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C4X Discovery (C4XD)

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Monday 13 December, 2021

C4X Discovery

Full Year Results

RNS Number : 3589V
C4X Discovery Holdings PLC
13 December 2021
 

This announcement contains inside information

 

C4X Discovery Holdings plc

("C4XD", "C4X Discovery" or the "Company")

 

Full Year Results

 

A strong year positions C4XD portfolio for advancement and expansion in 2022

 

13 December 2021 - C4X Discovery Holdings plc (AIM: C4XD), a pioneering Drug Discovery company, today announces its full year audited results for the year ended 31 July 2021.

 

Dr Clive Dix, CEO of C4X Discovery, said: "2021 has been a tremendous year of progress for C4XD across our entire portfolio, culminating in the signing of our second major licensing deal with a global pharma company.  The €414 million agreement with Sanofi for our IL-17A oral inhibitor programme further demonstrates the value of our Drug Discovery expertise and business model of driving shareholder value through early-stage revenue generating deals. There is also significant partnering interest in NRF2.

 

I would like to take this opportunity to thank Craig Fox and Harry Finch for their hard work and commitment throughout their tenure with us, and I welcome two new Board members, Simon Harford and Dr Mario Polywka to the Company. As we approach 2022 , the successful £15 million financing in autumn 2020, along with a roadmap of potential cash milestones over the next 24 months, allows us to advance and broaden our portfolio as we look to build long-term value for shareholders."

 

Operational Highlights (including post-period events)

 

· Exclusive worldwide licensing agreement with Sanofi for C4XD's IL-17A oral inhibitor programme worth up to €414 million including:

§ €7 million upfront

§ €407 million in potential development, regulatory and commercialisation milestones, of which €11 million is in pre-clinical milestones

§ Potential for single-digit royalties

· Indivior's Phase 1 with C4X_3256 progressing.  Single ascending dose study in healthy volunteers successfully completed in April 2021 and preparation for multiple ascending dose study underway in parallel with the conduct of an FDA requested additional 28-day toxicology study due to toxicological findings observed with a competitor molecule

· NRF2 pre-candidate nomination and preliminary safety studies continue, and poster presented at the virtual European Crohn's and Colitis Organisation (ECCO) conference showing efficacy in a disease model

· α4β7 integrin inhibitor programme for the treatment of inflammatory bowel disease ("IBD") generated multiple chemical series showing significant selectivity vs α4β1 in vitro and oral bioavailability in PK studies. In vivo investigation of functional inhibition following oral dosing is underway

· C4XD has now taken on the leadership of the MALT-1 programme from LifeArc to drive it towards the later stages of drug discovery and deliver a commercial deal - three novel series identified, in vivo studies initiated

· Screening of Taxonomy3®-identified novel genes for Parkinson's disease recently completed by collaboration partner Phoremost with validation underway.  Analysis of Ulcerative Colitis genetic dataset recently completed and evaluation of identified novel genes being formulated

· Collaboration with GEN-COVID Consortium to investigate the role genetics plays in the susceptibility, severity and prognosis between different individuals with COVID-19 completed

· Conformetrix technology patent was granted in the USA

· Board changes with appointment of Simon Harford and Dr Mario Polywka as Non-Executive Directors and resignation of Craig Fox as Chief Scientific Officer and Dr Harry Finch as Non-Executive Director

 

Financial Highlights

 

· Revenue was £5.6 million (2020: £nil)

· Total loss after tax of £3.8 million or 1.96 pence per share (2020: £7.8m or 8.10 pence per share)

· R&D expenses increased by 20% to £8.3 million (2020: £6.9m), reflecting focused investment in key Drug Discovery programmes

· Net assets of £19.3 million (2020: £8.1m)

· Successful £15.0 million fundraise (before expenses) with a total of 107,142,858 Placing Shares and 99,169,286 Warrants issued to new and existing shareholders

· Net cash as at 31 July 2021: £17.1 million (31 July 2020: £5.6m)

 

Analyst conference call today

 

Dr Clive Dix, Chief Executive Officer, and members of the management team will host a webcast for analysts at 10am GMT today. A copy of the final results presentation will be released later this morning on the Company website at www.c4xdiscovery.com .  Please contact Consilium Strategic Communications for details on [email protected] / +44 203 709 5700.

 

The Annual Report will be sent to shareholders prior to the Annual General Meeting on 18 January 2022 and will be made available on the Company's website at that time.

 

- Ends -

 

Contacts

 

C4X Discovery Holdings


Mo Noonan, Communications

+44 (0)787 6444977



Panmure Gordon (UK) Limited (NOMAD and Broker)


Freddy Crossley, Emma Earl (Corporate Finance)

+44 (0)20 7886 2500

Rupert Dearden (Corporate Broking)




C4X Discovery Media - Consilium Strategic Communications


Mary-Jane Elliott, Chris Gardner, Matthew Neal

+44 (0)203 709 5700

 

Notes to Editors:

 

About C4X Discovery

 

C4X Discovery ("C4XD") is a pioneering Drug Discovery company combining scientific expertise with cutting-edge Drug Discovery technologies to efficiently deliver world‑leading medicines, which are developed by our partners for the benefit of patients.   We have a highly valuable and differentiated approach to Drug Discovery through our enhanced DNA-based target identification and candidate molecule design capabilities, generating small molecule drug candidates across multiple disease areas including inflammation, neurodegeneration, oncology and addictive disorders.   Our commercially attractive portfolio ranges from early-stage novel target opportunities to late-stage Drug Discovery programmes ready for out-licensing to partners and we have two commercially partnered programmes with one candidate in clinical development.

 

We collaborate with leading pharmaceutical and life sciences companies to enrich our expertise and take our assets through pre-clinical and clinical development.  Through early-stage revenue-generating licensing deals, we realise returns from our high value pre-clinical assets which are reinvested to maximise the value of our Drug Discovery portfolio.  For more information visit us at www.c4xdiscovery.com or follow us on twitter @C4XDiscovery.

 



 

Chairman's Statement

 

Expanding our portfolio and collaborator network

 

"Entering into our small molecule IL-17A collaboration is a major milestone for C4X Discovery and we are delighted to be working with Sanofi to create an oral, convenient therapy."

 

We generated considerable momentum during the financial year ended 31 July 2021, expanding and advancing our proprietary portfolio of pre-clinical programmes and entering into our second significant collaboration. Our new collaboration with Sanofi around our oral IL-17A programme, not only validates the strength of our portfolio but also our strategy to drive shareholder value through early-stage revenue generating deals. The deal marks a major milestone for C4X Discovery.

 

It is our belief that our IL-17A small molecule programme has the potential to create a high value, efficacious and convenient, oral IL-17A therapeutic and when combined with Sanofi's development capabilities, our programme can address additional indications beyond psoriasis. We are delighted to be working with Sanofi and look forward to seeing this programme advancing towards the clinic.

 

We continue to advance a solid portfolio of novel, pre-clinical, small molecule programmes applying our cutting-edge Drug Discovery technologies which are able to deliver high quality, differentiated drug candidates for development by pharma and biotech. While our proprietary portfolio is predominantly focused in the area of inflammation, we are actively pursuing other therapeutic areas including oncology and neurology. Potential partner discussions are ongoing across our portfolio so that we can identify the right opportunities for out-licensing our other lead programmes.

 

In October 2020, we completed a £15 million financing which was supported by our key existing shareholders as well as new shareholders. Importantly, this has enabled the Company to accelerate and broaden our proprietary portfolio of unique assets to near term inflection points and to strengthen the balance sheet as partnering discussions and strategic collaborations progress.

 

We continue to bring new skills and capabilities to our already diverse Board. In April, we welcomed Simon Harford as a Non-Executive Director and Chair of the Audit Committee.  Simon has more than 30 years of financial and investor relations expertise in global pharmaceutical companies, including GSK and Lilly, and is currently the CFO at NASDAQ-listed Albireo Pharma. In November, we welcomed Dr Mario Polywka as Non-Executive Director and successor to Dr Harry Finch who has announced his retirement from the Board.  Mario brings industry expertise from key leadership and board roles within the sector including 12 years as COO of Evotec SE.  Together, Simon and Mario's understanding of the global healthcare industry will be invaluable as we continue to grow C4XD.

 

We also announced the resignation of Craig Fox, our Chief Scientific Officer, in November. Craig will remain with C4XD until the end of March. He has provided excellent guidance and leadership to the scientific team for six years, and both he and Harry will be sorely missed.  A search is underway for Craig's successor and we will announce the new appointment in due course.

 

I would like to thank all of C4XD's employees and our partners for their dedication, hard work and contributions during the year and our shareholders for their continued support and belief in our vision.

 

Eva-Lotta Allan

Non-Executive Chairman

10 December 2021



 

CEO Statement

 

€414m agreement with Sanofi demonstrates value and quality of C4XD portfolio

 

"This has been a tremendous year of progress across our entire portfolio, culminating in our second high-value deal with Sanofi.  The £15 million raised allows us to advance and broaden our portfolio as we look to build value for shareholders."

 

We have made incredibly strong progress this year.  In autumn 2020, we raised £15 million, and advanced each of our key programmes, resulting in a €414 million licensing agreement with Sanofi for our IL-17A oral inhibitor programme, demonstrating the value of C4XD's Drug Discovery expertise and our business model.  The psoriasis market alone is estimated to be worth c.$24 billion per annum by 2027 1 , and when combined with Sanofi's development capabilities, our programme has the potential to address additional indications beyond psoriasis. With Sanofi now leading this programme, our team continues to work with them on the earlier Drug Discovery work and we are excited to see how this programme develops.

 

Indivior has also continued to make excellent progress on C4XD's oral Orexin-1 receptor antagonist C4X_3256, also known as INDV-2000, for the treatment of addiction, which we out-licensed to them in 2018 for $294 million.  With the Phase 1 single ascending dose clinical trial completed, preparation for the multiple ascending dose study is now underway.

 

Additional important milestones were met during the year and C4XD is now working to progress the rest of the portfolio including our NRF2 programme for inflammatory diseases, the α4β7 integrin inhibitor programme for Inflammatory Bowel Disease ("IBD") and our MALT-1 inhibitor programme for oncology and inflammation indications, where we have recently taken the lead in the development programme from LifeArc.  Whilst there is much Drug Discovery work still to be done, we are reaching a stage where industry players are closely monitoring the status of each programme.

 

It will be important over the coming year to assess and augment our portfolio with the appropriate new target candidates, either through our own Drug Discovery techniques or potentially through work with partners.  With two programmes now successfully partnered, a robust but carefully managed financial base and a roadmap of potential cash milestones over the next 24 months, the Board believes that C4XD has shown how we can deliver significant value for shareholders and we anticipate the coming year to continue apace.

 

In September we rebranded our website and corporate materials, resulting in a more contemporary look which we feel reflects the real us - where we are today, the pioneering scientific work that we do and the quality of companies that we partner with - a new image to take us forward in line with our vision.

 

Post-period, we announced the departure of our CSO, Craig Fox and retirement of Harry Finch, Non-Executive Director.  We thank them for their hard work, commitment and inspiration, and we wish them well in their future endeavors. We also welcomed our two new Non-Executive Directors, Simon Harford and Mario Polywka, who bring valuable expertise which will be critical as we look to expand our portfolio and expedite new deals.

 

On behalf of the Board, I would like to thank our incredibly hard-working employees.  They have advanced key programmes across our portfolio and without their commitment, we would not be where we are today.  I am proud to be working with such talented people.

 

Portfolio Review

 

Two partnered products with strong pipeline of Drug Discovery programmes

 

C4XD saw progress across its drug discovery portfolio, with a number of programmes making significant advances, particularly in inflammation with the announcement post period of a €414 million exclusive, worldwide out-licensing agreement with Sanofi for our IL-17A inhibitor programme.  Together with advancements in early innovation projects and partnered collaborations, C4XD continues to focus on building a sustainable pipeline of potential future out-licensing opportunities. 

