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Lipoxen PLC (XEN)

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Friday 03 June, 2011

Lipoxen PLC

Final Results

RNS Number : 7970H
Lipoxen PLC
03 June 2011
 



Lipoxen plc

('Lipoxen' or the 'Company')

 

Final results for the year ended 31 December 2010

& notice of AGM

 

Lipoxen (AIM: LPX.L), a bio-pharmaceutical company specialising in the development of high-value differentiated biologicals, vaccines and siRNA delivery, announces its financial results for the year ended 31 December 2010.

 

Financial Highlights

-      Revenue up 234% to £1.57m (2009: £0.47m)

-      Operating loss down 46.8% to £1.94m (2009: £3.64m)

-      Losses before tax down 46.7% to £1.93m (2009: £3.63m)

-      Loss per share down 88.5% to 1.13p (2009: 2.47p)

-      £1.2m fundraising at 7p completed in April 2010 including significant management contribution

-      Cash balances at 31 December 2010 of £0.85m (2009: £1.02m) 

 

Operational Highlights

-      Significant reduction in operating cash burn

-      Continuing success of collaboration with Baxter Healthcare SA with further expansion expected with receipt of $2m revenues during the period

-      Phase II (a) trials of ErepoXen® successfully completed by Serum Institute of India

-      First phase pre-clinical development studies completed for H1N1 novel influenza vaccine product candidate  

-      Positive developments in the enhancement of IP position

 

Commenting on the results, Sir Brian Richards, Chairman of Lipoxen, said: "2010 has been a key year in the re-alignment of Lipoxen and for its notable achievements  with its leading collaborative partners. The Board of Lipoxen is confident that the Company's technology platforms, and PolyXen® in particular, will prove their potential to further enhance shareholder value through both clinical and commercial development in 2011."

 

Notice of AGM

Lipoxen will hold its AGM at 12noon on 28 June 2011 at the London Capital Club, 15 Abchurch Lane, London EC4N 7BW.

 

In accordance with AIM Rule 20, copies of the Report and Accounts are being mailed to shareholders today and will be available on the Company's website (www.lipoxen.com)

 

Enquiries:

 

Lipoxen plc

M. Scott Maguire, Chief Executive Officer


Singer Capital Markets (NOMAD & Broker)

Jeff Keating / Claes Spång


Walbrook PR

 

+44 (0)20 7933 8780

 

Paul McManus

Bob Huxford

 

About Lipoxen

Lipoxen plc is a biopharmaceutical company focused on the development of new and improved biologic drugs and vaccines. Lipoxen has three proprietary patented technology platforms:

 

1) PolyXen - for extending the efficacy and half life of biologic drugs

2) ImuXen - for creating new vaccines and improving existing vaccines

3) SiRNAblate - for the delivery of siRNA

 

Lipoxen's technology is designed to improve the efficacy, safety, stability, biological half-life and immunologic characteristics of its products.

 

Lipoxen has multiple drug and vaccine programmes in development. Two products are in clinical development, SuliXen, a long acting insulin and ErepoXen, a long-acting erythropoietin (EPO). Lipoxen's preclinical pipeline includes vaccines against HIV, multiple sclerosis and influenza and an exclusive license deal with Baxter Healthcare for blood coagulation drugs.

 

The Company has a low-risk business model and out-licenses its proprietary technologies to biopharmaceutical companies that have strong manufacturing and marketing capabilities. Lipoxen currently has commercial agreements with some of the world's leading biotechnology and pharmaceutical companies including Baxter, Schering-Plough, the Serum Institute of India Limited, Genentech, and Genzyme. Furthermore, Baxter, the Company's third largest shareholder, and management led the £2.9 million fundraising that the Company announced in May 2009. This fundraising was followed up by a £1.2 million placing in April 2010 which was led by the Company's management team.

 

Lipoxen, which was founded in 1997, trades on the AIM Market of the London Stock Exchange under the ticker symbol LPX. More information can be found at the Company's website: www.lipoxen.com.



 

 

CHAIRMAN'S STATEMENT

FOR THE YEAR ENDED 31st DECEMBER 2010

 

The year ended 31st December 2010 delivered satisfactory outcomes on a number of fronts, being, principally:

 

-     Lipoxen was successful in raising circa £1.2m new capital in April 2010, which funding was, yet again, supported by a significant Management contribution.  The Placing Price was 7 pence per share and resulted in the issue of circa 17.5m new shares.

 

-     Baxter Healthcare SA ("Baxter") announced the nomination of a PSA-Factor VIII Lead Product Candidate in connection with the continuing successful development of our joint collaboration to develop a new, long-acting polysialylated Factor VIII therapy. Importantly, Baxter also notified the Company in FY2010 that they intend to expand the collaboration based on the positive results to date on Factor VIII by applying Lipoxen's PolyXen® technology to two additional drug candidates for the treatment of haemophilia A, B and for patients with inhibitors.  The Factor VIII global market size is approximately $5bn whilst the Inhibitor and Factor IX markets were $1.2bn and $600m respectively (Sources: Jefferies International / Datamonitor).

 

-     Baxter and the Company concluded negotiations on a Licence Amendment resulting in the receipt by the Company of $2m in revenues.

 

-     On 15th September 2010 Lipoxen granted Baxter warrant rights to subscribe for $2m worth of Ordinary Shares at a Strike Price of 9.02 pence per share. By subsequent agreement between the parties, the subscription entitlement is to be based upon the foreign exchange rate applicable on that date; accordingly, the Warrant confers rights upon Baxter to subscribe for 14,338,430 shares for an aggregate value of £1.293m.

 

-     The Company successfully concluded its restructuring programme in H2-2010 in line with our continuing strategy to evolve as quickly as possible from a research-based company and into a proprietary product development company.  Pro tem, this programme has, inter alia, resulted in a significant reduction in the Company's gross monthly cash burn.

 

-     Net cash outflow before financing for the year was reduced to £1.3m (FY2009: £2.3m).

 

-     The Operating Cash Loss for the year was reduced significantly to £1.18m (FY2009: £3.02m) as a result of both increased revenues (£1.57m-v-£0.47m) and reduced cash-settled operating expenses (£2.75m-v-£3.49m).

 

-     Serum Institute of India Limited ("Serum") successfully completed Phase II (a) clinical trials in India on our partnered polysialylated-EPO product ("ErepoXen®") and is well advanced towards the initiation of Phase II (b) clinical trials which are currently expected to commence in India in Q3-2011. The market launch for this product is expected in India in late 2014.

 

-     Lipoxen's H1N1 novel influenza vaccine product candidate successfully completed the first phase of pre-clinical development studies and is being positioned (subject only to the availability of capital) to move into pre-clinical toxicology studies in Q2-2012 with the objective of commencing Phase I clinical trials in Q4-2012/Q1-2013.

-     Lipoxen was able to announce a number of positive developments in the enhancement of the Company's IP position, including:

 

-     A new USA patent granted for the application of our PolyXen® technology via new protein engineering techniques (January 2010).

-     A six territory (UK, Germany, France, Spain, Italy and Switzerland) patent granted for Lipoxen's Polysialylated G-CSF ("StimuXen®") which utilises the Company's patented PolyXen® technology (February 2010).

-     Expansion of the Company's DNA vaccine patent allowed in the USA to further strengthen and broaden the patent protection of Lipoxen's ImuXen® technology (May 2010).

-     Monofunctional PolyXen® technology patent allowed in the USA conferring additional patent protection in the USA until 2025 (June 2010).

