Final Results
Synairgen plc
26 September 2007
26 September 2007
Synairgen plc
Preliminary Results for the year ended 30 June 2007
Synairgen plc ('Synairgen' or the 'Company'), the drug discovery company focused
on discovering novel therapies which address the causes, rather than the
symptoms, of respiratory disease, today announces its Preliminary Results for
the year ended 30 June 2007.
Operational highlights
• Successful completion of Phase I safety study in healthy volunteers;
follow-on safety study anticipated to start early 2008;
• US patent filed to protect discovery of IFN-beta potential impact
against rhinovirus in the elderly; and
• Growth factor development programme progressing to plan.
Financial highlights
• Research and development expenditure for the year: £1.5 million (2006:
£1.1 million);
• Retained loss for the year: £1.6 million (2006: loss of £1.0 million);
and
• Cash at 30 June 2007 of £6.0 million (2006: £7.5 million).
Commenting on the results, Simon Shaw, Chairman of Synairgen, said:
'The last year has seen Synairgen grow its intellectual property portfolio
considerably. The opportunities we have created so far have given the Company
significant potential value over the coming years, which, coupled with the
progress of our focused research programmes, provides a promising outlook for
the future of the business.'
-Ends-
For further information please call:
Synairgen Tel: 02380 512 800
Simon Shaw, Chairman
Richard Marsden, Managing Director
Hogarth Partnership Tel: 020 7357 9477 or 07767 66 00 40
Melanie Toyne-Sewell
CHAIRMAN'S STATEMENT
Synairgen is committed to discovering novel therapies which address the causes,
rather than the symptoms, of respiratory disease. In combination with the
University of Southampton, our research has yielded two potentially significant
development programmes, interferon-beta (IFN-beta) against viral infection in
asthma and COPD, and a proprietary growth factor in asthma. In addition we have
a developing pipeline of potentially significant opportunities such as the novel
peptide IL-13/IL-4 inhibitor in asthma.
In recent times it has become ever clearer both to industry participants and
investors that long term drug pipelines are increasingly being filled through
collaboration and licensing relationships with discoverers and early stage
developers of novel therapies. Synairgen's business model is to develop each
opportunity to a stage where it becomes a marketable development programme to
the pharmaceutical and biotechnology industry. We believe that collaborating
with a significant industry participant at an early stage, under appropriate
licence terms, improves the probability of bringing a novel medicine to market
quickly through the combination of development, regulatory, market positioning
and financial resources that a partner can bring to the programme. It is
gratifying to see that the quantity and quality of our discussions with
pharmaceutical and biotechnology companies, has stepped up a gear in the past
year. This reflects the fact that we have successfully completed our first Phase
I trial in the Company's lead programme.
During the forthcoming year, we will continue to add value to our portfolio of
development and discovery programmes and to market our lead programmes with a
view to collaborating on the next stages of their development.
Simon Shaw
Chairman
MANAGING DIRECTOR'S REPORT
Synairgen discovers and develops novel patent-protected drug therapies for
asthma and Chronic Obstructive Pulmonary Disease (COPD). Both specialist
respiratory physicians and the industry recognise the need for new ways of
meeting the clinical need which is not adequately met by currently available
therapeutics in these substantial markets.
Synairgen's model is to engage with its potential partners in out-licensing
discussions at an early stage in the development programme to maximise the
chances of candidates advancing through Phase II and III clinical trials as
rapidly as possible, and ultimately reaching the market.
In our IFN-beta and growth factor programmes, Synairgen has two novel programmes
that have reached the stage where they can sensibly be out-licensed. We have
ongoing contact with a number of the top 30 pharmaceutical and biotechnology
companies worldwide to explore the potential for partnering these programmes.
Development programmes
IFN-beta programme
Synairgen is seeking to develop an inhaled interferon product which enables
asthmatics and COPD patients overcome the seriously debilitating effect of the
main common cold virus (rhinovirus) on their condition.
The cost of the common cold
The common cold is the probable cause of 50-80% of all hospitalisations of
asthmatic and COPD patients. Accordingly, the health economic impact of the
common cold in these prevalent diseases is high, with hospitalisations in the US
for asthma and COPD costing $4.7 billion and $11.3 billion per annum
respectively.
IFN-beta in asthma
Scientists in Southampton, using a biobank of cells from asthmatic patients and
proprietary in vitro lung models, discovered a deficiency in asthmatics' ability
to produce IFN-beta, which is one of the human's primary defence mechanisms
against viral attack. Simulated delivery of inhaled delivery of IFN-beta
normalised the asthmatic cells' response to the common cold virus. This
pioneering series of experiments was the catalyst for Synairgen's inhaled
IFN-beta programme. IFN-beta is currently approved for administration by
injection to treat multiple sclerosis patients; thus its systemic safety profile
is well understood. Synairgen has needed to optimise and establish the safety of
inhaled IFN-beta for use in asthma.