 



 

Addictive disorders (Orexin-1 Antagonist)

 

Phase 1 clinical trial progressing

 

C4XD completed its first licensing deal in March 2018 with Indivior UK Limited ("Indivior") to further develop and commercialise C4XD's oral Orexin-1 receptor antagonist C4X_3256, also known as INDV-2000, for the treatment of addiction. Under the terms of the agreement, C4XD received an upfront payment of US$10 million and could receive up to US$284 million in development, regulatory and commercialisation milestones in addition to royalties. In turn, Indivior received a global and exclusive licence to C4X_3256 and all other compounds in the same patent family and is responsible for the cost and execution of the development of C4X_3256 in multiple indications. This patent family is now granted in the main commercially relevant territories of the US, Europe, Japan and China.

 

INDV-2000 has recently completed a Phase I first in human single ascending dose clinical trial showing encouraging safety and pharmacokinetics in healthy volunteers.  Indivior has been requested to perform an additional 28-day repeat-dose toxicology study by the FDA following non-clinical findings from a competitor molecule.  Preparation for the initiation of a multiple ascending dose study to be conducted by Indivior is underway in parallel. To find out more information, please follow this link .

 

Inflammation (NRF2 Activator)

 

Multiple therapeutic opportunities

 

The Company has identified a series of novel potent activators of the NRF2 pathway for the treatment of a variety of inflammatory diseases.  These keap-1 inhibitors in our oral NRF2 activator programme have been found to significantly activate NRF2 following oral dosing, providing anti-inflammatory and anti-oxidant activity. In C4XD studies, multiple lead compounds show greater than 12-hour duration of action following low oral dosing on activation of NRF2 in key tissues such as the lung, the liver and in blood.

 

There is significant partnering interest in this programme based on a limited number of potent NRF2 activators with described oral bioavailability.  Interest in this therapeutic approach covers multiple therapeutic areas including Chronic Obstructive Pulmonary Disease ("COPD"), IBD, Pulmonary Arterial Hypertension ("PAH") and Sickle Cell Disease ("SCD").  Material Transfer Agreement (MTA) studies are underway where C4X molecules are examined by potential partners in their in-house biological assays and models linked to their preferred disease indication. 

 

The Company recently presented a poster at the virtual ECCO conference demonstrating efficacy and antioxidant activity in an IBD model (https://academic.oup.com/ecco-jcc/article/15/Supplement_1/S174/6286040). Pre-candidate nomination studies and preliminary safety studies continue including significant drug substance scale-up to support longer-term studies.

 

Inflammation (IL-17A Inhibitor)

 

Partnered with Sanofi for €414 million

 

C4XD has identified small molecules in its oral IL-17A inhibitor programme that can selectively block IL-17 activity whilst maintaining molecular size of the molecule in the traditional "drug-like" range.  A novel, potent oral series of IL-17A inhibitors that significantly reduce IL-17 induced inflammation in vivo is being optimised towards candidate shortlist.  In April 2021, C4XD announced an out-licensing agreement with Sanofi for its IL-17A inhibitor programme for up to €414 million.  The Company has received an upfront payment of €7 million and could receive up to a further €407 million in potential development, regulatory and commercialisation milestones, of which €11 million is in pre-clinical milestones, in addition to single digit royalties.  Sanofi will take control of the programme but will continue to work with C4XD in the next discovery phase to utilise our Conformetrix technology and expertise as the programme progresses towards the clinic.

 



 

Haematological Cancer (MALT-1 Inhibitor)

 

C4XD has now taken the leadership role in the LifeArc collaboration

 

In November 2018, C4XD entered into a risk-share discovery collaboration with LifeArc®, a UK medical research charity, to progress medicinal chemistry efforts on a MALT-1 inhibitor programme with applicability across oncology and inflammation indications, with a primary focus on haematological cancers. Three novel series have been identified by harnessing C4XD's Conformetrix technology and data obtained in 2020 has demonstrated functional cell activity and oral bioavailability. Optimisation studies have now delivered molecules with at least equivalent potency to J&J's clinical candidate JNJ-67856633 and recently molecules with good oral PK profiles have been synthesised.  These will shortly be tested in vivo to show equivalent inhibition to that achieved with JNJ-67856633. C4XD is now taking on leadership of the MALT-1 programme from LifeArc to drive it towards the later stages of drug discovery and deliver a commercial deal.

 

Inflammation (α4β7 Integrin Inhibitor)

 

Significant progress

 

C4XD' s oral α4β 7 integrin inhibitor programme has identified novel, potent and selective α4β 7 integrin inhibitors for the treatment of IBD In August 2020, the Company announced that significant progress has been made on C4XD's early oral inhibitor programme targeting α4β7 integrin for the treatment of IBD. Effective antibody therapy against this target is already approved, removing the clinical target risk, but an effective oral therapy remains highly sought after. C4XD has identified a second series of novel, potent and selective inhibitors providing a further competitive edge for this programme. This reaffirms the capability of C4XD's Conformetrix technology to discover novel chemical scaffolds for high value challenging drug targets.

 

During 2021, Morphic Therapeutic, which has the most advanced oral small molecule α4β7 Integrin Inhibitor programme, completed the Phase 1 clinical study of its lead molecule MORF-057.  High target occupancy was demonstrated in blood at developable doses but with a twice daily profile.  This leaves the opportunity for a once-a-day profile to be a key competitive differentiator which C4XD is aiming for in its programme.  Both series have demonstrated oral bioavailability in PK studies and there is particular focus on improving PK properties to achieve a good oral half-life.  A prototype molecule has recently shown a signal in functionally inhibiting α4β7 integrin in vivo following oral dosing and this is currently being repeated to confirm activity. External interest in this programme remains significant and discussions should gain significant traction if the Company can demonstrate robust activity in vivo after oral dosing when accompanied by a good oral half-life potentially indicating a once-daily profile.

 

New Discovery Evaluation Stage Programmes

 

Following the completion of the transaction with Sanofi on the IL-17A programme, several new evaluation stage programmes were initiated to establish whether applying the Company's ligand design capabilities to a selection of new targets could result in novel chemical series leading to additional programmes in the pipeline.  Updates on these evaluations will be provided in the future once robust data has been generated exemplifying novel chemical matter.

 

Taxonomy3®

 

C4XD continues to progress the validation of its proprietary Taxonomy3 ®-derived novel targets for Parkinson's disease (PD), utilising a diversified strategic approach with internal efforts in addition to a key collaborative partner, Phoremost.  Almost all genetic variation between patients with and without Parkinson's is in the non-coding region of DNA where these variants can affect expression of specific genes in a cell specific manner.  C4XD has focused on the impact of novel genes identified from this analysis in phenotypic assays based on neuronal and microglial cells; two key cell types identified in the pathophysiology in PD, with studies continuing.

 

Very recently, screening of 338 PD genes identified by Taxonomy3® using Phoremost's Siteseeker technology has been completed in a neuroinflammation microglial assay where peptides targeting a specific subset of these genes have been found to inhibit the inflammatory signal.  Follow-up studies are underway to provide existing validation to these potential exciting novel targets.

 

A new analysis of an ulcerative colitis patient genetic dataset has recently been completed using Taxonomy3® and novel genetic variants have been identified with investigation into these novel genes initiated.  A subset of these novel genes will be examined in key phenotypic cells assays relating to IBD.

 

In August 2020, C4XD announced that it had entered a new collaboration with the GEN-COVID consortium, a network of more than 20 hospitals in Italy led by Professor Alessandra Renieri of the University of Siena. The collaboration used the unique mathematical genetic analysis methodology of Taxonomy3® to investigate the role genetics plays in the widely varied disease susceptibility, severity and prognosis observed between individuals with COVID-19.  In contrast to other public domain genetic analysis, the GEN-COVID study enabled the comparison of moderate to severe COVID-19 patients, removing any genetic influence on the propensity to be infected with COVID-19.  Following completion of the analysis, whilst Taxonomy3® was able to separate moderate and severe patients based on the overall genetic signature (suggesting there is a genetic as well as environmental influence on disease severity), none of the individual genes had a signal that was statistically significant. 

 

Outlook and summary

 

Following the €414 million agreement with Sanofi for our IL-17A oral Inhibitor programme, C4XD is focused on driving forward its portfolio towards future out-licensing opportunities, including NRF-2 where there is significant partnering interest.  Over the next 12-24 months we will look to advance and augment our portfolio to deliver the next generation of high value, commercially attractive candidates to secure strategic collaborations with high quality partners and deliver value for our shareholders.

 

Clive Dix

Chief Executive Officer

10 December 2021

 

1.  Plaque Psoriasis: Global Drug Forecast and Market Analysis to 2027, GlobalData, December 2018

 



 

Financial Review

 

Continued support from shareholders

 

"We thank our shareholders for their continued support.  The partnership with Sanofi demonstrates our ability to deliver shareholder value and with a sound financial base, we are focused on driving forward our portfolio of proprietary assets to future out-licensing opportunities."

 

Revenue for the 12 months ended 31 July 2021 was £5.6 million (2020: £nil). The revenue recognised in the current year is part of the €7 million upfront payment from Sanofi on the signing of the IL-17A licence agreement.

 

R&D expenses, which comprise invoiced material costs, payroll costs and software costs, have increased by 20% to £8.3 million for the year ended 31 July 2021 (2020: £6.9m). This reflects focused investment in key Drug Discovery programmes as outlined in the Non-Executive Chairman's and CEO's Statements.

 

Administrative expenses increased during the year to £3.2 million (2020: £2.7m) as a result of the continued investment in people and infrastructure.

 

This year the R&D income tax credit receivable is £2.1m (2020: £1.8m) and is reflective of the additional investment in R&D costs over the last 12 months.

 

The loss after tax for the year ended 31 July 2021 was £3.8 million (2020: £7.8m). This equates to a basic loss per share of 1.96 pence per share (2020: 8.10 pence per share) and diluted loss per share of 1.82 pence per share (2020: 8.10 pence per share)

 

A successful fundraise in November 2020 saw the Group raise £15.0 million (before expenses) via a placing of 99,169,286 ordinary shares and an open offer for 7,973,572 ordinary shares at 14 pence each. In addition, 99,169,286 warrants were issued over ordinary shares, exercisable at 28p per share with an exercise period of 5 years.

 

The Group had net assets at 31 July 2021 of £19.3 million (2020: £8.1m) and cash and cash equivalents of £17.1 million (2020: £5.6m).

 

Both cash and costs continue to be prudently and tightly managed.

 

These financial statements have been prepared on a going concern basis, notwithstanding a consolidated operating loss for the year ended 31 July 2021 of £5.9 million (2020: £9.6m), revenues of £5.6 million (2020: £nil) and net cash used in operating activities of £3.1 million (2020: £5.1m). The Directors consider this to be appropriate for the following reasons:

 

The Board has prepared cash flow forecasts for the period to 31 July 2023, being 21 months from the date of signing the financial statements, including consideration of severe but plausible downside scenarios which takes into account the delayed receipt of forecast R&D tax credits from HMRC and the impact of price increases from its suppliers.

 

In the event that a cash shortfall arises in the forecast period, the Board consider they are able to take reasonable mitigating action, which includes but is not limited to a reduction in expenditure on certain discretionary research programmes to focus purely on commercialising earlier stage drug molecules, and reducing other discretionary administrative expenditure, which would enable the Group and Company to continue to operate within its existing cash resources during the forecast period without the need for additional funding.

 

Brad Hoy

Chief Financial Officer

10 December 2021

 



 

 

Consolidated statement of comprehensive income

for the year ended 31 July 2021

 


Notes

2021

2020



£000

£000

Revenue

4

5,642

-

Cost of sales


(90)

-

Gross profit


5,552

-

Research and development expenses


(8,263)

(6,858)

Administrative expenses


(3,182)

(2,708)

Operating loss

5

(5,893)

(9,566)

Finance income

7

1

5

Finance costs

7

(15)

(18)

Loss before taxation


(5,907)

(9,579)

Taxation

8

2,063

1,790

Loss for the year and total comprehensive loss for the year


(3,844)

(7,789)

Loss per share




Basic loss for the year

9

(1.96)p

(8.10)p

Diluted loss for the year

9

(1.82)p

(8.10)p

 

The loss for the year arises from the Group's continuing operations and is attributable to the equity holders of the parent.

 

There were no other items of comprehensive income for the year (2020: £nil) and therefore the loss for the year is also the total comprehensive loss for the year.

 

Both basic and diluted loss per share are reported due to the effect of exercisable share options and warrants in issue.