 

Business Strategy Review

I have previously reported to shareholders on the overall strategy and business model of the Company and I think it appropriate that these matters be revisited in consideration of the substantial progress that was made in FY2010.

 

While Lipoxen has, hitherto, been dependent upon third parties to fund essential early-stage product development, I believe that it is now realistic to see our Company as an emergent Speciality Pharmaceutical company with a burgeoning proprietary product pipeline, including:

 

(a) Two candidates already in human clinical trials, being ErepoXen® (PSA-EPO) and SuliXen® (PSA-Insulin) both of which have demonstrated clinical success.

 

(b) Six candidates in development with Pharmsynthez ZAO ("Pharmasynthez") in Russia, of which the first two are orphan drug candidates, being, the Multiple Sclerosis vaccine candidate MyeloXen® and PulmoXen® (a polysialylated dornase for the treatment of Cystic Fibrosis), together with HIVirion (a therapeutic vaccine for the treatment of HIV); these all have shown promise in pre-clinical studies. Pharmsynthez is now a publicly traded company on MICEX (November 2010) and much of its future value is vested in the Lipoxen collaborative projects.

 

A key feature of our successful emergence from "dependency" to "control of our destiny" will be vested in the Company's ability to fund the development of the most promising of these candidates whether directly or by way of co-development arrangements.  In this regard I am able to advise shareholders that existing arrangements with Pharmsynthez, Serum and FDS Pharma Ass. ("FDS Pharma") already provide financial underpinning for all items noted under (a) and (b) above.

 

Negotiations are currently in train for the establishment this financial year of several new initiatives encompassing both the co-development and future funding of a number of the Company's proprietary product candidates. In particular, we are working to conclude a co-development deal similar in nature and to run in parallel with that already established in Russia with Pharmsynthez with the same aim of achieving human proof of concept in Russian clinical trials as the technical basis to justify the funding of Western trials of the successful product candidates. While it is too early to report success in these endeavours the Board is encouraged by progress made to date and will report to shareholders as appropriate in due course.

 

Business Model

The Company's underlying business model remains driven by the nature of our proprietary platform technology IP portfolio which confers a very much lower technical and commercial risk profile than that of most small-to-mid-cap Life Sciences companies. Our IP is not indication-specific; rather it is targeted at a wide spectrum of applications in biologics and vaccines and so addresses a potentially huge market and associated opportunity for the creation of shareholder value.

 

What is of particular note is that the Company's focus has broadened from being, primarily,   an out-licensing model to now having the realistic potential of funding in-house product development; this is rooted in a highly positive sea-change in the expectations of our leading collaborative partners as a direct result of the excellent pre-clinical and clinical trial results that have been achieved to date, including those from Pharmsynthez in our Multiple Sclerosis vaccine and polysialylated dornase for the treatment of Cystic Fibrosis.

 

Programme Update

I am pleased to set out below a brief overview of the Company's major ongoing projects.

 

PSA-EPO ("ErepoXen®")

Serum has successfully concluded an EMA/FDA compliant Phase II (a) trial and has embarked on planning all other necessary clinical trials required to be completed before the product can be brought to market.  Current timing expectations are that Phase II (b) clinical trials will commence in India in Q3-2011 and that Phase III trials should be completed by mid-2014 with market launch in India and its associated Developing World territories planned for late 2014.

 

Lipoxen expects to commission Phase I clinical trials (in patients) in a Western EMA/FDA clinical trial commencing in H1-2012 contingent on development funding being available, to take the product through to market launch to fully capture the value from this $12bn market.  PSA-EPO is in the vanguard of the Company's proprietary portfolio and, based on clinical successes to date, is clearly a leading candidate to advance the business model as now described.

 

PSA-Insulin ("SuliXen®")

FDS Pharma (the Company's Russian counterparty on this project) will shortly commence Russian clinical trials for this product candidate for a secondary indication as a treatment for Alzheimer's disease.  The planned Phase II (a) trials for the diabetes indication (being the first clinical trial for SuliXen®) are also expected to commence in H2-2011. Based on the outcome of these trials, Lipoxen will fund Phase I EMA/FDA trials of SuliXen® in FY2012.

 

Initial results from the Barbara Davis Institute ("BDI") have indicated sufficient promise for BDI to invite Lipoxen to co-fund the next stage.  This matter remains under consideration by the Company although no final decision is expected until the first results are known from the Alzheimer's trials in Russia.

  

HIV vaccine with the International AIDS Vaccine Initiative ("IAVI")

This project has been extended to end-September 2011 on the basis that Lipoxen will provide a number of new formulations which IAVI will test in their pre-clinical model with a view to selecting a candidate (or candidates) for further development based upon the results.

 

H1N1 influenza vaccine

As reported to the market in Q4-2010, the Company has completed its initial pre-clinical studies which delivered very encouraging results.  The Board has therefore approved the funding for the next stage of internal studies in the expectation that Lipoxen will be able to secure funding to carry out pre-clinical toxicology studies prior to placing the candidate into Phase I clinical trials in Q4-2012/Q1-2013.

 

siRNA Delivery

The Board has placed this potential application of our liposomal entrapment technology on hold pending further technical developments which will, most likely, be driven by the expansion of the vaccine product pipeline as the Company drives to place one or more product candidates into human clinical trials. Although the siRNA holds a lot of promise, there are sufficient questions in the pharmaceutical world around its future to compel the Company to focus its resources on established and market-proven products.

 

Financial Summary

The financial results for the Group in the period under review were:


2010

        2009


£'000

          £'000

Revenue

1,566

469

Total pre-tax losses for period

1,934

3,631

Non-cash component of total pre-tax loss

   755

619

Net cash as at 31st December

   851

1,018

Net asset value as at 31st December

1,987

2,248





    Pence

     Pence

Loss per share - basic and fully diluted

1.13

2.47

Net asset value per share - basic

1.12

1.46

Net asset value per share - fully diluted

1.11

1.43

 



 

The following table summarises the broad application of funds in the period:

 




2010

2010

2009

2009

Cash settled expenses



£'000

%

£'000

%

R&D expense - cash settled



1,467

53.4

2,142

61.4

Other expenses - cash settled


1,280

46.6

1,349

38.6

                                                                               


------------

------------

------------

------------

Total expenses - cash settled


2,747

100.0

3,491

100.0




----------------------

====================

----------------------

=====================

Non cash items







Equity settled share option expense



135


10


Equity settled R&D expenses



-


312


Share based payment - Baxter warrants



367


-


Depreciation



253


297





------------


------------




755


619



----------------------


------------


TOTAL ADMINISTRATIVE COSTS

3,502


4,110



====================


====================


 

Management retains tight control over expenditure and, while the full effects of the recently concluded laboratory restructuring work have come through in H1-2011, shareholders need to be cognisant that, should the Company embark upon the expansion envisaged by the ongoing negotiations on the co-development and funding arrangements mentioned previously, the resulting change in the Company's business model to become a Speciality Drug Developer will have the concomitant effect of the expansion of Lipoxen's core infrastructure resulting in an increase in operating costs as the Company addresses itself to the costly business of clinical development on its own account.

 

Post Balance Sheet event

Since the Balance Sheet date, the Company has negotiated a short term unsecured loan of up to $1.15m. This loan is for a term of seven months, bears interest (rolled up) at 0.85% per month, is available to be drawn down in several tranches and is repayable either in cash or by other means as may be agreed between the parties. At the date of this Statement a net $409k has been drawn down.