IFN-beta - safety study successfully completed
During the year under review, Synairgen successfully completed the important
milestone of a Phase I safety study in healthy volunteers, and is expecting to
start a follow-on safety study in early 2008. Phase II studies are expected to
start in 2009.
IFN-beta in COPD
During this period, Synairgen also generated compelling data showing that the
common cold virus is more destructive to cells from the lungs of smokers. This
fits well with the impact of the common cold on the COPD population during the
winter months.
IFN-beta in the elderly
The common cold virus can have a devastating effect on vulnerable groups other
than asthmatic and COPD patients. One report has linked rhinovirus to the death
of nursing home residents. Whilst demonstrating the therapeutic potential of
IFN-beta in COPD, Synairgen scientists observed a deficiency in the older
control subjects' cells' ability to defend themselves against RV when compared
to younger controls. IFN-beta significantly improved these cells' response to
RV, limiting cell death. Synairgen has filed a patent in the US to protect this
discovery.
Business Development activity
The market opportunity for a breakthrough product in asthma, COPD and other at
risk groups, such as the elderly, is substantial. Synairgen is seeking to
out-license its IFN-beta programme at an early stage to a large Pharma/Biotech
partner and has several ongoing confidential dialogues at various stages of the
process with suitable partners.
Growth factors to restore Barrier Function in asthma
The second licensable programme arose from our work showing that, in common with
diseases of the gut and the skin, the cells that line the airways (the
epithelium) of asthmatics form a poor barrier to the external environment. The
'leaky' epithelium of asthmatics may be allowing the ingress of aggravating
inhaled particles such as pollen, cigarette smoke or infectious agents which can
trigger and maintain the asthma response.
Using epithelial cells from asthmatics, Synairgen has shown that a panel of
growth factors can restore Barrier Function. Within the last year a therapeutic
candidate has been selected, which can restore Barrier Function without
promoting the unwanted structural changes in the lung that may be promoted by
other growth factors. Manufacture of this lead candidate is being scaled-up to
support preclinical safety and ultimately clinical studies.
Synairgen has commenced discussions regarding the out-licensing of its growth
factor programme.
IL-4/IL-13 Inhibiting Peptide
Synairgen's earliest stage development programme is for the development of a
novel peptide that has been shown to inhibit the two cytokines IL-4 and IL-13;
both cytokines are the target of considerable industry interest in this field of
allergy and asthma. During the year under review, Synairgen in-licensed from the
University of Southampton a patent protecting the peptide. Synairgen is seeking
to validate these early findings over the coming year.
Discovery programmes
Our proteomics programme, which is designed to identify potential new targets or
markers in asthma, has uncovered approximately 80 proteins which differ
significantly between asthmatic and normal subjects. In the coming year these
will be identified and the list rationalised to generate between two and five
possible targets for subsequent research. In addition we have continued to
investigate the nature of the barrier function deficiency, which adds to our
understanding of the underlying defect; a necessary precursor to discovering a
treatment for the potential cause(s).
During the period we also extended our target discovery partnership with the
unnamed North American Biotechnology company partner; data is currently being
analysed.
Financial Review
The financial information comprises the consolidated results of the Company and
Synairgen Research Limited (together the 'Group'), prepared in accordance with
UK Generally Accepted Accounting Principles ('GAAP').
Profit and loss account
Turnover for the year ended 30 June 2007 was £78,000 (year ended 30 June 2006:
£82,000) and arose primarily from the ongoing collaboration with the unnamed
North American biotechnology company. The operating loss for the year was £2.23
million (2006: loss of £1.68 million), in line with our expectations. Research
and development expenditure increased from £1.08 million to £1.53 million as the
Group progressed its four development programmes and broadened the number of
discovery projects. During the year the number of research and clinical staff
has increased from 16 to 18. Other administrative costs increased from £0.67
million to £0.75 million. Interest receivable decreased from £0.38 million to
£0.34 million. The tax credit of £0.25 million comprises the research and
development tax credit claim in respect of this year (£0.24 million) and amounts
in respect of prior years. The prior year tax credit comprised claims relating
to the years ending 30 June 2005 (£0.09 million) and 30 June 2006 (£0.17
million). The retained loss for the year was £1.64 million (2006: loss of £1.05
million) and the loss per share was 7.58p (2006: loss of 4.84p).
Balance sheet and cash flow
At 30 June 2007, net assets amounted to £6.28 million (30 June 2006: £7.84
million) including cash and deposit balances of £6.01 million (2006: £7.48
million).
