Interim Results

RNS Number : 0461F

Avacta Group PLC

18 April 2011

 



Press Release

18 April 2011

Avacta Group plc

("Avacta" or the "Group")

Interim Results

Avacta Group plc (AIM:AVCT), a provider of innovative, high value proprietary technologies and services to the pharmaceutical and diagnostics markets, is pleased to announce its interim results for the six months ended 31 January 2011.

Highlights

·	Revenue increased by 12% to £1.00 million (2010: £0.89 million)
·	Substantial reduction in operating loss to £0.60 million (2010 £1.19 million)
·	Loss per share improved significantly to 0.03 pence (2010: 0.10 pence)
·	Strong balance sheet with £2.52 million cash
·	Raised £1.95 million from new and existing shareholders for business development
·	Global network of distributors established for Optim, the revolutionary analytical device designed to reduce costs for biopharma developers
·	Strong pipeline of interest and good visibility on Optim's order book with six orders taken and four of these units despatched in the period
·	AX-1 veterinary diagnostic device launched in November 2010; generating positive feedback from customers
·	Optim and AX-1 manufacturing facility established in Wetherby, Yorkshire
·	Acute phase protein test kits for animal health market completed, with commercialisation under discussion with a major international distributor

Post period end:

·	A further four Optim orders taken for US and China and four units dispatched US, Europe and China
·	Potentially transformational commercial partnership agreed with Pall Corporation in North America
·	Additional distribution agreements with Cold Spring Biotech Corp for China and Taiwan, Isogen Life Sciences in Europe, and DKSH for Japan
·	Finalising scaled up manufacturing of test cartridges for AX-1

Alastair Smith, Chief Executive Officer, commented:

"Avacta has made excellent commercial progress during the period, having successfully completed a substantial product development phase to deliver two innovative products to market. The Group is now focused on commercialisation of these products and establishing the associated recurring revenue streams.

"The Group is now well financed to deliver on its current programme and the Board looks forward to reporting on continued growth in the installed Optim base and also on a first contribution from the veterinary diagnostic device, AX-1, in due course.

"With commercial partnerships now in place and our products entering all of our key global markets, the Board is confident that Avacta will continue to make good progress in the second half of the year."

- Ends -

Enquiries:

Avacta Group plc	Tel: [phone]
Alastair Smith, Chief Executive Officer Tim Sykes, Chief Financial Officer	www.avacta.com
Broker - XCAP Securities Plc	Tel: [phone]
John Grant / Karen Kelly / David Newton	www.xcapgroup.com
Nominated Adviser - Grant Thornton Corporate Finance	Tel: [phone]
Phillip Secrett / Colin Aaronson /  David Hignell	www.grantthornton.co.uk

Media enquiries - Abchurch Communications	Tel: [phone]
Adam Michael / Simone Elviss / Oliver Hibberd	www.abchurch-group.com

Notes to Editors

Avacta Group plc, a leading, UK-based healthcare equipment and instrumentation business, provides innovative, high value proprietary technologies and services to the life sciences/healthcare sector through two operating divisions:

Avacta Analytical provides high-end analytical instrumentation and services to the biopharmaceutical sector, expected to be a US$200bn revenue market by 2013 and the fastest growing part of the pharmaceutical industry. The Company's technologies are aimed at reducing the risks and expense associated with biological drug development and thereby reducing the final cost of drugs to patients. The Company's lead analytical instrument, Optim, is distributed through Pall Corporation in the US, Isogen Life Sciences in Europe, Cold Spring Biotech Corp in China and Taiwan and DKSH in Japan. Avacta sells Optim directly in the UK.

Avacta Animal Health provides diagnostic products and services for the $1.5bn global veterinary diagnostics market. Its aim is to equip veterinary professionals with high quality animal health and well-being information, through point of care diagnostics and laboratory based testing. Avacta's AX-1 point of care immunoassay system is aimed at providing the veterinarian with rapid blood test results in the clinic. The initial range of tests launched with the AX-1 relates to Avacta's world leading allergy testing brand Sensitest®. Avacta is developing further assays for the AX-1 system to diagnose a range of diseases in companion animals. Longer term these technologies will be transferred into the human clinical diagnostics market.

Avacta joined AIM in August 2006 and is based in Wetherby and York, England.

CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S REPORT

Business Overview

Avacta has two well established operating business units serving two large life science markets: Avacta Analytical provides technology that cuts the costs and risk of failure in biological drug development, and Avacta Animal Health has diagnostics aimed at companion animal healthcare. It is now developing and commercialising a range of high value products and services to serve both of these market sectors. The breadth of the Group's products and services in these markets provides a wide range of opportunities for continued growth and a diversified earnings base to the business. Avacta has continued to deliver strong revenue growth during the period.

