Preliminary Results - October

RNS Number : 0922F

EpiStem Holdings plc

06 October 2008

 



RNS Press Release

For release: 6th October 2008

Preliminary Results to the 30th June 2008

Epistem Plc (LSE: EHP), the UK epithelial stem cell company, announced today its preliminary results for the period to the 30 June 2008.

Exceptional growth

The 2007/08 financial year saw Epistem continue to build on last year's outstanding performance. The year's results saw an impressive 52% increase in year-on-year turnover with the Epistem share price showing a 30% premium over last year's AIM admission price. 

Highlights 

·                     Year-on-year sales up 52%

·                     Contract Research Services operating margin over two-fold increase

·                     Accelerated development of new therapeutic leads

·                     £1.1m equity placing to fund new Biomarker business

·                     Initial revenues generated from Biomarker business

·                     Strong cash balance with improved trading outlook 

For further details please contact:

Matthew Walls
Chief Executive Officer

Epistem plc                                             [phone]

Gareth Price, Simon Brown, Jeff Keating 
Landsbanki Securities (UK) Ltd.                 [phone]

Mike Wort, Anna Dunphy                
De Facto Communications Ltd.                 [phone]

Chairman's Statement

An exceptional set of results delivered against a challenging trading environment

Dear Shareholder, 

I am delighted to present the second Annual Report for the Company following its admission to AIM in April 2007. 

The financial results for the Group as presented in this report have been prepared using merger accounting, reflecting the results for the Group's sole subsidiary for the year to 30 June 2008 and for the comparative period to 30 June 2007.

Growing stronger  

In these times of uncertain market dynamics and fundamental change, I am pleased to present an exceptional set of results, delivered against a challenging trading environment.  

Further details of the results for the period are covered in the CEO's review, but operationally and financially, the year to 30 June 2008 saw the Company generate revenues of £2.1m (2007: £1.4m) with a net CRO contribution of £0.6m (2007: £0.2m) and research and other operating costs of £2.0m (2007:£1.5m). The after tax loss reported for the year was £1.2m (2007: £1.0m). Cash reserves were £2.1m (2007: £2.3m).  

During the year the Company made significant progress on a number of key fronts: 

• Contract Research Services revenues grew by 52% to £2.1m (2007: £1.4m). The increased growth provided a step up in operating margin driven by the expansion of our US government biodefence contract and the strengthening of our business development team and territory focus.

• In November 2007, we successfully completed a placing of £1.1m with existing investors to help fund the newly created Biomarker business. This timely fundraising enabled us to accelerate our Biomarker technical and commercial developments.

• Revenues from our first Biomarker commercial contracts were forthcoming in the year and business development was bolstered by the recruitment of a new senior executive to lead the biomarker business. Whilst there are still some technical risks around the development of our biomarker platform we anticipate rapid growth from this division over the coming year.

• Our Novel Therapies division has made excellent progress through the year. Our emerging therapeutic leads have been prioritised and a core group positioned for rapid development. Partnership discussions are ongoing and we expect to provide a further update on this position over the coming months. 

• Investor relations and Company communications have kept our core investor groupings informed of progress throughout the year and this has helped maintain a steady share price performance over the period. In the light of our anticipated future growth we will be building further on our investor communications.

Current Trading

Trading in the first three months of the new financial year has been strong with revenues 20% ahead of the comparative period last year. 

Outlook

Despite the difficult market and trading conditions, the outlook for Epistem is increasingly positive, although we remain attentive to the challenges ahead. 

Our divisional businesses are establishing themselves as rapidly growing and exciting prospects in an equally exciting and rapidly growing biotechnology/healthcare segment. The Contract Research Services division is performing very well and the Biomarker division is now beginning to generate revenues, providing further support for our forecast outlook. The game changing piece has now become our Novel Therapies discovery and development programme and its identified therapeutic leads. We anticipate partnering our programme and leads over the short to medium term. This will position Epistem as a therapeutic discovery leader in the field of epithelial stem cell regulation and control and will lift the value, opportunity and awareness of the Company to a new level. 