 

Current Trading and Going forward

At the date of this Statement I am pleased to report that the Company has been successful in securing new grant funding of $100k from the Bill and Melinda Gates Foundation to part-fund the early stage pre-clinical development costs of a novel polio vaccine using the Company's ImuXen® platform technology.

 

Significant levels of effort are being expended on a feasibility study with a Big Pharma client on a new application of our PolyXen® technology.  This is an important project for the Company as it addresses a new area of application of our IP-protected biopolymer.  It is premature to anticipate "next steps" beyond the completion of the second phase of this project which we hope to complete before the end of FY2011.

 

I have alluded hitherto to our efforts aimed at expanding the Company's activities into that of a Specialty Drug Developer.  In other circumstances the Board would have preferred not to issue the accompanying Financial Statements for FY2010 until it was able to report more conclusively on the outcome of these. That said, we are, of course, bound by the law of the land  and, in particular, the Companies Act 2006 which requires that we hold our Annual General Meeting no later than 6 months following the end of our Accounting Period, that is to say, in our case, by no later than 30th June 2011.

 

Accordingly, accompanying these Financial Statements shareholders will find the Notice of Annual General Meeting (and related documents) calling the next AGM at noon on Tuesday 28th June 2011 at Oriental Room, London Capital Club, 15 Abchurch Lane, London, EC4N 7BW.

 

Conclusion

The main thrust of my report this time is one of optimism that your Company's technology platforms are proving their potential to enhance shareholder value through clinical and commercial development, this being especially true of the PolyXen® technology for the development of new, longer-acting, more efficacious biologic drugs.

 

Of course, there are many operational steps to take and many clinical hurdles to overcome, but it is clear that FY2010 can be seen as having been a watershed in the development of the Company in that the achievements of the Company itself and, crucially, those of its leading collaborative partners, have redefined the inherent investment opportunity in a positive manner.

 

Finally, I wish to thank the executive management and staff for their considerable efforts over the last 12 months and look forward to meeting as many shareholders as are able to attend the forthcoming Annual General Meeting.

 

 

Brian Richards

Non Executive Chairman

London: 2nd June 2011

 


 

CONSOLIDATED COMPREHENSIVE INCOME STATEMENT

FOR THE YEAR ENDED 31st DECEMBER 2010

 

 



2010

2009


Note

£

£













REVENUE

3

1,566,261

468,579



--------------------

--------------------

ADMINISTRATIVE EXPENSES



Research and development expenditure

1,466,887

2,453,526

Administrative expenses

2,035,412

1,656,649



--------------------

--------------------

Total


3,502,299

4,110,175



--------------------

--------------------

OPERATING LOSS

4

(1,936,038)

(3,641,596)




Finance income

1,761

10,710


--------------------

--------------------

LOSS BEFORE TAXATION

(1,934,277)

(3,630,886)




Income tax credit

7

-

173,628



--------------------

--------------------

LOSS AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT


(1,934,277)

(3,457,258)



================

===============




Loss per share (pence) - basic and fully diluted

9

(1.13)p

(2.47)p



===============

================

 

 

The Company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the Parent Company comprehensive income statement.



 

CONSOLIDATED BALANCE SHEET

AS AT 31st DECEMBER 2010

 

 

 



2010

2009


Note

£

£

£






NON-CURRENT ASSETS





Property, plant and equipment

10


256,208

480,582

Goodwill

11


1,061,476

1,061,476



----------------------

----------------------



1,317,684

1,542,058




----------------------

CURRENT ASSETS





Trade and other receivables

13

344,027


235,492

Cash and cash equivalents

18

850,804


1,017,890


-----------------


-------------------


1,194,831


1,253,382

CURRENT LIABILITIES





Trade and other payables

14

525,700


547,717



-----------------


--------------------

NET CURRENT ASSETS


669,131

705,665


----------------------

----------------------

NET ASSETS

1,986,815

2,247,723




================

================











EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT





Share capital

15


2,519,661

2,405,486

Share premium account



26,521,349

25,057,700

JSOP shares



(405,694)

-

Reverse acquisition reserve



(8,252,127)

(8,252,127)

Retained earnings



(18,396,374)

(16,963,336)




----------------------

----------------------

TOTAL EQUITY



1,986,815

2,247,723




==================

==================

 

The financial statements were approved and authorised for issue by the Directors on 2nd June 2011 and were signed on their behalf by:

 

 

 

SCOTT MAGUIRE - Director                                                   COLIN HILL - Director



 

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31st DECEMBER 2010

 

 


 


2010

2009


Note


               £

£






Cash flows from operating activities

   17


(1,313,416)

(2,378,574)

Interest received



1,761

10,710

Taxation received



-

173,628




--------------------

-------------------

Net cash outflow from operating activities 



(1,311,655)

(2,194,236)




--------------------

-------------------

Cash flows from investing activities





Purchase of property, plant and equipment



(29,161)

(111,542)

Sale of property, plant and equipment



1,600

-




--------------------

-------------------

Net cash used in investing activities



(27,561)

(111,542)




--------------------

-------------------

Cash flows from financing activities





Issue of equity share capital



1,172,130

2,721,603




--------------------

-------------------






Net (decrease)/increase in cash and cash equivalents 



(167,086)

415,825






Cash and cash equivalents at beginning of year



1,017,890

602,065




--------------------

-------------------

Cash and cash equivalents at end of year

   18


850,804

1,017,890




===============

===============





 

 

 



 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31st DECEMBER 2010

 

 


Share capital

Share premium

JSOP shares

Reverse acquisition reserve

Retained earnings

Total


£

£

£

£

£

£








At 1st January 2009

 2,232,790

22,508,793

-

(8,252,127)

(13,516,233)

2,973,223

Loss and total comprehensive income for year

-

-

-

-

(3,457,258)

(3,457,258)

Shares issued for cash

172,696

 2,736,804

-

-

-

2,909,500

Share issue expenses

-

(187,897)

-

-

-

(187,897)

Share-based payments

-

 -

-

-

10,155

10,155


________

_________

_________

__________

__________

_________

At 31st December 2009

2,405,486

25,057,700

-

(8,252,127)

(16,963,336)

2,247,723

Loss and total comprehensive income for year

-

-

-

-

(1,934,277)

(1,934,277)

Shares issued for cash

87,583

1,138,576

-

-

-

1,226,159

Shares issued under JSOP

26,592

385,590

-

-

-

412,182

Own shares held by JSOP Trustees

-

-

(405,694)

-

-

(405,694)

Share issue expenses

-

(60,517)

-

-

-

(60,517)

Share-based payments

-

 -

-

-

501,239

501,239


________

_________

_________

_________

__________

_________

At 31st December 2010

2,519,661

26,521,349

(405,694)

(8,252,127)

(18,396,374)

1,986,815


=============

==============

==============

================

================

===============

 



 

COMPANY BALANCE SHEET

AS AT 31st DECEMBER 2010

 

 



2010

2009

 


Note

£

£

£





NON-CURRENT ASSETS




Property, plant and equipment

10


160,000

320,000

Investments

12


9,045,030

9,045,030

Other receivables

13


7,974,961

6,610,290



----------------------

--------------------

 



17,179,991

15,975,320

 




--------------------

 

CURRENT ASSETS





Trade and other receivables

13

12,856


13,291

Cash and cash equivalents

18

844,939

998,225


-------------

-------------------

 


857,795


1,011,516

 