 



 

Consolidated statement of changes in equity

for the year ended 31 July 2021

 

 





Share-






Issued



based


Capital




equity

Share

Warrant

payment

Merger

contribution

 Revenue



capital

premium

Reserve

reserve

reserve

reserve

reserve

Total


£000

£000

£000

£000

£000

£000

£000

£000

At 31 July 2019

2,602

32,256

-

736

920

195

(29,724)

6,985

Loss for the year and total comprehensive loss for the year

-

 

 

-

 

 

-

-

-

 

 

-

(7,789)

(7,789)

Issue of share capital

614

8,598

-

-

-

-

-

9,212

Expenses of placing

-

(547)

-

-

-

-

-

(547)

Share-based payments

-

-

-

206

-

-

-

206

Transactions with owners

614

 

8,051

 

-

206

-

 

-

-

8,871

At 31 July 2020

3,216

40,306

-

942

920

195

(37,513)

8,066

Loss for the year and total comprehensive loss for the year

-

 

 

-

 

 

-

-

-

 

 

-

(3,844)

(3,844)

Issue of share capital

1,071

12,937

-

-

-

-

-

14,008

Expenses of placing

-

(551)

-

-

-

-

-

(551)

Issue of warrants

-

-

992

-

-

-

-

992

Exercise of options

2

6

-

-

-

-

-

8

Exercise of warrants

13

345

(13)

-

-

-

13

358

Share-based payments

-

-


249

-

-

-

249

Transactions with owners

1,086

 

12,737

 

979

249

-

 

-

13

15,064

At 31 July 2021

4,302

53,043

979

1,191

920

195

(41,344)

19,286

 

 



 

Company statement of changes in equity

for the year ended 31 July 2021

 





Share-




Issued



based




equity

Share

Warrant

payment

Revenue



capital

premium

Reserve

reserve

reserve

Total


£000

£000

£000

£000

£000

£000

At 31 July 2019

2,602

32,256

-

707

(32,987)

2,578

Profit  for the year and total comprehensive profit for the year

-

 

 

-

 

 

-

-

 

 

24,752

24,752

Issue of share capital

614

8,598

-

-

-

9,211

Expenses of placing

--

(547)

-

-

-

(547)

Share-based payments

-

-

-

206

-

206

Transactions with owners

614

8,051

-

206

-

8,871

At 31 July 2020

3,216

40,306

 

-

913

 

(8,235)

 

36,200

Profit  for the year and total comprehensive profit for the year

-

 

 

-

 

 

-

-

 

 

8,235

8,235

Issue of share capital

1,071

12,937

-

-

-

14,008

Expenses of placing

-

(551)

-

-

-

(551)

Issue of warrants

-

-

992

-

-

992

Exercise of options

2

6

-

-

-

8

Exercise of warrants

13

345

(13)

-

13

358

Share-based payments

-

-

-

249

-

249

Transactions with owners

1,086

12,737

979

249

13

15,064

At 31 July 2021

4,302

53,043

 

979

1,162

 

13

59,499

 

 



 

Statements of financial position

at 31 July 2021

 





















31 July

31 July

31 July

31 July



2021

2021

2020

2020



Group

Company

Group

Company


Notes

£000

£000

£000

£000

Assets






Non-current assets






Tangible Fixed Assets

10

33

-

46

-

Right of Use Assets

10

377

-

378

-

Intangible assets

11

69

-

157

-

Goodwill

12

1,192

-

1,192

-

Investments in and loans to subsidiaries

13

-

59,493

-

36,200



1,671

59,493

1,773

36,200

Current assets






Trade and other receivables

14

574

6

438

-

Income tax asset

15

2,053

-

1,780

-

Cash and cash equivalents

16

17,103

-

5,648

-



19,730

6

7,866

-

Total assets


21,401

59,499

9,639

36,200

Liabilities






Current liabilities






Trade and other liabilities

17

1,647

-

1,166

-

Lease liabilities

18

217

-

189

-



1,864

-

1,355

-

Non-Current liabilities






Trade and other liabilities

17

64

-

-

-

Lease liabilities

18

187

-

218

-



251

-

218

-

Total liabilities


2,115

-

1,573

-

Net assets


19,286

59,499

8,066

36,200

 

Capital and reserves






Issued equity capital

19

4,302

4,302

3,216

3,216

Share premium

19

53,043

53,043

40,306

40,306

Share-based payment reserve

20

1,191

1,162

942

913

Warrant reserve

21

979

979

-

-

Merger reserve

22

920

-

920

-

Capital contribution reserve

23

195

-

195

-

Retained earnings

24

(41,344)

 13

(37,513)

 (8,235)

Total equity


19,286

59,499

8,066

36,200

 



 

Cash flow statements

For the year ended 31 July 2021

 



31 July

31 July

31 July

31 July



2021

2021

2020

2020



Group

Company

Group

Company


Notes

£000

£000

£000

£000

(Loss)/Profit after interest and tax


(3,844)

8,235

(7,789)

 24,752

Adjustments for:






Depreciation of tangible fixed assets

10

33

-

45

-

Depreciation of right-of-use assets

10

254

-

302

-

Amortisation of intangible assets

11

88

-

138

-

Reversal of impairment of investments in and loans to subsidiaries


-

(8,235)

-

(24,752)

Share-based payments

19

249

-

206

-

Finance income

7

(1)

-

(5)

-

Interest payments on leases

24

15

-

18

-

Taxation


(2,063)

-

(1,790)

-

Changes in working capital:






(Increase)/decrease in trade and other receivables

14

(136)

-

203

-

Increase/(decrease) in trade and other payables

17

545

-

(486)

-

 

Cash outflow from operating activities


(4,860)

-

(9,158)

-

Research and development tax credit received


1,790

-

4,086

-

Net cash outflow from operating activities


 (3,070)


 (5,072)


 

Cash flows from investing activities






Increase in investment in and loans to subsidiaries


-

(14,815)

-

(8,664)

Purchases of tangible fixed assets

10

(20)

-

(14)

-

Finance income

7

1

-

5

-

Net cash outflow from investing activities


 (19)

(14,815)

 (9)

(8,664)

 

Cash flows from financing activities






Payment of lease liabilities

24

(271)

-

(319)

-

Proceeds from issues of ordinary share capital

19

15,366

15,366

9,212

9,211

Expenses of share capital issue

19

(551)

(551)

(547)

(547)

Net cash inflow from financing activities


14,544

14,815

8,346

8,664

Decrease in cash and cash equivalents


11,455

-

3,265

-

Cash and cash equivalents at the start of the year


5,648

-

2,383

-

Cash and cash equivalents at the end of the year


17,103

-

5,648

-

Cash , cash equivalents and deposits at the end of the year

16

17,103

-

5,648

-

 

Approved by the Board and authorised for issue on 10 December 2021

 

Clive Dix

Chief Executive Officer

10 December 2021

 

Registered number: 09134041



 

Notes to the financial statements

 

1.  Reporting entity

 

C4X Discovery Holdings plc (the "Company") is an AIM listed company incorporated, registered and domiciled in England and Wales within the UK.

 

These Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities") for the year ended 31 July 2021.

 

The financial statements of the Company and the Group for the year ended 31 July 2021 were authorised for issue by the Board of Directors on XX December 2021 and the statement of financial position was signed on the Board's behalf by Clive Dix.

 

The Company has elected to take the exemption under Section 408 of the Companies Act 2006 not to present the parent company's statement of comprehensive income. The parent company had a profit of £8,235,000 for the year ended 31 July 2021 (2020: profit of £24,752,000) see note 13. The profit in its entirety for the current and prior years was as a result of the reversal of past impairments of the Company's investment in its subsidiary.

 

The significant accounting policies adopted by the Group are set out in note 3.

 

2.  Basis of preparation

 

Statement of accounting compliance

The Group's and parent company's financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 "Adopted IFRS" as they apply to the financial statements of the Group for the period ended 31 July 2021.

 

Basis of measurement

The Company and Group financial statements have been prepared on the historical cost basis.

 

The methods used to measure fair values of assets and liabilities are discussed in the respective notes in note 3 below.

 

Going concern

Notwithstanding a consolidated operating loss for the year ended 31 July 2021 of £5.9 million (2020: £9.6m), revenues of £5.6 million (2020: £nil) and net cash used in operating activities of £3.1 million (2020: £5.1m), the Directors have prepared both the consolidated and Company financial statements on a going concern basis, which the Directors believe to be appropriate for the following reasons.

 

The Group completed a £14.5 million fundraising with new and existing investors in November 2020. The Group also signed a licence deal in April 2021 with Sanofi for its intellectual property rights relating to the IL-17A inhibitor compounds, where £6 million was received in an upfront payment. The Group has cash and cash equivalents at 31 July 2021 of £17.1 million (2020: £5.6m) and at 30 November 2021 had cash resources of £13.4 million.

 

The Board has prepared cash flow forecasts covering at least 12 months from the date of signing the financial statements, including a severe but plausible downside scenario which takes into consideration the anticipated impact of COVID-19 and inflationary costs.

 

The severe but plausible downside scenario considered reflects a delay of six months in the receipt of forecast research and development tax credits from HMRC and a 20% increase in Contract Research Organisations (CRO) costs. The base case and severe but plausible downside cash flow forecasts, which both assume no further fund raising and no revenue generation during the forecast period, indicate that the Group and Company have sufficient cash resources to meet their liabilities as they fall due for at least 12 months from the date of approval of these financial statements.

 

Based on the above factors the Board are satisfied that the Group and Company have adequate resources to enable the Group and Company to continue discharging their liabilities and realising their assets for at least 12 months from the date of approval of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing the Group and Company financial statements.

 

In terms of the period beyond the going concern assessment period, the severe but plausible downside scenario, indicates that existing cash resources would be exhausted in approximately quarter one 2023. However, the Board consider they are able to take reasonable mitigating actions, which includes but is not limited to a reduction in expenditure on certain discretionary research programmes to focus purely on commercialising earlier stage drug molecules, and reducing other discretionary administrative expenditure, which would enable the Group and Company to continue to operate within its existing cash resources for a significantly extended period.

 

The Board have a reasonable expectation they will be able to raise further equity or debt financing to support their ongoing research activities if required. The Board also have a reasonable expectation that another licencing deal will be signed and that a further milestone payment on the Orexin-1 contract will be achieved within the forecast period, although there can be no guarantees that either of these events will occur, and they are not reflected in the Board's base case or sensitised cash flow forecasts.

 

Functional and presentational currency

These financial statements are presented in Pounds Sterling, which is also the functional currency of the Company and its subsidiaries. All financial information presented has been rounded to the nearest thousand.

 

Use of judgements and estimates

The preparation of financial statements requires management to make estimates and judgements that affect the amounts reported for assets and liabilities as at the reporting date and the amounts reported for revenues and expenses during the year. The nature of estimation means that actual amounts could differ from those estimates. Estimates and judgements used in the preparation of the financial statements are continually reviewed and revised as necessary.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

 

Judgements

Judgements made in applying the Group's accounting policies that have the most significant impact on the amounts recognised in the financial statements are:

 

Revenue recognition

When determining the correct amount of revenue to be recognised. This includes making certain judgements when determining the appropriate accounting treatment of key customer contract terms in accordance with the applicable accounting standards. During the period, C4X signed an agreement with Sanofi for the worldwide licensing of C4XD's IL-17A oral inhibitor programme. Judgement was required in identifying the number of performance obligations in the contract, specifically whether the transfer of intellectual property and the delivery of research services represented different performance obligations. The Group applied the guidance in IFRS 15 by considering whether the licence was distinct from the promise to provide ongoing research services through the duration of the research work plan set out in the agreement. As such, revenue recognised from the delivery of research services is recorded over time and this resulted in £0.5 million of revenue being spread over an 18 month period from the date of signing the deal. The alternative judgement could be that the transfer of intellectual property and the delivery of research services is one performance obligation which would result in the upfront payment of £6 million being recognised over the length of the research work plan estimated at 18 months. The Group concluded that these were separate performance obligations as both the intellectual property and the research work programme could be sold separately and the customer can benefit from each on its own or together with readily available resources, so they are capable of being distinct and they are set out as separate promises in the contract. 

