Interim Results
Phytopharm PLC
01 May 2003
1 May 2003
Phytopharm plc
Interim results for the period to 28 February 2003
Phytopharm plc today announces interim results for the six-month period to 28
February 2003.
Announced Today (see separate press release)
• Yamanouchi Pharma Co Ltd licenses compound PYM50028 from
neurodegeneration platform
- $33 million of potential milestones for Alzheimer's indication (P58)
- Royalties payable on product sales
• Yamanouchi takes options for Parkinson's disease, Lewy body dementia,
vascular dementia and mild cognitive impairment (P63)
- Payments based on relative market size of indications to Alzheimer's
disease
- Royalties payable on product sales
• Licence and option to Yamanouchi relate to Japan and other Asian
territories representing some 15% of the world market
Period Highlights
• Commencement of Phase I clinical study in Parkinson's disease (P63)
• Positive first six-month update received from Pfizer on progress of
obesity programme (P57)
• Good pre-clinical progress on semi-synthetic appetite suppressant
programme (P64)
• Good clinical progress on veterinary products (P7v and P54v)
Dr Richard Dixey, Chief Executive of Phytopharm, said:
'Phytopharm has met a key strategic objective in entering its agreement with
Yamanouchi. The Phase II development of a lead compound from the
neurodegeneration platform now joins a lead compound from the metabolic disease
platform in being fully funded by a multinational licensing partner.
Furthermore, this has been achieved in a manner that has retained considerable
value within the Company.'
Enquiries:
Phytopharm plc Today: 07867 782000
Dr Richard Dixey, Chief Executive Thereafter: 01480 437697
Mobile: 07867 782000
Financial Dynamics Tel: 0207 831 3113
David Yates / Ben Atwell
A presentation for analysts will be held at Nomura International plc, 1 St
Martin's-le-Grand, London EC1A 4NP at 9:30am today. Coffee will be available
from 9.15am. A webcast of the analyst presentation will be available from
Friday 2 May on the Company's website:
www.phytopharm.co.uk
Operational Review
Phytopharm is focused on generating novel pharmaceutical products based on
clinical data generated from medicinal plant extracts. Such research can lead
to important and innovative platforms for drug discovery that include libraries
of compounds, biological targets and associated clinical and pre-clinical data.
This data in turn leads to drug development programmes aimed at target diseases,
and creates multiple licensing opportunities for specific compounds within those
programmes. The four platforms being developed within Phytopharm, each at
different stages of development, are described below.
The metabolic disease platform is focused on obesity, obese onset diabetes and
metabolic syndrome. In August 1998, Phytopharm licensed a programme coded as P57
from within this platform to Pfizer Inc ('Pfizer'). This programme comprises
the patented use of three plant species, their mode of action and related active
molecules.
In March 2003, Phytopharm announced that it had received the first six monthly
progress report from Pfizer concerning the ongoing development of P57. This
followed the announcement in July 2002 that Pfizer was taking responsibility for
the development of the programme, under the terms of the Licence and Royalty
agreement entered between Pfizer and Phytopharm in August 1998. Programme P57
contains a novel appetite suppressant that has been shown to reduce calorific
intake in overweight subjects, as demonstrated in a double blind placebo
controlled clinical study that was announced by Phytopharm in December 2001.
The first six monthly report from Pfizer summarised the steps they have taken to
continue the development of P57. A committee within Pfizer has been formed to
oversee the project, which is a key development in its further progress. Work
has now commenced in preparation for a double-blind, placebo-controlled
residential study to clinically validate the appetite suppression mechanism and
to assess the safety of a simplified low dose botanical mixture.
Phytopharm has developed screens that are predictive of appetite suppressant
activity and good progress has been made in understanding the structure activity
relationships and in the development of synthetic molecules that will form the
basis of a further licensing opportunity. This new programme (P64) is focussed
on the development of separate pharmaceutical prescription products for the
treatment of obesity and metabolic syndrome.
The neurodegeneration platform has been extended from a programme for
Alzheimer's disease (P58) to include programmes for Parkinson's (P63) and motor
neurone disease (P59). Phytopharm has now developed a total of nine patent
families to protect the large group of related chemical compounds within this
platform. These molecules, which have a novel mechanism of action, are
potential disease modifiers and should offer a real therapeutic advance in a
serious prevalent condition where there is a high unmet medical need.