CURRENT LIABILITIES





Trade and other payables

14

269,840


143,191



---------------


--------------------

NET CURRENT ASSETS


587,955

868,325

 


----------------------

--------------------

 

NET ASSETS

17,767,946

16,843,645

 


================

================

 




 


 

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY





Share capital

15


2,519,661

2,405,486

Share premium account



26,521,349

25,057,700

Retained earnings



(11,273,064)

(10,619,541)




----------------------

--------------------

TOTAL EQUITY



17,767,946

16,843,645




================

===============

 

The financial statements were approved and authorised for issue by the directors on 2nd June 2011 and were signed on their behalf by:

 

 

 

 

 

SCOTT MAGUIRE - Director                                        COLIN HILL - Director



 

COMPANY CASH FLOW STATEMENT

FOR THE YEAR ENDED 31st DECEMBER 2010

 

 


 


2010

2009


Note

                                                             

      £

£  






Cash flows from operating activities

17


(368,200)

(547,513)

Interest received



1,761

7,205




------------------

-------------------

Net cash outflow from operating activities 



(366,439)

(540,308)




------------------

-------------------

Cash flows from investing activities





Loan to subsidiary



(958,977)

(1,747,809)

Loan to JSOP Trustees



(405,694)

-




------------------

-------------------

Net cash used in investing activities



(1,364,671)

(1,747,809)




------------------

-------------------

Cash flows from financing activities





Issue of equity share capital



1,577,824

2,721,603     




------------------

-------------------






Net (decrease)/increase in cash and cash equivalents 



(153,286)

433,486






Cash and cash equivalents at beginning of year



998,225

564,739




------------------

-------------------

Cash and cash equivalents at end of year

18


844,939

998,225




==============

==============





 

 

 



 

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31st DECEMBER 2010

 

 


Share capital

Share premium

Retained earnings

Total


£

£

£

£






At 1st January 2009

2,232,790

22,508,793

(9,957,303)

14,784,280

Loss and total comprehensive income for year

-

-

(662,238)

(662,238)

Shares issued for cash

172,696

2,736,804

-

2,909,500

Share issue expenses

-

(187,897)

-

(187,897)


________

_________

__________

_________

At 31st December 2009

2,405,486

25,057,700

(10,619,541)

16,843,645

Loss and total comprehensive income for year

-

-

(653,523)

(653,523)

Shares issued for cash

87,583

1,138,576

-

1,226,159

Shares issued under JSOP

26,592

385,590

-

412,182

Share issue expenses

-

(60,517)

-

(60,517)


________

_________

_________

_________

At 31st December 2010

2,519,661

26,521,349

(11,273,064)

17,767,946


=============

===============

==============

==============

 



 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31st DECEMBER 2010

 

1.     INTERNATIONAL FINANCIAL REPORTING STANDARDS

 

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and in accordance with the AIM Rules of the London Stock Exchange.

 

2.     ACCOUNTING POLICIES

 

Going concern

As an early-stage development life sciences business, the Group has incurred operating losses in the year under review, notwithstanding that substantial clinical and technical progress was also made in the continuing successful development of its proprietary technologies; consequently, the Group was a net consumer of cash.

 

In order to maintain the level of scientific effort required to develop the Group's technologies and to commercialise them to such degree as will be necessary to become a cash-generative business, the Group will need to access new cash in addition to that available to it at the year end; such new cash will either be generated internally from, as yet, non-contractual feasibility and licensing sources and/or from the raising of new capital.

 

The Directors have prepared a financial forecast for the period through to 31st December 2012. The forecast includes assumptions that the Group will generate cash inflows in this period from:

 

(a)   the ongoing roll-out and licensing of the Group's technologies with its existing collaborative partners;

(b)   the roll-out and licensing of the Group's technologies with new collaborative partners; and

(c)    the raising of new capital.

 

The Group has successfully completed Phase II(a) clinical trials on its EPO product candidate.  This and other clinical and pre-clinical successes have generated an increasing level of commercial interest in the Group's PolyXen® and ImuXen® platform technologies. Capital markets remain uncertain and the Company's ability to raise new capital entirely from such sources cannot be relied upon as it is largely dependent upon market conditions that exist at the time of raising the funds.

 

While considering that platform technology applications to known and marketed drugs confer lower commercial risks than in new drug development, the Directors recognise that there are uncertainties surrounding these core issues.

 

If the Group was to prove unable to generate these additional cash inflows, the cash balance of circa £0.85m as at 31st December 2010, together with subsequently arranged undrawn loan facilities, would be insufficient to fund the Group's activities at their current level for a period of twelve months from the date of approval of these financial statements.

 

However, the Directors have a reasonable expectation that these uncertainties can be managed to successful outcomes, and that, based on that assessment, the Group will have adequate resources to continue in operational existence for the foreseeable future. They have therefore prepared the financial information contained herein on a going concern basis.

 

The financial statements do not reflect any adjustments that would be required to be made, with respect to either the Company or the Group, if they were to be prepared on a basis other than the going concern basis.

 

Basis of consolidation

The Group financial statements incorporate the financial statements of the Parent Company and all of its subsidiary undertakings. The results of subsidiary undertakings acquired or disposed of during the year are included in the Group financial statements from, or up to, the date of acquisition or disposal.

 

Goodwill

Goodwill arising on consolidation represents the excess of the cost of the reverse acquisition over the net assets of Lipoxen Plc at the date of the business combination. Goodwill is recognised as an asset and is reviewed for impairment at least annually. Any impairment is recognised immediately through the comprehensive income statement and is not reversed.

 

Revenue

Revenue shown in the comprehensive income statement represents the value of services provided during the year, exclusive of Value Added Tax. For contracts in progress at the balance sheet date, revenue is recognised based on the degree of completion of the project and the agreed fee for the total project. Milestone payments receivable for which the Group has no further contractual duty to perform any future services are recognised on the date that they are contractually receivable.

 

Intangible assets

Intangible assets acquired are shown at cost less accumulated amortisation and impairment losses.  Amortisation is charged in the comprehensive income statement on a straight line basis over the estimated useful lives of the intangible assets unless such lives are considered to be indefinite. Intangible assets (excluding development costs) created within the business are not capitalised and such expenditure is charged in the comprehensive income statement in the year in which it is incurred.

 

Property, plant and equipment

All property, plant and equipment assets are stated at cost less accumulated depreciation.

 

Depreciation is provided to write off the cost less the estimated residual value of property, plant and equipment on a straight line basis over their estimated useful economic lives as follows:

 

Laboratory equipment

-

4 years

Computer equipment

-

4 years

Plant

-

5 years

       

Financial instruments

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a contractual party to the instrument.

 

Financial assets other than hedging instruments can be divided into the following categories:  loans and receivables, financial assets at fair value through profit or loss, available-for-sale financial assets and held-to-maturity investments. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired.

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as non-current assets. The Group's loans and receivables comprise 'trade debtors and other receivables' and 'cash and cash equivalents' in the balance sheet. The Group has no other financial assets.

 

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group, other than equity-settled share-based payments which are described below, are recorded at the proceeds received net of direct issue costs.

 

Trade receivables

Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost less impairment losses. Appropriate amounts for estimated irrecoverable amounts are recognised in the comprehensive income statement when there is objective evidence that the asset is impaired.

      

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, bank balances and deposits repayable on demand.

 

Trade payables

Trade and other payables are measured at initial recognition at fair value and are subsequently measured at amortised cost.

