007; the second tranche of â‚¬500,000 (Â£336,000) is payable on 18 June 2009. A further fee of â‚¬1,350,000 (Â£908,000) is payable in two tranches: the first tranche of â‚¬600,000 (Â£404,000) on 31 December 2009; the second tranche of â‚¬750,000 (Â£504,000) on 18 June 2010. The arrangement fee paid in May and issue costs of Â£672,000 relating to the loan have been offset against the loan balance and are amortised at a constant rate on the carrying amount of the loan over the seven year term. The loan is secured by a debenture over the Group's assets; a pledge of shares of the subsidiaries Bencard Allergie GmbH, Allergy Therapeutics Italia s.r.l. and Allergy Therapeutics Iberica S.L.; and an Intellectual Property Rights agreement with Bencard Allergie GmbH. 18 Financial instruments and derivatives The Group uses financial instruments comprising borrowings, cash and various items, such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations. The Group also enters into derivatives transactions such as interest rate swaps and forward foreign currency contracts. The purpose of such transactions is to manage the interest rate and currency risks arising from the Group's operations and its sources of finance. The main risks arising from the Group financial instruments are interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. It is Group policy that no trading in financial instruments shall be undertaken. Short-term debtors and creditors Short-term debtors and creditors have been excluded from all the following disclosures, other than the currency risk disclosures. Interest rate risk The Group finances its operations through a mixture of cash reserves, short-term bank borrowings and long-term loan. The Group borrows at both fixed and floating rates of interest and uses interest rate swaps to generate the desired interest profile and to manage the Group's exposure to interest rate fluctuations. At the year end the Group's borrowings related solely to the loan entered into in May 2007 and were at floating rates of interest. Interest rate swaps have been contracted to start from the beginning of July 2007 and will convert 60% of the loan borrowings from floating to fixed rates. After taking these into account, approximately 52% of the Group's total committed borrowings are at fixed rates of interest. Interest rate risk profile of financial liabilities The interest rate profile of the Group's financial liabilities at 30 June 2007 was: Floating rate financial Fixed rate financial Financial liabilities on liabilities liabilities which no interest is paid Â£'000 Â£'000 Â£'000 Currency Euros 3,342 - - The floating rate financial liabilities comprise Euro denominated bank borrowings that bear interest rates based on 3 month Euribor (European Inter-Bank Offer Rate). Currency risk The Group does not hedge its exposure of foreign investments held in foreign currencies. The Group is exposed to translation and transaction foreign exchange risk. In relation to translation risk the repatriation of assets is insignificant and the only exposure is revaluation of the assets at year end for accounting purposes. Therefore, Group policy does not deem it necessary to cover this risk. Transaction exposures are hedged, mainly using the forward hedge market. The Group seeks to hedge its exposures using a variety of financial instruments, with the objective of minimising fluctuations in exchange rates on future transactions and cash flows. The majority of the Group's revenue is denominated in Euros. A large part of the manufacturing cost base is denominated in Sterling but some R&D and other costs are denominated in US Dollars, Canadian Dollars and Euros. The Group policy is to eliminate approximately 50% of currency exposures on a rolling 12 month basis through the use of forward currency contracts. Maturity of financial liabilities The maturity profile of the Group's financial liabilities at 30 June was as follows: 30 June 2007 30 June 2006 