Interim Results - 6 Months to 29 February 2000

Phytopharm PLC 28 April 2000 Phytopharm plc Interim results for the period to 29 February 2000 Phytopharm plc today announces interim results for the six month period to 29 February 2000. Highlights -First milestone payment from Pfizer triggered on P57 (Appetite Suppressant) -Reformulation in progress for Phase IIa study with P57 -Interim review of Phase II study in P45 reveals good safety profile (Alopecia) -Commencement of toxicology programme for P58 (Alzheimer's disease) -Scale up manufacture in progress for P7v (Canine eczema) -Scale up manufacture in progress for P54v (Canine arthritis) -Acquisition of stake in GMP manufacturing unit in India for P54 and P56 (Hepatitis C) -Good progress on other projects in development Dr Richard Dixey, Chief Executive of Phytopharm, said: 'Phytopharm is now well advanced in its strategy of preparing products suited to early launch for the Companion Animal market. Alongside these activities, clinical trials and mode of action studies on our products for human health are making good progress. As awareness of Botanical medicines continues to grow, our broad portfolio and unique expertise in managing the development of these products continues to attract substantial interest from potential licensees.' Enquiries: Phytopharm plc www.phytopharm.co.uk Dr Richard Dixey, Chief Executive Today: 020 7638 4010 Thereafter: 01480 437697 Mobile: 07867 782000 Financial Dynamics Tel: 020 7831 3113 David Yates/ Sarah Mehanna Operational Review Our continuing focus on our pre-clinical and clinical development programmes has been complemented by an increased emphasis on the establishment of primary manufacturing operations. The investment in India, announced three weeks ago, signifies the initiation of our second manufacturing centre in addition to our existing arrangements in South Africa. Manufacturing These manufacturing centres are a key element in our strategy of establishing long term collaboration agreements with substantial local partners in those countries important for the sourcing and development of medicinal plants. These centres allow the close coupling of raw material supply and botanical extraction to the high standards Phytopharm has established with international regulatory bodies. Indeed, with our existing contract manufacturing operations in Brittany, we now operate at three manufacturing sites world-wide. Furthermore we now have ten plantations where structured horticultural programmes are producing medicinal plants to the standards of Good Agricultural Practice. Clinical studies The clinical studies conducted by Phytopharm serve both to generate safety and efficacy data for specific products and to give insights into the mode of action of these novel plant materials. In this regard we have nine projects in clinical development and four studies ongoing. Our studies in canine eczema and arthritis (projects P7v and P54v) are recruiting rapidly and are on target to report respectively in Q3 and Q4 of this year. The fourth cohort of patients have been recruited into our dose-escalating study in cancer chemo- prevention using P54, and again we expect to see a report arising from this study in the autumn. Furthermore, the Phase II study of Alopecia androgenica (product P45) is proceeding satisfactorily and an interim review has indicated that there are no significant safety issues arising from use of the product. This in turn clears the way for a further study in the more severe forms of Alopecia, areata and totalis, which will start later in the year. Mode of action studies With regard to our mode of action studies, we are now operating an extensive drug discovery programme based upon emerging clinical data. In eczema (projects P7v and P55) our mode of action work is highly advanced, and we have a further patent family in preparation. In anti-inflammatory disease (project P54), we have now established surrogate marker activities in man and have initiated a programme to make semi-synthetic derivatives of the active molecules to further extend our patent cover. In appetite suppression (project P57), our collaboration with Pfizer is proceeding well and new studies have been initiated alongside the formulation work in preparation for the planned Phase IIa programme. Finally in Alzheimer's disease (project P58) we have developed a series of analogues of the active molecule and have selected a lead candidate which is in toxicological assessment prior to the Phase I programme planned for the early summer. Market opportunities The exploitation of the multiple market opportunities for Botanical products has enabled us to stratify our portfolio, with some products now configured for early sales generation and others the subject of longer term drug discovery and development programmes. Of particular importance here is the emphasis we have placed on developing products suitable for the companion animal market, which is growing rapidly in size and offers an extremely attractive arena for early revenue generation. While carrying out this ambitious programme Phytopharm continues to reduce net overhead spend, and reports below operational losses reduced