During the half year period, Avacta has continued to focus on the commercialisation of its proprietary technologies and high value expert services. Moreover, the longer term value of Avacta continues to be driven by the "razor blade" business model, where innovative products provide recurring revenue streams from consumable cartridges and support and maintenance contracts.

Progress in the Period

Avacta Analytical

Avacta Analytical is positioned as a leading provider of equipment and contract services for the analysis of biopharmaceutical drug compounds. These are drugs based on biological molecules such as antibodies, rather than chemicals. The cost of bringing a new biopharmaceutical drug to market, added to the well known high risks of failure of these compounds in development, has created a hugely valuable opportunity for Avacta, to provide enabling technology and expert contract services that help bring drugs to market quicker and more cheaply. Avacta Analytical is recognised as a leading provider of biophysical analysis services, having worked with approximately 50 pharmaceutical companies worldwide.

Optim

The launch of Optim, a revolutionary analytical device for biological drug developers to validate their compounds at the very earliest stages of the drug development process, has met with a high degree of interest from the biopharmaceuticals sector. Utilising proprietary optical technology in conjunction with a disposable, high throughput sample holder, Optim is capable of delivering detailed analysis of drug compounds using minute sample volumes. This capability is critical if these analyses are to be carried out early in the drug development process, when sample volumes are in scarce supply and are hugely expensive to produce.

Optim presents significant advantages over other known technologies; it:

·	provides more information;
·	uses at least 100x less sample volume; and
·	delivers results on a vastly improved timeframe, compressing months of work into days or weeks.

Consequently, the return on investment for Optim users is high, with payback likely to be only a few months in many cases.

Avacta has continued to expand its distribution network for Optim and now has global reach after completing distribution agreements with Pall Corporation for the US, DKSH for Japan and Cold Spring Biotech Corp for Taiwan and China and Isogen Life Sciences in Mainland Europe. The differentiating features of the product are the compelling return on investment and its ability to facilitate early stage, high throughput analysis of compounds reducing development risks and costs. Avacta's own sales efforts, and now those of partners, continues to build the sales pipeline. Conversion is now growing, following the expected sales cycle for large capital equipment in this market. There is good visibility of forward revenues with six orders taken in the period with four units out of the six despatched already. A further four units have been ordered since the period, with four further despatches, bringing the total installed base to eight.

The volume of consumable cartridge usage is key to the level of recurring revenue that is possible from an installed device. It is still early in the roll out of the product but the indicators are encouraging that consumable usage, and therefore the recurring revenues, will be attractive.

Avacta Analytical has clear and fully resourced operational and commercial targets for 2011:

·	reduction in the build cost of the Optim unit and improvement in margins;
·	improvement in the margin of the consumable sample holders; and,
·	increasing the range of applications for Optim with additional software upgrades and potentially new consumable options that will broaden the addressable market.

Avacta Analytical has a longer term plan to expand the product range for the same market and will be exploring such opportunities as part of its commercial relationship with Pall Corporation. Further updates on progress will be made in due course.

Avacta Analytical delivered revenues in the period of £410,000; up 83% against £224,000 for H2 2010 and up 51% against £272,000 for H1 2010.

Avacta Animal Health

Avacta Animal Health provides diagnostic testing services and is developing testing kits and rapid, point-of-care testing technology for the veterinary market:

Diagnostic testing services

Avacta Animal Health provides a complete allergy testing service to assist in the diagnosis and treatment of adverse reactions in animals, to foods, pollens, insects and moulds. The business has established a world leading allergy testing brand, SENSITEST®, and currently provides its services to around 60% of UK veterinary clinics. It further commercialises the SENSITEST® brand through sales of laboratory testing kits to veterinary diagnostic laboratories in the EU, Middle East and Far East. Sales levels of testing services have been maintained during the period following an energetic marketing campaign, despite tough conditions due to recessionary pressures.

Acute phase protein test kits

Avacta acquired intellectual property rights relating to an acute phase protein ("APP") test when it acquired ReactivLab in March 2010 and has since developed two APP testing kits. The kits provide the proprietary reagents for APP testing, to users of high throughput diagnostic equipment. APPs are a class of proteins whose concentrations in the blood change as part of the immune and inflammatory response to a wide range of problems such as infection, diabetes, hypertension or cardiovascular disease.  APPs have widespread utility in veterinary diagnostics. These important tests are being adopted globally in veterinary healthcare and the Group predicts that growth in this market will accelerate rapidly in the coming years. Avacta Animal Health now has a potentially market leading product in APP testing and is in negotiation with a large global diagnostics partner with regards to commercialising these kits.