 

Operating lease agreements

Operating lease rentals are charged in the comprehensive income statement on a straight line basis over the lease term.

 

Research and development costs

Research and development costs are written off to the comprehensive income statement as incurred, except that development expenditure incurred on an individual project is carried forward when its future recoverability can be reasonably regarded as assured. Any expenditure carried forward is amortised in line with the expected future sales from the related project.

Foreign currencies

Monetary assets and liabilities in foreign currencies are translated into sterling at the rate ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating loss.

 

Pension costs

Company contributions to money purchase pension schemes are written off to the comprehensive income statement as incurred.

 

Share based payments

Share options granted to employees are valued at the date of grant using the Black-Scholes option pricing model and are charged to the comprehensive income statement over the vesting period of the option. A corresponding credit is recognised in the retained earnings reserve.

 

Shares issued under the Joint Share Ownership Plan ("JSOP") which vest immediately are valued at the date of grant using the Black-Scholes option pricing model. JSOP shares issued with share price targets are valued at the date of grant using a Monte Carlo simulation approach as this allows the fair value to reflect the interaction of the Black-Scholes formula and the performance targets. These amounts are charged to the comprehensive income statement over the expected period to vesting of the shares. A corresponding credit is recognised in the retained earnings reserve.

 

Warrants to subscribe for new equity in the Company have been valued at the date of grant using the Black-Scholes option pricing model. The excess of this amount over the consideration received for the grant has been charged to the comprehensive income statement.  A corresponding credit is recognised in the retained earnings reserve.

 

Equity

Share capital is determined using the nominal value of shares that have been issued.

 

The share premium account includes any premiums received on the initial issuing of the share capital. Any transaction costs associated with the issue of shares are deducted from the share premium account, net of any related income tax benefits.

 

The JSOP shares reserve arises when the Company issues equity share capital under its Joint Share Ownership Plan, which is held in trust by the Group's Guernsey Special Purpose Trust. The interests of the Trust are consolidated into the Group's financial statements and the relevant amount treated as a reduction in equity.

 

The reverse acquisition reserve arises on the restatement of the equity structure shown in the consolidated financial statements from that of Lipoxen Technologies Limited immediately after the deemed acquisition of Lipoxen Plc to reflect the equity structure of the legal Parent Company.

 

Taxation

The tax expense recognised in the comprehensive income statement represents the sum of the current and deferred tax.

 

The tax expense is based on the taxable profit for the year. Taxable profit differs from the profit as reported in the comprehensive income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

 

Tax income arises from the UK legislation regarding the treatment of certain qualifying research and development costs, allowing for the surrender of tax losses attributable to such costs in return for a tax rebate.

 

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

 

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised.

 

New and amended standards

The Group has early-adopted IAS 24 (revised) 'Related party disclosures', which clarifies and simplifies the definition of a related party.

 

Standards and interpretations that became effective for the first time during the year have not had a material impact on the financial statements. No impact is expected from any other standards or interpretations which have been endorsed by the European Union and are available for early adoption, but which have not been adopted.

 

Critical accounting judgements and key sources of estimation uncertainty

In the process of applying the Group's accounting policies, management makes estimates and assumptions that have an effect on the amounts recognised in the financial statements. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.

 

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are those relating to:

 

(a)  the future recoverability of goodwill, and the corresponding review of goodwill for impairment (see Note 11);

(b)   the percentage of completion by FDS Pharma of its obligations under the agreement of October 2005 for the provision of manufacturing and clinical development services (see Note 13);

(c)  the expense recognised in the comprehensive income statement in respect of share options and JSOP shares granted to employees (see Notes 15 and 16); and

(d)   the share based payment expense recognised in the comprehensive income statement arising from the grant of warrant rights to Baxter International Inc. (see Note 15).

3.     SEGMENTAL ANALYSIS

 

The revenue and loss before tax are attributable to the one principal activity of the Group.

The net assets of the Group at 31st December 2010 and 31st December 2009 are wholly attributable to the principal activity. The Group comprises one operating segment for reporting purposes. Management measures performance and allocates resources based on the results of this one segment only.

 

An analysis of turnover (by location of customer) is given below:


2010

2009


£

£

United States

1,442,152

270,084

Europe

124,109

109,006

Rest of World

-

89,489


-------------------

-------------------


1,566,261

468,579


===============

===============

        An analysis of the Group's total assets by location is given below:


2010

2009


£

£

United Kingdom

1,826,815

1,927,723

India

160,000

320,000


-------------------

-------------------


1,986,815

2,247,723


===============

===============

       The following customers accounted for greater than 10% of the Group's revenues:


2010

2009


£

£

Customer 1

1,423,499

179,492

Customer 2

-

 89,489

Customer 3

-

81,506

Customer 4

-

 67,935

 



 

4.     OPERATING LOSS

        Operating loss is stated after charging:


2010

2009


£

£




Depreciation of owned property, plant and equipment

253,535

296,932

Operating lease payments:



 - land and buildings

48,000

48,000

Net loss on foreign currency translation

15,511

7,837

Research and development costs - cash settled

1,466,887

2,141,801

Research and development costs - equity settled

-

311,725

Share option and JSOP expense - equity settled

134,726

10,155

Share based payment expense - Baxter warrants

366,513

-


===============

===============

The operating lease payments relate to office accommodation. The Company has not entered into a formal agreement for the use of this accommodation and the arrangement may be terminated without notice at any time. There are therefore no future lease payments under non-cancellable operating leases.

 

5.     AUDITOR'S REMUNERATION

        Services provided by the Company's auditor


2010

2009


£

£

Fees payable to the Company's auditor for the audit of the Parent Company and consolidated financial statements

4,000

3,500

Fees payable to the Company's auditor and their associates for other services:



  -  audit of the Company's subsidiary pursuant to legislation

30,750

30,000

  -  other services pursuant to legislation

7,000

6,500


===============

===============

 



 

6.     PARTICULARS OF EMPLOYEES

        The average number of staff employed by the Group during the financial year was:


2010

2009


No

No

Office and management

4

4

Research

18

19


---------------

---------------


22

23


===========

===========

        The aggregate payroll costs of the above (excluding the share option expense) were:

Group:

2010

2009


£

£

Wages and salaries

1,124,950

1,430,258

Social security costs

128,778

169,342

Other pension costs

67,222

74,970


-------------------

-------------------


1,320,950

1,674,570


===============

===============

 

Company:

2010

2009


£

£

Wages and salaries

143,000

143,000

Other pension costs

11,200

11,200


-------------------

-------------------


154,200

154,200


===============

===============

Key management personnel received compensation as follows:

Group:

2010

2009


£

£

Salaries and short-term employment benefits

714,029

1,004,180

Post-employment benefits

50,320

57,513

Share-based payments

128,555

2,429


-------------------

-------------------


892,904

1,064,122


===============

===============




Company:

2010

2009


£

£

Salaries and short-term employment benefits

143,000

143,000

Post-employment benefits

11,200

11,200


-------------------

-------------------


154,200

154,200


===============

===============

 



 

Key management comprises the directors of the Company, those Directors of the subsidiary who are not also Directors of the Parent Company, together with the Company's senior scientific staff.

