Interim Results

RNS Number : 9943B

Avacta Group PLC

25 April 2012

 



25 April 2012

Avacta Group plc

("Avacta" or the "Group")

Interim Results

Avacta Group plc, a leading healthcare technology, reagents and consumables company providing proprietary analytical and diagnostics solutions to the life sciences/healthcare sector, is pleased to announce its interim results for the period ended 31 January 2012.

Highlights

·	Revenue increased by 72% to £1.72 million (2011: £1.00 million)
·	Reduction in operating loss before amortisation and share based payment charges to £0.39 million (2011: £0.54 million)
·	Loss per share improved to 0.02 pence (2011: 0.03 pence)
·	Strong balance sheet with £5.81 million cash
·	Acquisition of non-antibody affinity reagent platform to extend protein analysis tools offering into drug and biomarker discovery area and to provide proprietary reagents for core diagnostics business
·	Raised £4.87 million to fully fund the Group to accelerate growth through investment in AX.1 test menu, new technology products and the new affinity reagents platform
·	Optim units ahead of target at the half year with 13 units shipped and installed base increased to 27
·	Partnership agreement with Pall extended to cover Optim sales and support in South East Asia and analytical services in North America
·	First AX.1 despatches anticipated during H2 2012

Alastair Smith, Chief Executive Officer, commented:

"Avacta is in its strongest ever position with two core businesses making good progress during the period. The business is fully funded and capable of exploiting substantial intellectual property in its own pipeline of technology and tests, and in the recently acquired Affimer reagent platform.

I am delighted that the Group is nearing the point of shipping the first AX.1 units. Despite some manufacture-related delays, the product is nearing market readiness and the test menu will be expanded as rapidly as possible.

The addition of a proprietary affinity reagents platform to the business will allow Avacta to extend its protein analysis tools into the drug and biomarker discovery area.  The Group's vision is to provide drug developers with proteomic tools that will follow drugs through development and eventually provide the companion diagnostics of the future.  The potential for growth in Avacta is enormous."

- Ends -

Enquiries:

Avacta Group plc Alastair Smith, Chief Executive Officer Tim Sykes, Chief Financial Officer	Tel:  [phone] www.avacta.com
Panmure Gordon (UK) Limited     Andrew Burnett/ Fred Walsh Charles Leigh-Pemberton/Grishma Patel	Tel:  [phone] www.panmure.com
Media Enquiries Abchurch Communications Sarah Hollins/Adam Michael/Oliver Hibberd	Tel: [phone] www.abchurch-group.com

Notes to Editors:

Avacta Group plc, is a UK based healthcare technology, reagents and consumables company, providing innovative tools to help reduce the costs of drug development and to improve diagnostics.

Avacta's products address one of the most significant global challenges facing mankind today - the rapidly rising cost of healthcare for a growing and ageing population.

The cost of healthcare is driven by many factors. New drugs are expensive to develop, most don't reach the patient and those that do are often very costly to prescribe. Inadequate, incorrect or slow diagnosis causes delays that lead to longer or less effective courses of treatment resulting in lengthy or repeated hospitalization.

Avacta is dedicated to developing and providing innovative and practical tools to help drug developers get their products to market quicker and more reliably, and to providing clinicians with rapid and powerful diagnostics to improve patient treatment, helping to reduce the cost of healthcare worldwide.

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

For further information visit www.avacta.com.

CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S REPORT

Business Overview

The Group made solid progress during the period, reporting increased revenue of £1.72 million, up 72% against £1.00 million in the prior period.

The Avacta Analytical division, which is aimed at reducing the costs and risks associated with biopharmaceutical drug development, shipped and installed thirteen Optim 1000 units which contributed to a 141% increase in revenue from that division to £0.99 million (2011: £0.41 million).

Within the Avacta Animal Health division, revenue from the veterinary diagnostics service business grew by 24% to £0.73 million (2011: £0.59 million).  Technical issues encountered in the manufacturing scale-up of the plastic consumable cartridge for AX.1, the diagnostic device aimed at delivering rapid test results at the point of care, delayed its commercial launch into the veterinary market and, accordingly, the AX.1 has not yet contributed to revenue.

Avacta Analytical

Avacta Analytical provides high-end analytical instrumentation, consumables and services to the biopharmaceutical sector.  Commercialisation of its lead product, Optim 1000, has advanced very strongly during the year.  Thirteen units were shipped during the period (against twelve for the prior twelve month period) and the Group now has installed units across all major geographies.