The principal elements of the £1.48 million decrease (2006: £1.20 million
decrease) in cash and deposit balances were:
•operating cash outflow of £1.97 million (2006: £1.53 million outflow);
•capital expenditure of £0.13 million (2006: £0.05 million);
•interest received of £0.36 million (2006: £0.40 million) and
•research and development tax credits received of £0.27 million (2006:
£nil).
Capital expenditure comprised investment into patent and licence costs and
equipment.
Adoption of Financial Reporting Standard 20 ('FRS 20')
As of 1 July 2006, the Group has adopted FRS 20 'Share-based Payment' in place
of UITF 17 'Employee Share Schemes'. FRS 20 requires fair value accounting for
options and LTIPs granted after 7 November 2002 which have not vested by 1 July
2006. In accordance with standard practice, prior year results are restated. For
the period up to 30 June 2006 the additional charge booked to the Profit and
Loss Account following the adoption of FRS 20 amounted to £41k. The FRS 20
charge for the year ended 30 June 2007 was £83k.
Adoption of International Financial Reporting Standards ('IFRS')
The Group has adopted IFRS, as adapted for use in the European Union, on 1 July
2007.
Summary
The year has been one of considerable progress with our teams performing well
across all our programmes. We have added significant value to our two lead
programmes and brought them to a position where we are able to discuss them
seriously with potential licensing partners. We look forward to further
developments in the coming year.
Richard Marsden
Managing Director
Consolidated Profit and Loss Account
for the year ended 30 June
Restated
2007 2006
Notes £000 £000
Turnover 78 82
Cost of sales (33) (15)
-------- -------
Gross profit 45 67
-------- -------
Administrative expenses
---------------------------- -------- -------
Research and development expenditure (1,527) (1,083)
Other (750) (664)
---------------------------- -------- -------
Total administrative expenses (2,277) (1,747)
-------- -------
Operating loss (2,232) (1,680)
Bank interest receivable 342 376
Finance lease interest payable (1) -
-------- -------
Loss on ordinary activities before taxation (1,891) (1,304)
Tax on loss on ordinary activities 2 247 255
-------- -------
Loss on ordinary activities after taxation and
retained loss for the year (1,644) (1,049)
======== =======
Loss per ordinary share
-------- -------
Basic and diluted loss per share (pence) 3 (7.58)p (4.84)p
======== =======
There are no recognised gains and losses other than the loss above and, in the
current year, the cumulative loss from the prior year adjustment on the adoption
of FRS 20 (£41,000) as detailed in Notes 1 and 4.
All amounts relate to continuing activities.
Consolidated Balance Sheet
as at 30 June
Restated
2007 2006
Notes £000 £000
Fixed assets
Intangible assets 99 36
Tangible assets 146 157
-------- -------
245 193
Current assets
Stocks 96 68
Debtors 367 423
Investments: short-term deposits 5,903 7,464
Cash at bank and in hand 115 33
-------- -------
6,481 7,988
Creditors: amounts falling due within one year (442) (334)
-------- -------
Net current assets 6,039 7,654
-------- -------
Total assets less current liabilities 6,284 7,847
Creditors: amounts falling due after more than one (8) (10)
year -------- -------
Net assets 6,276 7,837
======== =======
Capital and reserves
Called up share capital 217 217
Share premium account 8,903 8,903
Merger reserve 483 483
Share-based payment reserve 163 80
Profit and loss account (3,490) (1,846)
-------- -------
Shareholders' funds 4 6,276 7,837
======== =======
Consolidated Cash Flow Statement
for the year ended 30 June
2007 2006
Notes £000 £000
Net cash outflow from operating activities 5 (1,974) (1,530)
Returns on investments and servicing of finance
Bank interest received 358 397
Finance lease interest paid (1) -
-------- -------
Net cash inflow from returns on investments and
servicing of finance 357 397
Taxation
Research and development tax credits received 267 -
Capital expenditure and financial investment
Purchase of intangible fixed assets (77) (17)
Purchase of tangible fixed assets (49) (35)
-------- -------
Net cash outflow from capital expenditure (126) (52)
-------- -------
Net cash outflow before management of liquid
resources (1,476) (1,185)
and financing
Management of liquid resources
Decrease in short-term deposits 1,561 1,141
Financing
Repayment of capital element of finance leases and
hire (3) (1)
purchase contracts
-------- -------
Increase/(Decrease) in cash 82 (45)
======== =======
Notes
1. Basis of preparation
The financial information on the Group set out above does not constitute
'statutory accounts' within the meaning of section 240 of the Companies Act
1985. The financial information for the year ended 30 June 2007 has been
extracted from the Group's audited consolidated financial statements, which will
be delivered to the Registrar of Companies for England and Wales in due course.
The report of the auditors on these financial statements was unqualified, did
not include references to any matters to which the auditors drew attention by
way of emphasis without qualifying their report and did not contain a statement
under Section 237 (2) or (3) of the Companies Act 1985.