AX-1: point-of-care testing technology

There is a trend of decentralisation of diagnostics towards point-of-care "POC" or near-patient testing in human and veterinary healthcare. The benefits are improved clinical outcomes through faster decision-making and earlier treatment, and improved healthcare economics through reduced hospitalisation and shorter treatment times.

In November 2010, Avacta launched the AX-1 POC blood testing system to deliver in under an hour, tests that currently require days or even weeks to carry out. The AX-1 system comprises a bench-top reader plus disposable, single use test cartridges that are pre-filled with reagents specific to a particular blood test, for example an allergy screen or APP test. This business model represents a highly attractive recurring revenue stream that will be scaled by expanding the range of tests as well as growing the installed user base.

The initial range of tests launched with the AX-1 relates to Avacta's world leading allergy testing brand SENSITEST®. Avacta is developing further assays for the AX-1 system to diagnose a range of diseases in companion animals. Avacta completed its development of the AX-1 hardware in the period but has experienced delays in scaling up the manufacturing process of the disposable test cartridges. This was related primarily to the injection moulding of the plastic cartridge in high volume, which is an outsourced process. Whilst Avacta has been resolving this manufacturing issue, it has begun marketing the new product to large corporate veterinary groups in the UK. The initial response has been very positive.

Avacta Animal Health has clear and fully resourced operational and commercial targets for 2011:

·	completion of high volume manufacturing of AX-1 cartridges and product roll-out
·	expansion of range of tests for AX-1 system; and,
·	commercialisation of APP test kits and expansion of range of test kits.

Avacta Animal Health delivered revenues, derived wholly from its diagnostics testing services  in the period of £595,000, flat with respect to H2 2010 and down marginally by 4% against £622,000 for H1 2010. The delay in AX-1 revenues is expected to be recovered in due course because of the short sales cycle of this product.

Financial overview

Underlying revenue for the six months ending 31 January 2011 grew by 22% to £1,004,000 against H2 2010 of £823,000 and by 12% against H1 2010 of £894,000.

The Group is benefiting from the impact of its first sales of Optim which are more than balancing a slight shortfall in its Analytical and Animal Health services business. Underlying revenue during H2 2010 excludes the impact of one off revenues, earned through contract research with Takeda Pharmaceutical Company of £350,000 which is related to Curidium Medica, a subsidiary company of Avacta. Order intake for both Optim units and analytical services is encouraging for the full year. The AX-1 has not yet contributed to revenues but we hope to see the first revenues in the second half of this financial year.

Costs remained tightly controlled and the Group's overheads have naturally reduced following the completion of the product development periods of both Optim and AX-1. Total costs for the period reduced substantially to £1,601,000 against £2,013,000 for H2 2010 and £2,080,000 for H1 2010.

Group operating loss reduced accordingly to £597,000 against £840,000 for H2 2010 and £1,186,000 for H1 2010.

Avacta was successful in its reclaiming of R&D tax credits and this has significantly reduced the post tax retained loss for the period to £357,000 against £706,000 for H2 2010 and £1,173,000 for H1 2010. The loss per share fell to 0.03 pence against 0.10 pence in the same period last year.

The Group raised funds through a placing of 186,114,288 new Ordinary shares on 21 January 2011. Total funds raised were £1.95 million gross (£1.86 million net of expenses) at a price of 1.05 pence per share giving a dilution of approximately 13%. This has strengthened the Group's balance sheet with £2.52 million of cash at 31 January 2011 to support future working capital and funding requirements.

Outlook

The Group has made excellent commercial progress during the period, having successfully completed a substantial product development phase to deliver two innovative products to market. The Group is now focused on commercialisation of these products and establishing the recurring revenue streams.

The high quality distribution partners the Group has secured for Optim and, in particular, the relationship with Pall Corporation, hold huge potential for Avacta. We are now in a position to address the two largest biotechnology markets in the world, the US and Japan; the Group is also well positioned in the fastest growing market - China. The Group looks forward to supporting its partners by improvement in the margins of the hardware and consumables and expansion of the market opportunity through new applications. In particular Avacta is working towards substantially reducing the cost, and therefore increasing the margin, of the Optim disposable cartridge by using alternative materials.

Despite some delays associated with the scale up of the cartridge manufacture for AX-1, the Board is confident that the Group will soon see first revenues for this product which represents a massive opportunity for Avacta Animal Health. The Group will also dedicate significant resources to expanding the range of diagnostic tests to drive recurring revenues. Keeping in mind the Board's long-term plan to move into human healthcare with the Group's diagnostic products, we may also look to strengthen the Board with expertise in this area.

