Annual Financial Report
Maiden Annual Results 2016
London, UK, 28 April 2017: Arix Bioscience plc (LSE:ARIX) ("Arix Bioscience" or "the Company"), a global healthcare and life science company supporting medical innovation, today announces its maiden results for the period ended 31 December 2016.
The following financial statements refer to the period in which Arix Bioscience was a private company, prior to its initial public offering on the Main Market of the London Stock Exchange on 17 February 2017.
Corporate highlights
· Company launch with the goal of generating value from the development and commercialisation of innovative technologies and discoveries
· Formation of an internationally recognised leadership team including Jon Peacock, Sir Chris Evans and Joe Anderson
· £52m private fundraise at launch to support early expansion phase
· Partnerships agreed with research accelerators, BioMotiv in the US and the Max Planck Lead Discovery Centre in Europe, and privileged relationships with leading academic centres, providing a constant, renewable source of access to opportunities
· Acquisition of Arthurian Life Sciences, the investment manager of The Wales Life Sciences Investment Fund
· Acquisition of direct interests in: Autolus, Artios Pharma, Depixus, OptiKira and Verona Pharma plc
Post-period highlights
· Oversubscribed IPO on the Main Market of the London Stock Exchange, raising £112 million of new proceeds
· Strategic partnerships signed with UCB Pharma and Takeda, to include participation in sourcing, screening, due diligence and joint business building
Dr Joe Anderson, Chief Executive Officer of Arix Bioscience, commented: "In its first year, Arix has established itself with an innovative permanent capital model which seeks to create benefit for patients and value for shareholders by identifying the most dynamic technologies and businesses in healthcare and life sciences internationally. Arix is led by some of the most respected business builders in the industry, both in the UK and the US, with proven records of creating value.
"We now look ahead to a formative 2017, our first year as a public company following the successful IPO. We have a vigorous deal pipeline and are encouraged by the negotiations which are underway. We look forward to translating these opportunities into the announcement of significant new deals in the year ahead."
In compliance with Listing Rule 9.6.3, the following documents have today been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM:
· Annual Report and Accounts for the period ended 31 December 2016
· Notice of 2017 Annual General Meeting
Printed copies of these documents together with the Form of Proxy will be posted to shareholders shortly. Copies will also be available shortly on the Investor Relations section of the Company's website at www.arixbioscience.com
The 2017 Annual General Meeting will be held at the offices of Brown Rudnick, 8 Clifford Street, London W1S 2LQ on 5 June 2017 at 2pm.
For further information please contact:
Arix Bioscience plc
Joe Anderson, CEO
+44 (0) 20 7290 1052
Consilium Strategic Communications
Mary-Jane Elliott, Jessica Hodgson, Ivar Milligan
+44 (0)20 3709 5700
arix@consilium-comms.com
About Arix Bioscience plc
Arix Bioscience plc is a global healthcare and life science company supporting medical innovation. Headquartered in London and with an office in New York, Arix Bioscience sources, finances and builds world class healthcare and life science businesses addressing medical innovation at all stages of development. Operations are supported by privileged access to breakthrough academic science and strategic relationships with leading research accelerators and global pharmaceutical companies.
Arix Bioscience plc is listed on the Main Market of the London Stock Exchange.
For further information, please visit www.arixbioscience.com
Chairman's statement
In February of 2016 we formed Arix Bioscience with an ambition to provide operating, strategic and financial support to young companies in the development of breakthrough therapies for patients in areas of high unmet need. Our leadership team has extensive experience in building substantial businesses from breakthrough science, investing in promising young biotech companies and in managing companies to guide research and development programmes towards commercialisation. Our leadership team also brings to the Company strong contractual relationships with several universities and research accelerators, as well as broad industry relationships with the leading biotech and pharmaceutical companies. And as a permanent capital vehicle, we will be flexible in our holding period of Group Businesses to maximise value for our shareholders.
In a short period of time we have come a long way. We have added two major industry partners, acquired a fund manager, initially to manage The Wales Life Sciences Investment Fund, and built an outstanding Business Development team based in London and New York. Most importantly, we have already become active owners of five exciting young companies, with several more in our pipeline.
From the formation of Arix we have been supported by a highly experienced Board, bringing both deep industry experience and a track record in Board leadership and governance. During 2016, we were honoured to have Franz Humer, ex-Chairman and CEO of Roche, join the Board as our lead independent Director.
We are committed to building Arix as a leader in our industry both in terms of the value we deliver for shareholders and patients and in the quality of governance exercised by our Board.
Joe, Sir Chris and I are excited to build Arix together in the years ahead and look forward to maintaining a close dialogue with our shareholders as we continue to build the company.
Jonathan Peacock,
Chairman
CEO's statement
A vote of confidence in the biotech sector
In February 2016, we secured funding in a private round of £52m, from investors including Woodford Investment Management, to launch Arix Bioscience. We are a new global health and life sciences company focusing on the sourcing, financing, development and commercialisation of innovative technologies and discoveries. Within a year, in February 2017, Arix Bioscience had made its debut on the London Stock Exchange, raising £113m from a range of blue-chip institutional investors, plus strategic agreements with two leading pharmaceutical companies. This has been a transformative year, and a real vote of confidence in the potential of the biotech sector to create value for investors.
A proven team
The Arix team comprises some of the most-respected business builders in the life science industry, both in the UK and the US, with proven records of creating value. Each member contributes to identifying and developing some of the world's most exciting science companies. We are supported by an outstanding Board and are well connected in the pharmaceutical industry and academia. Our contractual and privileged relationships in the UK, EU and US have already generated significant value for our business, with the promise of much more to come.
Identifying opportunities, building relationships
Drawing on the extensive experience of this leadership team, Arix has developed an extensive network that includes research accelerators, universities and pharma companies. Through this network, we identify new technologies and discoveries which form some of the most exciting opportunities in biotech, to shape a rich pipeline of potential Group businesses.
During 2016, the Arix team reviewed over 500 investment opportunities, five of which are now Group Businesses: we have direct interests in Artios Pharma, Autolus, Depixus, OptiKira and Verona Pharma. We have also gained indirect interests in other companies, by acquiring Arthurian Life Sciences (ALS), the manager of The Wales Life Sciences Investment Fund, an acquisition approved by the FCA in June. ALS is another source of opportunities, and as a fund manager, supports our strategy and capability.
We also acquired indirect holdings through a strategic partnership agreement with BioMotiv, a research accelerator associated with The Harrington Project for Discovery and Development, a $300m initiative for advancing medicine based at university hospitals in Cleveland, USA. Arix Bioscience finances opportunities, both alongside and independently of BioMotiv, gaining privileged access to innovations from leading US institutions and universities. In Europe, we struck a similar agreement with the Lead Discovery Centre (LDC), established to capitalise on research excellence at Max Planck Society institutes.
We have also entered into strategic agreements with two major pharmaceutical companies, UCB Pharma and Takeda. Arix will provide access to our Group Businesses, aiming to foster new technologies and drug development managed through joint advisory committees.
Universities provide an important source of ideas for our pipeline of Group Businesses. We have privileged agreements as a preferred partner with seven leading universities, providing access to new technologies ahead of other parties. This is an opportunity to acquire interest in businesses, and to shape their development at the earliest opportunity.
Developing Group Businesses
Our strength is in identifying and funding breakthrough medical products and therapeutics. The Arix team then continues to work with these Group Businesses, to help them pursue their strategy and ensure a successful business outcome. To provide that hands-on support in 2016, we placed a member of our senior team onto the Boards of Directors of Autolus, Artios, OptiKira and Depixus, and onto the Advisory Board of BioMotiv.
IPO on the London Stock Exchange
With the launch of Arix Bioscience on the London Stock Exchange, the company raised the capital required to invest in a broad range of innovative biotechnology companies. In addition to support from institutional and blue-chip investors, and large pharma companies, we received tremendous support from retail investors, a testament to the level of interest in the potential of biotech innovation to transform healthcare treatments and improve lives.