Order intake during the third quarter of the current financial year continues with a further three sales confirmed.

Growth in the recurring revenue from the Optim 1000 consumable cartridge is a key indicator of the success of the product.  This will be achieved through an increase in the installed base of units and expansion of the range of applications delivered by the technology to encompass a broader range of solutions in addition to high throughput formulation and stability.  The build cost of the consumable cartridge has been reduced and margin improvement is being delivered now.  The programme to take production cost out of the Optim 1000 unit is expected to deliver margin improvement early in the next financial year.

Revenue from Optim 1000 and its consumable cartridge advanced substantially to £0.81 million (2011: £0.21 million) which included £0.11 million from the consumable cartridge and peripherals (2011: £0.02 million).  Revenue from analytical contract services remained flat at £0.18 million (2011: £0.20 million).

Avacta Animal Health

Avacta Animal Health provides diagnostic products, reagents and services for the veterinary diagnostics market.  Its aim is to equip veterinary professionals with high quality animal health and well-being information, through point of care diagnostics, reagents, testing kits and laboratory based testing.  Its lead product, the AX.1 point of care immunoassay system, is aimed at providing the veterinarian with rapid serological blood test results in the clinic.

The initial range of tests that will be provided to run on the AX.1 are for canine, feline and equine healthcare and relate to Avacta's world leading allergy testing brand, Sensitest®, and the acute phase protein tests acquired in 2010 with Reactivlab, the Glasgow University Veterinary School spin-out.  Expansion of the AX.1 test menu beyond this initial range is key to supporting the growth of recurring revenue and extensive clinical and commercial work over the past year has delivered a candidate panel of over 18 further diagnostic tests split equally between companion animal and equine healthcare applications.  Avacta Animal Health will be providing these tests for the AX.1 platform as quickly as possible with an enlarged development team expected to deliver substantial numbers of new tests each year.

Revenue from diagnostic testing services increased substantially by 24% to £0.73 million (2011: £0.59 million).

The integration of the Reactivlab operation into Avacta's Animal Health division has progressed well.  The first two products derived from the Reactivlab intellectual property - test reagent kits for the c-reactive protein ("CRP") in dogs and haptoglobin in dogs and cats - are completed and a further two similar acute phase protein test reagent kits are in the development pipeline.  The two completed tests are for the most common and clinically informative of the acute phase proteins in these animals; the early detection of acute or chronic inflammation or infection.  The global market for these tests is expected to be substantial and to grow as they become more widely available to veterinarians.  The Group has recently signed a global supply agreement with IDEXX Laboratories to provide a route to market for CRP test reagents and anticipates early revenues to be recognisable during the current financial year.

Accelerated Growth

The Group is now making solid progress in commercialising Optim 1000, the high throughput protein characterisation system for drug developers, and is near to shipping the first units of AX.1, the point of care immunoassay platform aimed initially at veterinary diagnostics. 

During January 2012 Avacta raised £4.87 million to accelerate growth of the AX.1 opportunity and to support new product development both from its own technology and from intellectual property recently acquired with Aptuscan Limited.

A critical success factor for AX.1 is providing a wide range of tests to veterinarians with real clinical utility to drive recurring test cartridge revenues. Avacta plans to accelerate the rate at which new tests can be added to the test range and is now able to invest in growing the AX.1 test development team and its resources.  A substantial number of tests with clinical and commercial value have been identified and the market will be kept up to date as each new test is launched.

Avacta's inherent value is further accelerated by growing the range of the Group's proprietary reagents that are used in the manufacture of  consumable cartridges and tests. Proprietary reagents strengthen the competitive advantage of Avacta's products by providing unique and patent protected analytical and testing capabilities with improved gross margins.  The Group has pursued this strategy through the acquisition of YorkTest Veterinary Services Limited in 2009 and Reactivlab Limited in 2010.  These acquisitions have both delivered tests and reagents into the AX.1 test menu and the test kit development pipeline.  This strategic theme of adding reagents to the Group's intellectual property has continued with the recent acquisition of Aptuscan Limited which has a platform technology that will allow it to generate a large number of proprietary affinity reagents to replace third party antibodies in Avacta's current and future diagnostic products, and also to provide new and high value applications into the Group's core markets. These affinity reagents are termed "Affimers" and they provide the Group with a very significant growth opportunity.