 

Additional judgement was required in determining whether the transfer of intellectual property gave the customer use at a time which the licence was granted or a right to access. Management determined that the customer receives the right to the drug molecule on the date that the IP is transferred over and therefore the cash payment received constitutes handing over control of the IP to Sanofi and is not dependent on any future outcomes.  The impact of this judgement resulted in recognising revenue in full of £5.5 million in the period, being the residual balance of the upfront payment after allocating revenue to the other performance obligation. Alternatively, management could have assessed the transfer of intellectual property as a right to access of the licence agreement date which would have resulted in deferring £2.75 million into next year.

 

Research and development

Careful judgement by the Directors is applied when deciding whether the recognition requirements for capitalisation of research and development costs have been met. In particular, judgement is required over whether technical viability is proven and whether economic benefits will flow to the entity. The Directors consider that these factors are uncertain until such time as commercial supply agreements are considered likely to be achieved. Judgements are based on the information available at each reporting date which includes the progress with testing and certification and progress on, for example, establishment of commercial arrangements with third parties. In addition, all internal activities related to research and development of new products are monitored by the Directors. Further information is included in note 3.

 

Estimates

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

 

· Revenue recognition

Estimation is involved in determining the correct amount of revenue to recognise. This can be split into two components: (i) the allocation of the transaction price between performance obligations and (ii) the timing of revenue recognition in respect of the delivery of services, particularly where there is an expectation that the customer will not fully exercise their rights to services. 

 

Firstly, the allocation of the transaction price for the revenue relating to the ongoing research services has been calculated on a cost-plus margin basis. The existing salaries of five full time equivalents ("FTE") which are available under the terms of the contract have been combined and a commercial margin has been applied to the cost of these employees. In calculating the cost, an average FTE day rate has been taken and multiplied by the total number of days expected to be worked over an 18 month period from the date of signing the agreement which results in £0.5m of revenue being spread over the length of the research work programme.

 

To arrive at the commercial margin used, management reviewed the results from comparable drug discovery services, both emerging and well-established CROs, to understand the margins that they are achieving. The Company's platform is unproven and unvalidated commercially as a stand-alone paid-for drug discovery software and consequently any paid-for commercial access to the software would, at this stage, effectively be beta-testing and therefore attract a margin at the lower range of those achieved by other providers.

 

· Intangible fixed assets and goodwill

The Group tests annually whether goodwill has suffered any impairment. The Group also tests other intangible assets for impairment when indicators of impairment arise. The potential recoverable amounts of intangible fixed assets and goodwill have been determined based on a fair value less cost of disposal, this has been calculated with reference to market capitalisation of the Group (as explained in Note 12). 

 

The Directors are satisfied that no reasonably possible change in this estimate would result in the recognition of an impairment within the next twelve months and accordingly the carrying value of goodwill and other intangibles are not considered a significant estimate as at 31 July 2021

 

· Investments in and loans to subsidiaries

L oans to subsidiaries are tested for impairment using an expected credit loss model. This requires estimation of the probability of default, the exposure at default and the loss given default in order to calculate the expected credit loss of the loans to subsidiaries. The key judgement made by management in the expected credit loss calculations is the probability assumptions of the future cashflows and the timing of the cashflows. The sensitivities are disclosed in Note 13.

 

The recoverable amount of the Parent's investment in subsidiary is tested for impairment when indicators of impairment (or reversal of impairment) are identified. The potential recoverable amounts have been determined based on a value in use model. The recoverable amount has been determined to be £3 million. These calculations require the use of estimates both in arriving at the expected future cash flows and the application of a suitable discount rate in order to calculate the present value of these cash flows. Cash flow estimates include the timing of signing future licence agreements and the receipt of further milestone licence payments. These estimates were benchmarked against the Group's own experience of such deals and external sources of information within the industry.  The assumptions and related sensitivity analysis in these calculations are included in note 13.

3.  Significant accounting policies

 

The accounting policies set out below are consistent with those of the previous financial year and are applied consistently by Group entities.

 

Basis of consolidation

The Group financial statements consolidate the financial statements of C4X Discovery Holdings plc and the entities it controls (its subsidiaries) drawn up to 31 July each year.

 

All business combinations are accounted for by applying the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.

 

The Group measures goodwill at the acquisition date as:

 

the fair value of the consideration transferred; plus

 

the recognised amount of any non-controlling interests in the acquiree; plus

 

the fair value of the existing equity interest in the acquiree; less

 

the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

 

Transaction costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

 

Subsidiaries are all entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All C4X Discovery Holdings plc's subsidiaries are 100% owned. Subsidiaries are fully consolidated from the date control passes.

 

All intra-Group transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Subsidiaries' accounting policies are amended where necessary to ensure consistency with the policies adopted by the Group.

 

Foreign currency transactions

Transactions in foreign currencies are initially recorded in the functional currency by applying the spot rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to the consolidated statement of comprehensive income.

 

Segmental reporting

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. As at the reporting date the Group operated with only a single segment.

 

Revenue

IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The standard establishes a five-step principle-based approach for revenue recognition and is based on the concept of recognising an amount that reflects the consideration for performance obligations only when they are satisfied and the control of goods or services is transferred.

 

The majority of the Group's contract revenue is generated from licenses and services. 

 

Management reviewed the contracts where the Group received consideration in order to determine whether or not they should be accounted for in accordance with IFRS 15. To date, the Group has entered into two transactions - the second which was signed in the year - that generate revenue and meet the scope of IFRS 15. After review of the contract with Sanofi, it was determined that there were two performance obligations to be satisfied, the first being the transfer of IP and the second being the provision of research services through the "research work programme". Contract revenue is recognised at either a point-in-time or over time, depending on the nature of the services and transfer of goods.

 

Revenue generated from the sale of a licence may include promises to deliver other goods or services in addition to the promised licence.

 

Revenue generated from services agreements is determined to be recognised over time when it can be determined that the services meet one of the following: (a) the customer simultaneously receives and consumes the benefits provided by the entity's performance as the entity performs; (b) the entity's performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (c) the entity's performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. 

 

The Sanofi contract includes a separate performance obligation to deliver research services. It was determined that the services provided to Sanofi under the terms of the research work programme in the contract meets criteria (a) above on the basis that the customer receives and uses the benefit as the work on any new compounds is evolved and is therefore a separate performance obligation and revenue should be recognised over time. The allocation of the transaction price for the revenue relating to the ongoing research services has been calculated on a cost-plus margin basis. The existing salaries of five full time equivalents ("FTE") which are available under the terms of the contract have been combined and a commercial margin has been applied to the cost of these employees. In calculating the cost, an average FTE day rate has been taken and multiplied by the total number of days expected to be worked over an 18 month period from the date of signing the agreement which results in £0.5m of revenue being spread over the length of the research work programme.

 

Revenue generated from the sale of a licence to a customer is determined to be recognised at a point in time when a promise to provide the customer with the right to use the entity's IP is satisfied.  Management determined that the customer receives the right to the drug molecule on the date that the IP is transferred over and therefore the cash payment received constitutes handing over control of the IP to Sanofi and is not dependent on any future outcomes.  The general guidance is applied on performance obligations satisfied at a point in time to determine the point in time at which the licence transfers to the customer. In this scenario, the point of time was deemed to be the effective date that all of the intellectual property was transferred over to Sanofi. The allocation of the transaction price for the sale of licence was deemed to be £5.6m which is the remainder of the upfront payment received in the year after deducting for the revenue allocated to the second performance obligation. 

 

The contract with Sanofi also includes future milestone payments which are contingent on the drug molecule passing various clinical trials testing at a future point in time. As there can be significant variability in final outcomes, the Group applies a constraint when measuring the variable element within revenue, so that revenue is recognised at a suitably cautious amount. The objective of the constraint is to ensure that it is highly probable that a significant reversal of revenue will not occur when the uncertainties are resolved. The constraint is applied by making suitably cautious estimates of the inputs and assumptions used in estimating the variable consideration. The constraints applied in recognising revenue mean that the risk of a material downward adjustment to revenue in the next financial year is low.

 

Royalty payments will be received by the Group when the drug is marketed and sold by Sanofi. Revenue on royalty payments is recognised when they are earned which for the Group will be when Sanofi have developed the drug and sold a set number of products. At this point, the royalty rate owed to Group is applied to the portion of the net sales made by Sanofi on royalty-bearing products that fall within the indicated range as set out in the sales agreement. 

 

Deferred Revenue

Deferred revenue includes amounts that are receivable or have been received per contractual terms but have not been recognised as revenue since performance has not yet occurred or has not yet been completed. The Company classifies non-current deferred revenue for any transaction which is expected to be recognised beyond one year.

 

Government grants

Government grants are recognised when it is reasonable to expect that the grants will be received and that all related conditions are met, usually on submission of a valid claim for payment. 

 

Government grants of a revenue nature are deducted from research and development expenses in the consolidated statement of comprehensive income in line with the terms of the underlying grant agreement.

 

Government grants relating to capital expenditure are deducted in arriving at the carrying amount of the asset.

 



 

Research and development

Research costs are charged in the consolidated statement of comprehensive income as they are incurred.  Development costs will be capitalised as intangible assets when it is probable that future economic benefits will flow to the Group. Such intangible assets will be amortised on a straight-line basis from the point at which the assets are ready for use over the period of the expected benefit and will be reviewed for impairment at each reporting date based on the circumstances at the reporting date.

 

The criteria for recognising expenditure as an asset are:

 

· it is technically feasible to complete the product;

· management intends to complete the product and use or sell it;

· there is an ability to use or sell the product;

· it can be demonstrated how the product will generate probable future economic benefits;

· adequate technical, financial and other resources are available to complete the development, use and sale of the product; and

· expenditure attributable to the product can be reliably measured.

 

Development costs are currently charged against income as incurred since the criteria for their recognition as an asset are not met.

 

The Group utilises the government's R&D tax credit scheme for all qualifying UK R&D expenditure. The credits are accounted for under IAS 12, and presented in the profit and loss as a deduction from current tax expense to the extent that the entity is entitled to claim the credit in the current reporting period. 

 

Leases

The Group applies the leasing standard IFRS16, to all contracts identified as leases at their inception, unless they are considered short-term or where the asset is of a low underlying value.

 

The Group has lease contracts in relation to property and office equipment. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.

 

As a lessee

At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for leases of property the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.

 

The Group recognises a right-of-use asset and a lease liability at the lease commencement date, at which point the Group assesses the term for which it is reasonably certain to hold that lease. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

 

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case, the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

 

The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.

 

Lease payments included in the measurement of the lease liability comprise the following:

 

• Fixed payments, including in-substance fixed payments;

• Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

• amounts expected to be payable under a residual value guarantee; and

• the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

 

The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

 

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

 

The Group presents right-of-use assets that do not meet the definition of investment property in "property, plant and equipment" and lease liabilities in "loans and borrowings" in the statement of financial position. On a significant event, such as the lease reaching its expiry date or the likely exercise of a previously unrecognised break clause, the lease term is re-assessed by management as to how long we can be reasonably certain to stay in that property, and a new lease agreement or modification (if the change is made before the expiry date) is recognised for the re-assessed term.

 

Short-term leases and leases of low-value assets

The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. Assets which fall into this category include office equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The value of these leases is less than £1,000 per annum.

 

COVID-19-related rent concessions

The Group has applied COVID-19-Related Rent Concessions - Amendment to IFRS 16. The Group applies the practical expedient allowing it not to assess whether eligible rent concessions that are a direct consequence of the COVID-19 pandemic are lease modifications. The Group applies the practical expedient consistently to contracts with similar characteristics and in similar circumstances. For rent concessions in leases to which the Group chooses not to apply the practical expedient, or that do not qualify for the practical expedient, the Group assesses whether there is a lease modification. The total value of this was £10,462 for the year (2020: nil).

 

Finance income and costs

Finance income comprises interest income on funds invested. Interest income is recognised as interest accrues using the effective interest rate method.

 

Finance costs comprise interest payments on right-of-use leases.

 

Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the consolidated statement of comprehensive income except to the extent that it relates to items recognised directly in equity or in other comprehensive income.

 

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from, or paid to, the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

 

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements with the following exceptions:

 

· where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination, that at the time of the transaction affects neither accounting nor taxable profit nor loss; and

 

· in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

 

Deferred income tax assets and liabilities are measured on an undiscounted basis using the tax rates and tax laws that have been enacted or substantially enacted by the reporting date and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

 

Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which differences can be utilised. An asset is not recognised to the extent that the transfer or economic benefits in the future are uncertain.