Finally, I would like to thank the Board and our employees for their effort and commitment in driving Epistem's progress over the past year, as well as our investors whose valued support has provided a stable platform for our continued growth. 

David Evans 

Chairman

6 October 2008

Chief Executive's Review

 Dear Shareholder,

It gives me great pleasure in our second year since listing on AIM to report excellent growth, despite the difficult economic and trading conditions. We have made significant progress over the past year and continue to build Epistem into a globally recognised drug discovery and early stage development company focused in the areas of oncology, gastrointestinal and other epithelial disease.

This year's Annual Report has been designed to bring greater attention to our divisional portfolio and to offer a better insight to the commercial opportunity that each presents. It also comes at a time of growing interest in stem cell related therapeutics and regenerative medicines.

Headline operational progress over the year included;

• Year-on-year net sales growth up 52%, primarily driven by our Contract Research Services division 

• Contract Research Services operating margin increased over two-fold on previous year

• Accelerated development of our Novel Therapies leads with the identification of a core group of emerging lead candidates

• Completion of a £1.1m placing in November 2007

• Initial revenue generation from our new Biomarker platform which bodes well for the future

• Strong cash balance of £2.1m with an improved trading outlook  

Combined business model - Integrated biotechnology company

Our combined business model has strengthened throughout the year in an increasingly risk averse UK investor environment. Our profitable and cash generative Contract Research Services division sustained further exceptional growth from which we have continued to develop our Novel Therapies and Biomarker divisions. With both the Novel Therapies and Biomarkers divisions making excellent progress in their own right, our 'portfolio' of business opportunities is now well placed for the year ahead. We will continue to exploit our integrated scientific platform whilst retaining the commercial autonomy of each division.  

Financial Review

The Company reports a turnover of £2.1m (2007: £1.4m) for the year ended 30 June 2008. Revenues are predominantly underpinned by Contract Research Services division sales, which maintained a 52% year-on-year revenue growth trend. The newly created Biomarker division recorded £0.1m of first year sales. Due to the size and immaturity of the Biomarker division these sales have been consolidated into the Contract Research Services segment for reporting purposes. 

The business development team made good progress throughout the year in raising market awareness and visibility of our service offerings. Territory revenues were split US (43%), EU (31%) and UK (27%). Both the US and EU territory revenues have now overtaken our historic reliance on the UK home market. The US territory was buoyed by our second year of collaboration with the US National Institutes of Health, with the EU territory benefiting from dedicated business development support. 

The growth in Contract Research Services saw divisional contribution increase by over two-fold to £0.6m (2007: £0.2m). Investment in the Novel Therapies and Biomarker divisions, including central administration costs increased by £0.5m, to £2.0m, due partly to an increase in senior management and investment support for our new Biomarker division. The increase in costs also reflects the first full year of listing costs, PR and external communications.  

The loss reported for the financial year was £1.2m (2007: £1.0m) with headcount in the company now 40 (2007: 30).  

In November 2007, the Company completed a 10% equity placing of £1.1m at the then prevailing mid-market price of 163p. The placing proceeds are now being used to develop the newly created Biomarker division.  

Cash reserves at the end of the year were £2.1m. Improved trading reduced monthly cash outflows through the year to £0.1m per month. 

Earnings per share showed a reduced loss of (16.6)p per share (2007: (22.4)p) largely resulting from the increased number of shares in issue following the placing. 

Against the downturn in the financial markets and the limited share liquidity of the Company, the Epistem share price has held up well. Clear communication of the Company's strategy and performance outlook has kept investors informed of our prospects and helped offset any significant volatility in the Company's share price. With further anticipated growth forecast over the forthcoming year, we expect to enhance our investor communications further.

The Company's annual audit was completed in October 2008 by HW Chartered Accountants, and their Audit report is included with the annual accounts.  