A series of pre-clinical toxicology studies has now been successfully completed
in advance of the forthcoming Phase II clinical study in Alzheimer's disease and
other dementias using a lead compound from the Alzheimer's programme, coded
PYM50028. This study is expected to commence recruitment in Q2 2003. In
pre-clinical studies, PYM50028 was demonstrated to be neuroprotective, to
reverse the decrease of neuronal growth factors and to reverse neuronal
degeneration observed in the ageing brain. Importantly, this product restores
levels of proteins that are altered in the ageing brain, returning them to
levels seen in the young, causing beneficial outgrowth and branching of neurites
and restoring the levels of muscarinic acetylcholine receptors.
In January 2003, we announced the start of a Phase I clinical study using a new
formulation of PYM50028 to evaluate the safety, tolerability and pharmacokinetic
profile for Parkinson's disease. We anticipate that the results will be
reported during Q2 2003.
The programme for motor neurone disease (P59) contains different compounds and
is progressing well. Pre-clinical work has demonstrated that P59 is a potent
neuroprotective agent, reverses neurodegeneration in spinal motor neurones and
improves survival to a greater extent than standard treatment in superoxide
dismutase 1 (SOD1) mice, a model of motor neurone disease such as amyotrophic
lateral sclerosis (ALS). A Phase I clinical study is planned for Q4 2003.
The inflammation platform contains a programme containing a family of novel,
third generation non-steroidal anti-inflammatory drugs ('NSAID') characterised
by their inhibition of a wide range of enzymes central to chronic inflammation
(P54).
There is potential to use these compounds to reduce the expression of
inflammatory enzymes in the companion animal market. The results of our
double-blind placebo controlled trial using P54v in canine osteoarthritis have
enabled us to actively pursue commercialisation of P54v in the veterinary
market, and a potential partner is currently assessing the product in a field
trial. Large-scale manufacture of P54v has been completed to GMP with a view to
commercialisation.
Research into the mode of action of this platform has continued to generate
novel synthetic molecules. Pre-clinical work has demonstrated that these
molecules have powerful anti-inflammatory and antispasmodic effects. This has
given rise to a new programme (P61) that is intended to result in a
pharmaceutical prescription medicine for the treatment of inflammatory disorders
and also has potential in the treatment of asthma. The lead candidate will
enter development towards the end of this year.
Finally, the dermatology platform comprises a programme concerning the use of
extracts of plants with a novel mode of action for the treatment of canine
atopic dermatitis (P7v). These products have a dual mode of action that targets
both the allergic and the inflammatory components of dermatitis.
Last year, we announced the commencement of a European multi-centre study in
canine atopic dermatitis with a three plant botanical product. This randomised,
double-blind, placebo-controlled study is being conducted by specialist
veterinary dermatologists and will determine the optimal dose for future
commercialisation of the product. The study is expected to report in Q4 2003.
Phytopharm has completed the pharmaceutical development of P7v and is now able
to manufacture tonne-scale quantities of material to GMP standards. Discussions
with potential partners are now advancing with regard to the further development
and commercialisation of this product for early next year.
A new programme aimed at eczema is also emerging from this platform. Coded P55,
steady progress in developing a dosage form suitable for use in man has been
made.
Statement of prospects
Whereas programmes within both the metabolic disease and neurodegeneration
platforms have major pharmaceutical partners funding the development of lead
products, the lead products in the arthritis (P54v) and dermatitis programmes
(P7v) are being aimed at veterinary markets to generate early revenue. All four
platforms offer considerable upside and the potential for near-term income.
With regard to the neurodegeneration platform, further substantial licensing
activity for the compound licensed to Yamanouchi can be anticipated following
the Phase II trial currently planned to complete by Q4 2004. Territories
representing 85% of the world market are still available following the agreement
announced today. Furthermore, the large library of compounds within the
platform has the potential to deliver additional licensing partnerships. A
different compound from the platform now forms the basis of the extremely
encouraging P59 programme, which is addressing motor neurone disease. The
expansion of the neurodegeneration platform into further disease modalities such
as the neuropathies secondary to diabetes and cancer can also be anticipated.
With regard to the metabolic disease platform, not only is Pfizer fully funding
the development of the lead extract for obesity within the P57 programme, but
Phytopharm now has the potential of further licensing of the compound library
being developed within the P64 programme, which uses different chemical forms to
address the same novel mode of action. A similar situation exists with regard
to the inflammation and dermatology platforms. Although lead compounds within
the P7v and P54v programmes are being targeted at the veterinary market, both
platforms contain libraries of compounds and data with substantial and
unlicensed pharmaceutical upside. We anticipate further good progress across
each of our platforms during the second half of the year.