from £1,523,000 in the half year to February 1999 to £957,000 for the current half year. The following is a table listing the portfolio of products currently in development: METABOLIC CODE INDICATION MODE OF STAGE OF ACTION DEVELOPMENT P57 Appetite Not disclosed Phase IIa Suppression P30 Type II Fractionation Pre-clinical Diabetes programme in Mellitus progress NEUROLOGY CODE INDICATION MODE OF STAGE OF ACTION DEVELOPMENT P58 Alzheimer's Reverses age Pre-clinical disease, related Dementia decline in brain M receptor numbers. INFLAMMATION CODE INDICATION MODE OF STAGE OF ACTION DEVELOPMENT P54 Inflammatory Third generation Phase II Bowel Disease NSAID. Inhibits and Crohn's NFkB generation Disease and blocks the induction of the COX II enzyme by inflammatory mediators DERMATOLOGY CODE INDICATION MODE OF STAGE OF ACTION DEVELOPMENT P1 Eczema (severe Down regulates Phase III steroid CD23 expression results resistant) in peripheral reported monocytes and histamine release from mast cells. P55 Eczema (mild to As P1 Pre-clinical moderate) P52 Wound healing Provides Pre-clinical/ following radiation anti-oxidant Phase I induced skin damage and metabolic precursors to damaged skin. P53 Pruritis Not specified. Phase II P45 Alopecia Not specified Phase II CANCER CODE INDICATION MODE OF STAGE OF ACTION DEVELOPMENT P54c Cancer Chemo Suppresses Phase IIa prevention colorectal clinical carcinoma via trial COX II in progress P56 Hepatitis B 6 activities Pre-clinical and C against Hep B infection and clearance identified. VETERINARY CODE INDICATION MODE OF STAGE OF ACTION DEVELOPMENT P54v Canine As P54 Phase II arthritis P7v Canine Down regulates Phase II eczema CD23 expression in peripheral monocytes. Financial review Six Six months months ended 29 ended 31 February August 2000 1999 £000 £000 Turnover 1,582 1,088 Research & development 1,810 2,388 Administrative costs 415 381 Pre-tax loss (852) (1,775) Loss per share (p) (2.5) (5.4) Cash 5,558 2,827 Six Year months to 31 ended 28 August February 1999 1999 £000 £000 Turnover 1,359 2,447 Research & development 2,483 4,871 Administrative costs 391 772 Pre-tax loss (1,446) (3,221) Loss per share (p) (4.5) (9.9) Cash 3,632 2,827 The first half of fiscal 2000 has shown an improvement in the group's results over the previous year with increased turnover and lower losses with a consequential reduced cash burn. Turnover for the six month period has increased to £1,582,000 from £1,088,000 and £1,359,000 in the previous two six month periods. Turnover substantially comprises development and milestone income which arises under the group's licence and development agreement for P57, the appetite suppressant, with Pfizer Inc. Included in turnover to February 2000 is £628,000 (to February 1999 £60,000) licence income arising from the first milestone achieved under this agreement. Cost of sales of £314,000 (to February 1999 £8,000) represents the proportion of the milestone income from Pfizer due to the CSIR from whom the group licensed the product P57. Overall operating expenses for the first six months of fiscal 2000 were £2,225,000, a decrease of £649,000. The administrative and general expenses of £415,000 show an increase of 6% over the corresponding period last year. Research and development expenditure showed a decrease of 27% over the corresponding period to £1,810,000. This was caused principally by the phasing of the P57 development programme. The net assets of the group of £5,647,000 show an increase of £3,586,000 from £2,061,000 reported at the end of August 1999. This increase comprises proceeds of £4,270,000 from an issue of 5% of the capital of the company in November 1999 offset by the loss for the period. Debtors at the end of February 2000 of £1,170,000 (28 February 1999 £1,139,000) comprises mainly licence and development income due under the licence and development agreement for P57. Short term creditors of £1,247,000 (28 February 1999 £1,402,000) includes the liability of £314,000 (28 February 1999 £nil) noted above to the CSIR. Overall, after allowing for the share issue in November 1999 the company utilised £863,000 of working capital in the six months to February 2000. This compares with £1,398,000 in the corresponding period last year and represents approximately £144,000 per month (£233,000 per month to February 1999). Independent review report to Phytopharm plc Introduction We have been instructed by the company to review the financial information set out on pages 6 to 8 and we have read the other information contained in the interim report for 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 Listing Rules of the London Stock Exchange 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. A review consisted principally of making enquiries of group 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 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. 