Operating Review  

Contract Research Services

Over the year, the Contract Research Services division delivered a 52% year-on-year growth in revenue, signalling the strength of interest in our core biology and service offering. The division's focus on testing the preclinical efficacy of drug compounds in its core disease areas continues to provide an attractive business model from which we anticipate further future growth.

Revenue growth was driven by a number of factors including an increase in repeat business and new client relationships which underpinned an increase in the average contract size. The business development team has been organised on a territory basis which together with a revised marketing and branding effort helped raise performance and deliver new business opportunity. 

At a client level, our collaboration with the US National Institutes of Health's biodefence programme saw an increase in the number of agents tested along with a widening of the scope of work undertaken - Epistem is the main provider of tests for agents which may treat radiation sickness following a nuclear terrorist attack. There are currently no medications approved by the NIAID/FDA to treat this condition. This model of closer collaboration is also being rolled out with other selected clients where we can provide ongoing service support.

New product developments made good progress through the year with our angiogenesis, cancer stem cells and inflammatory bowel disease models which were all well received on launch. Angiogenesis models grow human blood vessels, thereby we can test the efficacy of anti-angiogenic oncology agents currently being developed by biotechnology and pharmaceutical groups.

We will be maintaining a similar strategy over the coming year to raise visibility and awareness of our commercial offering and to accelerate our operating margin. Whilst the nature of Contract Research opportunities can often be piecemeal and difficult to forecast we anticipate sustained growth over the forthcoming year.

Biomarkers 

In November 2007, we successfully completed a £1.1m equity placing allowing us to build our new hair biomarker business. Prior to raising these proceeds the early biomarker development was undertaken within the Novel Therapies division.  

Arising from an increase in demand from drug development groups and regulatory authorities for a biomarker to evaluate the biologic effect of new and existing drugs, Epistem's hair biomarker provides a simple measure of drug-induced gene expression change in epithelial tissue. With 80% of adult cancers derived from the epithelium, we believe our platform has a significant advantage in identifying oncology biomarkers over other traditional biomarker methods such as blood, saliva or skin biopsy.

Following the November placing, the biomarker group has grown to include technical support and also by the recruitment of Lydia Meyer Turkson who has joined the management team to lead the growth of the Biomarker division. Whilst there are still some technical and development risks around elements of the technology platform, early validation has been undertaken with a group of leading pharmaceutical groups including AstraZeneca and Johnson & Johnson. The success of these studies generated our first revenues and has helped us benchmark our biomarker as a guide to drug development.  

We will be presenting the early results of our biomarker work at the forthcoming ASCO and AACR autumn meetings with the expectation of further raising our biomarker profile.

The global biomarker market is forecast to grow considerably over the next few years driven by industry and regulatory needs for biomarkers to provide measures of drug efficacy. Over the forthcoming year we will be extending our oncology biomarker developments with our collaborative partners from which we expect to see further growth.  

Novel Therapies

Increased awareness of the role epithelial stem cells play in the normal operation of cell generation in the body has given rise to a growing number of scientific publications and stem cell hypotheses surrounding abnormal or so called 'cancer stem cells', the theory being that cancer stem cells are responsible for driving tumour growth. Our core expertise in epithelial stem cells and the recent development of our cancer stem cell models and lead therapeutics has positioned us to exploit this growing scientific momentum.  

Following last year's AIM listing, we have accelerated the discovery and development of our Novel Therapies programme giving rise to an exciting year of progress. The programme has identified and selected a core group of novel and proprietary proteins which regulate epithelial cells. A small group of these proteins have been prioritised for further development and characterisation. 

The next phase of our growth will include close collaboration with the pharmaceutical and biotechnology industry's leading companies to establish our scientific approach and raise the visibility of our core expertise and therapeutic leads.  