       The remuneration of the Directors was as follows:


Salaries and short-term  benefits

Share-based payments

Pension contributions

Total 2010

Total 2009


£

£

£

£

£







Sir Brian Richards

-

-

-

-

-

Scott Maguire

 299,709

75,253

24,000

398,962

324,000

Colin W. Hill

140,000

38,620

11,200

189,820

151,200

Professor Gregory Gregoriadis

85,320

-

-

85,320

85,320

Dr Dmitry D. Genkin

 -

-

-

-

-

Firdaus J. Dastoor

-

-

-

-

-

Igor Nikolaev

 -

-

-

-

-


________

_______

______

_______

_______

Total

525,029

113,873

35,200

674,102

560,520


==============

===========

==========

===========

============

        The charge in 2009 comprised salaries and short-term benefits of £525,320 and pension contributions of £35,200.

        The number of Directors who accrued benefits under Company pension schemes was as follows:


2010

2009


No

No

Money purchase schemes

1

1


===============

===============

In addition to the above, the Group was charged the following amounts by Directors or by companies controlled by Directors for the provision of consultancy services:



2010

2009



£

£

Sir Brian Richards


81,250

60,000

Dr Dmitry Genkin


3,000

3,000

Igor Nikolaev


3,000

3,000



===============

===============

 



 

7.         INCOME TAX CREDIT

        (a) Analysis of credit in the period


2010

2009


£

£

Current tax:






 

UK corporation tax based on the results for the year at 28% (2009 - 28%)

-

(173,628)


-------------------

-------------------

Current tax for the period

-

(173,628)


===============

===============

       (b) Factors affecting the tax credit for the year

The tax assessed for the year does not reflect a credit equivalent to the loss on ordinary activities multiplied by the standard rate of corporation tax of 28% (2009 - 28%).


2010

2009


£

£





Loss on ordinary activities before tax


(1,934,277)

(3,630,886)



================

===============





Loss on ordinary activities multiplied by the standard rate of corporation tax


(541,598)

(1,016,649)

Effects of:




Expenses not deductible for tax purposes


-

45

Unrelieved tax losses arising in the year


541,598

1,016,604

Surrender of qualifying research and development costs for tax rebates


-

(173,628)



--------------------

-------------------

Current tax for the period


-

(173,628)



================

===============

             

The Group has corporation tax losses available for offset against future profits of the same trade of £17,400,000 (2009 - £15,800,000). The deferred taxation asset not provided for in the accounts due to the uncertainty that future taxable profits will be available to allow recovery of the asset is approximately £4,950,000 (2009 - £4,450,000).



 

8.    LOSS ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY

        The loss dealt with in the accounts of the Parent Company was £653,523 (2009 - £662,238).

 

9.     EARNINGS PER SHARE

The calculation of loss per share is based on the loss of £1,934,277 (2009 - £3,457,258) and on the number of shares in issue, being the weighted average number of shares in issue during the period of 170,581,718 ordinary 0.5p shares (2009 - 140,230,091 ordinary 0.5p shares). There is no dilutive effect of share options on the basic loss per share.

 

10.   PROPERTY, PLANT AND EQUIPMENT

Group

 Plant

Laboratory equipment

Computer equipment

Total


£

£

£

£

COST





At 1st January 2009

800,000

507,576

45,830

1,353,406

Additions       

-

82,972

28,570

111,542


---------------

-------------------

-----------------

-----------------

At 1st January 2010

800,000

590,548

74,400

1,464,948

Additions

-

21,568

7,593

29,161

Disposals

-

(10,680)

-

(10,680)


----------------

-------------------

-----------------

-----------------

At 31st December 2010

800,000

601,436

81,993

1,483,429


============

=============

============

=============






DEPRECIATION





At 1st January 2009              

320,000

333,682

33,752

687,434

Charge for the year

160,000

121,996

14,936

296,932


---------------

-----------------

--------------

----------------

At 1st January 2010

480,000

455,678

48,688

984,366

Charge for the year

160,000

80,587

12,948

253,535

Disposals

-

(10,680)

-

(10,680)


---------------

-----------------

---------------

---------------

At 31st December 2010

640,000

525,585

61,636

1,227,221


============

=============

============

============






NET BOOK VALUE





At 31st December 2010

160,000

75,851

20,357

256,208


============

=============

===========

===========

At 31st December 2009

320,000

134,870

25,712

480,582


============

=============

===========

===========

 

 


 

Company

Plant

Laboratory equipment

Computer equipment

Total


£

£

£

£

COST





At 1st January 2009

800,000

-

-

800,000

Additions       

-

-

-

-


--------------

---------------

-------------

--------------

At 1st January 2010

800,000

-

-

800,000

Additions

-

-

-

-


--------------

---------------

-------------

--------------

At 31st December 2010

800,000

-

-

800,000


===========

===========

==========

===========






DEPRECIATION





At 1st January 2009              

320,000

-

-

320,000

Charge for the year

160,000

-

-

160,000


--------------

---------------

-------------

--------------

At 1st January 2010

480,000

-

-

480,000

Charge for the year

160,000

-

-

160,000


--------------

---------------

-------------

---------------

At 31st December 2010

640,000

-

-

640,000


===========

===========

==========

============

NET BOOK VALUE





At 31st December 2010

160,000

-

-

160,000


===========

===========

==========

============

At 31st December 2009

320,000

-

-

320,000


===========

===========

==========

============

 



 

11.   GOODWILL

Group







£

COST




At 1st January 2009, 1st January 2010 and 31st December 2010



1,061,476




================

Goodwill arising on consolidation represents the excess of the cost of the reverse acquisition over the net assets of Lipoxen Plc at the date of the business combination.

The reverse acquisition of Lipoxen Plc provided Lipoxen Technologies Limited with access to the AIM market to enable it to raise funds to finance the ongoing development of its technology. This access to capital markets does not satisfy the criteria for separate recognition as an intangible asset as set out in IAS 38: Intangible assets, and is therefore treated as goodwill in these financial statements.

The Group tests annually for impairment or more frequently if there are indications that goodwill might be impaired. The impairment review has been carried out on the Group as a whole.

As primarily a research and development Group, the use of discounted cash flow or similar tools is not appropriate given the inherent risks and uncertainties in the sector and the long timespans involved. Instead the Board look at longer term indicators of impairment.

Since the date of the previous impairment review the Group has made further technical progress in the development of its PSA biopolymer and nanoparticle technologies in both preclinical and clinical trials. The revenue generating capacity of the Group has been enhanced through this progress.

In assessing the impairment, the recoverable amount has been determined as the fair value less cost to sell by reference to the Group's market capitalisation on AIM.

Consequently, it is the view of the Board that no impairment of the carrying value of the Group's goodwill or other assets has occurred during the year.

 

12.   INVESTMENTS

 

Company

Group companies


£

 

COST


 

At 1st January 2009, 1st January 2010 and 31st December 2010

9,045,030

 


================

 



 

The Company owns the whole of the issued share capital of Lipoxen Technologies Limited, a company incorporated in England and Wales engaged in research into drug delivery systems.

It is the view of the Board that no impairment of the carrying value of the Company's investment has occurred during the year.