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 29 February 2000. PricewaterhouseCoopers, Chartered Accountants, Cambridge, 27 April 2000 Unaudited consolidated profit and loss account for six months ended 29 February 2000 Six Six Year months months ended ended ended 31 Aug 29 Feb 28 Feb 2000 1999 1999 £000 £000 £000 Turnover (Note 2) 1,582 1,359 2,447 Cost of sales (314) (8) (8) _______ _______ _______ Gross profit 1,268 1,351 2,439 Other operating expenses (Note 3) (2,225) (2,874) (5,814) _______ _______ _______ Operating loss (957) (1,523) (3,375) Interest receivable and similar income 109 82 163 Interest payable and similar charges (4) (5) (9) _______ _______ _______ Loss on ordinary activities before taxation (852) (1,446) (3,221) Tax on loss on ordinary shares - - - _______ _______ _______ Loss for the period (Note 5) (852) (1,446) (3,221) _______ _______ _______ Basic and fully diluted loss per share (pence) (Note 4) (2.5) (4.5) (9.9) IIMR loss per share (pence) (Note 4) (2.5) (4.5) (9.5) Unaudited consolidated balance sheet at 29 February 2000 As at As at As at 29 Feb 28 Feb 31 Aug 2000 1999 1999 £000 £000 £000 Fixed assets Tangible assets 216 394 210 _______ _______ _______ Current assets Stocks - 2 - Debtors 1,170 1,139 163 Cash held on deposit as short term investments 5,049 2,500 2,009 Cash at bank 509 1,136 818 and in hand _______ _______ _______ 6,728 4,777 2,990 Creditors: amounts falling due within one year (1,247) (1,402) (1,084) _______ _______ _______ Net current assets 5,481 3,375 1,906 _______ _______ _______ Total assets less current liabilities 5,697 3,769 2,116 _______ _______ _______ Creditors: amounts falling due after more than year (50) (36) (55) _______ _______ _______ Net assets 5,647 3,733 2,061 _______ _______ _______ Capital and reserves Called up share capital 354 329 332 Share premium account (Note 5) 19,851 15,335 15,435 Merger reserve (Note 5) (204) (204) (204) Profit and loss account (Note 5) (14,354) (11,727) (13,502) _______ _______ _______ Equity shareholders' funds 5,647 3,733 2,061 _______ _______ _______ Unaudited consolidated cash flow statement for the six months ended 29 February 2000 Six Six Year months months ended ended ended 31 Aug 29 Feb 28 Feb 2000 1999 1999 £000 £000 £000 Net cash outflow from operating activities (1,724) (1,016) (1,979) _______ _______ _______ Returns on investment and servicing of finance Interest received 91 95 163 Interest paid on loans and overdraft - - - Interest paid on finance leases (4) (5) (9) _______ _______ _______ Net cash inflow from returns on investment and servicing of finance 87 90 154 Taxation UK corporation - - - tax paid Investing activities Purchase of tangible fixed assets (46) (33) (47) Proceeds on sale of tangible fixed assets 7 - 34 _______ _______ _______ Net cash outflow from investing activities (39) (33) (13) _______ _______ _______ Net cash outflow before financing (1,676) (959) (1,838) _______ _______ _______ Management of liquid resources Net movement of cash held on deposit (3,040) (986) (495) _______ _______ _______ Financing Proceeds from issue of share capital 4,270 2,225 2,225 Proceeds from exercise of options 168 - 103 Repayment of principal under finance leases (31) (32) (61) _______ _______ _______ Net cash inflow from financing 4,407 2,193 2,267 _______ _______ _______ Decrease in cash (309) 248 (66) _______ _______ _______ Reconciliation of operating loss to net cash outflow from operating activities Six Six Year months months ended ended ended 31 Aug 29 Feb 28 Feb 2000 1999 1999 £000 £000 £000 Operating loss (957) (1,523) (3,375) Depreciation on tangible fixed assets 57 106 206 (Profit)/loss on (5) - 124 disposal of fixed assets Decrease in stocks - 7 9 (Increase)/ decrease in debtors (989) (347) 643 Increase in creditors 170 741 414 _______ _______ _______ Net cash outflow from continuing operations (1,724) (1,016) (1,979) _______ _______ _______ 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 1999 annual report and are unaudited. The information set out in this interim report for the six months to 29 February 2000 does not comprise statutory accounts within the meaning of the Companies Act 1985. The figures for the year ended 31 August 1999 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 Six Year months months ended ended ended 31 Aug 29 Feb 28 Feb 2000 1999 1999 £000 £000 £000 By business activity Licensing and development 1,582 1,340 2,427 Product sales - 19 20 _______ _______ _______ 1,582 1,359 2,447 _______ _______ _______ 3.Other Operating Expenses Other operating expenses comprise: Six Six Year months months ended ended ended 31 Aug 29 Feb 28 Feb 2000 1999 1999 £000 £000 £000 Research and development expenditure 1,810 2,483 4,871 Administrative expenditure 415 391 772 Laboratory closure costs - - 171 _______ _______ _______ 2,225 2,874 5,814 _______ _______ _______ 4.Loss Per Share The loss per share is based on losses of £852,000 and 34,365,007 ordinary shares, being the weighted average number of shares in issue during the period. The IIMR earnings per share figure exclude gains and losses from disposals of fixed assets during the period. 852. Share Premium Account and Reserves Share Merger Profit Premium Reserve and Loss Account Account £000 £000 £000 At 1 September 1999 15,435 (204) (13,502) Premium on new share issue 4,416 - - Loss for the period - - (852) _______ _______ _______ At 29 February 2000 19,851 (204) (14,354) _______ _______ _______

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