Interim Results

RNS Number : 5297D

Avacta Group PLC

30 April 2013

 



Press Release

30 April 2013

Avacta Group plc

("Avacta" or the "Group")

Interim Results

Avacta Group plc, a global provider of innovative diagnostic tools, consumables and reagents aimed at reducing the cost of human and animal healthcare, is pleased to announce its interim results for the period ended 31 January 2013.

Highlights

·	Revenue of £1.15 million (2012: £1.72 million) slowed by the transition to the next generation Optim2 product and movements in the US distributor channel
·	Operating loss of £0.97 million (2012: £0.52 million)
·	Loss per share increased to 0.03 pence (2012: 0.02 pence)
·	Optim2 launched globally on 1 February 2013
·	Optim2 distributor transition to ForteBio complete
·	Optim2 order intake since 1 February 2013 of 10 units with over 125 validated prospects in the pipeline
·	Optim consumable cartridge revenue increased 94% year on year to £136,000
·	AX-1 Sensipod field trial with vets concluded and release model of Sensipod now in production
·	Sensipod test menu expanding as commercial launch approaches: several further tests well advanced with commercial availability anticipated shortly after Sensipod launch
·	Affimer reagents development in line with management expectation and first commercial launch planned during 2014 -   high throughput Affimer production facility to supply microarray printing established, commissioned and generating Affimers -   library screening facilities operational and being commissioned -   in-house microarray prototyping being optimised and outsource array manufacturing partner selected -   early stage commercial interest in Affimer reagents as antibody replacements strong

Alastair Smith, Chief Executive Officer, commented:

"As we forecast in our Business Update in February 2013 and Preliminary Results in October 2012, revenues for this period are below last year because Optim sales temporarily slowed as we introduced our next generation, upgraded Optim2 device, and trained up the sales team at ForteBio, the newly acquired subsidiary of our partner Pall Corporation.

"We believe this short-term slow down will be justified long-term as ForteBio, which has a specialist high-end instrument sales team, is now fully trained.  Indeed, we have already seen 10 orders for Optim2 since 1 February 2013 and a strong pipeline of prospective orders.

"Further progress has come through our Animal Health division, which has completed field trials of the AX-1 Sensipod, our point-of-care diagnostic system for veterinary clinics.  This has allowed us to capture several minor, but nevertheless important improvements that will enhance the user experience.  These changes are now incorporated and production of the commercial units is underway.  In the period we also advanced the development of further tests for the Sensipod, which gives us confidence that the test menu will grow soon after the commercial launch of the product.

"Finally, we are very excited about the Affimer reagents platform.  We have received a lot of interest in Affimers as affinity reagents to replace or compliment antibodies, and also in the Affimer microarrays for drug and biomarker discovery that we have proposed.  There has been good progress in setting up the Affimer screening and production facilities which are functional and being optimised and we remain confident of first revenues from Affimers in 2014.

"Over the coming period we anticipate further progress on all fronts and look forward to reporting on this in due course, particularly on first sales of the AX-1 Sensipod product."

- Ends -

Enquiries:

Avacta Group plc Alastair Smith, Chief Executive Officer Tim Sykes, Chief Financial Officer	Tel:  [phone] www.avacta.com
Numis Securities Limited     Michael Meade / Freddie Barnfield - Nominated Adviser James Black - Corporate Broking	Tel:  [phone] www.numiscorp.com
Media Enquiries Abchurch Communications Sarah Hollins / Adam Michael / Harriet Rae [e-mail]	Tel: [phone] www.abchurch-group.com

Notes to Editors:

Avacta Group plc is a global provider of innovative technologies, consumables and reagents for the life science markets, from drug discovery to 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 hospitalisation.

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

During the period, the Group has successfully completed the transfer of sales execution capability to ForteBio, the key distributor for the US market, of the Optim product.  The next generation product, Optim2, the higher margin, smaller and applications focused replacement of its predecessor system is also complete with strong order intake of 10 since its launch on 1 February 2013.  The Board reported within its Preliminary Results announcement on 23 October 2012 that these temporary issues would result in sales performance during this reporting period being disrupted which has resulted in lower revenue in the period compared with 2012.