The Group is now well financed to deliver on its current programme and the Board looks forward to reporting on continued growth in the Optim installed base and also on a first contribution in the short-term from the veterinary diagnostic device, AX-1 in due course.

With commercial partnerships now in place and our products entering all of our key global markets, the Board is confident that Avacta will continue to make good progress in the second half of the year.

Gwyn Humphreys	Alastair Smith
Chairman	Chief Executive Officer
18 April 2011	18 April 2011

Condensed consolidated income statement

for the six months ended 31 January 2011

		Unaudited	Unaudited	Audited
		6 months to 31 Jan 2011	6 months to 31 Jan 2010	Year ended 31 July 2010
	Note	£000	£000	£000
Revenue		1,004	894	2,067
Operating costs		(1,601)	(2,080)	(4,093)
Operating loss before non-recurring items, amortisation of customer related intangibles and share based payment charges		(537)	(1,001)	(1,527)
Non-recurring administrative expenses	1	-	(123)	(367)
Amortisation of customer related intangibles		(25)	(51)	(110)
Share based payment charges		(35)	(11)	(22)
Total operating loss		(597)	(1,186)	(2,026)
Finance income		-	-	-
Finance expenses		-	(1)	(2)
Loss before taxation		(597)	(1,187)	(2,028)
Taxation		240	14	149
Loss for the period		(357)	(1,173)	(1,879)
Loss per ordinary share:
- Basic and diluted		(0.03p)	(0.10p)	(0.15p)

The profit for the period is wholly attributable to equity holders of the parent Company.

All results arise from continuing operations.

Condensed consolidated statement of comprehensive income

for the six months ended 31 January 2011

		Unaudited	Unaudited	Audited
		6 months to 31 Jan 2011	6 months to 31 Jan 2009	Year ended 31 July 2010
		£000	£000	£000
Amounts attributable to equity holders of the parent company
Loss for the period		(357)	(1,173)	(1,879)
Total comprehensive income for the period		(357)	(1,173)	(1,879)

Condensed consolidated statement of changes in equity

as at 31 January 2011

	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
	Share capital	Share premium	Other reserve	Capital reserve	Retained earnings
	£000	£000	£000	£000	£000
At 1 August 2009	1,230	11,405	(1,729)	2,669	(5,278)
Result for the period	-	-	-	-	(1,173)
Shares issued for the placing	133	1,866	-	-	-
Shares issued during the period in settlement of operating expenses	1	8	-	-	-
Share based payment charges	-	-	-	-	11
At 31 January 2010	1,364	13,279	(1,729)	2,669	(6,440)
Result for the period	-	-	-	-	(706)
Shares issued for the placing	143	1,292	-	-	-
Shares issued during the period in settlement of operating expenses	5	82	-	-	-
Share based payment charges	-	-	-	-	11
At 1 August 2010	1,512	14,653	(1,729)	2,669	(7,135)
Result for the period	-	-	-	-	(357)
Shares issued for the placing	186	1,673	-	-	-
Shares issued in respect of the exercise of warrants and options	13	18	-	-	-
Share based payment charges	-	-	-	-	36
At 31 January 2011	1,710	16,344	(1,729)	2,669	(7,456)

Condensed consolidated balance sheet

as at 31 January 2011

		Unaudited	Unaudited	Audited
		As at 31 Jan 2011	As at 31 Jan 2010	As at 31 July 2010
		£000	£000	£000
Non-current assets
Property, plant & equipment		254	269	250
Intangible assets		8,912	7,778	8,551
		9,166	8,047	8,801
Current assets
Inventories		378	87	174
Trade and other receivables		478	511	814
Cash and cash equivalents		2,522	1,319	1,433
		3,378	1,917	2,421
Total assets		12,544	9,964	11,222
Current liabilities
Trade and other payables		(728)	(702)	(939)
Income taxes		-	(54)	(21)
Hire purchase agreements		(9)	(12)	(11)
		(737)	(768)	(971)
Non-current liabilities
Hire purchase agreements		-	(10)	(5)
Contingent consideration		(250)	-	(250)
Deferred tax		(19)	(43)	(26)
		(269)	(53)	(281)
Total liabilities		(1,006)	(821)	(1,252)
Net assets		11,538	9,143	9,970
Equity attributable to equity holders of the Company
Called up share capital		1,710	1,364	1,512
Share premium account		16,344	13,279	14,653
Other reserve		(1,729)	(1,729)	(1,729)
Capital reserve		2,669	2,669	2,669
Retained earnings		(7,456)	(6,440)	(7,135)
Total equity		11,538	9,143	9,970

Total equity is wholly attributable to equity holders of the parent Company.