Â£'000 Â£'000 In one year or less, or on demand - - In more than one year but not more than two years 1,345 - In more than two years but not more than five years 1,997 - In more than five years - - _____ _____ 3,342 - _____ _____ Borrowing facilities The Group has undrawn committed facilities at 30 June 2007 of â‚¬35,392,000 (2006: â‚¬362,000) and Â£4,000,000 (2006: nil). Fair values of financial assets and financial liabilities A comparison by category of fair values and book values of the Group's financial liabilities at 30 June was as follows: Book value Fair value Book value Fair value 30 June 2007 30 June 2007 30 June 2006 30 June 2006 Â£'000 Â£'000 Â£'000 Â£'000 Primary financial instruments held or issued to finance the Group's operations: Long-term borrowing 3,342 3,342 - - Derivative financial instruments held to manage the interest rate and currency profile: Forward foreign currency contracts - 1 - 6 Gains and losses on hedges The Group policy is to hedge exposures to currency risk. The table below shows the extent to which the Group has unrecognised and/or deferred gains and losses in respect of financial instruments used as hedges at the beginning and end of the year. The table also shows the amount of gains and losses that are expected to be recognised in future profit and loss accounts. Gains Losses Total net gains/(losses) Â£'000 Â£'000 Â£'000 Unrecognised gains and losses on hedges at 1 July 2006 6 - 6 Gains and losses arising in previous years that were recognised in 2006/07 6 - 6 Gains and losses arising before 1 July 2006 that were not recognised in 2006/07 - - - Gains and losses arising in 2006/07 that were not recognised in 2006/07 63 (62) 1 Unrecognised gains and losses on hedges at 30 June 2007 63 (62) 1 Of which: Gains and losses expected to be recognised in 2007/08 63 (62) 1 Liquidity risk The Group seeks to manage financial risk by ensuring sufficient funds or committed borrowing facilities are available to meet foreseeable needs and to invest cash assets safely and profitably. Surplus cash is invested in various deposit accounts to spread the risk and to generate a higher return of interest. The table below shows the monetary assets held by the Group in currencies other than Sterling. Group Currency 30 June 2007 30 June 2006 Â£'000 Â£'000 Euro 1,114 1,446 US Dollar 2,199 52 Canadian Dollar 1,895 29 Slovak Koruna 5 3 Polish Zloty 6 1 _____ _____ 5,219 1,531 _____ _____ 19 Called up share capital 30 June 2007 30 June 2006 Â£'000 Â£'000 Authorised Equity: 790,151,667 ordinary shares of 0.1p each 790 790 Equity: 9,848,333 deferred shares of 0.1p each 10 10 _____ _____ 800 800 _____ _____ Allotted, called up and fully paid Equity: 81,950,632 ordinary shares of 0.1p each 82 82 Equity: 9,848,333 deferred shares of 0.1p each 10 10 _____ _____ 92 92 _____ _____ The deferred shares have no voting rights, dividend rights or value attached to them. Share options Details of the share options over the Company's ordinary shares are as follows: At start of Granted in Exercised in Lapsed in At end of Exercise Exercise date Exercise date year year year year year price from to 4,800 - 600 100 4,100 0.1p 04/10/04 22/12/08 20,312 - 1,650 200 18,462 0.1p 04/10/04 01/10/09 25,038 - 1,750 - 23,288 0.1p 04/10/04 01/10/10 13,950 - 700 - 13,250 0.1p 04/10/04 20/10/10 200,000 - - - 200,000 0.1p 04/10/04 02/01/11 987,350 - - 9,100 978,250 120p 31/07/02(1) 31/07/11 400,000 - - - 400,000 30p 03/06/02 03/06/12 1,000,000 - - - 1,000,000 0.1p 02/10/02 02/10/12 1,500,000 - - - 1,500,000 5p 17/12/02(1) 17/12/12 69,334 - 5,334 - 64,000 5p 17/12/03(1) 17/12/12 4,000,000 - - - 4,000,000 5p 18/12/02(1) 18/12/12 171,300 - 21,683 750 148,867 5p 04/10/04 25/01/13 100,000 - - - 100,000 45p 15/12/03(2) 15/12/13 1,880,681 - 49,013 - 1,831,668 45p 26/02/05(1) 26/02/14 230,000 - - - 230,000 45p 02/08/05(1) 02/08/14 1,900,001 - - - 1,900,001 100.4p 08/03/08 08/03/15 497,507 - 1,953 20,137 475,417 64p 01/03/09 01/09/09 - *179,358 - 1,900 