Following the placing of shares during January 2012, the Group increased its development activities.  Firstly, the Group has invested substantially in the Affimer reagents technology that it acquired in January 2012 and secondly, it has accelerated its pace of development of the menu of tests for the veterinary diagnostic device, AX-1 Sensipod.  The Board is pleased to report continuing progress in both of these areas.

Avacta Analytical

Avacta Analytical provides high-end analytical instrumentation, consumables and services to the biopharmaceutical sector.  The commercialisation of Optim 1000 over the last two years provided the opportunity to gather useful market feedback that has informed the second generation product, Optim2, a higher margin, more robust and advanced instrument with a new applications focused software package.

Following the acquisition of ForteBio by Pall Corporation, the Group's exclusive distributor in North America, Pall's instrumentation sales operation has been transferred to ForteBio.  Avacta has now successfully trained the new sales team which has a good life sciences instrumentation sales track record. 

This has resulted in a lower sales rate during the reporting period.  The Group has shipped and installed two (2012: 13) Optim 1000 units and this reduced number of units shipped has resulted in revenue from this division reducing to £0.42 million (2012: £0.99 million).

Order intake of 10 Optim2 units since its launch on 1 February 2013 is strong and there are more than 125 validated sales prospects in the pipeline.

Growth in the recurring revenue from the Optim system 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.  The product will encompass a broader range of solutions in addition to high throughput formulation and stability.  Revenue from the consumable cartridge advanced substantially to £0.14 million (2012: £0.07 million).

Avacta Animal Health

Avacta Animal Health provides diagnostic products, reagents and services for the veterinary 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 major product development, the AX-1 Sensipod point-of-care immunoassay system, is aimed at providing the veterinarian with rapid serological blood testing in the clinic.

Following successful and informative field trials of the product in the last quarter of 2012, the feedback from vets has been incorporated into the final product design and these units are now in production.

The initial range of tests that will be provided to run on the AX-1 Sensipod are for canine, feline and equine healthcare.  These first tests 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 Sensipod test menu beyond this initial range is key to supporting the growth of recurring revenue.  Avacta Animal Health has a candidate panel of over 18 further diagnostic tests divided equally between companion animal and equine healthcare applications and is making good progress with the first half a dozen of these tests which should be ready around the time of the product launch or very shortly afterwards.

Revenue from the veterinary diagnostics service remained at £0.73 million (2012: £0.73 million). 

Affimer Affinity Reagents

The intellectual property around a new class of affinity reagents, named Affimers by Avacta, was acquired from the University of Leeds during January 2012.  Affinity reagents have the ability to bind a target molecule and as such have been exploited in many fields ranging from general assay reagents in the life sciences, to diagnostics and therapeutics.  Antibodies are by far the most common affinity reagent with markets worth over $50bn annually.  Affimers are alternatives to antibodies that, in principle, can replace antibodies and in most cases have competitive technical and commercial properties. Avacta is focused on the development and commercial exploitation of Affimers in two markets: assay reagents for life sciences R&D and protein microarrays for drug and biomarker discovery.

Affimer reagents that bind specific targets will be generated from Avacta's large library of Affimers standard screening techniques as a service for third parties and as part of an internal pipeline to generate catalogue reagents.  Early interest from potential customers has been significant and it has been necessary to accelerate the implementation of a semi-automated system to deal with likely demand. Avacta is currently optimising the library screening techniques and anticipates being in a position to commercialise Affimers as catalogue reagents through distribution partners and as custom reagents directly with end users as anticipated in 2014.

Affinity microarrays comprise a two dimensional pattern of affinity reagents (usually antibodies) printed onto a glass microscope slide.  These arrays are utilised by exposing them to clinical samples such as blood or cell contents, then washing off the excess sample, to reveal differences between what "sticks" to the affinity reagents in healthy and diseased samples.  In simple terms these differences, usually proteins, may be used as biomarkers of disease upon which a diagnostic development can be based, or may be drug targets against which therapeutics can be generated.  Affinity microarrays provide a straightforward to use alternative to conventional biomarker and drug target discovery approaches, and the market is growing rapidly. 

Currently, the major challenge in affinity microarray development is that antibodies are only available to bind a fraction of the more than 100,000 proteins in human cells and blood (the "human proteome").  The largest antibody arrays available comprise around a thousand antibodies, whereas Affimer arrays comprising 20,000 Affimers have already been produced.  Avacta is aiming to produce arrays with in excess of 50,000 different Affimers to provide the most powerful array based discovery tools on the market.

