Final Results - Year Ended 31 August 1999

Phytopharm PLC 30 November 1999 Preliminary Results for the Year Ended 31 August 1999 Phytopharm plc ('Phytopharm') today announces its preliminary results for the year ended 31 August 1999. Highlights: - First milestone payment from Pfizer triggered on Appetite Suppressant (P57) - Completion of derivatisation programme on Alzheimer's disease product with eight further patents submitted (P58) - Commencement of Phase IIa trial in Colon Cancer (P54) - Commencement of clinical evaluation in Canine Eczema (P7) and Canine Arthritis (P54) - In-licence of Hepatitis treatment (P56) - Successful £4.27m placing with institutional investors at a nominal discount announced today Dr Richard Dixey, Chief Executive of Phytopharm, said: 'We are now entering a key phase in the development of our portfolio, where our understanding of the clinical activity and mode of action of our products has enabled us to target specific market segments. With controlled cultivation now operational in three continents and scale manufacturing operations in place for three of our products, we are in a good position to prepare for early product launches in the veterinary sector in support of our longer term pharmaceutical development programmes.' Enquiries: Phytopharm plc Today: 0207 638 4010 Dr Richard Dixey, Chief Executive Thereafter: 01480 437697 Mobile: 0498 583754 Financial Dynamics Tel: 0207 831 3113 David Yates or Sophie Pender-Cudlip Phytopharm has a new website from 6 December 1999 at www.phytopharm.co.uk. Introduction Over the past ten years, we have pioneered the development of extracts from medicinal plants (Botanicals) as candidates for mainstream drug development. Having clarified the regulatory requirements for such extracts, we have established long term partnerships to manage controlled horticulture and manufacture in their countries of origin, and have used our expertise in clinical and scientific management to carry out these development programmes. We are now in the third phase of this process, whereby key insights generated by our development programmes are leading to an understanding of both the active constituents and modes of action of our products. Our main thrust has always been to develop plant extracts and their related chemical forms to the highest quality standards, and offer these to international licensing partners for the prescription market in man. In all cases, such products are protected by intellectual property rights, whether on the use of the plant extracts, their constituents, or their mode of action. Development cycles are necessarily long term, however, and can only be supported by milestone payments and reimbursed research and development expenses until sales are generated. As we have been developing our prescription medicine portfolio however, the market for Botanical products has been expanding dramatically. Public interest is high, and major growth potential in both the licensed market in man and the veterinary market is now becoming widely recognised. The response to this has been two-fold: multinational pharmaceutical companies have been moving into these markets through their specialised divisions, and the major regulatory authorities have been stressing the importance of fully controlled manufacture and development. These developments in the market place have allowed a further expansion of our strategy into areas outside our primary focus of licensed pharmaceuticals. With the emergence of veterinary and unlicensed market opportunities, we have conducted a portfolio review over the past year and have identified two product areas where we can use our know-how and intellectual property to potentially achieve good returns, while developing products over a far shorter development cycle. If launched, we are hopeful that sales from these products could generate sufficient cash to fund our research and development expenditure. Operating Review 1999 has been a year of continued success for Phytopharm. We have increased our clinical portfolio to nine projects with the initiation of a trial in colon cancer and a programme of veterinary research in eczema and arthritis. This clinical data set not only supports development programmes but also enables us to use the data so generated to add further to our understanding of the mode of action of our products. This parallel development and discovery cycle lies at the core of the Botanical medicine drug development pathway. Our intellectual property portfolio continues to grow and we are now developing 20 patent families in 125 countries with 67 patents successfully granted. Of particular importance is the emergence of mode of action patents in two key disease areas. Furthermore, our strategy of exploiting the multiple market opportunities for Botanical products has enabled a stratification of our products, with some now configured for early sales generation, and others the subject of longer term drug discovery and development programmes. Review of the portfolio Metabolic diseases Development of our appetite suppressant, P57, has progressed well this year, and we have announced today the completion of the milestone-triggering repeat dose Phase I study in man. A good overall safety profile is emerging from this fourth Phase I trial and we are now preparing for further dosing studies with the material. In parallel with these activities, we are carrying out the strategy