Building Arix Bioscience with a solid investor base has been an extraordinary achievement, made possible by the commitment of an outstanding professional team. The funds raised in February 2017 validate our ambition, and will enable us to acquire interests in a greater number of innovative companies, as well as continue to support our existing Group Businesses.
Outlook
We now look ahead to a formative 2017, our first as a public company following the successful IPO. We continue to be pleased with the vigour of our deal pipeline and the associated negotiations which are underway. We look forward to translating these opportunities into the announcement of significant new deals in the year ahead. Our goal is to support businesses that create new therapies for patients, while achieving growth for shareholders.
Dr Joe Anderson, PhD,
Chief Executive Officer
OPERATIONAL AND FINANCIAL REVIEW
2016 has been a period of outstanding operational success for the Company. In a matter of months, from the launch of Arix Bioscience and initial private funding of £52m in February 2016, we have established offices in London and New York, including implementing a consistent IT framework across two continents, recruited a strong team of experienced life sciences professionals and, in June 2016, acquired Arthurian Life Sciences Limited (ALS), a wholly owned investment manager specialising in the life sciences sector.
However, our trading loss of £8.4m reflects the inevitable costs associated with a start- up year.
Throughout this period, the management team of Arix Bioscience has also been working towards an Initial Public Offering on the London Stock Exchange main market, which we completed successfully in February 2017.
The Financial Statements reflect our achievements in progressing Arix so far in its maiden financial period, showing the initial costs incurred, while highlighting the establishment of a strong balance sheet.
Group Businesses
Arix Bioscience is an operating company, and its interests in Group Businesses are held
on its own balance sheet. We have valued these assets in accordance with International Private Equity and Venture Capital Guidelines, which are consistent with International Financial Reporting Standards.
We have fair-valued these assets at cost, except for BioMotiv, which we revalued to the latest market event (an increase of 25%) and Verona Pharma, which is a quoted stock and has been marked to market (an increase of 12%).
Through ALS, Arix Bioscience owns the carried interest vehicle of The Wales Life Sciences Investment Fund. The revaluation of this carried interest at the balance sheet date is supported by external expert review by Duff & Phelps.
Portfolio summary
The audited valuations as at 31 December 2016 are as below.
|
Group Business |
Valuation £'000 |
Funding committed, not yet invested £'000 |
|
Autolus Limited |
3,333 |
6,667 |
|
BioMotiv, LLC |
3,800 |
- |
|
Depixus SAS |
794 |
266 |
|
Verona Pharma plc |
2,019 |
1,854 |
|
OptiKira, LLC |
973 |
- |
|
Artios Pharma Limited |
1,896 |
3,229 |
|
ALS Carried Interest Partner LP |
4,300 |
- |
|
Total |
17,115 |
12,016 |
Autolus
Autolus is Arix's first direct investment, and is developing the next generation of CAR-T therapies for a range of cancer types where the current prognosis for patients' survival is poor. Joe Anderson represents Arix on the company's board. The business is currently valued at cost, which approximates to fair value.
BioMotiv
BioMotiv is the mission-driven development company associated with The Harrington Project for Discovery and Development. Its focus is accelerating breakthrough discoveries from research institutions into therapeutics for patients. Arix's investment is accompanied by the opportunity to review all businesses under consideration by BioMotiv, including all Harrington Scholars projects. Arix's Chairman, Jonathan Peacock, sits on BioMotiv's Advisory Board. At year- end, Arix's investment is valued at £3.8m.
Depixus
Depixus is an early stage Paris-based company developing technology that can sequence both the genome and epigenome, with proof of concept for detecting six epigenetic modifications. Arix employee Ed Rayner is a board member. The business is valued at cost, which approximates fair value.
Verona Pharma
Verona Pharma plc is a clinical stage biopharmaceutical company, focusing on the development and commercialisation of innovative prescription medicines to treat respiratory diseases with significant unmet medical needs, such as chronic obstructive pulmonary disorder and cystic fibrosis. Verona is AIM-listed, emphasising Arix's desire and ability to provide capital to companies at all stages of development. Arix's direct investment was valued at £2.0m at year-end. Furthermore, through Arix's ownership of the carried interest partner of The Wales Life Sciences Investment Fund, it has a further indirect interest in Verona; the fund's stake in the company was valued at £3.3m at year-end.
OptiKira
OptiKira is a pre-clinical company, developing research carried out by its academic founders. This work has helped define the biological pathway leading to progressive cell death which characterises diseases such as retinitis pigmentosa, diabetes, and amyotrophic lateral sclerosis. OptiKira's formation was backed by BioMotiv, the for-profit arm of The Harrington Project for Discovery and Development, in which Arix is also an investor. Arix employee Mark Chin represents Arix on OptiKira's board. The business is valued at cost, which approximates fair value.
Artios Pharma
Artios Pharma is developing new ways to treat cancer by developing a DNA damage response mechanism that can identify and kill cancer cells while sparing healthy tissue. Board level representation is provided by Arix employee Jonathan Tobin. At year-end, the business is valued at cost, which approximates fair value.
Arthurian Life Sciences Carried Interest Partner LP
As part of its acquisition of ALS, Arix has acquired the carried interest partner of The Wales Life Sciences Investment Fund. The fund aims to develop life sciences businesses in Wales, helping make the country an attractive destination for UK and international companies operating in the sector. At year-end, the carried interest vehicle was valued at £4.3m.
Income statement
Revenues included an increase in the fair value of investments in Group Businesses of £1.4m, investment management fees of £0.6m, and fees for providing director services to Group Businesses of £0.1m.
Administrative expenses of £10.3m came partly from one-off operational activities, such as outfitting offices in London and New York, as well as the significant recruitment fees incurred in creating a strong team of life sciences professionals. In addition, the negotiation of commercial agreements and the acquisition of ALS, including the associated application to the FCA for change of control permission, means that legal and professional adviser fees were unusually high.
Foreign exchange gains and other exchange differences are partly due to Arix Bioscience holding assets in currencies other than sterling, and are also caused by the consolidation of Arix Bioscience Inc, which is a US company with a functional currency in US dollars. These together amount to £0.5m.
Exceptional items
The acquisition of ALS caused an exceptional gain £4.0m, following a fair-value valuation review completed by external advisers, adhering to the requirements of IFRS 3.
We have calculated a share based payment charge of £4.7m formed mainly of founder and management options granted at the set-up of the Company. The calculation uses a Black-Scholes model, in accordance with IFRS 2, which makes certain assumptions on the future volatility of a basket of equities across the life sciences sector. This amount is posted as a cost to the Consolidated Statement of Comprehensive Income, and as a credit within Retained Earnings. Following the end of the financial period, when the total comprehensive profit or loss result is taken to Retained Earnings, these items net to nil, which means that this charge has no impact on the net assets or on the value of the Company.
Financial position
Cash held at the end of December 2016 amounted to £28.9m, providing substantial liquidity for operational activities, including identifying and funding life sciences opportunities.
After the Balance Sheet date, in February 2017, the Company successfully completed its Initial Public Offering and was admitted to the London Stock Exchange, having raised £112m.
RISK MANAGEMENT
The Group monitors a number of principal risks and uncertainties that may affect the business. These include financial, non-financial, internal and external concerns.
Risk management framework
The Directors are able to manage the business, and achieve its strategic objectives, due to an effective risk management framework which features multiple layers.
Board
Managing risk is a key responsibility of the Board, who set a strong tone, in line with best practice corporate governance.
Key committees
The Audit and Risk Committee oversees the effectiveness of the risk management processes with expert input from the independent auditors.
The Remuneration Committee ensures incentives and reward are balanced and appropriate for achieving the strategy.
The Nomination Committee addresses the need for continuing strength at the senior levels of the Company and is responsible for succession planning.