Affimers - Proteomics Tools from Discovery to Diagnostics

Affimers are "affinity reagents" - molecules that have an affinity for, or are able to bind to, other molecules or "targets" of interest.  Such affinity reagents are very widely used to bind molecules for applications in diagnostics (e.g. binding a protein present in the blood that may be indicative of disease), or as a way of purifying a sample or as a therapeutic agent.

Antibodies currently dominate the biotechnology, molecular diagnostics and therapeutic markets for affinity reagents but antibodies have several disadvantages:

-    they are difficult to develop and very expensive to produce and the range of antibodies available is limited by the fact that they are natural products;

-    they are relatively frail and are often damaged by processing for specific applications such as sticking to surface to make diagnostic chips; and,

-    they often exhibit cross-reactivity making their action uncertain.

Affimers have none of these disadvantages and, therefore, have the potential to replace antibodies in a wide range of applications in some very large markets.  The market for reagents for biotech R&D is expected to reach $33bn by 2015 and affinity reagents are a significant part of this market. The total human and veterinary point of care testing market is worth $19bn and antibodies play a key role in point of care immunodiagnostics. Antibodies are also the predominant class of reagents used in the protein microarray market worth $2bn and part of the much larger drug and biomarker discovery tool market which is also heavily reliant on affinity reagents and worth $54bn in 2011. These markets are dwarfed by the $200bn biopharmaceutical market of which the largest class of drug molecules is the monoclonal antibody or related antibody fragments. Clearly there are some very significant opportunities for reagents that are antibody-like but do not suffer from the same technical and commercial disadvantages.

Avacta's Affimers are protected by two patents at different stages of grant or application in the US, EU and in other territories.  The core Affimer protein can be modified to bind to pre-determined targets of interest in a number of applications; over 250 Affimers have been designed, made and tested by Aptuscan prior to Avacta's acquisition of it. It has also been clearly shown that the Affimers can be produced simply and cost effectively.

Avacta will derive near term value by developing Affimers to be used within the AX.1 test cartridges and in its other diagnostic products but the major focus will be on the development of protein microarrays for high throughput drug and biomarker discovery applications - an application in which the Affimers provide Avacta with an opportunity to take a world leading position with a best in class product offering.

Drug and biomarker discovery tools is a very large market incorporating a wide range of biological assays and tools such as mass spectrometry and DNA and protein microarrays. A key factor that is driving this market is guidance from regulatory authorities that all drugs delivered to market from 2015 should have an associated "companion" diagnostic to indicate which patients will respond well to that particular drug and that the tools used to discover and develop the drugs should ideally be the same ones that eventually provide the diagnostics so that there is consistency throughout the process. Providing a single protein analysis platform - "from discovery to diagnostics" - has benefits in cost and risk reduction for drug developers. Protein microarrays provide one such technology platform that could be used to discover new drugs and biomarkers, to provide assays to be used during drug development and clinical trials and then to practically deliver a test in a hospital or GP clinic.

A protein microarray is a matrix array of affinity reagent dots, each of a few microns in size, usually printed onto a glass slide. Each dot in the array is capable of binding a protein from a sample that is placed on the array and when the sample is washed off then the array can be easily viewed to see which proteins have been captured from the sample. These proteins could then form the basis of a diagnostic or a drug development programme.  The vast majority of affinity reagents used currently in microarrays are antibodies. As described above, antibodies are limited in their availability (commercially available arrays are typically a few tens to a few hundreds of antibodies to different targets) but their functionality is reduced when they are attached to solid surfaces, such as glass slides, to make arrays. Avacta already has a prototype Affimer array of 17,000 dots and is capable over the next few years, in principle, of developing arrays with millions of dots giving the potential to take a leading position in this growing and important market.

Avacta has focussed to date on unregulated markets such as pharmaceutical R&D and veterinary health, markets for which products do not require FDA or similar regulatory approval, in order to generate revenue as soon as is practicably possible but the Group has continuously reiterated that the longer term opportunity for value creation is in human diagnostics. The strategic importance of the Affimer affinity reagents, connecting the Group's early stage drug R&D tools market to its longer term target market of human diagnostics through the protein microarray products, is a theme that will be expanded upon as the development of Affimers within Avacta progresses.

Financial Overview

Revenue for the six month period ended 31 January 2012 grew by 72% to £1.72 million (2011: £1.00 million).