Dr Richard Dixey
Chief Executive
30 April 2003
Financial review
Six months ended Year to
28 February 31 August 28 February 31 August
2003 2002 2002 2002
£000 £000 £000 £000
Turnover 420 1,627 1,087 2,714
Research & development 3,227 3,291 2,712 6,003
Administrative costs 509 538 486 1,024
Interest receivable 157 211 267 478
Corporation tax credit 274 276 278 554
Loss for period (2,885) (1,717) (1,568) (3,285)
Loss per share (p) (7.5) (4.5) (4.1) (8.5)
Working capital 7,240 10,044 11,744 10,044
Comparison between the six-month periods ended February 2003 and August 2002
Turnover for the six months to February 2003 of £420,000 (six months to August
2002: £1,627,000) consists of development income received from Pfizer Inc for
P57, the Group's appetite suppressant product. This represents the completion
of the development income receivable from Pfizer under this stage of the
development of P57. In July 2002, Phytopharm announced that Pfizer will now
progress development of P57 under the terms of the existing licensing and
royalty agreement, under which Phytopharm will receive milestone payments as the
project progresses and royalties on sales.
Research and development expenditure of £3,227,000 for this six-month period has
remained at approximately the same level as the previous six-month period to
August 2002 (£3,291,000). However, the level of expenditure on both the P58
platform and on P64 has increased this half year in preparation for the Phase II
study in Alzheimer's disease, which is due to commence later this year, and on
the identification of active molecules for P64.
Administrative costs for the six months to February 2003 of £509,000 have
reduced from £538,000 in the previous six month period, a decline of 5% over the
period. This is principally because the half year to August 2002 included some
one-off costs relating to the annual report for the year end.
Interest income has declined from £211,000 for the six months to August 2002 to
£157,000 reflecting the lower average cash balances over the six months to
February 2003.
The research and development tax credit for the six months to February 2003 is
similar to that for the period to August 2002 as it has been limited by the
level of employee taxes paid during the period.
Overall, the loss for the six months to February 2003 is £2,885,000 (six months
to August 2002: £1,717,000), an increase of 68%. This reflects the reduction in
turnover and was anticipated following the announcement in July 2002 regarding
P57 noted above.
Comparison between the six month periods ended February 2003 and February 2002
Turnover for the six months to February 2003 of £420,000 has declined by 61%
over the corresponding period last year following the announcement in July 2002
that Pfizer was progressing the development of P57 as noted above.
Research and development expenditure of £3,227,000 for the period represents an
increase of 19% or £515,000 over the corresponding period last year.
Significant increases in development expenditure on P58 as the development phase
has moved through Phase I towards Phase II have more than offset the reduction
in expenditure on P57, and expenditure has also been committed to P64 in the
current six month period.
Administrative costs have increased marginally by £23,000 or 5% from £486,000 in
the six months to February 2002 to £509,000 in the current six month period,
representing a general overall increase.
Interest income has declined from £267,000 in the six month period to February
2002 to £157,000 for the current six month period, mainly as a result of lower
average cash balances during the current period.
The research and development tax credit of £274,000 for the current period is
similar to that for the corresponding period last year, again because it has
been restricted to the level of employee taxes paid during each period.
Overall the loss for the current period of £2,885,000 is £1,317,000 greater than
the corresponding period last year due to a decrease in turnover resulting from
Pfizer progressing development of P57 directly, and increased research and
development costs as the portfolio in general matures and P58 in particular
moves through the clinic from Phase I towards Phase II.
Balance sheet
The net assets at 28 February 2003 were £7,430,000, which was £2,855,000 lower
than at the start of the period. This comprises the loss for the period of
£2,885,000 offset by a small increase in share capital arising from the exercise
of share options and a charge for the performance share award.
The fixed assets remain low at £190,000, a reduction of £51,000 over the period,
as the company subcontracts its research and development and has no need to
maintain its own laboratory facilities. Fixed assets comprise mainly motor
vehicles and computer equipment.
Debtors at 28 February 2003 of £1,802,000 were lower than at the start of the
period by £1,041,000 due to receipts from Pfizer under the development agreement
for P57, the final instalment of which is included in debtors at 28 February
2003. Also included in debtors is the research and development tax credit for
the year to August 2002.
Creditors at 28 February 2003 of £1,147,000 are £806,000 less than at the start
of the period. This is due to a reduction in trade creditors and accruals and
deferred income. Trade creditors and accruals are lower at the end of the
February 2003 compared to August 2002, although the level of expenditure in each
of the six month periods was similar due to a combination of phasing of
individual projects and invoicing from contractors. There was also no deferred
income at the end of February 2003. The Group has no long-term creditors.