 

13.   TRADE AND OTHER RECEIVABLES


Group

Company


2010

2009

2010

2009


£

£

£

£

Due in more than one year:





Receivables from subsidiaries

-

-

7,569,267

6,610,290

Provision for impairment

-

-

-

-

Loan to JSOP Trustees

-

-

405,694

-


__________

__________

___________

__________



-

-

7,974,961

6,610,290


================

================

==================

================

Due within one year:





Trade receivables

210,184

94,789

-

-

Provision for impairment

-

-

-

-


________

________

________

__________



210,184

94,789

-

-

Other receivables

46,267

54,806

9,671

10,148

Prepayments and accrued income

87,576

85,897

3,185

3,143


--------------------

--------------------

----------------------

--------------------


344,027

235,492

12,856

13,291


================

================

==================

================

In October 2005, Lipoxen Technologies Limited entered into an agreement with its then major shareholder, FDS Pharma Ass ("FDS"), under which 15,000,000 ordinary shares were allotted in consideration for the provision by FDS of manufacturing and clinical development services. As per a Novation Agreement between FDS, Lipoxen Technologies Limited and the Company dated 16th January 2006, the agreement provides for the allotment of up to 10,174,340 ordinary shares in Lipoxen Plc upon achievement of certain future milestones to the financial value of $2,670,764 as approved by shareholders at the Extraordinary General Meeting of the Company held on 16th January 2006. An amount of £Nil (2009 - £311,725) has been written off to the comprehensive income statement in the year in respect of services provided in the year by FDS.

 



 

The carrying amount of the trade receivables is denominated in currencies as follows:


2010

2009


£

£

Pounds sterling

95,455

94,789

US dollars

29,051

-

Euros

85,678

-

                                                                             

__________

_________


 


210,184

94,789


================

===============

 

Trade receivables are considered to be impaired if they are more than three months overdue at the date of approval of the financial statements. At 31st December 2010 trade receivables of £Nil (2009 - £Nil) were impaired and provided against.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. Neither the Group nor the Company holds any collateral as security.

It is the view of the Board that no impairment of the carrying value of the Company's trade and other receivables has occurred during the year.

 

14.   TRADE AND OTHER PAYABLES


Group

Company


2010

2009

2010

2009


£

£

£

£

Trade payables

182,663

109,099

142,877

20,468

Social security and other taxes

36,537

43,002

-

-

Other payables

598

200

-

200

Accrued expenses

221,944

387,868

126,963

122,523

Deferred income

83,958

7,548

-

-


--------------------

--------------------

--------------------

--------------------


525,700

547,717

269,840

143,191


================

================

================

================

 



 

15.   SHARE CAPITAL

        Authorised share capital:


2010

2009


£

£

673,300,000 Ordinary shares of 0.5p each

3,366,500

3,366,500

16,335,000,000 Deferred shares of 0.01p each

1,633,500

1,633,500


--------------------

--------------------


5,000,000

5,000,000


================

================

Allotted, called up and fully paid:



2010 

2009 


No

£

                  No

£

Ordinary shares of 0.5p each

177,232,254

886,161

       154,397,230

771,986

Deferred shares of 0.01p each

16,335,000,000

1,633,500

  16,335,000,000

1,633,500



-------------------


-------------------



2,519,661


2,405,486



==============


==============

On 1st April 2010 the Company issued 17,516,546 ordinary shares of 0.5p each by way of a placing at a price of 7.0p per share, raising cash of £1,226,159 (before expenses of issue of £60,517).

On 10th June 2010 the Company issued 5,318,478 ordinary shares under the terms of the Company's newly established JSOP at a price of 7.75p per share. £6,488 was subscribed in cash by the beneficiaries and £405,694 was advanced to the Trustees of the Plan in order that the shares were issued fully paid. To this extent the transaction was effectively cash neutral to the Company.

The estimated fair values of the JSOP shares granted, and the vesting conditions applying to the grants, are as follows:

Vesting conditions

Number of shares

Fair value per share




Vested immediately

614,575

3.1543p

Vest when share price exceeds 20p

1,567,967

2.8290p

Vest when share price exceeds 40p

1,567,967

1.9480p

Vest when share price exceeds 100p

1,567,969

0.8270p

 


The fair value of JSOP shares granted with immediate vesting, estimated using the Black-Scholes option-pricing model, is based on the following assumptions:


2010





Share price

7.38p


Exercise price

11.00p


Expected volatility

60.00%


Expected life

5 years


Expected dividend yield

Nil


Risk free interest rate

2.40%



===============


The expected volatility is determined by using as a base the share price movements recorded since the share placing on AIM on 16th January 2006.

JSOP shares issued with share price targets are valued at the date of grant using a Monte Carlo simulation approach using the assumptions set out above as this allows the fair value to reflect the interaction of the Black-Scholes formula and the performance targets.

In September 2010 the Company granted Baxter International Inc. ("Baxter") warrant rights entitling Baxter to subscribe for up to $2 million of new equity in the Company from the date that authority to issue sufficient number of shares is available to 30th June 2015 at an exercise price of 9.02p. The fair value of these warrants, estimated using the Black-Scholes option-pricing model, is based on the following assumptions:


2010





Share price

8.50p


Exercise price

9.02p


Expected volatility

60.00%


Expected life

1.75 years


Expected dividend yield

Nil


Risk free interest rate

2.40%



===============


Since the year end the Company and Baxter have agreed to fix the exchange rate at which the number of shares issuable under the warrant is to be determined at US$1.5464: £1.  The consequence of this is that if the warrant is exercised in full the number of ordinary shares in the Company to be issued will be 14,338,430.


       The rights attached to the deferred shares are as follows:

(a)   no entitlement to any dividend;

(b)   on a winding-up, an entitlement to receive an amount equal to the nominal value of each share, but only after an amount of £50,000,000 per share has been paid to the holders of the issued and fully paid ordinary 0.5p shares;

(c)   no right to attend or vote at a general meeting; and

(d)   an obligation to permit the Company to transfer the shares to such person as the Company may determine, without receiving any payment.

 

16.   SHARE OPTIONS

Movements in the number of share options in issue during the year were as follows:


Number

Weighted average exercise price

Number

Weighted average exercise price


2010

2010

2009

2009






At 1st January

9,177,219

6.0565p

9,833,030

6.7910p

Granted

3,594,192

10.4088p

-

-

Exercised

-

-

(339,145)

0.7371p

Expired

(400,000)

47.7500p

(316,666)

34.5750p


-------------------


-------------------


At 31st December

12,371,411

5.9729p

9,177,219

6.0565p


===============


===============


 

 The weighted average fair value of options granted, estimated using the Black-Scholes option-pricing model, was 3.654p. The estimated fair values are based on the following weighted average assumptions:


2010





Share price

7.2806p


Exercise price

10.4088p


Expected volatility

60.00%


Expected life

5 years


Expected dividend yield

Nil


Risk free interest rate

2.40%



===============


The expected volatility is determined by using as a base the share price movements recorded since the share placing on AIM on 16th January 2006.