 

Tangible fixed assets

Owned assets

Property, plant and equipment assets are recognised initially at cost. After initial recognition, these assets are carried at cost less any accumulated depreciation and any accumulated impairment losses. Cost comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended.

 

Leased assets

Assets funded through finance leases and similar hire purchase contracts and those previously classified as operating leases are now recognised in the consolidated statement of financial position under IFRS 16 Leases as a right of use asset. The lease note illustrates the recognition and subsequent measurement of leased assets under IFRS 16.

 

Depreciation is computed by allocating the depreciable amount of an asset on a systematic basis over its useful life and is applied separately to each identifiable component.

 

The following bases and rates are used to depreciate classes of assets:

Building improvements

-

straight-line over remainder of lease period

Office equipment, fixtures and fittings

-

straight-line over three years

Right-of-use assets

-

straight-line from the commencement date to the end of the lease term

 

The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable, and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively.

 

A property, plant and equipment item is derecognised on disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset is included in the consolidated statement of comprehensive income in the period of derecognition.

 

Intangible assets

Intangible assets acquired either as part of a business combination or from contractual or other legal rights are recognised separately from goodwill provided they are separable and their fair value can be measured reliably. This includes the costs associated with acquiring and registering patents in respect of intellectual property rights.

 

Where intangible assets recognised have finite lives, after initial recognition their carrying value is amortised on a straight-line basis over those lives. The nature of those intangibles recognised and their estimated useful lives are as follows:

Patents

-

straight line over 20 years

IP assets

-

straight line over five years

Software

-

straight line over five years

 

Goodwill

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment.

 

Impairment of assets

At each reporting date the Group reviews the carrying value of its plant, equipment, intangible assets and goodwill to determine whether there is an indication that these assets have suffered an impairment loss. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an assessment of the asset's recoverable amount.

 

An assets recoverable amount is the higher of an assets or cash-generating units fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In determining fair value less costs of disposal, an appropriate valuation model is used, these calculations are corroborated by valuation multiples, or other available fair value indicators. Impairment losses on continuing operations are recognised in the consolidated statement of comprehensive income in those expense categories consistent with the function of the impaired asset.

 

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of comprehensive income unless the asset is carried at revalued amount, in which case the reversal is treated as a valuation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

 

The carrying values of plant, equipment, intangible assets and goodwill as at the reporting date have not been subjected to impairment charges.

 

Investments in subsidiaries

Investments in subsidiaries are stated in the Company's statement of financial position at cost less provision for any impairment.

 

Trade and other receivables

Trade receivables, which generally have 30 to 60 day terms, are measured at amortised cost. Loss allowances for trade receivables are measured at an amount equal to a lifetime expected credit loss ("ECL"). Lifetime ECLs are the ECLs that result from all possible default events over the expected life of the receivables. ECLs are a probability weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls. The gross carrying amount of trade receivables are written off to the extent that there is no realistic prospect of recovery.

 

Cash, cash equivalents and short-term investments and cash on deposit

Cash and cash equivalents comprise cash at hand and deposits with maturities of three months or less. Short-term investments and cash on deposit comprise deposits with maturities of more than three months, but no greater than 12 months.

 

Trade and other payables

Trade and other payables are non-interest bearing and are initially recognised at fair value. They are subsequently measured at amortised cost using the effective interest rate method.  

 

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

 

The expense relating to any provision is presented in the consolidated statement of comprehensive income, net of any expected reimbursement, but only where recoverability of such reimbursement is virtually certain. 

 

Provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risk specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

 

There were no provisions at 31 July 2021 (2020: £nil).

Financial instruments

 

i)  Recognition and initial measurement

At the year end, the Group had no financial assets or liabilities designated at fair value through the consolidated statement of comprehensive income (2020: £nil).

 

Trade receivables and debt securities are initially recognised when they are originated. All other financial assets and liabilities are initially recognised when the Group becomes a party to the contractual provisions in the instrument.

 

A financial asset (unless it is a trade receivable without a significant financing component) or a financial liability is initially measured at fair value plus, for items not measured at fair value through profit and loss ("FVTPL"), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is measured at the transaction price.

 

ii)  Classification and subsequent measurement

Financial assets

On initial recognition a financial instrument is classified as measured at: amortised cost, fair value through other comprehensive income ("FVOCI") or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets.

 

A financial asset is measured at amortised cost if it meets both the following conditions and is not designated as FVTPL:

it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

its contractual terms give rise on a specified date to cash flows that are solely the payment of principal and interest on the principal outstanding.

 

On initial recognition of an equity investment that is not held for trading the Group may irrevocably elect to present subsequent changes in the investment's fair value in OCI. This election is made on an investment-by-investment basis.

 

Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses.

 

Financial liabilities

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as FVTPL if it is held-for-trading, it is a derivative or it is designated as such on initial recognition. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense is recognised in profit or loss.

 

At the year end, the Group had no financial assets or liabilities designated at FVOCI (2020: £nil).

 

Share capital

Proceeds on issue of shares are included in shareholders' equity, net of transaction costs. The carrying amount is not remeasured in subsequent years.

 

Share-based payments

Equity-settled share-based payment transactions are measured with reference to the fair value at the date of grant, recognised on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured using a suitable option pricing model.

 

At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions and the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the consolidated statement of comprehensive income, with a corresponding entry in equity.

 

Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative.

 

Where awards are granted to the employees of a subsidiary company, the fair value of the awards at grant date is recorded in the Company's financial statements as an increase in the value of the investment with a corresponding increase in equity via the share-based payment reserve.

 

Warrant reserve

Proceeds from issuance of warrants, net of issue costs are included in the warrant reserve. The warrant reserve is distributable and will be transferred to retained reserves upon exercise or lapse of warrants

 

Defined contribution pension scheme

The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amounts charged against profits represent the contributions payable to the scheme in respect of the accounting period.

 

New accounting standards and interpretations

A number of new standards, amendments to standards and interpretations have been endorsed by the EU and are effective for annual periods commencing on or after 1 January 2021 or ending 31 July 2022 or thereafter and have not been applied in preparing these consolidated financial statements and those are summarised below. None of these are expected to have a significant effect on the consolidated financial statements of the Group in the period of initial application.

 

The following standards and interpretations have an effective date after the date of these financial statements. 


UK effective date

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS16 : Interest Rate Benchmark Reform - Phase 2

1 January 2021

 

Research partnerships

 

The costs and revenues related to research partnerships are shared between the parties in accordance with the terms of the agreement.

 

4.  Segmental information

 

The Group operated as one single operating segment for the current and prior financial years. This is the level at which operating results are reviewed by the Chief Operating Decision Market (considered to be the Board of Directors) to assess performance and make strategic decisions about the allocation of resources.

 

Revenue from contracts with customers


 

2021

 

2020


£000

£000

Revenue recognised at a point in time



Right-to-use licence revenue

5,540

-

Revenue recognised over time



Research services revenue

102

-

Total revenue

  5,642

  -

 

Revenue in the current year is generated from a contract with a single customer which was determined to have two performance obligations. The revenue attributable to the transfer of intellectual property has been recognised at a single point in time. The revenue attributed to the delivery of research services is recognised over time and progress is measured based on costs incurred to date as compared with the total projected costs.

 

Contract balances

Receivable balances in respect of contracts with customers are as follows:


 

2021

 

2020


£000

£000

Trade receivables

  -

  -

 

Contract liabilities represent the Group's obligation to provide services to a customer for which consideration has been received. Contract liabilities are included within deferred revenue on the Consolidated Statement of Financial Position.

 


 

2021

 

2020


£000

£000

Deferred revenue - short term

  330

  -

Deferred revenue - long term

64

-

Total deferred revenue

394

-

 

Remaining performance obligations represent the value of partially satisfied performance obligations within contracts with an original expected contract term that is greater than one year and for which fulfilment of the contract has started as of the end of the reporting period. The total remaining consideration allocated to remaining performance obligations at July 2021 was £394,000. The Group expects to recognise the remaining performance obligations as revenue and will do so based upon costs incurred to date as compared with the total projected costs.

 


 

Less than

 1 year

Greater than 1 year

 

Total


£000

£000

£000

Remaining performance obligations

  330

64

394

 

Impairment losses recognised on receivables arising from contracts with customers are £nil (2020: £nil).

 

Typical payment terms are 60 days after the occurrence of the relevant milestone.

 

5.  Operating loss


31 July

2021

31 July

2020

The Group

£000

£000

Operating loss is stated after charging/(crediting):



Depreciation of property, plant and equipment (see note 10)

 33

 45

Depreciation on right-of-use assets (see note 10)

254

302

Amortisation of intangible assets (see note 11)

88

138

Research and development expense*

8,263

6,858

Grant income

-

(34)

Auditor's remuneration



Audit services:



-Fees payable to Company auditor for the audit of the parent and the consolidated accounts

90

52

Fees payable in respect of the audit of subsidiary companies:



-Auditing the accounts of subsidiaries pursuant to legislation

30

26

-Other services

36

22

Total auditor's remuneration

156

100

*Included within research and development expense are staff costs totalling £2,951,000 (2020: £2,335,000) also included in note 6.

 

6.  Staff costs and numbers

 


31 July

2021

31 July

2020


£000

£000

Wages and salaries

 3,551

 2,725

Social security costs

409

304

Pension contributions

442

428

Share-based payments

249

206


 4,651

 3,665




Directors' remuneration (including benefits-in-kind) included in the aggregate remuneration above comprised:



Emoluments for qualifying services

745

620

 

Directors' emoluments (excluding social security costs but including benefits in kind) disclosed above include £195,000 paid to the highest paid Director (2020: £162,000).

 

Retirement benefits are accruing to four Directors (2020: four Directors).

 

The average number of employees during the year (including Directors) was as follows:

 


31 July

2021

31 July

2020

The Group

Number

Number

Directors

7

7

Technological staff

32

32

Administrative staff

7

7


 46

 46

 

Additional information on the emoluments and compensation, including cash or non-cash benefits, of the Directors, together with information regarding the share options of the Directors, and details of contributions paid to a pension scheme on their behalf, is included within Tables 1 and 2 on page 36, which forms part of these audited financial statements.

 

7.  Finance income and costs

 


31 July

2021

31 July

2020

The Group

£000

£000

Finance income



Bank interest receivable

1

5


1

5

Finance costs



Interest on lease liabilities

15

18


15

18

 



 

8.  Income tax

 

The tax credit is made up as follows:

 


31 July

2021

31 July

2020

The Group

£000

£000

Current income tax



UK corporation tax on losses in the year



Research and development income tax credit receivable

(2,053)

(1,780)

Adjustment in respect of prior years

(10)

(10)

Total current income tax

(2,063)

(1,790)

The tax assessed for the year varies from the standard rate of corporation tax as explained below:

31 July

2021

31 July

2020

The Group

£000

£000

Loss before taxation

(5,907)

(9,459)

Tax at standard rate of 25.00% (2020: 19.00%)

(1,477)

(1,797)

Effects of:



Expenses not deductible for tax purposes

-

1

Movement in unprovided net deferred tax asset

86

69

Research and development tax credit receivable, net of R&D relief surrendered

(662)

(760)

Share options exercised (CTA 2009 Pt 12 deduction)

-

-

Tax losses carried forward/(utilised) for which no deferred tax asset is recognised

-

707

Adjustment in respect of prior years

(10)

(10)

Tax credit in income statement

(2,063)

(1,790)

 

The Group has accumulated losses available to carry forward against future trading profits. The estimated value of the deferred tax asset, measured at a standard rate of 25% (2020: 19%), is £4,331,000 (2020: £3,265,000), of which £nil (2020: £nil) has been recognised. Tax losses have not been recognised as an asset as it is not probable that future taxable profits will be available against which the unused tax losses can be utilised.

 

The Group also has a deferred tax liability being accelerated capital allowances, for which the tax, measured at a standard rate of 25% (2020: 19%) is £9,000 (2020: £24,000).

 

The Group has a deferred tax asset for share-based payments, for which the tax, measured at a standard rate of 25% (2020: 19%), is £298,000 (2020: £179,000).