Financing
At the end of February, the Group had working capital of £7,240,000,
representing 97% of the total assets of the group (28 February 2002: 98%) as the
Group had a low level of fixed assets and no long term creditors. Over the six
month period, the Group utilised £2,824,000 of working capital excluding the
proceeds from share issues (six months to August 2002: £1,744,000), which
represents a monthly average of £471,000 (six months to August 2002: £291,000).
This increase in net expenditure was in line with the Group's expectations for
the period and was due to the reduction in development income in the current
period.
The licence agreement announced today with Yamanouchi for P58 in Japan and other
Asian countries provides a milestone stream over the next two years, which we
anticipate will be sufficient to finance the Group until the forecast completion
of the Phase II study in Alzheimer's disease and subsequent licence of P58 for
the rest of the world.
Dr Simon Loach
Chief Financial Officer
30 April 2003
Independent review report to Phytopharm plc
Introduction
We have been instructed by the company to review the financial information which
comprises the consolidated profit and loss account, the consolidated balance
sheet and the consolidated cashflow statement and the related notes. We have
read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of company management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
the Listing Rules of the Financial Services Authority and for no other purpose.
We do not, in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 28 February 2003.
PricewaterhouseCoopers LLP
Chartered Accountants
Cambridge
30 April 2003
Unaudited consolidated profit and loss account for six months ended 28 February
2003
Notes Six months Six months Year
Ended Ended Ended
28 Feb 2003 28 Feb 2002 31 Aug 2002
£000 £000 £000
Turnover 2 420 1,087 2,714
Other operating expenses 3 (3,736) (3,198) (7,027)
_____ _____ _____
Operating loss (3,316) (2,111) (4,313)
Interest receivable and similar income 157 267 478
Interest payable and similar charges - (2) (4)
_____ _____ _____
Loss on ordinary activities before taxation (3,159) (1,846) (3,839)
Tax on loss on ordinary activities 4 274 278 554
_____ _____ _____
Loss for the period 6 (2,885) (1,568) (3,285)
_____ _____ _____
Basic and fully diluted loss per share (pence) 5 (7.5) (4.1) (8.5)
IIMR loss per share (pence) 5 (7.5) (4.1) (8.4)
Unaudited consolidated balance sheet at 28 February 2003
Notes At At At
28 Feb 2003 28 Feb 2002 31 Aug 2002
£000 £000 £000
Fixed assets
Tangible assets 190 226 241
Investments - 30 -
_____ _____ _____
190 256 241
Current assets
Debtors 1,802 901 2,843
Cash held on deposit as short term investments 6,525 11,427 8,831
Cash at bank and in hand 60 830 323
_____ _____ _____
8,387 13,158 11,997
Creditors: amounts falling due within one year (1,147) (1,414) (1,953)
_____ _____ _____
Net current assets 7,240 11,744 10,044
Total assets less current liabilities 7,430 12,000 10,285
_____ _____ _____
Creditors: amounts falling due after more than a - (3) -
year
Provision for liabilities and charges - (39) -
_____ _____ _____
Net assets 7,430 11,958 10,285
_____ _____ _____
Capital and reserves
Called up share capital 387 386 386
Share premium account 6 31,745 31,682 31,726
Merger reserve 6 (204) (204) (204)
Profit and loss account 6 (24,498) (19,906) (21,623)
_____ _____ _____
Equity shareholders' funds 7,430 11,958 10,285
_____ _____ _____
Unaudited consolidated cash flow statement for the six months ended 28 February
2003
Notes Six months Six months Year
Ended Ended Ended
28 Feb 2003 28 Feb 2002 31 Aug 2002
£000 £000 £000
Net cash outflow from continuing operating (2,749) (2,124) (5,361)
activities
_____ _____ _____
Returns on investment and servicing of finance
Interest received 157 267 478
Interest paid on finance leases - (2) (4)
_____ _____ _____
Net cash inflow from returns on investment and 157 265 474
servicing of finance
Taxation
UK corporation tax credit - 224 224
_____ _____ _____
Capital expenditure and financial investment
Purchase of tangible fixed assets (37) (43) (140)
Proceeds on sale of tangible fixed assets 46 - 13
_____ _____ _____
Net cash inflow/(outflow) for capital expenditure 9 (43) (127)
_____ _____ _____
Cash outflow before use of liquid resources (2,583) (1,678) (4,790)
_____ _____ _____
Management of liquid resources
Decrease in cash held on short term deposit 2,306 1,241 3,837
_____ _____ _____
Financing
Proceeds from exercise of share options 20 434 478
Repayment of principal under finance leases (6) (21) (56)
_____ _____ _____
Net cash inflow from financing 14 413 422
_____ _____ _____
Decrease in cash (263) (24) (531)
_____ _____ _____
Reconciliation of operating loss to net cash outflow from operating activities
Six months Six months Year
Ended Ended Ended
28 Feb 2003 28 Feb 2002 31 Aug 2002
£000 £000 £000
Continuing activities
Operating loss (3,316) (2,111) (4,313)
Depreciation on tangible fixed assets 57 64 124
(Profit)/loss on disposal of fixed assets (15) - 9
Decrease/(increase) in debtors 1,315 (478) (2,144)
(Decrease)/increase in creditors (800) 378 949
Share option compensation charge (Note 7) 10 - -
Provision for impairment of value in fixed asset - - 30
investments
Increase/(decrease) in provision for employer's national - 23 (16)
insurance on share option gains
Net cash outflow from continuing operating activities (2,749) (2,124) (5,361)
____ ____ ____
Notes to the interim report
1. Preparation of Interim Statements
The interim results have been prepared in accordance with the accounting
policies set out in the Group's 2002 annual report and are unaudited. The
information set out in this interim report for the six months to 28 February
2003 does not comprise statutory accounts within the meaning of the Companies
Act 1985.