Options outstanding at 31st December 2010 were exercisable as follows:

 

Effective date of grant

Number granted

Exercise price

Exercise period

17/01/06

48,837

22.1145p

Until 23/12/11

17/01/06

71,904

41.7226p

Until 28/07/12

17/01/06

406,974

0.7371p

Until 25/05/14

17/01/06

759,684

0.7371p

Until 25/10/14

17/01/06

101,743

0.7371p

Until 11/05/15

17/01/06

141,084

0.7371p

Until 29/09/15

17/01/06

6,200,250

1.0000p

Until 15/01/16

17/01/06

205,000

1.0000p

Until 17/01/16

24/03/06

175,000

29.5000p

Until 23/03/16

24/03/06

175,000

29.5000p

Between 17/01/09 and 23/03/16

24/03/06

25,000

29.5000p

Until 29/02/16

24/03/06

25,000

29.5000p

Between 01/03/09 and 29/02/16

17/10/06

101,743

0.7371p

Until 17/10/16

15/03/07

107,500

35.0000p

Until 14/03/17

15/03/07

42,500

35.0000p

Between various dates in 2009 and 14/03/17

15/03/07

65,000

35.0000p

Between various dates in 2010 and 14/03/17

19/03/07

12,500

35.7500p

Until 18/03/17

19/03/07

12,500

35.7500p

Between 19/03/10 and 18/03/17

09/08/07

50,000

46.6000p

Until 08/08/17

09/08/07

50,000

46.6000p

Between 25/12/10 and 08/08/17

10/06/10

2,870,492

11.0000p

Until 09/06/20

10/06/10

74,566

11.0000p

Once share price exceeds 20p until 09/06/20

10/06/10

74,566

11.0000p

Once share price exceeds 40p until 09/06/20

10/06/10

74,568

11.0000p

Once share price exceeds 100p until 09/06/20

19/10/10

500,000

6.7500p

Until 18/10/20


-----------------




12,371,411




=============



 



 

17.   RECONCILIATION OF LOSS BEFORE TAXATION TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES

Group

2010

2009


£

£

Loss before taxation

(1,934,277)

(3,630,886)

Adjustments for:



Equity-settled share options

134,726

10,155

Equity-settled research and development

-

311,725

Share based payment expense - Baxter warrants

366,513

-

Depreciation

253,535

296,932

Profit on disposal of property, plant and equipment

(1,600)

-

Investment income

(1,761)

(10,710)


--------------------

--------------------


(1,182,864)

(3,022,784)

(Increase)/decrease in receivables

(108,535)

571,342

(Decrease)/increase in payables

(22,017)

72,868


--------------------

-------------------

Net cash outflow from operating activities

(1,313,416)

(2,378,574)


================

================

 

 

Company

2010

2009


£

£

Loss before taxation

(653,523)

(662,238)

Adjustments for:



Depreciation

160,000

160,000

Investment income

(1,761)

(7,205)


--------------------

--------------------


(495,284)

(509,443)

Decrease/(increase) in receivables

435

(468)

Increase/(decrease) in payables

126,649

(37,602)


--------------------

--------------------

Net cash outflow from operating activities

(368,200)

(547,513)


================

================

 



 

18.  FINANCIAL INSTRUMENTS

       Financial assets and liabilities were held as follows:  


Group

Company


2010

2009

2010

2009

Assets

£

£

£

£

Loans and receivables:





Receivables from subsidiaries

-

-

7,569,267

6,610,290

Loan to JSOP Trustees

-

-

405,694

-

Trade receivables

210,184

94,789

-

-

Cash and cash equivalents

850,804

1,017,890

844,939

998,225


--------------------

--------------------

--------------------

--------------------

Total financial assets

1,060,988

1,112,679

8,819,900

7,608,515


================

================

================

================

Liabilities





Financial liabilities measured at amortised cost:





Trade payables

182,663

109,099

142,877

20,468

Accrued expenses

221,944

387,868

126,963

122,523

Deferred income

83,958

7,548

-

-


-------------------

--------------------

--------------------

--------------------

Total financial liabilities

488,565

504,515

269,840

142,991


================

================

================

================

 The Group is engaged in the development of drug delivery systems and proprietary products in the fields of protein drugs, vaccines and oncology. Whilst it is therefore exposed to some financial risk this is significantly less than a trading company which has significant receivables, payables and inventories.

The Directors consider that the carrying value of the financial assets and financial liabilities approximates their fair value.

The credit risk and foreign currency risk of trade receivables are considered in Note 13.

Cash and cash equivalents comprise cash on hand of £283 and balances at bank of £850,521, of which £802,630 is held in a US dollar denominated account.  Whilst the bank balances are held with a reputable financial institution, the maximum exposure to credit risk is the carrying value of the balances as disclosed above.

A 5% increase or decrease in the US dollar/sterling exchange rate would have increased or decreased the reporting sterling carrying amount of the US bank balance by approximately £40,000.

The trade payables are considered to have a maturity date of 3 months or less.

 


Foreign currency risk

Foreign currency risk refers to the risk that the value of a financial commitment or recognised asset or liability will fluctuate due to changes in foreign currency exchange rates.

The Group monitors its foreign currency risk through cash flow forecasting and currency is held in foreign currency bank accounts only to the extent that it is required for clinical development purposes.

Interest rate risk

Interest rate risk is the risk that the value of a financial instrument or cash flows associated with it will fluctuate due to changes in market interest rates.

The Group has financial assets in the form of trade receivables and cash and cash equivalents. These are considered to be short term liquid assets and as a result the exposure to interest rate risk is not considered to be significant.

On this basis no sensitivity analysis has been prepared on the grounds that there would not be a material impact on either the carrying values of the respective assets, the net loss for the year or the equity at the end of the period.

Liquidity risk

The Group maintains sufficient cash and cash equivalents. Management reviews cashflow forecasts to determine whether the Group has sufficient cash reserves to continue with its research and development activities. The Group has no significant financial liabilities and no borrowings.

Capital management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern and to provide a means of attracting investors. The Group has no debt and does not therefore have a strategy in terms of maintaining a certain debt to equity ratio. Rather capital is managed with a view to generating further cash and cash equivalents which can be used in the furtherance of the Group's aims and objectives.

 

19.  RELATED PARTY TRANSACTIONS

       FDS Pharma ("FDS") - substantial shareholder          

In October 2005, Lipoxen Technologies Limited entered into an agreement with its then major shareholder, FDS, under which 15,000,000 ordinary shares were allotted in consideration for the provision by FDS of manufacturing and clinical development services. The agreement provides for certain milestone payments which may be settled either by the issue of further shares in Lipoxen Plc or by specified cash amounts. An amount of £Nil (2009 - £311,725) has been written off to the comprehensive income statement in the year in respect of services provided in the year by FDS.

 

Sales of services to FDS in the year amounted to £Nil (2009 - £89,489). At 31st December 2010, the balance owed by FDS to the Company and the Group was £89,489. This amount has subsequently been received.



 

Directors

The Group and Company was charged the following amounts by Directors or by companies controlled by Directors for the provision of consultancy services:      



2010

2009



£

£

Sir Brian Richards


81,250

60,000

Dr Dmitry Genkin


3,000

3,000

Igor Nikolaev


3,000

3,000

At 31st December 2010, the balance owed to Dr Genkin by the Company and the Group was £5,204.

Lipoxen Technologies Limited - subsidiary

The Company charged a management charge of £120,000 (2009 - £120,000) to the subsidiary during the year. The Company continued to advance monies to the subsidiary during the year to fund the ongoing development of the Group's technology. The balance receivable from the subsidiary at 31st December 2010 was £7,569,267 (2009 - £6,610,290).

 

20.  POST BALANCE SHEET EVENT

Since the Balance Sheet date, the Company has negotiated a short term unsecured loan of up to $1.15m. This loan is for a term of seven months, bears interest (rolled up) at 0.85% per month, is available to be drawn down in several tranches and is repayable either in cash or by other means as may be agreed between the parties. At the date of this Statement a net $409k has been drawn down.

 

21.  GENERAL INFORMATION

Lipoxen Plc and its subsidiary, Lipoxen Technologies Limited, are principally engaged in the development of drug delivery systems and proprietary products in the fields of protein drugs, vaccines and oncology. Lipoxen Plc, a public limited company incorporated and domiciled in England and Wales, is the Group's ultimate parent company. The address of the registered office and the principal place of business is The London BioScience Innovation Centre, 2 Royal College Street, London NW1 0NH.

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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