Executive management
The management team is responsible for identifying, assessing and mitigating the day-to-day operational risks.
Group Business boards and independent assurance
The boards of our Group Businesses are responsible for ensuring they meet key commercial objectives, and in this they are typically supported by senior members of the Arix Bioscience team, who also sit on their boards.
Independent assurance is provided by industry experts when required. For example, following the acquisition of ALS, which is a regulated by the FCA, we engaged Duff & Phelps to review the status of regulatory compliance and provide assurance to the Board.
Principal risks and uncertainties
We have assessed the key risks to Arix in light of the current environment. These, along with the steps we take to manage those risks, are detailed below.
Risk
Arix's Group Businesses may not generate the financial returns anticipated
Impact
Arix's net assets will increasingly comprise a range of Group Businesses; below-forecast performance from a Group Business may adversely affect Arix's profitability and ability to generate positive cash flows from future realisations
Mitigation
Arix has a world-class team responsible for identifying and developing Group Businesses, resulting in a high standard of due diligence before the commitment of any money. Post-investment, Arix typically has represented on the company's board of directors, ensuring it is fully aware of business developments, and allowing for mitigation of possible issues as they arise.
Arix funds a range of Group Businesses and intends to continue growing and developing its portfolio across a range of interests. As such, it will achieve a diverse portfolio, with financial performance not overly reliant on any one business.
Arix deploys capital to Group Businesses at all stages of a company's life cycle. Therefore, it is exposed not only to very early-stage businesses but also holds interests in more mature companies, where risk of failure is reduced.
Risk
Loss of key personnel - to competitors, or from an external event
Impact
The financial performance of Arix depends on its ability to identify and develop outstanding Group Businesses and, as such, is reliant on its key personnel. Loss of key individuals could affect Arix's financial performance and future prospects.
Mitigation
Arix has a market-appropriate remuneration scheme for its senior employees. This includes share incentive schemes which reward personnel for long-term service and performance.
Arix has three very senior industry figures performing active day-to-day roles. Therefore, the loss of a single member of the executive team would be mitigated by the stature and experience of others within the organisation.
Arix's Nominations Committee is responsible for appropriate succession planning.
Risk
Adverse market conditions may affect Arix's operational model
Impact
An economic downturn may reduce opportunities for Arix to realise capital from Group Businesses, affecting cash flow and financial performance if business valuations are reduced. The availability of capital for any external fundraising by Arix or its Group Businesses may also be affected.
Mitigation
Arix's strategy is to deploy permanent capital into innovative businesses which have unique, high impact outcomes; Arix believes that such businesses are less susceptible to macroeconomic cycles.
Arix monitors its availability of capital closely, ensuring sufficient balances are available for the continuing operation of the business throughout the period assessed in the viability statement.
Risk
Changes to government policy or regulation in the research, healthcare or life sciences industries
Impact
A change in government regulation may adversely affect the profitability of the healthcare and life sciences industry, reducing both the availability of external funding and potential exit opportunities for Arix's Group Businesses.
Mitigation
Arix is a global healthcare company, with Group Businesses in the UK, the USA and Europe. As such, the portfolio is diversified against the adverse actions of any one government.
Viability statement
The Board has assessed the prospects of Arix over a period greater than 12 months. We have considered a period of three years from the balance sheet date, as the Board expects the majority of Arix's current commitments and new proceeds raised to be invested over the next three years.
The Board has carried out a rigorous assessment of the principal risks and their mitigants, noted above. In particular, the Board assessed Arix's ability to manage the risk of over-commitment to Group Businesses by reviewing cash flow projections, which included scenarios with differing impacts to the cash flow forecast inputs.
Based on its review, the Board has a reasonable expectation that Arix will be able to continue in operation and meet its liabilities as they fall due over a three-year period.
Statements of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), and the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently
· make reasonable and prudent judgements and accounting estimates
· state whether IFRS as adopted by the EU and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and Company financial statements respectively
· prepare the financial statements on the going concern basis, unless it is inappropriate to presume the Company will continue in business.
The Directors are responsible for keeping adequate accounting records sufficient to show and explain the Group's and Company's transactions. Also to disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's
performance, business model and strategy.
Each of the Directors, whose names and functions are listed on pages 26 to 28 of the Annual Report, confirm that, to the best of their knowledge:
· the Group financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group;
· the Strategic Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
By order of the Board
James Rawlingson
Chief Financial Officer
26 April 2017
FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
For the period from 15 September 2015 to 31 December 2016
|
|
Note |
2016 £'000 |
|
Change in fair value of investments |
12 |
1,354 |
|
Revenue |
3 |
635 |
|
Administrative Expenses |
6 |
(10,293) |
|
Loss before exceptional items and share based payment charge |
|
(8,304) |
|
Net finance income |
7 |
26 |
|
Exceptional gain |
11 |
3,962 |
|
Exceptional costs |
15 |
(596) |
|
Foreign exchange gains |
|
97 |
|
Share-based payment charge |
19 |
(4,712) |
|
Loss before taxation |
|
(9,527) |
|
Taxation |
9 |
692 |
|
Loss for the period |
|
(8,835) |
|
Other Comprehensive Income |
|
|
|
Exchange differences on translating foreign operations |
|
434 |
|
Total comprehensive loss for the period |
|
(8,401) |
|
Attributable to |
|
|
|
Owners of Arix Bioscience plc |
|
(8,401) |
|
Earnings per share |
|
|
|
Basic earnings per share (p) |
10 |
(0.36) |
|
Diluted earnings per share (p) |
10 |
(0.36) |
Consolidated Statement of Financial Position
As at 31 December 2016
|
|
Note |
2016 £'000 |
|
ASSETS |
|
|
|
Non-Current Assets |
|
|
|
Investments held at fair value |
12 |
17,115 |
|
Intangible assets |
13 |
2,344 |
|
Property, plant and equipment |
14 |
750 |
|
|
|
20,209 |
|
Current Assets |
|
|
|
Cash and cash equivalents |
16 |
28,929 |
|
Trade and other receivables |
15 |
3,262 |
|
|
|
32,191 |
|
TOTAL ASSETS |
|
52,400 |
|
LIABILITIES |
|
|
|
Current liabilities |
|
|
|
Trade and other payables |
17 |
(5,791) |
|
Deferred tax liability |
9 |
(280) |
|
|
|
(6,071) |
|
TOTAL LIABILITIES |
|
(6,071) |
|
NET ASSETS |
|
46,329 |
|
EQUITY |
|
|
|
Share capital and share premium |
18 |
51 |
|
Retained earnings |
|
45,844 |
|
Other reserves |
|
434 |
|
|
|
46,329 |
|
TOTAL EQUITY |
|
46,329 |
Consolidated Statement of Changes in Equity
For the period from 15 September 2015 to 31 December 2016
|
|
Share Capital £'000 |
Share Premium £'000 |
Translation Reserve £'000 |
Retained Earnings £'000 |
Total £'000 |
|
At Incorporation |
- |
- |
- |
- |
- |
|
Loss for the period |
- |
- |
- |
(8,835) |
(8,835) |
|
Other comprehensive income |
- |
- |
434 |
- |
434 |
|
Contributions of equity, net of transaction costs and tax |
51 |
49,967 |
- |
- |
50,018 |
|
Share capital reorganisation |
- |
(49,967) |
- |
49,967 |
- |
|
Share-based payment charge |
- |
- |
- |
4,712 |
4,712 |
|
As at 31 December 2016 |
51 |
- |
434 |
45,844 |
46,329 |
Consolidated Statement of Cash Flows
For the period from 15 September 2015 to 31 December 2016
|
|
Note |
2016 £'000 |
|
Net cash from operating activities |
20 |
(7,457) |
|
Cash flows from investing activities |
|
|
|
Purchase of equity investments |
|
(12,385) |
|
Purchase of property, plant and equipment |
|
(888) |
|
Acquisition of subsidiaries, net of cash acquired |
|
(359) |
|
Net cash from operating activities |
|
(13,632) |
|
Cash flows from financing activities |
|
|
|
Net proceeds from issue of shares |
|
50,018 |
|
Net cash from financing activities |
|
50,018 |
|
|
|
|
|
Net increase in cash and cash equivalents |
|
28,929 |
|
Cash and cash equivalents at start of period |
|
- |
|
Cash and cash equivalents at end of period |
|
28,929 |
Notes to the Financial Statements
(1) General information
The principal activity of Arix Bioscience plc (the 'Company') and together with its subsidiaries (the 'Arix Group' or 'the Group') is to source, finance and develop healthcare and life science businesses globally.