Condensed consolidated cash flow statement

for the six months ended 31 January 2011

		Unaudited	Unaudited	Audited
		6 months to 31 Jan 2011	6 months to 31 Jan 2010	Year ended 31 July 2010
		£000	£000	£000
Operating activities
Loss for the period		(357)	(1,173)	(1,879)
Amortisation of intangible assets		21	51	111
Depreciation		46	51	98
Net finance expense/(income)		-	1	2
Income tax credit		(240)	(14)	(149)
Share based payment charges to service providers		-	9	-
Share based payment charges to employees		36	11	22
Operating cash flow before changes in working capital		(494)	(1,064)	(1,795)
Movement in inventories		(204)	(87)	(174)
Movement in trade and other receivables		336	(84)	(262)
Movement in trade and other payables		(207)	115	347
Operating cash flow from operations		(569)	(1,120)	(1,884)
Interest received		-	-	-
Interest paid		-	(1)	(2)
Income tax received/(paid)		213	60	145
Net cash flow from operating activities		(356)	(1,061)	(1,741)
Investing activities
Purchase of plant and equipment		(50)	(39)	(69)
Development expenditure capitalised		(388)	(451)	(1,035)
Acquisition of subsidiaries		-	-	102
Net cash flow from investing activities		(438)	(490)	(1,002)
Financing activities
Proceeds from issue of new shares (net of expenses)		1,890	1,999	3,309
Payments to acquire tangible fixed assets under finance lease agreements		(7)	(7)	(11)
Net cash flow from financing activities		1,883	1,992	3,298
Net increase/(decrease) in cash and cash equivalents		1,089	441	555
Cash and cash equivalents at the beginning of the period		1,433	878	878
Cash and cash equivalents at the end of the period		2,522	1,319	1,433

Unaudited notes

Basis of preparation and accounting policies

Avacta Group plc is a company incorporated in England and Wales under the Companies Act 2006.

The condensed financial statements are unaudited and were approved by the Board of Directors on 15 April 2011.

The interim financial information for the six months ended 31 January 2011, including comparative financial information, has been prepared on the basis of the accounting policies set out in the last annual report and accounts, with the exception of the amendment to IAS 1 (Presentation of Financial Statements) referred to below, and in accordance with International Financial Reporting Standards ("IFRS"), including IAS 34 (Interim Financial Reporting), as issued by the International Accounting Standards Board and adopted by the European Union.

The preparation of the interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may subsequently differ from those estimates.

In preparing the interim financial statements, the significant judgements made by management in applying the Group's accounting policies and key sources of estimation uncertainty were the same, in all material respects, as those applied to the consolidated financial statements for the year ended 31 July 2010, with the exception of the change in accounting policy in respect of Amendments to IAS 1 (Presentation of Financial Statements)where the Group is now required to produce a statement of comprehensive income setting out all items of income and expense relating to non-owner changes in equity. This replaces the statement of recognised income and expense.

There is a choice between presenting comprehensive income in one statement or in two statements comprising an income statement and a separate statement of comprehensive income. The Group has elected to present comprehensive income in two statements.

Going concern assumption

The Group manages its cash requirements through a combination of operating cash flows and equity.

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within its current level of equity funding.

Consequently, after making enquires, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the interim financial statements.

Information extracted from 2010 Annual Report

The financial figures for the year ended 31 July 2010, as set out in this report, do not constitute statutory accounts but are derived from the statutory accounts for that financial year.

The statutory accounts for the year ended 31 July 2010 were prepared under IFRS and have been delivered to the Registrar of Companies. The auditors reported on those accounts. Their report was unqualified, did not draw attention to any matters by way of emphasis and did not include a statement under Section 498(2) or 498(3) of the Companies Act 2006.

The Board confirms that to the best of its knowledge:

w	The condensed set of financial statements has been prepared in accordance with IAS34 'Interim Financial Reporting' as adopted by the EU;
w	The interim management report includes a fair review of the information required by :
	-  DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
	-  DTR4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

1.   Non-recurring administrative expenses

	Unaudited	Unaudited	Audited
	6 months to 31 Jan 2011	6 months to 31 Jan 2010	Year ended 31 July 2010
	£000	£000	£000
Expenses related to the placing	-	123	238
Non-recurring research projects	-	-	-
Non-recurring administrative expenses	-	-	71
Non-recurring employment expenses	-	-	58
	-	123	367

By Order of the Board

Alastair Smith Chief Executive Officer 18 April 2011

Tim Sykes Chief Financial Officer 18 April 2011

 

END

 

 

IR UVVVRABASAAR