 

The net deferred tax asset of £289,000 (2020: £155,000) has not been recognised.  

 



 

9.  Earnings per share


31 July

2021

31 July

2020

The Group

£000

£000

Loss for the financial year attributable to equity shareholders

(3,844)

(7,790)

Weighted average number of shares



Ordinary shares in issue for purposes of basic EPS

196,261,295

96,123,309

Effect of potentially dilutive ordinary shares:



Number of exercisable share options and warrants

14,531,129

-

Ordinary share in issue for purposes of diluted EPS

210,792,424

-

Basic loss per share (pence)

(1.96)

(8.10)

Diluted loss per share (pence)

(1.82)

(8.10)

 

The exercisable share options and warrants are deemed to be dilutive in nature where their exercise price is less than the average share price for the period.

 

10.  Tangible fixed assets



Office equipment, fixtures and fittings

Building  improvements

 

Right-of-use assets

Total

The Group


£000

£000

£000

£000

Cost






At 31 July 2019


236

38

-

274

Recognition of right-of-use assets


-

-

432

730

Adjusted balance at 31 July 2019


236

38

432

706

 

Additions


13

-

248

261

Disposals


-

-

(137)

(137)

At 31 July 2020


249

38

543

830

Additions


20

-

253

273

Disposals


(17)

-

(248)

(265)

At 31 July 2021


252

38

548

838

Depreciation






At 31 July 2019


163

33

-

196

Recognition of right-of-use assets


-

-

-

-

Adjusted balance at 31 July 2019


163

33

-

196

Provided during the year


40

5

302

347

Eliminated on disposal


-

-

(137)

(137)

At 31 July 2020


203

38

165

406

Provided during the year


33

-

254

287

Eliminated on disposal


(17)

-

(248)

(265)

At 31 July 2021


219

38

171

428

Net book value






At 31 July 2021


33

-

377

410

At 31 July 2020


46

-

378

424

 

The Company has no tangible fixed assets.

 

The Group recognises right-of-use assets with respect to its property leases.



 

 

11.  Intangible assets

 


Patents

IP assets

Software

Total

The Group

£000

£000

£000

£000

Cost





At 31 July 2019

138

600

50

788

Additions

-

-

-

-

At 31 July 2020

138

600

50

788

Additions

-

-

-

-

At 31 July 2021

138

600

50

788

 

Amortisation





At 31 July 2019

53

410

30

493

Provided during the year

8

120

10

138

At 31 July 2020

61

530

40

631

Provided during the year

8

70

10

88

At 31 July 2021

69

600

50

719

 

Net book value





At 31 July 2021

69

-

-

69

At 31 July 2020

77

70

10

157

 

Patents are amortised on a straight-line basis over 20 years. Amortisation provided during the period is recognised in administrative expenses. The Group does not believe that any of its patents in isolation are material to the business.

 

IP assets and software are amortised on a straight-line basis over five years. Amortisation provided during the period is recognised in administrative expenses.

 

For impairment reviews see note 12.

 

The Company has no intangible assets.

 

12.  Goodwill


Purchased goodwill


Total

The Group

£000


£000

Cost




At 31 July 2019, 31 July 2020 & 31 July 2021

1,192


 

1,192

 

Impairment




At 31 July 2019

-


-

Provided during the year

-


-

At 31 July 2020

-


-

Provided during the year

-


-

At 31 July 2021

-


-

 

Net book value




At 31 July 2021

1,192


1,192

At 31 July 2020

1,192


1,192

 

The Group has determined that for the purposes of goodwill and other intangibles (see note 11) impairment testing, the UK Operations represents the lowest level within the entity that goodwill and other intangibles are monitored for internal management purposes. This is consistent with the one operating segment analysis within Note 4. Therefore, the Group only has one cash-generating unit ("CGU").

 

Management assesses goodwill and other intangibles for impairment annually at the year-end date.

 

For the year ended 31 July 2021 impairment reviews were performed by comparing the carrying value of the cash-generating unit with their recoverable amount.

 

The recoverable amount of the cash-generating units has been determined based on their fair value less costs to disposal. As there is only one CGU, the Group has determined its market capitalisation at the year-end date to be a good basis in determining the value of the underlying CGU. The market capitalisation at the year-end date was £67 million.

 

The assessment by the Board determined that the recoverable amount of the CGU exceeded their carrying value, and therefore no impairment was required.

 

The Directors are satisfied that no reasonably possible change in this estimate would result in the recognition of an impairment within the next 12 months and accordingly the carrying value of goodwill and other intangibles are not considered a significant estimate as at 31 July 2021.

 

For the year ended 31 July 2020, the recoverable amount of goodwill and intangible assets for the Group financial statements were determined by a value in use calculation. This calculation took into account cash flows from expected future licence agreements at each expected contract milestone, and the costs incurred in securing those licence agreements, discounted to present value using a pre-tax discount rate of 25%. The cash flows were projected until 2034 which reflected the early stage of a number of the research programmes and the time period over which cash inflows were expected to occur. The model included expected licence agreements in relation to the Group's four core research programmes, with initial payments assumed for prudent modelling purposes by FY23 along with additional milestone payments on the Orexin-1 licence agreement.

 

The key assumptions used in the net present value calculation were the timing of signing future licence agreements, the upfront and milestone licence payments and the discount rate used. These assumptions were benchmarked against the Group's own experience of such deals and external sources of information within the industry. The model did not assume any future royalties were received.

 

The recoverable amount exceeded the carrying value of the combined intangible assets and goodwill by £34.9 million.

 

The key assumptions considered most sensitive for the net present value calculations were those regarding the timing of signing future licence agreements and the value of up front and milestone licence payments. The sensitivity analysis showed that all licensing opportunities could slip by 10 years before an impairment is triggered and all except one of the Group's licensing opportunities could fail compared to the base case before an impairment would be triggered.

No impairment charge was recorded during the period.

 

The Company has no goodwill.



 

 

13.  Investment in and loans to subsidiaries




Investment in subsidiary

Loans to group undertakings

Total

The Company



£000

£000

£000

Cost






At 31 July 2020



2,784

41,651

44,435

Additions



249

14,809

15,058

At 31 July 2021



3,033

56,460

59,493

 

Provision






At 31 July 2020



2,784

5,451

8,235

Provided during the year



(2,784)

(5,451)

(8,235)

At 31 July 2021



-

-

-

 

Net book value






At 31 July 2021



3,033

56,460

59,493

At 31 July 2020



-

36,200

36,200

 

By subsidiary

C4X Discovery Limited




 

59,493

C4X Drug Discovery Limited





-

Adorial Limited





-

At 31 July 2021





59,493

 



 

 



 

 

Subsidiary undertakings

Country of incorporation

Principal activity

Class of shares held

31 July

2020

C4X Discovery Limited*

England and Wales

Research and development

Ordinary

100%

C4X Drug Discovery Limited**

England and Wales

Dormant company

Ordinary

100%

Adorial Limited*

England and Wales

Dormant company

Ordinary

100%

Adorial Technologies Limited*

England and Wales

Dormant company

Ordinary

100%

Adorial Pharma Limited*

England and Wales

Dormant company

Ordinary

100%

 

*The registered office address is Manchester One, 53 Portland Street, Manchester M1 3LD.

**The registered office address is C/O Schofield Sweeney Springfield House, 76 Wellington Street, Leeds, West Yorkshire LS1 2AY.

 

Investment in subsidiary

 

During the year, the impairment of the Parent's investment in its subsidiary from the prior year has been reversed due to changes in the assumptions in the underlying cash flows of the business that increased the estimated recoverable amount. We note that there is high estimation uncertainty and judgement involved in the preparation of the cash flow forecast and it is sensitive to changes in key assumptions - particularly around the 25% discount rate used and drug programme failure. For an impairment to arise, the discount rate would need to increase from 25% to 27% (with no change in the cash flows). Alternatively, one drug programme out of the five included in the model would need fail for an impairment to arise (with no change in the discount rate).

 

The amount impaired in the prior year was £2,784,000.

 



 

Loans to group undertakings

 

There are no formal terms for the repayment of inter-company loans, none of which bear interest and all of which are repayable on demand however the Directors do not expect this amount to be settled within the next 12 months therefore have classified this as a non-current receivable.

 

For the year ended 31 July 2021, the recoverable amount of loans to subsidiaries is determined by using an expected credit loss model which takes into account the probability of default, the exposure at default and the loss given default at the year end.

 

The Company does not expect this amount to be recalled within the next 12 months and nor would the subsidiary be able to repay on demand and therefore they have considered how they expect to recover the loan receivable and the recovery period of the loan in calculating the expected credit loss. 

 

The Company has assessed the expected credit loss by looking at the future cashflows of the subsidiary. As the loan is held at 0% interest, the effective rate of return (ERR) is deemed to be 0%.

 

This calculation takes into account the probability of expected cash flows from future licence agreements at each contract milestone, and the costs incurred in securing those licence agreements. The cash flows are projected until 2034 which reflects the early stage of a number of the research programmes and the time period over which cash inflows are expected to occur. The model includes expected licence agreements in relation to the Group's four core research programmes, with initial payments assumed for prudent modelling purposes by FY23 along with additional milestone payments on the Orexin-1 and IL-17A licence agreements.

 

The key judgement made by management in the expected credit loss calculations is the probability assumptions of the future cashflows and the timing of the cashflows.

 

The model demonstrates that the future cashflows amount to £65m. The ECL provision is £nil (2020: £5,451,000) as the model shows sufficient headroom when compared with the total value of the loan.

 

The calculation is sensitive to the key assumptions used in determining the probability assumptions included in the ECL calculation.

 

The carrying amount of the loan receivable is sensitive to assumptions about the future. A probability weighted future cash flow model has been used with a total implied probability of 18%. In order for an impairment to arise, the total implied probability would need to fall to 15%.

 

For the year ended 31 July 2020, the recoverable amount of investments in subsidiaries in the parent company financial statements was determined by a value in use calculation. This calculation took into account cash flows from expected future licence agreements at each expected contract milestone, and the costs incurred in securing those licence agreements, discounted to present value using a pre-tax discount rate of 25%. The cash flows were projected until 2034 which reflected the early stage of a number of the research programmes and the time period over which cash inflows were expected to occur. The model included expected licence agreements in relation to the Group's four core research programmes, with initial payments assumed for prudent modelling purposes by FY23 along with additional milestone payments on the Orexin-1 licence agreement.

 

The key assumptions used in the value in use calculation were the timing of signing future licence agreements, the upfront and milestone licence payments and the discount rate used. These assumptions were benchmarked against the Company's own experience of such deals and external sources of information within the industry. The model did not assume any future royalties were received.

 

The recoverable amount of loans to subsidiaries was determined by using an expected credit loss model which took into account the probability of default, the exposure at default and the loss given default. The Directors also considered the value in use of the Group. The model demonstrated that the combined recoverable amount of the investments in and loans to subsidiaries was £36.2m which resulted in a net impairment reversal of £24.8m. The carrying amount of the investment in and loans to subsidiaries was sensitive to assumptions about the future.

 



 

14.  Trade and other receivables

 


31 July 2021

31 July 2021

31 July  2020

31 July

2020


Group

Company

Group

Company


£000

£000

£000

£000

Trade receivables

21

-

14

-

Prepayments

307

-

329

-

Other receivables

-

6

-

-

VAT receivables

246

-

95

-


574

6

438

-

 

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

 

There were no revenue-related contract assets (2020: £nil).

 

All trade receivables are denominated in Pounds Sterling.

 

15.  Income tax asset

 


31 July  2021

31 July 2021

31 July  2020

31 July 2020


Group

Company

Group

Company


£000

£000

£000

£000

Research and development income tax credit receivable

2,053

-

1,780

-


2,053

-

1,780

-

 

16.  Cash, cash equivalents and deposits

 


31 July

2021

31 July 2021

31 July

2020

31 July 2020


Group

Company

Group

Company


£000

£000

£000

£000

Cash and cash equivalents

17,103

-

5,648

-


17,103

-

5,648

-

 

Cash and cash equivalents at 31 July 2021 include deposits with original maturity of three months or less of £nil (2020: £nil).

 

An analysis of cash, cash equivalents and deposits by denominated currency is given in note 27.