agreed with Pfizer and the CSIR (Council for Scientific and Industrial Research), and have designed and opened a clinical supplies unit in South Africa to manufacture product to be used in the clinical trials programme. This first ever GMP (Good Manufacturing Practice) suite dedicated to the production of Botanical extracts was formally opened by the South African Minister of Technology earlier this year. Two plantations for the controlled production of the raw material have been established in South Africa with over a million plants in the growing cycle, and two further sites are being established world-wide. We have carried out a further series of pre-clinical evaluations on our diabetes product, P30. We have continued to see activity in the material but we have been unable to isolate a stable fraction to date. We have one further set of studies to carry out in the hope that a workable extract will yet emerge to enable us to build on our anecdotal evidence concerning the efficacy of the material. Anti-inflammatory treatments This year has also seen the reporting of the results of our Phase II study on P54 in the treatment of the symptoms associated with osteoarthritis. The results of this study did not detect a statistically significant difference between the placebo and active groups. However, the results, with 47% of the treatment group reported as either improved or markedly improved compared with a 40% score for the placebo group, continue to support the anti-inflammatory profile of the product. Such large placebo responses are not uncommon in arthritis research, and graphically illustrate the difficulties of work in this area where analgesic effects are as important as anti-inflammatory activity in controlling disease symptoms. In response to this result, we have carried out a programme of re-formulation of the product, and have produced a new formulation with a substantial increase in the bioavailabilty of the active materials. In collaboration with the MRC (Medical Research Council), we have been able to further demonstrate the effects of P54 in reducing the production of inflammatory enzymes such as cyclo-oxygenase II (COX II) in response to stress in a number of model systems and have commenced a trial in colon cancer that is described below. P54 also has substantial attractions in the veterinary anti-inflammatory market where early product launches are possible, and we have initiated a study in canine arthritis designated as P54v to confirm the evidence of efficacy of the material in this important indication. To support these clinical activities, we have established plantations in both Indonesia and India to supply raw materials and expect fully compliant manufacturing facilities to become operational during the course of next year. Dermatological portfolio This year has seen substantial progress in the understanding of our eczema family of products. Using information gained from clinical programmes, we have begun scaled-up manufacture of the drug substance for P55 in order to increase the yields of active material. Alongside this formulation work, further studies to explore the mode of action of the product are well advanced, and we are close to the isolation of the active molecules contained in the material. We have also begun work on our third trial evaluating the effects of our product P7 as a treatment for canine eczema. Building on the successful outcome of the first two studies, we are anticipating that the completion of this third trial in dogs will enable a launch of the product in the veterinary market later next year. Following the successful demonstration of the activity of P53 in the reduction of pruritis (itch) secondary to psoriasis last year, we have been guided towards a mode of action that is currently under investigation. Subject to completion of these studies, we will start a pivotal Phase II study during the course of the year. Our Phase II double blind placebo controlled evaluation of P45, our treatment for alopecia, will reach the interim analysis point before the end of the year. Subject to the results of this analysis, we will either examine the effects of the active material in more detail or continue treatment for a further six months. We have not been successful in establishing a window between toxicity and efficacy for our topical treatment for psoriasis P37 this year, and have therefore taken the decision to abandon the project. Cancer and infectious disease Given the substantial evidence for the role of COX II in the spread of cancers of the colon and its importance in inflammatory bowel disease, we commenced a study in collaboration with the MRC earlier this year on P54 for the treatment of colon cancer. This first study is to a dose escalating design, and should report next year. We also announced the in-licence of P56, an important new treatment for hepatitis during the course of the year. Based on a South Indian plant that has been the subject of a programme of controlled cultivation over the past two years, we have now isolated five separable modes of action of the extract against hepatitis viruses. We plan to start an initial evaluation of the product as a treatment for hepatitis C early next year. Neurological disorders We have made considerable progress in our development of P58, our treatment for Alzheimer's disease during the past twelve months. We have developed and patented a predictive laboratory model