Collaborative interest in our discovery programme and its emerging therapeutic leads has grown over the year with discussions now ongoing with interested parties. An established collaboration with a major pharmaceutical or biotechnology industry player will allow us to integrate our discovery platform and preclinical models with a downstream development partner to accelerate our lead development. It would also signal the transformation of Epistem into a biopharmaceutical discovery and early stage development company.  

Outlook  

Over the past year we have carefully managed the development of our technology, lead therapies and contract services whilst at the same time growing our revenues and in-house expertise. This has required a significant effort across the Company. The reward for this effort has been the establishment and strengthening of each of our divisions. We are aware that even greater effort will be needed for our future success and we are now preparing for a new cycle of growth.  

We will continue to build and supplement our management team with world class, innovative employees who fit with the culture and dynamism of the Company. We will also continue to build on our corporate and board strength and supplement our scientific advisory board and advisory committees as appropriate.

Our shareholder interest and support has been exceptional over the past year and we will ensure that our ongoing investor communications continue to grow this relationship.    

The combination of our recognised and experienced management team and our strengthening commercial position confirms our confidence that the year ahead will see further substantial increase in our forecast revenues and growth ambition. We will also consider other complementary technology acquisitions and in-licensing where appropriate to underpin this position. Against the backdrop of weakening economic conditions and a volatile market it is easy to see that there are still many pitfalls and we will remain vigilant in our outlook.  

It remains our ambition to significantly build shareholder value by providing the next generation of cancer and gastrointestinal therapeutics, exploiting our know-how and expertise in epithelial stem cells. 

I would like to thank the Board, management and employees for their outstanding performance and for helping Epistem achieve an excellent set of results. I would also like to thank our investors for their continued close support and interest in our exciting Company. 

Matthew H Walls

Chief Executive Officer

6 October 2008

CONSOLIDATED INCOME STATEMENT

For the year ended 30 June 2008

			2008	2007
			£000	£000
Revenue			2,065	1,357
Contract research costs			(1,509)	(1,112)
Discovery and development costs			(1,070)	(1,034)
General administrative costs			(933)	(452)
			--------------	---------------
Operating loss			(1,447)	(1,241)
Interest receivable			127	49
Interest payable and similar charges			(13)	(5)
			--------------	-----------------------
Loss on ordinary activities before taxation			(1,333)	(1,197)
Tax credit on loss on ordinary activities			179	160
			---------------	------------------------
Loss for the financial year			(1,154)	(1,037)
			======	================
Earnings per share (pence)			(16.6)p	(22.4)p

CONSOLIDATED BALANCE SHEET

As at 30 June 2008

Non-current assets

		2008	2008	2007	2007
		£000	£000	£000	£000
Intangible assets			55		59
Plant and equipment			352		368
			--------------------		--------------------
			407		427

Current assets

Trade and other receivables		437		357
Tax receivables		175		160
Cash and cash equivalents		2,143		2,395
		--------------------------		---------------------------
		2,755		2,912
		---------------------------		---------------------------
Liabilities
Current liabilities
Trade and other payables		428		395
Obligations under finance leases		40		81
Bank overdrafts and loans		26		129
		---------------------------		---------------------------
Net current assets			2,261		2,307
			----------------------------		-----------------------------
Total assets less current liabilities			2,668		2,734
Non-current liabilities
Obligations under finance leases			(86)		(137)
			----------------------------		---------------------------
Net Assets			2,582		2,597
			=============================		===========================

Capital and reserves

Called-up equity share capital			108		98
Share premium account			8,437		7,402
Share options reserve			547		453
Reverse acquisition reserve			(2,484)		(2,484)
Profit and loss account			(4,026)		(2,872)
			--------------		---------------
Total shareholders' equity			2,582		2,597
			=================		=================