The figures for the year ended 31 August 2002 are abridged from the Group's
statutory accounts for that year, which received an unqualified auditor's report
and have been filed with the Registrar of Companies.
2. Turnover
Six months Six months Year
Ended Ended Ended
28 Feb 2003 28 Feb 2002 31 Aug 2002
£000 £000 £000
By business activity
Licensing and development 420 1,087 2,714
_____ _____ _____
3. Other Operating Expenses
Other operating expenses comprise:
Six months Six months Year
Ended Ended Ended
28 Feb 2003 28 Feb 2002 31 Aug 2002
£000 £000 £000
Research and development expenditure 3,227 2,712 6,003
Administrative expenditure 509 486 1,024
_____ _____ _____
3,736 3,198 7,027
_____ _____ _____
4. Tax on Loss on Ordinary Activities
Six months Six months Year
Ended Ended Ended
28 Feb 2003 28 Feb 2002 31 Aug 2002
£000 £000 £000
United Kingdom
Corporation tax credit at 24% 274 278 554
_____ _____ _____
The Group has taken advantage of the Research and Development corporation tax
credits introduced in the Finance Act 2000 whereby the Group may surrender
corporation tax losses incurred on research and development expenditure for a
corporation tax refund at the rate of 24 pence in the pound.
5. Loss Per Share
The loss per share is based on losses of £2,885,000 and 38,628,101 ordinary
shares, being the weighted average number of shares in issue during the period.
The Institute of Investment Management and Research (the 'IIMR') earnings per
share figures exclude gains and losses from disposals of fixed assets during the
period.
6. Share Premium Account and Reserves
Share Merger Profit and
Premium Reserve Loss
Account Account
£000 £000 £000
At 1 September 2002 31,726 (204) (21,623)
Premium on new share issue 19 - -
Reversal of share option compensation charge (Note 7) - - 10
Loss for the period - - (2,885)
_____ _____ _____
At 28 February 2003 31,745 (204) (24,498)
_____ _____ _____
7. Performance share award
On 6 December 2002 the Remuneration Committee made a performance share award of
300,000 ordinary shares at par to Dr D D Rees. The Remuneration Committee
considered that there was considerable risk of Dr Rees leaving the company as
his existing share option awards were at option prices significantly in excess
of the current share price and this performance share award was granted, as
permitted by Chapter 13.13A of the Listing Rules, to retain the services of Dr
Rees. The award is subject to performance conditions and the benefits are not
pensionable. The performance conditions are based on total shareholder return
(TSR) over a three year period (with no retesting opportunities) when compared
to a peer group comprising 27 other UK listed biotech and pharmaceutical
companies for 200,000 shares and compared to the FTSE SmallCap index for the
remaining 100,000. In each case 25% of the shares awarded will vest for median
performance against the comparator group rising prorata to 100% for upper decile
and above performance. None of the shares awarded will vest for below median
performance. TSR is considered by the Remuneration Committee to be the most
robust method of measuring company performance over the period. The terms of the
awards will not be amended to the benefit of Dr Rees without seeking shareholder
approval.
At the 28 February 2003 the company has calculated a compensation charge of
£10,000 for the difference between the market value and share award price after
adjustment for the likelihood of satisfying the performance criteria.
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