based on the original data in animals and man to explore the mode of action of the product, and have completed an extensive derivatisation programme. This has enabled us to establish structure function relationships for a large number of molecular forms related to the original phytochemical. We have now submitted a further eight patent applications alongside the original mother patent for the product, and we remain extremely excited about this plant medicine as an important and novel method for the treatment of age-related dementias in general as well as Alzheimer's disease in particular. We are currently scaling up manufacture in order to support a Phase I programme later next year. Financial Review The Group recorded a loss for the year of £3.2m, a reduction of £0.4m on the previous year. The cash balance at the end of the year was £2.8m compared to £2.5m at the end of the previous year, with working capital of £1.9m compared to the corresponding figure of £2.5m at the end of fiscal year 1998. The Group's results and financial position were in line with internal forecasts. Turnover for the year increased by £1.7m to £2.4m, reflecting the first full year of reimbursed development income under the licence and development agreement with Pfizer for the Group's appetite suppressant product, P57. Overall operating expenses for the year increased by 26% over the previous year. Within that total, expenditure on research and development also increased by 26% over the previous year to £4.9m while administrative costs increased by 2% to £0.8m, demonstrating the Group's continued commitment to increasing expenditure on research and development while keeping tight control over administrative costs. In the second half of the year the Group closed its small quality control laboratory, incurring a one off cost of £0.2m, and now outsources all its analytical work. The overhead expenditure of £2.9m in the second half of the year was virtually the same as that reported for the period to 28 February 1999, while turnover dropped by £0.3m to £1.1m in the same period. The drop in turnover reflects the differing stages of the development programme for P57. In the first half of the fiscal year, the clinical trials supply unit in South Africa was substantially completed, while activities in the second half of the year were concentrated on preparing for the Phase I study in man which commenced just after the year end. Interest income represents interest earned on deposits held during the year. The decrease in net assets to £2.1m from £3.0m at the end of the previous year represents the loss for the year of £3.2m partially offset by net proceeds of £2.2m raised during the year by a share issue and a further £0.1m raised from the exercise of share options. Debtors have also reduced to £0.2m at the end of the year from £0.8m at the previous year end. The previous figure included the initial reimbursed income under the development agreement. Creditors due within one year have increased by £0.4m to £1.1m due principally to the increased level of operating expenses incurred by the Group during the year. Cash expended during the year on the Group's operations was £2.0m, representing a reduction of £2.2m over the previous year as the increase in turnover more than offset the increase in operating expenditure. The Placing Today, the Group raised £4.27m, net of expenses, through the placing of 1,643,200 Ordinary Shares for cash with institutional investors at a price of £2.67 per share, being a nominal discount to the closing middle market quotation on 29 November 1999 of 3.8%. The placing was arranged and fully underwritten by the Company's broker, WestLB Panmure Limited. Application has been made for the new shares, which represent 4.9% of the issued share capital of the Company and which will rank pari passu in all respects with the existing Ordinary Shares of 1p each, to be admitted to the Official List of the London Stock Exchange. Dealings in the new shares are expected to begin on 3 December 1999. This additional working capital has strengthened the Group's balance sheet significantly. In the coming year, the Directors anticipate maintaining the current momentum on the project development programmes whilst continuing to make the most efficient use of the Group's resources. Management There have been important changes on the Board concerning executive members. Dr Ian Rubin, who has been with Phytopharm for four years as Medical Director and Chief Operating Officer, has left the Board in order to become Chief Executive Officer of a newly formed biotechnology company. We have been able to recruit highly qualified and experienced replacements in Dr Daryl Rees as our Chief Scientific Officer and Dr Rob Grover as our Medical Director. We have also recently appointed Jayne Allan to the Board as Director of Resource and Planning with responsibility for co-ordinating our research programmes and personnel. Outlook Phytopharm remains the world leader in the development of Botanical medicines. The Company continues to be focused on its core objective of developing prescription medicines in man. It is our objective to have three such products in late stage clinical development over the next three years. We also have a significant opportunity to address the other market segments of unlicensed pharmaceuticals and veterinary medicines. We believe that we may be able to generate early sales revenues