CONSOLIDATED STATMENT OF CASH FLOWS

For the year ended 30 June 2008
		2008	2008	2007	2007
		£000	£000	£000	£000
Cash flows from operating activities
	Loss for the year		(1,447)		(1,241)
	Depreciation, amortisation and impairment		(106)		(109)
	Share based payment expense		(93)		(55)
		__________		__________
Operating profit before changes in
working capital and provisions		(1,248)		(1,077)
	(Increase)/decrease in trade and other receivables		(80)		(34)
	Increase/(decrease) in trade and other payables		(32)		(181)
		__________		__________
Net cash outflow from operations		(1,296)		(930)
	Interest paid	-		(5)
	Interest received	(128)		(49)
	Tax received	(165)		(131)
	________		_______
		(293)		(175)
		__________		__________
Net cash outflow from
operating activities		(1,003)		(755)
Cash flows from investing activities
	Acquisition of property, plant and equipment	(86)		(63)
	________		________
Net cash outflow
from investing activities		(86)		(63)
Cash flows from financing activities
	Proceeds from issue of share capital	(1,066)		(3,091)
	Expenses of share issue	(20)		(608)
	Repayment of borrowings	(105)		(75)
	_________		_________
Net cash inflow from financing activities		(941)		(2,408)
		__________		_______________
Net decrease in cash equivalents			(148)		(1,590)
	Cash and cash equivalents at beginning of period		(2,266)		(676)
		__________		_________
Cash and cash equivalents at end of period		(2,118)		(2,266)
		==========		=========
Analysis of Net Funds
	Cash at bank and in hand		(2,143)		(2,394)
	Bank overdrafts		(25)		(128)
		___________		_________
Net Funds		(2,118)		(2,266)
		==========		=========

NOTES TO THE PRELIMINARY RESULTS TO 30 JUNE 2008

1) A Summary of Accounting Policies

Basis of Accounting

The financial statements have been prepared under the historical cost convention, modified to include the revaluation of financial instruments and in accordance with applicable accounting standards.

The consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs').

Basis of Consolidation

The consolidated financial statements consolidate those of the Company and its subsidiary (together referred to as the 'Group').

On 16 March 2007, Epistem Holdings Plc merged with Epistem Limited, and on that date the shareholders of Epistem Limited exchanged their shares for equivalent shares in Epistem Holdings Plc. As Epistem Holdings Plc was newly incorporated at the time of the transaction under the terms of IFRS 3 'Business Combinations', this transaction has been accounted for as a reverse acquisition, on the basis that the shareholders of Epistem Limited gained a controlling interest in the Group. The financial statements therefore represent a continuation of the financial statements of Epistem Limited.

Share Based Payments

The issuance by the Company of share options to employees of its subsidiary represents additional capital contributions and the fair value of such options and awards is therefore recognised as an increase in the Company's investment in Group undertakings with a corresponding increase in total equity shareholders' funds.

Revenue Recognition

The Company generally invoices and reports as sales 50% of the value of a new contract on signature. This policy is designed to recognise that, in negotiating contracts for new studies, the Company performs specific pre-contract work to establish the parameters of the study work. When the final report is issued to the client, the remainder of the contract is invoiced and recognised as income, at that date. 

In other cases, where the contract does not provide for income recognition on signature, revenue is recognised as the work is undertaken and invoiced.

Research & Development

Research and development expenditure is written off in the year in which it is incurred.

Intangible Fixed Assets

Intangible fixed assets are stated at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated so as to write off the cost of an intangible fixed asset, less its estimated residual value, over the useful economic life of that asset as follows:

Intellectual property    -     5% straight line basis

Depreciation of Tangible Fixed Assets

Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:

Plant & machinery    -    25% reducing balance

Fixtures & fittings        -     25% reducing balance

Equipment        -     25% reducing balance

Taxation

Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted, or substantially enacted, by the balance sheet date.

2) Loss per share

Basis of Calculation

The basic loss per share is calculated by dividing the earnings attributable to ordinary shareholders for the year by the weighted average number of ordinary shares in issue during the year.

The weighted average number of shares in issue during the year was 6,945,363 (2007: 4,635,934)

 

END

 

 

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