The annual report will be posted to shareholders in October 2007 and will be
laid before shareholders at the Annual General Meeting on 14 November 2007.
The consolidated financial statements have been prepared under the historical
cost convention, in accordance with the Companies Act 1985 and applicable UK
accounting standards, using the merger method of accounting.
The accounting policies used in preparing the financial statements have been
applied consistently throughout all periods presented with the exception of
Financial Reporting Standard 20 'Share-based Payment' ('FRS 20').
All AIM-quoted companies are required to implement FRS 20 for accounting periods
beginning on or after 1 January 2006 and the Group has adopted FRS 20 for the
first time for the year ended 30 June 2007. Adoption of FRS 20 supersedes UITF
Abstract 17 (revised 2003) 'Employee Share Schemes' ('UITF 17'), under which the
Group had previously accounted for shares and share options awarded to
employees. FRS 20 requires that options awards and awards made under the
Company's Long-Term Incentive Plan ('LTIP') granted after 7 November 2002 which
had not vested by 1 July 2006 be fair valued and charged to the profit and loss
account over the period from grant to vesting. The Group has valued option
awards using the Black-Scholes model and awards under the LTIP using the
Stochastic model. As required by FRS 20 prior year results have been restated.
This change in accounting policy, after the reversal of the UITF 17 charge
included in the prior year financial statements, results in a credit of £11,000
for the year ended 30 June 2007 (year ended 30 June 2006: charge of £7,000).
Under UITF 17, the credit for the charge was taken to the Profit and Loss
reserve and reported in the reconciliation of movements in shareholders' funds.
Under FRS 20 the credit for the charge is taken to reserves. The restatement has
no impact on net assets in the periods presented in the financial information.
2. Tax on loss on ordinary activities
The tax credit of £247,000 (2005: £255,000) relates to research and development
tax credits in respect of the years ended 30 June 2007 (£235,000) and 2006
(£12,000).
3. Loss per ordinary share
Restated
Year Year
ended ended
30 June 30 June
2007 2006
Loss on ordinary activities after taxation (£000) (1,644) (1,049)
Weighted average number of ordinary shares in issue 21,692,308 21,692,308
The loss attributable to ordinary shareholders and weighted average number of
ordinary shares for the purpose of calculating the diluted earnings per ordinary
share are identical to
those used for basic earnings per share. This is because the exercise of share
options would
have the effect of reducing the loss per ordinary share and is therefore not
dilutive under the terms of Financial Reporting Standard 22. At 30 June 2007
there were 2,404,939 options outstanding (30 June 2006: 1,946,594 options
outstanding).
4. Reconciliation of movements in reserves and shareholders'funds
Share Share Merger Share-based Profit Shareholders'
capital premium reserve payment and loss funds
account reserve account
£000 £000 £000 £000 £000 £000
At 30 June 2005 (as
originally stated) 217 8,903 483 - (763) 8,840
Prior year adjustment
for FRS 20 charge - - - 34 (34) -
------ ------- ------ ------- ------- ---------
At 30 June 2005 (restated) 217 8,903 483 34 (797) 8,840
Loss for the year (restated) - - - - (1,049) (1,049)
Share-based payment - - - 46 - 46
------ ------- ------ ------- ------- ---------
At 30 June 2006 (restated) 217 8,903 483 80 (1,846) 7,837
Loss for the year - - - - (1,644) (1,644)
Share-based payment - - - 83 - 83
------ ------- ------ ------- ------- ---------
At 30 June 2007 217 8,903 483 163 (3,490) 6,276
====== ======= ====== ======= ======= =========
5. Reconciliation of operating loss to net cash outflow from operating activities
Restated
Year Year
ended ended
30 June 30 June
2007 2006
£000 £000
Operating loss (2,232) (1,680)
Depreciation & amortisation 74 48
FRS 20 charge 83 46
Increase in stocks (28) (13)
Decrease in debtors 20 136
Increase/(Decrease) in creditors 109 (67)
-------- ---------
Net cash outflow from operating activities (1,974) (1,530)
======== =========
6. Reconciliation of net cash flow to movement in net funds
Year Year
ended ended
30 June 30 June
2007 2006
£000 £000
Increase/(Decrease) in cash in year 82 (45)
Decrease in short-term deposits (1,561) (1,141)
Cash used to repay capital element of finance leases and
hire purchase contracts 3 1
-------- ---------
Change in net funds resulting from cash flows (1,476) (1,185)
New finance leases and hire purchase contracts - (14)
-------- ---------
Movement in net funds (1,476) (1,199)
Net funds at start of year 7,484 8,683
-------- ---------
Net funds at end of year 6,008 7,484
======== =========
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