The Company is incorporated and domiciled in the United Kingdom. Arix Bioscience plc was incorporated on 15 September 2015 as Perceptive Bioscience Investments Limited and changed its name to Arix Bioscience Limited. It subsequently re-registered as a public limited company and changed its name to Arix Bioscience plc. The address of its registered office is 20 Berkeley Square, London, W1J 6EQ. The registered number is 09777975.
(2) Accounting policies
a. Basis of preparation
The consolidated financial statements of the Arix Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) applicable to companies reporting under IFRS. The financial statements comply with IFRS as issued by the International Accounting Standards Board (IASB) as adopted by the European Union.
The financial statements have been prepared on a historical cost basis, except for certain financial assets which have been measured at fair value. The financial statements are presented in British pounds sterling, which is the functional and presentational currency of the Company, and the presentational currency of the Group; balances are presented in thousands of British pounds sterling unless otherwise stated.
The Arix Group has applied all standards and interpretations issued by the IASB that were effective at the period end date. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented.
Use of judgements and estimates
In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the Arix Group's accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
Significant estimates are made by the Arix Group when determining the appropriate methodology for valuing investments (see Note 2(i)) and share-based payments (see Note 2(o) and Note 19).
In preparing these financial statements, the directors have considered the relationship that the Group has with The Wales Life Sciences Investment Fund (the "WLSIF") and specifically as to whether the Group controls WLSIF. The directors note that while Arthurian Life Sciences Limited (a 100% subsidiary of Arix Bioscience plc), in its role as fund manager to WLSIF, and Arthurian Life Sciences SPV GP Limited (a 100% subsidiary of Arix Bioscience plc) in its role as general partner of the WLSIF, both exercise power over the activities of WLSIF, they do not have sufficient exposure to variability of returns from WLSIF to meet the definition of control and therefore acts as agents, rather than principals of WLSIF. Accordingly, WLSIF has not been consolidated into these financial statements.
b. Basis of consolidation
Subsidiaries
Subsidiaries are entities over which the Arix Group has control. The Arix Group controls an entity when it is exposed to, or has the right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group.
The consolidated financial statements comprise a consolidation of the subsidiary entities listed below. This table contains the disclosures required by Section 409 of the Companies Act 2006 for subsidiaries.
|
Entity |
Country of Incorporation |
Registered Address |
Ownership |
|
Arix Bioscience Holdings Limited |
England and Wales |
20 Berkeley Square, London, W1J 6EQ |
100% |
|
Arix Bioscience, Inc |
United States |
250 West 55th Street, 33rd Floor, New York NY 10019 |
100% |
|
Arthurian Life Sciences Limited |
England and Wales |
3 Assembly Square, Britannia Quay, Cardiff, CF10 4PL |
100% |
|
Arthurian Life Sciences GP Limited |
Scotland |
16 Charlotte Square, Edinburgh, EH2 4DF |
100% |
|
Arthurian Life Sciences SPV GP Limited |
England and Wales |
3 Assembly Square, Britannia Quay, Cardiff, CF10 4PL |
100% |
|
Arthurian Life Sciences Carried Interest Partner LP |
Scotland |
16 Charlotte Square, Edinburgh, EH2 4DF |
100% |
|
Arix Bioscience Pty Limited |
Australia |
Level 27, AMP Centre, 50 Bridge Street, Sydney NSW 2000 |
100% |
All companies are involved in the sourcing, financing and development of healthcare and life science businesses, other than the Arthurian Life Sciences companies, which are engaged in fund management activity, and Arthurian Life Sciences Carried Interest Partner LP, which holds a financial interest in a limited partnership.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset.
Associates
Associates are entities over which the Group has significant influence, but does not control, generally accompanied by a shareholding of between 20% and 50% of the voting rights.
No associates are presented on the Statement of Financial Position as the Group elects to hold such investments at fair value through profit and loss. This treatment is permitted by IAS 28 Investment in Associates and Joint Ventures, which permits investments held by entities that are akin to venture capital organisations to be excluded from its measurement methodology requirements where those investments are designated, upon initial recognition, as at fair value through profit or loss and accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement. Changes in fair value of associates are recognised in the Statement of Comprehensive Income in the period in which the change occurs. The Group has no interests in associates through which it carries on its business.
The disclosures required by Section 409 of the Companies Act 2006 for associated undertakings are included in Note 12 to the financial statements. Similarly, those investments which may not have qualified as Associate but fall within the wider scope of significant holdings and so are subject to Section 409 disclosure acts are also included in Note 12 to the financial statements.
WLSIF is considered neither a subsidiary nor an associate, as detailed in Note 2(a).
c. Adoption of new and revised standards
A number of new standards and amendments to standards and interpretations are not yet effective and have not been applied early in preparing this financial information. These are summarised below.
• IFRS 15 - 'Revenue from contracts with customers' This standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service.
• The standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted subject to EU endorsement. The Arix Group is assessing the impact of IFRS 15.
• IFRS 16 - 'Leases' This standard replaces the current guidance in IAS 17 - 'Leases' and is a far-reaching change in accounting by lessees in particular. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and a 'right-of-use asset' for virtually all lease contracts.
• IFRS 16 includes an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting remains substantially unchanged. IFRS 16 provides updated guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts); under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
• The standard is effective for annual periods beginning on or after 1 January 2019 and earlier application is permitted subject to EU endorsement. The Arix Group is currently assessing the impact of IFRS 16.
• Amendments to IAS 7 - 'Cash Flow Statements' These amendments to IAS 7 introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. These amendments are effective for annual periods beginning on or after 1 January 2017 and are not expected to have a significant impact on the Arix Group consolidated financial statements.
• Amendments to IAS 12 - 'Income taxes' on Recognition of deferred tax assets for unrealised losses These amendments on the recognition of deferred tax assets for unrealised losses clarify how to account for deferred tax assets related to debt instruments measured at fair value. These amendments are effective for annual periods beginning on or after 1 January 2017 and are not expected to have a significant impact on the Arix Group consolidated financial statements.
• IFRS 9 - 'Financial Instruments' This standard replaces the guidance in IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted subject to EU endorsement. The Arix Group is currently assessing the impact of IFRS 9.
• The impact of the new standards is currently being considered by the Group. There are no other IFRS or IFRS IC interpretations that are not yet effective that would be expected to have a material impact on the Arix Group.
d. Revenue recognition
Revenue is generated from fund management fees, transaction fees and from Non-Executive Directors' fees receivable. Fund management fees are earned as a percentage of fund commitments managed and are recognised in the period in which they arise. Transaction fees are typically earned as a fixed percentage of funds provided and are recognised at the point of completion of the transaction. Non-Executive Directors' fees are recognised on an accruals basis.
e. Foreign currency translation
The assets and liabilities of foreign operations are translated to the Arix Group's presentational currency (British pounds sterling) at foreign exchange rates ruling at the period-end date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive income and accumulated in the translation reserve.
f. Leases
Rents payable under operating leases are charged against income on a straight-line basis over the lease term, even if payments are not made on such a basis.
g. Exceptional items
Items that are material in size and unusual in nature are disclosed separately to provide a more accurate indication of underlying performance.
h. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset.
Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets:
Office Equipment - Three years
Fixtures and Fittings - Five years
Office Furniture - Five years
Leasehold Property - Five years
i. Financial Assets
The Arix Group classifies its financial assets as either at fair value through profit or loss or as loans and receivables. The classification depends on the purpose for which the financial assets have been acquired and is determined on initial recognition.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-
current assets. The Arix Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the Consolidated Statement of Financial Position.
Regular purchases and sales of financial assets are recognised on the trade date - the date on which the Arix Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Arix Group has transferred substantially all risks and rewards of ownership.
Equity Investments
Those Group Businesses in the Arix Group that are held with a view to the ultimate realisation of capital gains are recognised as equity investments within the scope of IAS 39 and are classified as financial assets at fair value through profit or loss. This includes investments in associated undertakings, as per Note 2b. When financial assets are recognised initially they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. They are subsequently remeasured at their fair value if a valuation event occurs. A valuation event may include technical measures, such as product development phases, financial events, such as further injection of capital, and sales events, such as product launches.
Fair value hierarchy
The Arix Group classifies financial assets using a fair value hierarchy that reflects the significance of the inputs used in making the related fair value measurements. The level in the fair value hierarchy, within which a financial asset is classified, is determined on the basis of the lowest level input that is significant to that asset's fair value measurement. The fair value hierarchy has the following levels:
Level 1 - The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price.
Level 2 - The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 3 - If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities.
Valuation of investments
The fair value of quoted investments is based on bid prices at the period end date.
The fair value of unlisted securities is established initially at cost. Subsequently, the fair value is determined using the International Private Equity and Venture Capital Valuation Guidelines December 2015 ('IPEV Guidelines'). The valuation methodology primarily used by the Arix Group is the 'price of recent investment' or a 'milestone analysis' approach.
Investments made in seed, start-up and early stage companies often have no current and no short-term future earnings or positive cash flows; in such circumstances, it can be difficult to gauge the probability and financial impact of the success or failure of development or research activities and to make reliable cash flow forecasts. Consequently, the most appropriate approach to determine fair value is a methodology primarily based in the price of a recent investment.
Where the Arix Group considers that the unadjusted price of investment is no longer relevant, the Group carries out an enhanced assessment based on milestone analysis. In applying the milestone analysis approach to investments in companies in early or development stages, the Group seeks to determine whether there is an indication of change in fair value.
The following factors are considered when calculating the fair value:
• Where the investment being valued was itself made recently, its cost will generally provide a good indication of fair value, unless there is objective observable evidence that the investment has since been impaired;
• Where there has been a recent investment by a third party, the price of that investment will provide a basis of the valuation;
• If there is no readily ascertainable value or recent transaction, the Arix Group considers alternative IPEV Guidelines methodologies, principally being discounted cash flows and price-earnings multiples. In these instances, a price to earnings multiple is derived from an equivalent business that is considered a suitable proxy. An appropriate discount is applied to the price-earnings multiple for risks inherent to early stage businesses;
• Where a fair value cannot be estimated reliably, perhaps because of a lack of either revenue or earnings, the investment is reported at carrying value, unless there is evidence that the investment has been impaired or there has been a 'milestone' event. A milestone event may include technical measures such as product development phases and patent approvals, financial measures such as cash burn rate and profitability expectations, and market and sales measures such as testing phases, product launches and market introductions; and
• Where the equity structure in an investment involves different class rights in a sale or liquidity event, the Arix Group takes these different rights into account when forming a view of the fair value of its investment.
Although the Directors use their best judgement, and cross-reference results of primary valuation models against secondary models in estimating the fair value of investments, there are inherent limitations in any estimation techniques. Whilst fair value estimates presented herein attempt to present the amount the Arix Group could realise in a current transaction, the final realisation may be different, as future events will also affect the current estimates of fair value. The effects of such events on the estimates of fair value, including the ultimate liquidation of investments, could be material to the financial statements.
This is particularly significant for the Arix Group's interest in the carried interest vehicle of The Wales Life Sciences Investment Fund. Underlying companies within the fund are at an early stage of their lives and are generally held at a value equal to cost until a milestone is reached. This makes the valuation of the carried interest sensitive to the assumptions used regarding the size and timing of realisations. This information is then used to determine the carried interest valuation, using a discounted cash flow model; further assumptions are made in this calculation, with the final balance being particularly sensitive to the choice of discount rate; a liquidity discount is also applied. Any ultimate gain for the Arix Group from this holding may be materially different from the current fair value.
Treatment of gains and losses arising on fair value
Realised and unrealised gains and losses on financial assets at fair value through profit and loss are included in the Statement of Comprehensive Income in the period in which they arise.
Recognition of financial assets
Purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
Loans and receivables are subsequently carried at amortised cost using the effective interest method.
Impairment of financial assets
At the end of each reporting period the Arix Group assesses whether there is objective evidence that its loans and other receivables are impaired. The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. The asset's carrying amount is reduced through the use of an allowance account and the amount of the loss is recognised in the Statement of Comprehensive Income within administrative expenses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in the Statement of Comprehensive Income within administrative expenses.
Financial assets and liabilities are offset when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Arix Group or the counterparty. Where these conditions are met, the net amount is reported in the Statement of Financial Position.
j. Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, call deposits and bank overdrafts.
k. Goodwill and Intangible Assets
Intangibles were acquired by the Arix Group as part of the acquisition of Arthurian Life Sciences Limited and Arthurian Life Sciences SPV GP Limited (see Note 11). It is the policy of the Arix Group to amortise these fair values over the period in which the Arix Group is expected to obtain economic benefit from the related intangible assets. The excess of consideration transferred over the fair value of net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in the Statement of Comprehensive Income as a bargain purchase.
l. Share capital
Ordinary Shares and Series B Shares are classified as equity. Equity instruments issued by the Arix Group are recorded at the proceeds received, net of direct issue costs.
m. Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer).
If not, they are presented as non-current liabilities.
Trade payables are initially recognised at fair value, generally being the invoiced amount and are subsequently measured at amortised cost, using the effective interest method.
n. Current and deferred taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in the Statement of Comprehensive Income, except to the extent that it relates to items recognised directly in equity.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Arix Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the balance sheets. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the Statement of Financial Position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
o. Share-based payments
The Arix Group operates an executive share option plan in which the Group's founders also participate. Share options must be measured at fair value and recognised as an expense in the Statement of Comprehensive Income with a corresponding increase in equity. The fair value of the option is estimated at the date of grant using the Black-Scholes Model and is charged as an expense in the Statement of Comprehensive Income over the vesting period. The charge is adjusted each year to reflect the expected and actual level of vesting. Estimation uncertainty arises with this balance as the calculation incorporates assumptions for share price, exercise price, expected volatility (based on similar quoted companies), risk free interest rate and share option term. In addition to management share options, the Group has also provided Founders Shares, which are classed as a share-based payment. As no service conditions are attached to these shares, the incremental accounting charges have been recognised immediately.
p. Financial risk management
The Arix Group is exposed to market risk, interest rate risk, credit risk and liquidity risk. The senior management oversees the management of these risks and ensures that the financial risk taking is governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Arix Group's policies and risk appetite.
The Board of Directors review and agree the policies for managing each of these risks, which are summarised below:
Market risk
Foreign exchange risk - the Arix Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and euros. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Arix Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk; at period-end the Arix Group held euro-denominated assets valued at €930k and US dollar-denominated assets valued at
$5,888k. The impact of foreign exchange on these holdings is closely monitored.
Price risk - the Arix Group is exposed to equity securities price risk because investments are held at fair value through profit or loss.
Arix's strategy is to deploy permanent capital into innovative businesses which have unique, high impact outcomes; Arix believes that such businesses are less susceptible to macroeconomic cycles. Arix monitors its availability of capital closely, ensuring sufficient balances are available for the continuing operation of the business throughout the period assessed in the viability statement.
Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates.
The Arix Group's income is substantially independent of changes in market interest rates. Interest bearing assets include only cash and cash equivalents, which earn interest at variable rates. The Arix Group has a treasury policy to manage cash and cash equivalents.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Arix Group. The major classes of financial assets of the Arix Group are cash and cash equivalents (31 December 2016: £28,929k) and trade and other receivables (£3,262k).
Risk of counterparty default arising on cash and cash equivalents is controlled within a framework of dealing with high quality institutions.
As at 31 December 2016, 100% of cash and cash equivalents was deposited with institutions that have a credit rating of at least category A+A, according to Fitch ratings.
No counterparty has failed to meet its obligations over the period. The maximum exposure to credit risk is represented by the carrying amount of each asset. Management does not expect any significant counterparty to fail to meet its obligations.
Liquidity risk
The Arix Group manages liquidity risk by maintaining sufficient cash to enable it to meet its operational requirements. The following table details the Arix Holdings Group's remaining contractual maturity for its financial liabilities based on undiscounted contractual payments:
|
|
Within 1 year £'000 |
1 to 2 years £'000 |
2 to 5 years £'000 |
Over 5 years £'000 |
Total £'000 |
|
Trade, other payables and accruals |
5,791 |
- |
- |
- |
5,791 |
Capital risk management
The Arix Group manages its capital to ensure that it will be able to continue as a going concern, whilst also maximising the operating potential of the business. The capital structure of the Arix Group consists of equity attributable to equity holders of the Arix Group, comprising issued capital and retained earnings as disclosed in the Consolidated Statement of Changes in Equity. The Arix Group is not subject to externally imposed capital requirements.
(3) Revenue
|
|
2016 £'000 |
|
Fund management fee income |
589 |
|
Other income |
46 |
|
|
635 |
The total revenue for the Arix Group has been derived from its principal activity of sourcing, financing and developing healthcare and life science businesses globally. All of this revenue relates to trading undertaken in the United Kingdom.
(4) Segmental Information
Information for the purposes of resource allocation and assessment of performance is reported to the Arix Group's Chief Executive Officer, who is considered to be the chief operating decision maker, based wholly on the overall activities of the Arix Group. It has therefore been determined that the Arix Group has only one reportable segment under IFRS 8 ('Operating Segments'), which is that of sourcing, financing and developing healthcare and life science businesses globally. The Arix Group's revenue, results and assets for this one reportable segment can be determined by reference to the Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position.
(5) Loss Before Taxation
|
|
2016 £'000 |
|
Negative goodwill on acquisition of Arthurian Life Sciences |
3,962 |
|
Auditors' remuneration |
|
|
Statutory audit services |
|
|
Fees payable for the audit of the Arix Group accounts |
95 |
|
Fees payable for the audit of the accounts of subsidiaries of the Arix Group |
43 |
|
Non-audit services |
|
|
Taxation advisory services |
35 |
|
Taxation compliance services |
- |
|
Other assurance and advisory services |
722 |
|
Total auditors' remuneration |
895 |
(6) Administrative Expenses
The administrative expenses charge broken down by nature is as follows:
|
|
2016 £'000 |
|
Employment costs |
6,324 |
|
Recruitment costs |
837 |
|
Consultancy fees |
1,152 |
|
Other Expenses |
1,980 |
|
|
10,293 |
(7) Net Finance Income
|
|
2016 £'000 |
|
Bank Interest |
36 |
|
Bank Charges |
(10) |
|
|
26 |
(8) Employee Costs
Employee costs (including Directors) comprise:
|
|
2016 £'000 |
|
Salary and bonus |
5,560 |
|
Social security costs |
712 |
|
Pension costs |
52 |
|
|
6,324 |
(9) Income Tax
|
Current period tax charge |
2016 £'000 |
|
Current tax |
- |
|
Deferred tax |
(692) |
|
Total tax credit |
(692) |
|
Reconciliation of tax charge |
|
|
Loss before tax |
(9,527) |
|
Expected tax based on 20% tax rate |
(1,906) |
|
Expenses not deductible for tax purposes |
890 |
|
Income not taxable |
(792) |
|
Impact of rate between deferred tax and current tax |
187 |
|
Deferred tax not recognised |
929 |
|
Total tax credit |
(692) |
|
Tax creditor |
|
|
Brought forward |
- |
|
Relating to Acquisition |
(31) |
|
Relating to Profit and Loss |
- |
|
Carried forward |
(31) |
|
Recognised deferred tax provisions |
|
|
Brought forward |
- |
|
Relating to Acquisition |
(972) |
|
Relating to Profit and Loss |
692 |
|
Carried forward |
(280) |
|
Represented by: |
|
|
Unutilised tax losses |
575 |
|
Capital allowances |
5 |
|
Acquisition of intangible asset |
(398) |
|
Share-based payment charge |
118 |
|
Change in fair value of investment |
(580) |
|
|
(280) |
|
Unrecognised deferred tax provisions |
|
|
Unutilised tax losses |
839 |
|
|
839 |
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7 September 2016). These include reductions to the main rate to 19% from 1 April 2017 and to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements.
Deferred tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Group did not recognise deferred income tax assets of £839k in respect of losses amounting to £4,979k, which can be carried forward against future taxable income.
(10) Earnings per Share
On 8 February 2016, 97,046,908 Ordinary Shares were disenfranchised pursuant to a restrictive share agreement. The restrictive share agreement makes provision for the release of the restrictions in certain circumstances, which includes upon the subscription for future share issues.
Disenfranchised shares are not entitled to vote, attend meetings or to receive dividends or other distributions. Consequently, disenfranchised shares have been excluded from the calculation of the weighted average number of shares in issue.
Basic earnings per share is calculated by dividing the loss attributable to equity holders of Arix Bioscience plc by the weighted average number of enfranchised shares (as adjusted for capital subscription in accordance with the terms of the restrictive share agreement) in issue during the period.
The Arix Group has potentially dilutive ordinary shares, being those share options granted to employees. As the Arix Group has incurred a loss in the period, the diluted loss per share is the same as the basic earnings per share as the loss has an anti-dilutive effect.
|
|
Period Ended 31 Dec 2016 £'000 |
|
Loss attributable to equity holders of Arix Bioscience plc |
(8,401) |
|
Weighted average number of shares in issue |
23,030,546 |
|
Basic and diluted loss per share |
(0.36)p |
(11) Acquisition of Arthurian Life Sciences Limited and Arthurian Life Sciences SPV GP Limited
On 20 June 2016, the Arix Group acquired the whole of the issued share capital of both Arthurian Life Sciences Limited and Arthurian Life Sciences SPV GP Limited, for a total cash consideration of £891,431. Actual completion occurred on 8 July 2016 but as all pre-conditions for the transaction had been fulfilled on 20 June 2016, the acquisition was deemed to have occurred on 20 June 2016.
The following table summarises the book values of the identifiable assets and liabilities and their fair values at the date of acquisition.
|
|
2016 £'000 |
|
Cash paid |
891 |
The fair value of the shares acquired of Arthurian Life Sciences Limited was calculated on the basis of:
(i) income multiples relating to the management fees due to Arthurian Life Sciences Limited as a result of managing the Wales Life Sciences Investment Fund; and
(ii) Current day valuation of the Wales Life Sciences Investment Fund and the excess value due to Arthurian Life Sciences Limited as a result of its carried interest arrangement. This was discounted to reflect liquidity risk.