 



 

17.  Trade and other payables


31 July 2021

31 July 2021

31 July 2020

31 July

2020


Group

Company

Group

Company


£000

£000

£000

£000

Current Liabilities





Current payables

472

-

558

-

Other payables

127

-

134

-

Deferred revenue

330

-

-

-

Accruals

718

-

474

-


1,647

-

1,166

-

 

Non-Current Liabilities





Deferred revenue

64

-

-

-


64

-

-

-

 

Revenue-related contract liabilities are recognised as deferred revenue and allocated to the time period in which they are estimated to be recognised as revenue (2020: £nil).

 

18.  Lease liabilities

 


31 July 2021

31 July 2021

31 July 2020

31 July

2020


Group

Company

Group

Company


£000

£000

£000

£000

Current Liabilities





Lease liabilities

217

-

189

-


217

-

189

-

 

Non-Current Liabilities





Lease liabilities

187

-

218

-


187

-

218

-

 

When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using its incremental borrowing rate at 1 August 2019. The weighted average rate applied is 4.25%.

 


£000

2021 


Balance at 1 August 2020

407

Cash outflow

(271)

New leases

253

Fair value movement recorded in finance costs

15

At 31 July 2021 

404

 


£000

2020 


Balance at 1 August 2019

460

Cash outflow

(319)

New leases

248

Fair value movement recorded in finance costs

18

At 31 July 2020 

407

 

19.  Issued equity capital


 

Deferred shares

Ordinary shares

Share capital

Deferred shares

Warrant reserve

Share premium

Total

The Company

Number

Number

£000

£000

£000

£000

£000

Allotted, called up and fully paid ordinary shares of 1p








 

At 31 July 2019

 

2,025,000

57,792,636

577

 

2,025

 

-

32,256

 

34,858

Issue of share capital on placing

-

57,303,367

573

-

-

8,022

8,595

Issue of share capital on open offer

-

3,907,141

39

-

-

547

586

Issue of share capital on subscription by Directors

-

200,000

2

-

-

28

30

Expenses of placing, open offer and subscription by Directors

-

-

-

-

-

(547)

(547)

 

At 31 July 2020

 

2,025,000

119,203,144

1,191

 

2,025

 

-

40,306

 

43,522

Issue of share capital on placing

-

99,169,286

992

-

-

11,899

12,891

Issue of share capital on open offer

-

7,973,572

80

-

-

1,037

1,117

Issue of warrants on placing

-

-

-

-

992

-

992

Issue of share capital on exercise of share options

-

188,125

2

-

-

6

8

Issue of share capital on exercise of warrants

-

1,278,570

13

-

-

345

358

Expenses of placing, open offer and subscription by Directors

-

-

-

-

-

(551)

(551)

 

At 31 July 2021

 

2,025,000

227,812,697

2,277

 

2,025

 

992

53,042

 

58,336

 



 

 


Share capital

Deferred shares

Warrant reserve

Share premium

Total

The Group

£000

£000

£000

£000

£000

Allotted, called up and fully paid ordinary shares of 1p






 

At 31 July 2019

577

 

2,025

 

-

32,256

 

34,858

Issue of share capital on placing

573

-

-

8,022

8,595

Issue of share capital on open offer

39

-

-

547

586

Issue of share capital on subscription by Directors

2

-

-

28

30

Expenses of placing, open offer and subscription by Directors

-

-

-

(547)

(547)

 

At 31 July 2020

1,191

 

2,025

 

-

40,306

 

43,522

Issue of share capital on placing

992

-

-

11,899

12,891

Issue of share capital on open offer

80

-

-

1,037

1,117

Issue of warrants on placing

-

-

992

-

992

Issue of share capital on exercise of share options

2

-

-

6

8

Issue of share capital on exercise of warrants

13

-

-

345

358

Expenses of placing, open offer and subscription by Directors

-

-

-

(551)

(551)

 

At 31 July 2021

2,277

 

2,025

 

992

53,042

 

58,336

 

During November 2019, £7.6 million (before expenses) was raised via a placing of 46,466,667 ordinary shares, a subscription by Directors for 200,000 ordinary shares and an open offer for 3,907,141 ordinary shares at 15 pence each.

 

During November 2020 £15.0 million (before expenses) was raised via a placing of 99,169,286 ordinary shares and an open offer for 7,973,572 ordinary shares at 14 pence each. In addition, 99,169,286 warrants were issued over ordinary shares, exercisable at 28p per share with an exercise period of 5 years.

 

The deferred shares of £1 carry no right to participate in dividends in respect of any financial year, until there shall have been paid to the holders of the ordinary shares £1 per ordinary share in respect of the relevant financial year; subject thereto, the deferred shares and the ordinary shares shall rank equally in respect of any further dividends in respect of the relevant financial year as if they constituted one class of share.

 



 

20.  Share-based payment reserve

 

The Group

£000

At 31 July 2019 

736

Share-based payments 

206

At 31 July 2020 

942

Share-based payments 

249

At 31 July 2021 

1,191

 

The Company

  £000

At 31 July 2019 

707

Share-based payments 

  206

At 31 July 2020 

913

Share-based payments 

 249

At 31 July 2021 

1,162

 

The share-based payment reserve accumulates the corresponding credit entry in respect of share-based payment charges. Movements in the reserve are disclosed in the consolidated statement of changes in equity.

 

A charge of £249,000 has been recognised in the statement of comprehensive income for the year (2020: £206,000).

This includes £46,342 (2020: £427) of incremental fair value on replacement of options.

 

Share option schemes

 

The Group operates the following share option schemes all of which are operated as Enterprise Management Incentive ("EMI") schemes insofar as the share options being issued meet the EMI criteria as defined by HM Revenue & Customs. Share options issued that do not meet EMI criteria are issued as unapproved share options, but are subject to the same exercise performance conditions.

 

C4X Discovery Holdings plc Long Term Incentive Plan ("LTIP")

Grant in September 2009

Share options were granted to a staff member on 29 September 2009. The options granted are exercisable in the event of the listing of the Company, its acquisition or at the absolute discretion of the Board. The exercise price was set at 2.05 pence (the original exercise price of £22.00 was adjusted for a subdivision of 1,075 share options in C4X Discovery Holdings plc for each share option originally held in C4X Discovery Limited), being the estimated fair value of the shares on the day preceding the issue of the share options. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

Grant in August 2012

Share options were granted to staff on 28 August 2012. The options granted are exercisable in the event of the listing of the Company, its acquisition or at the absolute discretion of the Board. The exercise price was set at 5.58 pence (the original exercise price of £60.00 was adjusted for a subdivision of 1,075 share options in C4X Discovery Holdings plc for each share option originally held in C4X Discovery Limited), being the estimated fair value of the shares on the day preceding the issue of the share options. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

Grant in July 2013

Share options were granted to staff on 4 July 2013. The options granted are exercisable in the event of the listing of the Company, its acquisition or at the absolute discretion of the Board. The exercise price was set at 5.58 pence (the original exercise price of £60.00 was adjusted for a subdivision of 1,075 share options in C4X Discovery Holdings plc for each share option originally held in C4X Discovery Limited), being the estimated fair value of the shares on the day preceding the issue of the share options. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

Grant in May 2014

Share options were granted to staff on 27 May 2014. The options granted are exercisable in the event of the listing of the Company, its acquisition or at the absolute discretion of the Board. The exercise price was set at 5.58 pence (the original exercise price of £60.00 was adjusted for a subdivision of 1,075 share options in C4X Discovery Holdings plc for each share option originally held in C4X Discovery Limited), being the estimated fair value of the shares on the day preceding the issue of the share options. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

Grant in June 2015

Share options were granted to staff and Directors on 8 June 2015. The options granted are exercisable at any time between three years and 10 years of them being granted. There are no performance criteria attached to the options. The exercise price was set at 100.0 pence, being the price at which shares were placed in the IPO in October 2014. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued. Options which had not been cancelled or lapsed were replaced on 28 July 2020.

 

Grant in December 2015

Share options were granted to a Director on 8 December 2015. The options granted are exercisable, subject to meeting certain performance criteria, at any time between three years and 10 years of them being granted. The exercise price was set at 77 pence, being the average of the mid-market closing price over the three days prior to 8 December 2015. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued. Options which had not been cancelled or lapsed were replaced on 28 July 2020.

 

Grant in November 2016

Share options were granted to staff and a Director on 23 November 2016. The options granted are exercisable, at any time between three years and 10 years of them being granted. The exercise price was set at 105 pence, being the average of the mid-market closing price over the three days prior to 23 November 2016. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued. Options which had not been cancelled or lapsed were replaced on 28 July 2020.

 

Grant in February 2017

Share options were granted to staff and a Director on 1 February 2017. The options granted are exercisable, at any time between three years and 10 years of them being granted. The exercise price was set at 91 pence, being the average of the mid-market closing price over the three days prior to 1 February 2017. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued. Options which had not been cancelled or lapsed were replaced on 28 July 2020.

 

Grant in May 2017

Share options were granted to staff on 17 May 2017. The options granted are exercisable, at any time between three years and 10 years of them being granted. The exercise price was set at 90 pence, being the average of the mid-market closing price over the three days prior to 17 May 2017. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued. Options which had not been cancelled or lapsed were replaced on 28 July 2020.

 

Grant in September 2017

Share options were granted to staff on 26 September 2017. The options granted are exercisable, at any time between three years and 10 years of them being granted. The exercise price was set at 77 pence, being the average of the mid-market closing price over the three days prior to 26 September 2017. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

Grant in October 2018

Share options were granted to staff and Directors on 16 October 2018 pursuant to the EMI 2014 Plan. The options granted are exercisable, at any time between three years and 10 years of them being granted. The exercise price was set at 89.2 pence, being the average 30 day closing price of the ordinary shares to 16 October 2018. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued. Options which had not been cancelled or lapsed were replaced on 28 July 2020.

 

Grant in November 2019

Share options were granted to staff and Directors on 29 November 2019 pursuant to the EMI 2014 Plan. The options granted are exercisable, at any time between three years and 10 years of them being granted. The exercise price was set at 16.2 pence, being the average five-day volume weighted average price of the ordinary shares to 29 November 2019. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

Grant in December 2019

Share options were granted to staff on 1 December 2019 pursuant to the EMI 2014 Plan. The options granted are exercisable, at any time between three years and 10 years of them being granted. The exercise price was set at 42.0 pence, based on the last 200-day moving average prior to 1 December 2019. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

Grant in February 2020

Share options were granted to staff on 10 February 2020 pursuant to the EMI 2014 Plan. The options granted are exercisable, at any time between three years and 10 years of them being granted. The exercise price was set at 27.8 pence, based on the last 200 day moving average prior to 10 February 2020. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

Grant in June 2020

Share options were granted to staff on 2 June 2020 pursuant to the EMI 2014 Plan. The options granted are exercisable, at any time between three years and 10 years of them being granted. The exercise price was set at 15.5 pence, based on the last 200 day moving average prior to 2 June 2020. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

Cancellation and regrant of existing options in July 2020

A number of unvested share options were cancelled and reissued to staff and Directors on 28 July 2020. The regrant brings the strike price of the share options into line with the current market price of the Company's shares and should now deliver a viable incentive and reward package to the employees and Directors of the Company. The regrant options have an exercise price of 16 pence, being the closing price of the Ordinary Shares on 28 July 2020. The options can be exercised at any time between three years and 10 years of them being granted. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

The Group designated the new equity instruments as replacements for the cancelled equity instruments and as such, modification accounting has been applied. As the new options have an increased fair value compared to the previous awards, the incremental fair value of £154,571 is recognised over the modified three-year vesting period, in addition to the amount recognised based on the grant date fair value of the original instruments, which continues to be recognised over the remainder of the original vesting period. The charge in the current year on the new options amounted to £46,342 (2020: £427).

 

Grant in December 2020

Share options were granted to staff and Directors on 14 December 2020 pursuant to the EMI 2014 Plan. The options granted are exercisable, at any time between three years and 10 years of them being granted. The exercise price was set at 20.0 pence, being the average five-day volume weighted average price of the ordinary shares to 11 December 2020. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

Grant in May 2021

Share options were granted to staff on 05 May 2021 pursuant to the EMI 2014 Plan. The options granted are exercisable, at any time between three years and 10 years of them being granted. The exercise price was set at 41.34 pence, being the average five-day volume weighted average price of the ordinary shares to 05 May 2021. The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which the share options were issued.