177,458 99.45p 01/05/10 01/11/10 13,000,273 179,358 82,683 32,187 13,064,761 *Shares granted under the SAYE 2005 share plan (1)One third of share options granted were exercisable from this date, one third from 12 months after this date and one third from 24 months after this date. (2)30,000 share options granted were exercisable from this date and 10,000 were exercisable from 1st of each subsequent month until 01/12/2004. Long Term Incentive Plan Details of the shares provisionally awarded under the Plan are as follows: At start of Awarded in Vested in Lapsed in At end of Vesting price Plan cycle Plan cycle year year year year year starts ends 1,205,871 - 3,187 31,245 1,171,439 - 01/07/05 30/06/08 - 999,995 - 13,744 986,251 - 01/07/06 30/06/09 1,205,871 999,995 3,187 44,989 *2,157,690 *This is the maximum contingent number of shares that could vest under the terms of the Plan. 20 Reserves Group Company Profit and loss account Profit and loss account Â£'000 Â£'000 At 30 June 2006 (40,809) (33,630) Re-stated for FRS 20 (128) (128) Retained (loss)/profit for the year (23,817) 32 Currency translation profit on foreign currency investments (48) - Actuarial losses (1,101) - _____ _____ At 30 June 2007 (65,903) (33,726) _____ _____ Group Company Investment revaluation Investment revaluation reserve reserve Â£'000 Â£'000 At 1 July 2006 - - Revaluation of insurance investment 226 - _____ _____ At 30 June 2007 226 - _____ _____ Group and Company Group Share premium account Shares issued by subsidiary Â£'000 Â£'000 At 30 June 2006 33,173 40,128 _____ _____ At 30 June 2007 33,173 40,128 _____ _____ Group and Company Group and Company Other reserve - share based Other reserve - EBT payments Â£'000 Â£'000 At 30 June 2006 178 (60) Re-stated for FRS 20 128 - Sale of shares by EBT - 24 Provision in year for share based payments 369 - _____ _____ At 30 June 2007 675 (36) _____ _____ 'Shares issued by subsidiary' relates to the share premium account of Allergy Therapeutics (Holdings) Ltd. At 30 June 2007 there were 2,084,212 shares in the Employee Benefit Trust with an aggregate cost of Â£36,000 which reduced the shareholders' funds accordingly. The shares will be allotted as employees exercise share options. The market value of the shares at 30 June 2007 was Â£2,490,633. 21 Share-based payments Equity-settled share-based payments The Company has a Savings Related Share Option Plan which has been offered to all employees and executive directors with 12 months continuous service. Options granted in 2006 and 2007 are exercisable at a 15% discount to the average market share price on the date of grant. The vesting period is 3 years. The options are settled in equity once exercised. If the options remain unexercised after a period of six months from the start of the vesting period, the options expire. Options are forfeited if the employee leaves the Company before the options vest. The Company has a Long Term Incentive Plan under which directors and senior employees may receive annual provisional awards of performance vesting shares. The number of shares that may vest depends on the Company's performance during the Plan cycle in terms of total shareholder return (TSR) compared to the TSR performance of the companies in the Plan's peer group. If the Company's position in the peer group at the end of the Plan cycle is at or above the 75th percentile, 100% of the shares provisionally awarded may vest; between the 75th and 50th percentile the percentage of shares that may vest will be calculated on a straight-line basis between 100% and 33.33%; below the 50th percentile no shares will vest. Each Plan cycle will comprise not less than three consecutive financial years. Awards are forfeited if the employee leaves the Company before the shares vest. Share options were granted to employees and directors under earlier schemes. The vesting periods are usually from 1 to 3 years. The vesting of some options is dependent on the Company's TSR performance as for the Long Term Incentive Plan detailed above. The options are settled in equity once exercised. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if the employee leaves the Company before the options vest. For the following disclosure, Long Term Incentive Plan awards with a nil exercise price have been disclosed separately to avoid distorting the weighted average exercise prices. (a) Share options Year to 30 June 2007 Year to 30 June 2006 Weighted average Weighted average exercise price exercise price Number Â£ Number Â£ Outstanding at the beginning of the 13,000,273 0.37 16,243,606 0.33 year Granted during the year 179,358 0.99 497,507 0.64 Exercised during the year (82,683) 0.30 (3,090,840) 0.09 Forfeited during the year (32,187) 0.80 (650,000) 0.94 _____ _____ _____ _____ Outstanding at the end of the year 13,064,761 0.38 13,000,273 0.37 _____ _____ _____ _____ Exercisable at the year end 10,435,218 0.24 9,799,764 0.23 _____ _____ _____ _____ Included in the above numbers outstanding at 30 June 2007 are 9,751,897 (2006: 9,799,764) share options granted before 7 November 2002 which have been excluded from the share-based payments charge in accordance with the FRS 20 'Share-based Payments' transitional provisions. Options exercised during the year had a weighted average share price at date of exercise of 112p. The share options outstanding at the end of the year have a weighted average remaining contractual life of 5.7 years (2006: 5.9 years) and have the following range of exercise prices: Exercise price (p) 30 June 2007 30 June 2006 Number Number 0.1 - 5 6,971,967 7,004,734 6 - 45 2,561,668 2,610,681 46 - 120 3,531,126 3,384,858 _____ _____ 13,064,761 13,000,273 _____ _____ The fair values of options granted under the Savings Related Share Option Plan during the year were determined using the Black-Scholes Pricing Model. Expected volatility was based on historic volatility at the date of grant. The assumptions made to value options granted during the years ended 30 June 2006 and 30 June 2007 were as follows: 30 June 2007 30 June 2006 Weighted average fair value 41.3p 26.4p Weighted average share price 117.0p 75.0p Weighted average exercise price 99.5p 64.0p Expected volatility 30% 30% Expected dividend yield 0% 0% Risk free interest rate 5% 5% The share-based payment charge assumes an expected option life of 3.25 years, an employee attrition rate of 10% and an early surrender risk of 10%. (b) Long Term Incentive Plan awards 30 June 2007 30 June 2006 Number Number Outstanding at the beginning of the year 1,205,871 - Granted during the year 999,995 1,205,871 Vested during the year (3,187) - Forfeited during the year (44,989) - _____ _____ Outstanding at the end of the year 2,157,690 1,205,871 _____ _____ Awards granted under the Long Term Incentive Plan have a nil exercise price and are valued at the market price at the date of grant, 100.0p (2006: 69.5p). The share-based payment charge assumes an employee attrition rate of 10% and a vesting probability of 41.5%. 22 Reconciliation of movement in shareholders funds Group Company Year to Year to Year to Year to 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Â£'000 Â£'000 Â£'000 Â£'000 (Loss)/profit for the financial year (23,817) (6,173) 32 (18,776) Other recognised gains and losses relating to (48) 29 - - the period (net) Issue of shares - 19,000 - 19,000 Issue of shares from EBT 24 262 24 262 Share based payments 369 232 369 232 Expenses paid in connection with share issue - (732) - (732) Actuarial losses (1,101) - - - Revaluation of investments 226 - - - _____ _____ _____ _____ Net (deduction from)/addition to shareholders' funds (24,347) 12,618 425 (14) Opening shareholders' funds 32,702 20,084 (247) (233) _____ _____ _____ _____ Closing shareholders' funds 8,355 32,702 178 (247) _____ _____ _____ _____ 23 Reconciliation of operating loss to operating cash flow Year to Year to 30 June 2007 30 June 2006 Â£'000 Â£'000 (restated) Operating loss (26,836) (6,714) Depreciation 840 668 Amortisation of intangibles 448 450 Loss on disposal of fixed assets 20 10 Effect of foreign exchange rate changes (9) (20) Charge for share based payments 369 232 Increase in stocks (1,260) (910) Decrease/(increase) in debtors 204 (416) Increase/(decrease) in creditors 5,727 (1,399) Other non-cash differences 194 - _____ _____ Net cash outflow from operating activities (20,303) (8,099) _____ _____ 24 Analysis of financing Year to Year to 30 June 2007 30 June 2006 Â£'000 Â£'000 Funds drawn on new loan facility 3,342 - Issue costs and finance costs relating to loan (678) - Issue of ordinary shares (net of expenses) - 18,268 Issue of shares from EBT 24 262 _____ _____ 2,688 18,530 _____ _____ 25 Analysis of change in net funds At beginning of Cash flow Other non-cash At end of period period changes Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 23,860 (18,164) - 5,696 Debt due - (2,664) 503 (2,161) _____ _____ _____ _____ 23,860 (20,828) 503 3,535 _____ _____ _____ _____ Non-cash changes relate to issue costs not paid at 30 June 2007 26 Capital commitments Capital commitments at the end of the financial period, for which no provision has been made, are as follows: Group Group 30 June 2007 30 June 2006 Â£'000 Â£'000 Total capital commitments 1,311 1,191 _____ _____ Included in the above is Â£280,000 for ongoing factory refurbishments in the UK (2006: Â£809,000); Â£854,000 for new plant and machinery (2006:Â£382,000); and Â£177,000 for IT equipment and systems upgrades. Other commitments: Between November 2006 and May 2007, 22 separate forward foreign exchange contracts were arranged for the sale of â‚¬17,407,000 (Â£11,705,000) at future dates from July 2007 to February 2008. 27 Leasing commitments Operating lease payments amounting to Â£602,000 (2006: Â£600,000) are due within one year. The leases to which these amounts relate expire as follows: Land and buildings Other 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Â£'000 Â£'000 Â£'000 Â£'000 In one year or less 29 17 99 2 Between one and five years 155 170 209 301 In five years or more 110 110 - - _____ _____ _____ _____ 294 297 308 303 _____ _____ _____ _____ 28 Contingent liabilities Allergy Therapeutics (UK) Ltd., a subsidiary of Allergy Therapeutics plc, has guaranteed the deposits required for leases on company cars and rented office space occupied by a fellow subsidiary, Bencard Allergie GmbH. The amount as at 30 June 2007 was â‚¬78,000; Â£52,000 (2006: â‚¬78,000; Â£54,000). A cross-guarantee exists between Allergy Therapeutics plc, Allergy Therapeutics (Holdings) Ltd, Allergy Therapeutics (UK) Ltd, Bencard Allergie GmbH, Allergy Therapeutics Italia s.r.l and Allergy Therapeutics Iberica S.L. in which the liabilities of each entity under the RBS loan agreement are guaranteed by all the others. Publication Of Non-Statutory Accounts The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The summarised balance sheet at 30 June 2007 and the summarised profit and loss account, summarised cash flow statement and associated notes for the year then ended have been extracted from the Group's 2007 statutory financial statements upon which the auditors opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985. Those financial statements have not yet been delivered to the Registrar of Companies for England and Wales. This information is provided by RNS The company news service from the London Stock Exchange

Companies

Allergy Therapeutics (AGY)

Friday, 31st May 2024

COMPANIES COVERED:

JD. FLTR NWG

Flutter shares tank as primary listing moves to New York and the CFO steps aside, JD Sports struggles to impress despite sales growth in challenging market and Nat West buys £1.24bn of its own stock back from the government.

Full Archive

UK 100

Latest directors dealings

2 days ago FDM Group (Holdings)
2 days ago Neo Energy Metals
2 days ago DCC (CDI)
2 days ago 3i Group
2 days ago 3i Group

All directors dealings today