The assets and liabilities recognised as a result of the acquisition are as follows:
|
|
2016 £'000 |
|
Debtors |
216 |
|
Cash |
221 |
|
ALS interest in carried interest arrangement |
3,800 |
|
Fair value of interest in management fees charged to WLSIF |
2,400 |
|
Allocation of net assets to management fees as part of fair value process |
86 |
|
Short-term creditors |
(868) |
|
Fair value of assets acquired |
5,855 |
|
Less: purchase price of assets acquired |
(891) |
|
Negative goodwill arising on purchase of assets |
4,964 |
|
Deferred tax liability in respect of business combination |
(1,002) |
|
Negative goodwill credited to profit and loss |
3,962 |
The sale of ALS to Arix Bioscience was agreed in December 2015. Following FCA approval for the sale in June 2016, a fair value exercise of ALS was undertaken. The fair value of the interest in management fees charged to The Wales Life Sciences Investment Fund ('WLSIF') is amortised over the expected life of the fund. The fair value of Arthurian Life Sciences' interest in the WLSIF carried interest arrangement was reviewed by external valuations experts Duff & Phelps at 31 December 2016 and its value was assessed to have increased to £4.3m.
(12) Investments
Equity Investments
|
|
Level 1- Quoted Investments £'000 |
Level 3 - Unquoted Investments £'000 |
Total £'000 |
|
At incorporation |
- |
- |
- |
|
Additions |
1,854 |
13,408 |
15,262 |
|
Unrealised gain on investments |
166 |
1,188 |
1,354 |
|
Foreign exchange gains |
- |
499 |
499 |
|
At 31 December 2016 |
2,020 |
15,095 |
17,115 |
Level 3 investments are valued with reference to either price of recent investment (£10,795k); or by discounted cash flow (£4,300k); the latter used a discount rate of 14.5%, a discount for marketability (20%) and other assumptions relating to exit values and exit dates (see Note 2(i) for further details).
As permitted by IAS 28 'Investment in Associates' and in accordance with the Arix Group accounting policy, investments are held at fair value even though the Arix Group may have significant influence over the companies. As at 31 December 2016 the Arix Group is deemed to have significant influence over the following entities, either due to holding more than 20% of the issued share capital, and/or having a director on the board of the company:
|
Company |
Country of Incorporation |
Registered Address |
% of Issued Share Capital Held |
Net Assets/ (Liabilities) of Company £'000 |
Profit/(Loss) of Company £'000 |
Date of Financial Information |
|
Artios Pharma Limited |
England and Wales |
Babraham Hall, Babraham Research Campus, Cambridge, CB22 3A |
15.1% |
- |
- |
- |
|
Autolus Limited |
England and Wales |
Forest House 58 Wood Lane London, England, W12 7RZ |
4.8% |
6,309 |
(3,674) |
30 September 2015 |
|
Depixus SAS |
France |
3-5 Impasse Reille, 75014 Paris |
19.1% |
- |
- |
- |
|
OptiKira, LLC |
USA |
20600 Chagrin Boulevard, Suite 210, Cleveland, OH 44122 |
31.9% |
- |
- |
- |
In addition, at 31 December 2016, the Group held the following investments in Group Businesses where it is not considered to have significant influence:
|
Company |
Country of Incorporation |
Registered Address |
% of Issued Share Capital Held |
|
BioMotiv, LLC |
USA |
20600 Chagrin Boulevard, Suite 210, Cleveland, OH 44122 |
17.8% |
|
Verona Pharma plc |
England and Wales |
3 More London Riverside, London, SE1 2RE |
2.5% |
The Arix Group has an interest in one structured entity, The Wales Life Sciences Investment Fund (registered address: Life Sciences Hub Wales, 3 Assembly Square, Britannia Quay, Cardiff, Wales, CF10 4PL). A structured entity is an entity that is structured in such a way that voting or similar rights are not the dominant factor in deciding who controls the entity. The Arix Group is not deemed to have control over this fund for the reasons disclosed in Note 2(a).
(13) Intangible Assets
|
|
Period Ended 31 Dec 2016 £'000 |
|
At incorporation |
- |
|
Additions |
2,486 |
|
Amortisation |
(142) |
|
At 31 December 2016 |
2,344 |
An intangible asset arose on Arix Bioscience plc's acquisition of ALS, relating to management fees due to Arthurian Life Sciences Limited as a result of managing The Wales Life Sciences Investment Fund. These fees are amortised over a nine year period, being the expected remaining life of the fund at the time of acquisition.
(14) Property, Plant and Equipment
|
Company |
Fixtures and Fittings £'000 |
Leasehold Improvements £'000 |
Office Equipment £'000 |
Total £'000 |
|
Cost |
|
|
|
|
|
Additions |
682 |
50 |
156 |
888 |
|
At 31 December 2016 |
682 |
50 |
156 |
888 |
|
Depreciation |
|
|
|
|
|
Depreciation Charge |
(105) |
(6) |
(27) |
(138) |
|
At 31 December 2016 |
(105) |
(6) |
(27) |
(138) |
|
Net Book Value |
|
|
|
|
|
At 31 December 2016 |
577 |
44 |
129 |
750 |
(15) Trade and Other Receivables
|
|
As at 31 Dec 2016 £'000 |
|
Trade receivables |
610 |
|
Other receivables |
2,099 |
|
Prepayments |
113 |
|
VAT receivable |
440 |
|
At 31 December 2016 |
3,262 |
Other receivables includes £1,940k of expenditure which is directly attributable to the Company's IPO. On completion of the IPO in February 2017, such amounts have been capitalised against the Company's share reserve, in line with the Group's accounting policy. Expenditure which is not directly attributable to the IPO has been expensed in the period. The carrying values of trade and other receivables approximates their fair value.
The maximum exposure to credit risk at the reporting date is the carrying value of each asset class listed above. The Arix Group does not hold any collateral as security.
(16) Cash and Cash Equivalents
|
|
As at 31 Dec 2016 £'000 |
|
Cash at bank and in hand |
28,929 |
The carrying value of cash and cash equivalents approximates to its fair value.
(17) Trade and Other Payables
|
|
As at 31 Dec 2016 £'000 |
|
Trade payables |
1,280 |
|
Accruals and other payables |
4,383 |
|
Deferred Income |
3 |
|
Current Tax Liabilities |
125 |
|
|
5,791 |
The carrying values of trade and other payables approximates their fair value.
(18) Share Capital
|
|
As at 31 Dec 2016 £'000 |
|
Allotted and called up |
|
|
100,966,920 ordinary shares of £0.00001 each |
1 |
|
28,916,666 Series B shares of £0.00001 each |
- |
|
Series C shares of £1 each |
50 |
On incorporation, the Company issued one ordinary share of £1. On 29 September 2015, the Company issued an additional 999 ordinary shares of £1 each at par.
On 10 November 2015, each ordinary share of £1.00 each was subdivided into 100,000 Ordinary Shares of £0.00001. On 30 November 2015, the Company issued and allotted 966,920 Ordinary Shares at par.
On 8 February 2016, the Company created a new class of Series B Shares of £0.00001 each ('Series B Shares') and deferred shares of
£0.00001 each (the 'Deferred Shares'). At 31 December 2016, no Deferred Shares have been issued.
On 8 February 2016, the Company issued and allotted 27,805,556 Series B Shares at an issue price of £1.80 per share. On the same date, 97,046,908 ordinary shares were disenfranchised pursuant to a restrictive share agreement. Disenfranchised shares are not entitled to vote, attend meetings of the Company, or to receive dividends or other distributions made or paid on the ordinary shares. The restrictive share agreement makes provision of the release of the restrictions in certain circumstances, which includes upon the subscription for future share issues.
On 15 April 2016, the Company issued and allotted 1,111,110 Series B shares at an issue price of £1.80 per share. On 7 June 2016, 156,642 ordinary shares were released from the obligations under the restrictive share agreement.
On 14 September 2016, the Company issued and allotted 49,671 Series C shares at a nominal value of £1.00 per share. Series C shares carry no voting nor distribution rights. On the same date, as part of the share capital reorganisation required to become a plc, all share premium previously recognised was transferred to retained earnings.
All other ordinary and Series B shares carry equal voting and distribution rights.