The Group is benefiting from the impact of both a ramp up of sales of Optim 1000 and from an increase in the Group's laboratory services businesses.  Revenue from Optim 1000 and its consumable cartridge advanced substantially to £0.81 million (2011: £0.21 million) which included £0.11 million from the consumable cartridge and peripherals (2011: £0.02 million).  Revenue from the Avacta analytical contract services remained flat at £0.18 million (2011: £0.20 million).  Revenue from the Avacta Animal Health diagnostic testing business increased by 24% to £0.73 million (2011: £0.59 million).  AX.1 has not yet contributed to revenue.

Gross margins moved forward substantially to 55% (2011: 50%) with the benefit from a strong improvement in the margin from the services businesses, following the application of new testing processes, being offset by a mix shift toward the lower margin Optim 1000 device revenues.

Overheads remained tightly controlled but have naturally increased with the expansion of trading volumes, investment in the commercial team ahead of the associated revenues in AX.1, the early stage impact of the accelerated development plan following the recent Placing of shares and an element of one-time costs incurred in respect of the Placing and the acquisition of Aptuscan Limited.  Total overheads for the period were £1.47 million (2011: £1.10 million).

Group operating loss before amortisation and share based payment charges reduced to £0.39 million (2011: £0.54 million) and the reported operating loss reduced to £0.52 million (2011: £0.60 million).

The loss per share reduced to 0.02 pence against 0.03 pence in the same period last year.

The Group raised funds through a placing of 1,026,000,000 new Ordinary shares on 9 January 2012. Total funds raised were £5.13 million gross (£4.87 million net of expenses) at a price of 0.5 pence per share.  This has strengthened the Group's balance sheet with £5.81 million of cash at 31 January 2012 and supports the Group's future working capital and development funding requirements.

On 9 January 2012, the Group acquired Aptuscan Limited for an initial consideration of 228,092,307 new Ordinary shares.  An initial assessment of fair values has resulted in a preliminary estimate of £1.56 million for goodwill and intangible assets.  The Group capitalised £0.39 million (2011: £0.36 million) of development costs net of amortisation.  Both of these items are recognised within the total Intangible asset value of £11.25 million (2011: £8.91 million) which represented 64% (2011: 77%) of net asset value.  

Outlook

Avacta looks forward with confidence to the second half of this year. The company is well capitalised, with a strong balance sheet and a fully funded pipeline of technology and tests, as well as the recently acquired Affimer reagent platform.

The Group anticipates shipping the first AX.1 units in the the next few months and rapidly expanding that product's test menu as quickly as possible.

Gwyn Humphreys	Alastair Smith
Chairman	Chief Executive Officer
25 April 2012	25 April 2012

Condensed consolidated income statement

for the six month period ended 31 January 2012

		Unaudited	Unaudited	Audited
		6 months to 31 January 2012	6 months to 31 January 2011	Year ended 31 July 2011
		£000	£000	£000
Revenue		1,717	1,004	2,445
Cost of sales		(760)	(501)	(1,266)
Gross profit		957	503	1,179
Administrative costs		(1,472)	(1,100)	(2,304)
Operating loss before amortisation of customer related intangibles and development costs and share based payment charges		(387)	(537)	(923)
Amortisation of customer related intangibles and development costs		(90)	(25)	(132)
Share based payment charges		(38)	(35)	(70)
Total operating loss		(515)	(597)	(1,125)
Finance income		9	-	4
Finance expenses		-	-	(1)
Loss before taxation		(506)	(597)	(1,122)
Taxation		157	240	531
Loss for the period		(349)	(357)	(591)
Loss per ordinary share:
- Basic and diluted		(0.02p)	(0.03p)	(0.04p)

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 2012

		Unaudited	Unaudited	Audited
		6 months to 31 January 2012	6 months to 31 January 2011	Year ended 31 July 2011
		£000	£000	£000
Amounts attributable to equity holders of the parent company
Loss for the period		(349)	(357)	(591)
Total comprehensive income for the period		(349)	(357)	(591)