in these markets to set alongside the income stream that we receive from our licensees, leading to a further reduction in our cash burn. We believe that Phytopharm is well set for another year of positive development. Consolidated Profit and Loss Account for the year ended 31 August 1999 (unaudited) Notes 1999 1998 £'000 £'000 Turnover 2 2,447 713 Cost of sales (8) (19) __________ __________ Gross profit 2,439 694 Other operating expenses 3 (5,814) (4,616) __________ __________ Operating loss (3,375) (3,922) Interest receivable and similar income 163 300 Interest payable and similar charges (9) (12) __________ __________ Loss on ordinary activities before and after taxation (3,221) (3,634) __________ __________ Loss for the year (3,221) (3,634) ========= ========= Basic fully diluted loss 4 (9.9) (11.7) per ordinary share (pence) IIMR loss per share (pence) 4 (9.5) (11.6) All revenue and expenses shown above were generated from continuing operations. The Group has no recognised gains or losses for the financial year other than those disclosed above. Consolidated Balance Sheet at 31 August 1999 (unaudited) Notes 1999 1998 £'000 £'000 Fixed assets Tangible assets 210 455 __________ ________ Current assets Stocks - 9 Debtors 163 806 Cash held on deposit as short term investments 2,009 1,514 Cash at bank and in hand 818 941 __________ __________ 2,990 3,270 Creditors: amounts falling due within one year (1,084) (722) __________ __________ Net current assets 1,906 2,548 __________ __________ Total assets less current 2,116 3,003 liabilities __________ __________ Creditors: amounts falling due after more than one year (55) (49) __________ __________ Net assets 2,061 2,954 ========= ========= Capital and reserves Called up share capital 332 313 Share premium account 5 15,435 13,126 Merger reserve 5 (204) (204) Profit and loss account 5 (13,502) (10,281) __________ __________ Equity shareholders' funds 2,061 2,954 ========= ========= Consolidated Cash Flow Statement for the year ended 31 August 1999 (unaudited) 1999 1998 £'000 £'000 Net cash outflow from continuing operating activities (1,979) (4,226) _________ _________ Returns on investment and servicing of finance Interest received 163 300 Interest paid on loans and overdraft - (1) Interest paid on finance leases (9) (11) _________ _________ 154 288 _________ _________ Taxation UK corporation tax paid - - _________ _________ Capital expenditure and financial investment Purchase of tangible fixed assets (47) (92) Proceeds on sale of tangible fixed assets 34 9 _________ _________ (13) (83) _________ _________ Cash outflow before management of liquid resources and financing (1,838) (4,021) _________ _________ Management of liquid resources Net movement of cash held on deposit (495) 4,332 Financing Proceeds from exercise of share options 103 110 Proceeds from issue of share capital 2,225 - Repayment of principal under finance leases (61) (56) _________ _________ Net cash inflow from financing 2,267 54 _________ _________ (Decrease)/increase in cash in the year (66) 365 ======== ======== Reconciliation of operating loss to net cash outflow from operating activities 1999 1998 £'000 £'000 Continuing activities Operating loss (3,375) (3,922) Depreciation on tangible fixed assets 206 200 Loss on disposal of fixed assets 124 18 Decrease in stocks 9 85 Decrease/(increase) in debtors 643 (620) Increase in creditors 414 13 __________ __________ Net cash outflow from continuing ACTIVITIES (1,979) (4,226) ========= ========= Notes to the Preliminary announcement 1. Basis of Preparation These financial statements have been prepared in accordance with the accounting policies set out in the financial statements for the year ended 31 August 1998, together with the following: Basis of extraction The figures shown for the year to 31 August 1999 represent unaudited abridged financial statements and have not as yet been delivered to the Registrar of Companies. The comparative figures for the year to 31 August 1998 have been taken from, but do not constitute, the Group's financial statements for that financial year. Those financial statements have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under s237 (2) or (3) of the Companies Act 1985. 2. Turnover 1999 1998 £'000 £'000 By business activity Licensing and development 2,427 666 Product sales 20 47 ________ ________ 2,447 713 ======= ======= All turnover arose in the United Kingdom. 3. Other Operating Expenses Other operating expenses comprise: 1999 1998 £'000 £'000 Continuing operations Research and development 4,871 3,862 Administrative expenses 772 754 Laboratory closure costs 171 - _________ _________ 5,814 4,616 ======== ======== 4. Loss Per Share The basic undiluted loss per share is based on losses of £3,221,178 (1998: loss of £3,634,429) and 32,628,503 ordinary shares (1998: 31,156,845), being the weighted average number of shares in issue during the period. The IIMR earnings per share figure excludes gains and losses on disposals of fixed assets during the year. 5 Share Premium Account and Reserves Share Profit premium Merger and loss account reserve account £'000 £'000 £'000 At 1 September 1998 13,126 (204) (10,281) Premium on issue of shares 2,341 - - Expenses of share issue (32) - - Loss for the year - - (3,221) __________ _________ ___________ At 31 August 1999 15,435 (204) (13,502) ========= ======== ==========

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