(19) Share Options
Arix Group operates an Executive Share Option Plan.
On 8 February 2016, options were granted pursuant to the Executive Share Option Plan to two Directors at an exercise price of £1.80 per ordinary share. The number of ordinary shares subject to the options are the requisite number of ordinary shares as represents 5.43%. Of the fully diluted ordinary share capital of the Company immediately following an initial financing round by private placements (up to and including financing of £100 million), increased by such number of ordinary shares as are necessary to constitute 5.43%. of either:
(a) The Company's fully diluted share capital on a qualifying private placing; or
(b) The Company's listed class of ordinary shares on a qualifying initial public offering.
The options will vest in four equal proportions on 8 February of 2017, 2018, 2019 and 2020. The options may not be exercised after the tenth anniversary of the grant date and it will lapse on that date if it has not lapsed or been exercised in full before then.
All options vest at the end of the vesting period relating to that option or on the occurrence of a contingent event.
Options with identical terms were offered to the founders of the Company constituting 5 percent of the issued share capital of the Company after admission.
With regards to the Executive Share Option Plan, contingent events include a change of control or cessation of employment in accordance with "good leaver" provisions.
Share-based payments
For the period to 31 December 2016, a share-based payment charge of £4,712,000 has been recognised for a variety of share-based payment schemes offered by the Group. A charge of £1,379,000 was booked in the period in respect of equity-settled share options, granted on
8 February 2016, with an exercise price of £1.80 per share. The options are exercisable over ten years from the date of grant and vest in four equal instalments on 8 February 2017, 8 February 2018, 8 February 2019 and 8 February 2020. As at 31 December 2016, two Directors had options over the requisite number of shares as represents 5.43% of the fully diluted ordinary share capital of the Company following admission. Further details of the share awards can be found in the Directors' Remuneration Report.
As at 31 December 2016, Founders had options over 5% of the fully diluted ordinary share capital of the Company following admission. A charge of £1,896,000 was booked in the period relating to these options.
The fair value of the two forms of options granted was calculated using the Black-Scholes model, incorporating relevant assumptions for share price, exercise price, expected volatility (based on similar quoted companies), risk free interest rate and share option term. The resultant fair value was then spread over the relevant vesting period for each tranche of share options. The fair value of options granted in the period is measured by use of the Black-Scholes option pricing model using the following assumptions:
|
|
Period ended 31 Dec 2016 £'000 |
|
Share price |
£2.07 |
|
Exercise price at grant date |
£1.80 |
|
Fair value at grant date |
£0.45-£0.71 |
|
Risk free interest rate |
0.5%/0.6% |
|
Expected volatility |
37% |
|
Expected period to exercise (years) |
1 to 4 |
A further charge of £1,437,000 was also booked as a one-off charge in the period relating to the 7% of the Group that will be controlled by the Founders post admission. This was produced as an incremental theoretical fair value to the Founders based on the assumption of a successful admission to the London Stock Exchange and produced a higher theoretical value to the Founders than the amount previously calculated when a successful admission was deemed less likely. For the Founders' shares, there is no vesting period and therefore the full charge has been recognised in the period.
(20) Notes to the Statement of Cash Flows
|
|
Period ended 31 Dec 2016 £'000 |
|
Loss before income tax |
(9,527) |
|
Adjustments for: |
|
|
Change in fair value of investments |
(1,354) |
|
Exceptional gain |
(3,962) |
|
Foreign exchange gain |
(97) |
|
Share-based payment charge |
4,712 |
|
Depreciation and Amortisation |
278 |
|
Finance income |
(36) |
|
Changes in Working Capital |
|
|
(Increase) in trade and other receivables |
(3,262) |
|
Increase in trade and other payables |
5,791 |
|
Cash used in Operations |
(7,457) |
(21) Financial Commitments
Operating Leases
At 31 December 2016, operating leases represent short-term leases for office space.
Future aggregate minimum lease payments under non-cancellable operating lease agreements are as follows:
|
|
As at 31 Dec 2016 £'000 |
|
No later than one year |
673 |
|
Later than one year and no later than five years |
2,208 |
|
Later than five years |
- |
|
|
2,881 |
(22) Financial Instruments
Financial Assets
The Arix Group has other receivables and cash that derive directly from its operations. Financial assets at fair value through profit or loss are measured as either Level 1 or Level 3 under the fair value hierarchy, as described in Note 2i and disclosed in Note 12.
|
|
As at 31 Dec 2016 £'000 |
|
Financial Assets at Fair Value Through Profit or Loss |
|
|
Equity investments |
17,115 |
|
Loans and Receivables |
|
|
Other receivables (excluding prepayments) |
2,709 |
|
Cash and cash equivalents |
28,929 |
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. The Arix Group's cash and cash equivalents are deposited with A+ rated institutions. Investments and other receivables do not have a credit rating. However, the Group does not believe these to be past due nor impaired.
Financial Liabilities
The Arix Group's principal financial liabilities comprise trade and other payables. The primary purpose of these financial liabilities is to finance the operations.
|
|
As at 31 Dec 2016 £'000 |
|
Trade, Other Payables and Accruals (excluding non-financial liabilities) |
5,791 |
(23) Guarantees
The Company has provided a rent deposit guarantee in respect of its US office for an amount of $261,657 (£212,103).
(24) Related Party Transactions
On 21 December 2015, the Company agreed to acquire the whole of the issued share capital of Arthurian Life Sciences GP Limited, and entered into a conditional agreement to acquire the whole of the issued share capital of Arthurian Life Sciences Limited and Arthurian Life Sciences SPV GP Limited. These entities were to be acquired from C Evans (a Director and shareholder of the Company) and C Chipperton (a shareholder of the Company) for an aggregate price of £891,531. The agreement was conditional on consent from the Financial Conduct Authority, which was granted on 20 June 2016.
The Company paid transaction fees of £900,000 to Arthurian Life Sciences Limited during the period, in connection with the issue of shares in February 2016.
The Company paid £805,625 (inclusive of VAT of £45,746) to Arthurian Life Sciences Limited during the period in respect of certain costs met on its behalf.
Consultancy fees amounting to £1,146,0001 (inclusive of VAT) were payable to Merlin Scientific LLP during the period, a partnership controlled by C Evans, a Director and substantial shareholder of the Company. At 31 December 2016, £882,000 (inclusive of VAT) was owed to Merlin Scientific LLP by the Company.
David U'Prichard, a Non-Executive Director of the Company, provides consulting services and administrative support to BioMotiv LLC. The consulting services and administrative support are provided through Druid Consulting LLC, a firm controlled by David U'Prichard. The Company is a stakeholder of BioMotiv LLC. During the period ended 31 December 2016, Druid Consulting LLC received a total of $247,195 from BioMotiv LLC.
Consultancy fees amounting to £292,000 (inclusive of VAT) were payable to Bradshaw Consulting Limited during the period, a company owned by Martin Walton, who is a director of Arthurian Life Sciences Limited. At 31 December 2016, no amounts were owed to Bradshaw Consulting Limited by the Group.
Key management comprises solely the Directors of the Arix Group, the emoluments of which are disclosed in the Directors' Remuneration Report.
(25) Events After the Reporting Date
On 22 February 2017, the Group was admitted to the standard listing segment of the Official List of the UKLA and to London Stock Exchange plc's Main Market for listed securities. Conditional dealings in the ordinary shares commenced on 17 February 2017; admission became effective at 8am on 22 February 2017, at which point unconditional dealings in the ordinary shares commenced. 48,309,179 shares were issued, with gross capital of £100.0m raised.
On 20 March 2017, the Group partially exercised the Over-Allotment Option available to it following its listing. A further 6,139,815 shares were issued, with gross capital of £12.7m raised.
At the publication date of these accounts, shares in issue totalled 96,091,083, of which 9,952,573 were restricted.
This information is provided by RNS
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