Condensed consolidated statement of changes in equity

as at 31 January 2012

	Unaudited	Unaudited	Joint	Unaudited	Unaudited	Unaudited
	Share capital	Share premium	Share Ownership Plan	Capital reserve	Other reserve	Retained earnings
	£000	£000	£000	£000	£000	£000
At 1 August 2010	1,512	14,653	-	2,669	(1,729)	(7,135)
Result for the period	-	-	-	-	-	(357)
Shares issued for cash	197	1,683	-	-	-	-
Shares issued during the year as consideration for business combinations and in settlement of operating expenses	1	8	-	-	-	-
Share based payment charges	-	-	-	-	-	36
At 31 January 2011	1,710	16,344	-	2,669	(1,729)	(7,456)
Result for the period	-	-	-	-	-	(234)
Shares issued for cash	33	54	-	-	-	-
Shares issued during the year as consideration for business combinations and in settlement of operating expenses	1 -	10 -	-	-	-	-
Share based payment charges	-	-	-	-	-	34
At 1 August 2011	1,744	16,408	-	2,669	(1,729)	(7,656)
Result for the period	-	-	-	-	-	(349)
Shares issued for cash	1,260	5,218	(1,590)	-	-	-
Shares issued during the year as consideration for business combinations	230	1,360	-	-	-	-
Share based payment charges	-	-	-	-	-	38
At 31 January 2012	3,234	22,986	(1,590)	2,669	(1,729)	(7,967)

Condensed consolidated balance sheet

at 31 January 2012

		Unaudited	Unaudited	Audited
		As at 31 January 2012	As at 31 January 2011	As at 31 July 2011
		£000	£000	£000
Non-current assets
Intangible assets		11,253	8,912	9,298
Property, plant & equipment		376	254	319
		11,629	9,166	9,617
Current assets
Inventories		406	378	337
Trade and other receivables		573	478	607
Income taxes		150	-	-
Cash and cash equivalents		5,813	2,522	1,774
		6,942	3,378	2,718
Total assets		18,571	12,544	12,335
Current liabilities
Trade and other payables		(713)	(728)	(633)
Contingent consideration		(50)	-	(50)
Finance leases		-	(9)	(4)
		(763)	(737)	(687)
Non-current liabilities
Contingent consideration		(200)	(250)	(200)
Deferred tax		(5)	(19)	(12)
		(205)	(269)	(212)
Total liabilities		(968)	(1,006)	(899)
Net assets		17,603	11,538	11,436
Equity attributable to equity holders of the Company
Called up share capital		3,234	1,710	1,744
Share premium account		22,986	16,344	16,408
Joint Share Ownership Plan		(1,590)	-	-
Capital reserve		2,669	2,669	2,669
Other reserve		(1,729)	(1,729)	(1,729)
Retained earnings		(7,967)	(7,456)	(7,656)
Total equity		17,603	11,538	11,436

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

Condensed consolidated cash flow statement

for the six month period ended 31 January 2012

	Unaudited	Unaudited	Audited
	6 months to 31 January 2012	6 months to 31 January 2011	Year ended 31 July 2011
	£000	£000	£000
Operating activities
Loss for the period	(349)	(357)	(591)
Amortisation of intangible assets	90	25	132
Depreciation	63	47	114
Profit on sale of plant and equipment	-	-	(40)
Share based payment charges to employees	38	35	70
Net finance income	(9)	-	(3)
Income tax credit	(157)	(240)	(531)
Operating cash flow before changes in working capital	(324)	(490)	(849)
Movement in inventories	(69)	(204)	(163)
Movement in trade and other receivables	46	336	207
Movement in trade and other payables	76	(211)	(307)
Operating cash flow from operations	(271)	(569)	(1,112)
Interest received	9	-	4
Interest paid	-	-	(1)
Income tax received/(paid)	-	213	517
Net cash flow from operating activities	(262)	(356)	(592)
Investing activities
Purchase of plant and equipment	(96)	(50)	(193)
Proceeds from sale of plant and equipment	-	-	50
Development expenditure capitalised	(474)	(388)	(879)
Acquisition of subsidiaries	3	-	-
Net cash flow from investing activities	(567)	(438)	(1,022)
Financing activities
Proceeds from issue of new shares (net of expenses)	4,872	1,890	1,967
Payments to acquire tangible fixed assets under finance lease agreements	(4)	(7)	(12)
Net cash flow from financing activities	4,868	1,883	1,955
Net increase/(decrease) in cash and cash equivalents	4,039	1,089	341
Cash and cash equivalents at the beginning of the period	1,774	1,433	1,433
Cash and cash equivalents at the end of the period	5,813	2,522	1,774

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 24 April 2012.

The interim financial information for the six months ended 31 January 2012, 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 2011.

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 2011 Annual Report

The financial figures for the year ended 31 July 2011, 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 2011 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.

By Order of the Board

Alastair Smith Chief Executive Officer 25 April 2012

Tim Sykes Chief Financial Officer 25 April 2012

 

END

 

 

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