In order to achieve this Avacta has set up high throughput, robotic, Affimer production facilities and has developed the methodologies for printing very large numbers of protein onto glass slides to form the arrays.  Good progress is being made on both fronts.  The high throughput protein production facility is commissioned and processes are being refined to maximise output.  A partnership agreement has been put in place with ArrayJet, an Edinburgh-based supplier of non-contact array printing technology and contract services, and printing protocols are currently being optimised for transfer to ArrayJet later in the year. The Group expects to validate very large Affimer discovery arrays with a view to commercialisation later in 2014.

Financial Overview

Revenue for the six month period ended 31 January 2013 was £1.15 million (2012: £1.72 million) due entirely to the reduced volume of sales of the Optim 1000 product.  Two Optim 1000 units were shipped during the period (2012: 13).

Revenue from Optim 1000 and its consumable cartridge reduced to £0.31 million (2012: £0.81 million) which included £0.14 million from the consumable cartridge (2012: £0.07 million).  Revenue from the Avacta Animal Health diagnostic testing business remained flat at £0.73 million (2012: £0.73 million).  AX-1 Sensipod has not yet contributed to revenue.

Gross margins remained steady at 56% (2012: 55%). 

Overheads remain tightly controlled but have naturally increased against the comparative period following the expansion of the facilities and operations following the placing of shares and the acquisition of Avacta Life Sciences Limited (formerly Aptuscan Limited) during January 2012.  Total overheads for the period were £1.61 million (2012: £1.47 million).

Group operating loss before amortisation and share based payment charges increased to £0.96 million (2012: £0.39 million) and the reported operating loss increased to £0.97 million (2012: £0.52 million).

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

The Group capitalised £0.88 million (2012: £0.47 million) of development costs.  This increase is a result of the accelerated development programmes of the AX-1 Sensipod test menu and the development of the acquired Affimer technology.  These development costs are recognised within the total Intangible asset value of £12.97 million (31 July 2012: £12.10 million) which represented 80% (31 July 2012: 71%) of net asset value.

There was a cash outflow from operations during the period of £1.1 million (31 January 2012: £0.3m) and the Group ended the period with £2.1 million net cash (31 July 2012: £4.2 million). The Board anticipates an improvement in the operating cash flow in the second half reflecting a more positive outlook in the sales of Optim2 but is mindful of the need to keep a tight control of all expenditures. The Board is assessing ways of continuing to fund the Group's investment in R&D and especially the excellent opportunity to develop its Affimer product range.

Outlook

The Group has now completed the challenge of transitioning its key North American distributor and the launch of the next generation of the Optim product, Optim2.  Sales performance has substantially recovered since the reporting period end and a strong pipeline has continued to grow. 

Avacta is investing heavily in the development of the Affimer reagent platform, acquired during January 2012, and is seeing good technical progress and is receiving good commercial interest from end users and potential partners.  The Group has also invested in accelerated development of tests for the AX-1 Sensipod veterinary diagnostic point of care device and this is also progressing well.  The final stages of bringing this product to market, following a useful field trial with vets, are underway and the Group looks forward with confidence to the second half of this year. 

Gwyn Humphreys	Alastair Smith
Chairman	Chief Executive Officer
30 April 2013	30 April 2013

Condensed consolidated income statement

for the six month period ended 31 January 2013

		Unaudited	Unaudited	Audited
		6 months to 31 January 2013	6 months to 31 January 2012	Year ended 31 July 2012
		£000	£000	£000
Revenue		1,150	1,717	3,130
Cost of sales		(511)	(760)	(1,619)
Gross profit		639	957	1,511
Administrative costs		(1,613)	(1,472)	(3,153)
Operating loss before amortisation of customer related intangibles and development costs and share based payment charges		(964)	(387)	(1,550)
Release of contingent consideration provision		45	-	150
Amortisation of customer related intangibles and development costs		(5)	(90)	(97)
Share based payment charges		(50)	(38)	(145)
Total operating loss		(974)	(515)	(1,642)
Finance income		17	9	39
Loss before taxation		(957)	(506)	(1,603)
Taxation		150	157	497
Loss for the period		(807)	(349)	(1,106)
Loss per ordinary share:
- Basic and diluted		(0.03p)	(0.02p)	(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 2013

		Unaudited	Unaudited	Audited
		6 months to 31 January 2013	6 months to 31 January 2012	Year ended 31 July 2012
		£000	£000	£000
Amounts attributable to equity holders of the parent company
Loss for the period		(807)	(349)	(1,106)
Total comprehensive income for the period		(807)	(349)	(1,106)

Condensed consolidated statement of changes in equity

as at 31 January 2013

	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 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)
Result for the period	-	-	-	-	-	(757)
Shares issued for cash	-	3	-	-	-	-
Share based payment charges	-	-	-	-	-	107
At 1 August 2012	3,234	22,989	(1,590)	2,669	(1,729)	(8,617)
Result for the period	-	-	-	-	-	(807)
Share based payment charges	-	-	-	-	-	50
At 31 January 2013	3,234	22,989	(1,590)	2,669	(1,729)	(9,374)

Condensed consolidated balance sheet

at 31 January 2013

		Unaudited	Unaudited	Audited
		As at 31 January 2013	As at 31 January 2012	As at 31 July 2012
		£000	£000	£000
Non-current assets
Intangible assets		12,973	11,253	12,095
Property, plant & equipment		903	376	636
Income taxes		150	-	-
		14,026	11,629	12,731
Current assets
Inventories		468	406	462
Trade and other receivables		520	573	619
Income taxes		250	150	485
Cash and cash equivalents		2,059	5,813	4,191
		3,297	6,942	5,757
Total assets		17,323	18,571	18,488
Current liabilities
Trade and other payables		(1,069)	(713)	(1,432)
Contingent consideration		(55)	(50)	(100)
		(1,124)	(763)	(1,532)
Non-current liabilities
Contingent consideration		-	(200)	-
Deferred tax		-	(5)	-
		-	(205)	-
Total liabilities		(1,124)	(968)	(1,532)
Net assets		16,199	17,603	16,956
Equity attributable to equity holders of the Company
Called up share capital		3,234	3,234	3,234
Share premium account		22,989	22,986	22,989
Joint Share Ownership Plan		(1,590)	(1,590)	(1,590)
Capital reserve		2,669	2,669	2,669
Other reserve		(1,729)	(1,729)	(1,729)
Retained earnings		(9,374)	(7,967)	(8,617)
Total equity		16,199	17,603	16,956

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 2013

	Unaudited	Unaudited	Audited
	6 months to 31 January 2013	6 months to 31 January 2012	Year ended 31 July 2012
	£000	£000	£000
Operating activities
Loss for the period	(807)	(349)	(1,106)
Amortisation of intangible assets	5	90	97
Depreciation	118	63	141
Share based payment charges to employees	50	38	145
Net finance income	(17)	(9)	(39)
Income tax credit	(150)	(157)	(497)
Operating cash flow before changes in working capital	(801)	(324)	(1,259)
Movement in inventories	(6)	(69)	(125)
Movement in trade and other receivables	99	46	-
Movement in trade and other payables	(407)	76	634
Operating cash flow from operations	(1,115)	(271)	(750)
Interest received	17	9	39
Income tax received	235	-	-
Net cash flow from operating activities	(863)	(262)	(711)
Investing activities
Purchase of plant and equipment	(385)	(96)	(432)
Development expenditure capitalised	(884)	(474)	(1,355)
Acquisition of subsidiaries	-	3	28
Net cash flow from investing activities	(1,269)	(567)	(1,759)
Financing activities
Proceeds from issue of new shares (net of expenses)	-	4,872	4,891
Payments to acquire tangible fixed assets under finance lease agreements	-	(4)	(4)
Net cash flow from financing activities	-	4,868	4,887
Net increase/(decrease) in cash and cash equivalents	(2,132)	4,039	2,417
Cash and cash equivalents at the beginning of the period	4,191	1,774	1,774
Cash and cash equivalents at the end of the period	2,059	5,813	4,191

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 29 April 2013.

The interim financial information for the six months ended 31 January 2013, including comparative financial information, has been prepared on the same basis of preparation and using the same accounting policies as set out in the last annual report and accounts 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 2012.

Information extracted from 2012 Annual Report

The financial figures for the year ended 31 July 2012, 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 2012 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 30 April 2013

Tim Sykes Chief Financial Officer 30 April 2013

 

END

 

 

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