 

Share options are awarded to management and key staff as a mechanism for attracting and retaining key members of staff. The options are granted at no lower than either: (i) market price on the day preceding grant; or (ii) in the event of abnormal price movements at an average market price for the week preceding grant date. Options may be granted at prices higher than the market price on the day preceding grant where the Board believes it is appropriate to do so. These options vest over a three-year period from the date of grant and are exercisable until the tenth anniversary of the award. Exercise of the award is subject to the employee remaining a full-time member of staff at the point of exercise. The fair value benefit is measured using a Black Scholes valuation model, taking into account the terms and conditions upon which the share options were issued.

 

The following tables illustrate the number and weighted average exercise prices of, and movements in, share options during the year.

 




  2021

  2020

The Group and Company



Number

Number

Outstanding at 1 August



7,057,522

3,786,853

Granted during the year



4,019,000

6,387,447

Exercised during the year



(188,125)

-

Lapsed/cancelled



(950,650)

(3,116,778)

Outstanding at 31 July



9,937,747

7,057,522

Exercisable at 31 July



606,950

795,075

 

During the year ended 31 July 2021, 188,125 were exercised (2020: nil). 

 

Weighted average exercise price of options

 


2021

2020

The Group and Company

Pence

Pence

Outstanding at 1 August

17.34

76.58

Granted during the year

20.84

18.53

Exercised during the year

4.07

-

Outstanding at 31 July

18.61

17.34

 

A total of 4,019,000 share options were granted during the year (2020: 6,387,447). These included no replacement options (2020: 2,714,298). The range of exercise prices for options outstanding at the end of the year was 5.58 pence - 100.00 pence (2019: 2.05 pence - 100.00 pence).

 

For the share options outstanding as at 31 July 2021, the weighted average remaining contractual life is 8.5 years (2020: 8.8 years).

 

The following table lists the inputs to the models used for the years ended 31 July 2021 and 31 July 2020.

 

The Group and Company

2021

2020

Expected volatility (%)

52.5%

52.5%

Risk-free interest rate (%)

0.35%-1.00%

0.35%-1.00%

Expected life of options (year's average)

3 years

3 years

Weighted average exercise price (pence)

n/a

n/a

Weighted average share price at date of grant (pence)

20.84

18.53

 

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

 

No other features of options granted were incorporated into the measurement of fair value.

 



 

21.  Warrant reserve

 

The Group and Company

£000

At 31 July 2019 

-

Warrant premium

-

At 31 July 2020 

-

Warrant premium 

992

Exercise of warrants

(13)

At 31 July 2021 

979

 

During the year a total of 99,169,286 (2020: Nil) warrants associated with the fundraising were issued to all places, being one warrant for every share, excluding those investors seeking to claim EIS relief in relation to their investment. The value attributed to these warrants is 1p per share from the 14p per share price of the raise.

 

The warrants are exercisable at 28p (2020: Nil) per ordinary share and are to be exercised within 5 years of being issued.

 

During the year a total of 1,278,570 warrants (2020: Nil) were exercised during the year

 

The following tables illustrate the number and movements in, warrants during the year.

 




  2021

  2020

The Group and Company



Number

Number

Outstanding at 1 August



-

-

Granted during the year



99,169,286

-

Exercised during the year



(1,278,570)

-

Lapsed/cancelled



-

-

Outstanding at 31 July



97,890,716

-

Exercisable at 31 July



97,890,716

-

 

22.  Merger reserve

 

The Group

£000

At 31 July 2019, 31 July 2020 and 31 July 2021 

920

 

The merger reserve arises as a result of the reverse acquisition requirements of IFRS 3 meaning the consolidated accounts are presented as a continuation of the C4X Discovery Limited accounts along with the share capital structure of the legal parent company (C4X Discovery Holdings plc). 

 

23.   Capital contribution reserve

 

The Group

£000

At 31 July 2019, 31 July 2020 and 31 July 2021 

195

 



 

24.   Retained earnings

 

The Group

£000

At 31 July 2019

(29,724 )

Loss for the year

(7,789)

At 31 July 2020 

(37,513)

Loss for the year

(3,844)

Warrant reserve movement

13

At 31 July 2021 

(41,344)

 

The Company

£000

At 31 July 2019 

(32,987)

Profit for the year

24,752

At 31 July 2020 

(8,235)

Loss for the year

8,235

Warrant reserve movement

13

At 31 July 2021 

13

 

25.  Leases

 

Leases as lessee (IFRS16)

 

The Group leases premises under non-cancellable operating lease agreements. 

 

Right of use assets related to leased properties that do not meet the definition of investment property are presented as property, plant and equipment (note 10).


Land and

Buildings

Total


Group

Group


£000

£000

2021



Balance at 1 August 2020

378

378

Depreciation charge for the year

(254)

(254)

Additions to right-of-use assets

253

253

Derecognition of right-of-use assets

(248)

(248)

Depreciation eliminated on derecognition of right-of-use assets

248

248


377

 

 

377

 

 

2020



Balance at 1 August 2019

432

432

Depreciation charge for the year

(302)

(302)

Additions to right-of-use assets

248

248

Derecognition of right-of-use assets

-

-

Depreciation eliminated on derecognition of right-of-use assets

-

-


378

 

 

378

 

 



 

Amounts recognised in income statement

31 July 2021



Interest on lease liabilities

15

15


15

 

15

 

31 July 2020



Interest on lease liabilities

18

18


18

 

 

18

 

 

Amounts recognised in statement of cash flows

31 July 2021



Lease payments

271

271


271

 

271

 

31 July 2020



Lease payments

319

319


319

 

319

 

 

26.  Commitments

 

At 31 July 2021, the Group had capital commitments amounting to £nil in respect of orders placed for capital expenditure (2020: £nil).

 

27.  Financial risk management

 

Overview

This note presents information about the Group's exposure to various kinds of financial risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital.

 

The Board has overall responsibility for the establishment and oversight of the Group's risk management framework. The Executive Directors report regularly to the Board on Group risk management.

 

Capital risk management

The Group reviews its forecast capital requirements on a half-yearly basis to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders. 

 

The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings as disclosed in notes 19 to 24 and in the Group statement of changes in equity. Total equity was £19,286,000 at 31 July 2021 (£8,066,000 at 31 July 2020).

 

The Group is not subject to externally imposed capital requirements.

 

Liquidity risk

The Group's approach to managing liquidity is to ensure that, as far as possible, it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

 

The Group manages all of its external bank relationships centrally in accordance with defined treasury policies. The policies include the minimum acceptable credit rating of relationship banks and financial transaction authority limits. Any material change to the Group's principal banking facility requires Board approval. The Group seeks to mitigate the risk of bank failure by ensuring that it maintains relationships with a number of investment grade banks.

 

At the reporting date the Group was cash positive with no outstanding borrowings.

 



 

Categorisation of financial instruments

 


Loans and receivables

Financial liabilities at amortised cost

 

  Group

Financial assets/(liabilities)

£000

£000

£000

£000

31 July 2021




Trade receivables

21

-

21

Inter-company short-term loan to subsidiary

-

-

-

Cash, cash equivalents and deposits

 17,103

-

17,103

Trade and other payables*

-

 (599)

(599)

Lease liabilities

-

(404)

(404)


 17,124

(1,003)

16,121

-






31 July 2020




Trade receivables

14

-

14

Inter-company short-term loan to subsidiary

-

-

-

Cash, cash equivalents and deposits

5,648

-

5,648

Trade and other payables*

-

 (692)

(692)

Lease liabilities

-

(407)

(407)


5,662

(1,099)

4,563

-

*Excluding accruals and deferred revenue.

 

The values disclosed in the above table are carrying values. The Board considers that the carrying amount of financial assets and liabilities approximates to their fair value.

 

The main risks arising from the Group's financial instruments are credit risk and foreign currency risk. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.

 

Credit risk

The Group's principal financial assets are cash, cash equivalents and deposits. The Group seeks to limit the level of credit risk on the cash balances by only depositing surplus liquid funds with multiple counterparty banks that have investment grade credit ratings.

 

The Group trades only with recognised, creditworthy third parties. Receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant. The Group's maximum exposure is the carrying amount of trade receivables as disclosed in note 14, which was neither past due nor impaired. All trade receivables are ultimately overseen by the Chief Executive Officer and are managed on a day-to-day basis by the finance team. Credit limits are set as deemed appropriate for the customer.

 

The maximum exposure to credit risk in relation to cash, cash equivalents and deposits is the carrying value at the balance sheet date.

 

Foreign currency risk

The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currency of the Company and its subsidiaries. Other than Pounds Sterling ("GBP"), the currencies that sales and purchases most often arise in are US Dollars (USD) and Euros. Transactions in other foreign currencies are limited.

 

The Group may use forward exchange contracts as an economic hedge against currency risk, where cash flow can be judged with reasonable certainty. Foreign exchange swaps and options may be used to hedge foreign currency receipts in the event that the timing of the receipt is less certain.

 

There were no open forward contracts as at 31 July 2021 or at 31 July 2020 and the Group did not enter into any such contracts during 2021 or 2020.

 

The split of Group assets between Sterling and other currencies at the year end is analysed as follows:

 


GBP

USD

EUR

2021 Total

GBP

USD

EUR

2020 Total

The Group

£000

£000

£000

£000

£000

£000

£000

£000

Cash, cash equivalents and deposits

11,094

35

5,974

 17,103

5,623

16

9

5,648

Trade receivables

21

-

-

21

14

-

-

14

Trade payables

(494)

(80)

(25)

(599)

(654)

(3)

(35)

(692)


10,621

(45)

5,949

16,525

4,983

13

(26)

4,970

 

Sensitivity analysis to movement in exchange rates

A reasonably possible strengthening (weakening) of the euro or US dollar against sterling at 31 July would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases

 


Profit or loss

Equity


Strengthening

Weakening

Strengthening

Weakening


£000

£000

£000

£000

31 July 2021





EUR (5% movement)

313

(283)

313

(283)

USD (5% movement)

(2)

2

(2)

2






31 July 2020





EUR (5% movement)

(3)

2

(3)

2

USD (5% movement)

2

(1)

2

(1)






 

Interest rate risk

As the Group has no borrowings the risk is limited to the reduction of interest received on cash surpluses held at bank which receive a floating rate of interest. The principal impact to the Group is the result of interest bearing cash and cash equivalent balances held as set out below:

 


31 July 2021

31 July 2020


Fixed rate

Floating rate

Total

Fixed rate

Floating rate

Total

The Group

£000

£000

£000

£000

£000

£000

Cash, cash equivalents and deposits

 -

17,103

17,103

 -

 5,648

5,648

The Company







Cash, cash equivalents and deposits

 -

-

-

 -

-

-

 

As the majority of cash and cash equivalents are held on floating deposit and the overall level of interest rates is low, the exposure to interest rate movements is immaterial.

 

Maturity profile

Set out below is the maturity profile of the Group's financial liabilities at 31 July 2021 based on contractual undiscounted payments including contractual interest.



 

 



Less than

 one year

One to five

years

Total

2021


£000

£000

£000

Financial liabilities





Trade and other payables *


599

-

599

Lease liabilities


217

187

404



 816

187

1,003

2020





 

Financial liabilities





 

Trade and other payables*


692

-

692

 

Lease liabilities


218

189

407

 



881

218

1,099

 

*Excluding accruals and deferred revenue. Trade and other payables are due within 3 months.

 

The Directors consider that the carrying amount of the financial liabilities approximates to their fair value.

 

As all financial assets are expected to mature within the next 12 months an aged analysis of financial assets has not been presented.

 

28.  Related party transactions

 

During the year there were no subscriptions by Directors for ordinary shares (2020: 200,000 ordinary shares at 15 pence each).

 

During the year, shareholder Aquarius Equity Partners Limited charged the Group £11,588 (2020: £15,450) for monitoring fees and was owed £nil at 31 July 2021 (2020: £nil).

 

During the year, The Aquarius IV Fund LLP, a fund managed by shareholder Aquarius Equity Partners Limited, held 2,025,000 deferred shares of £1 each (2020: £2,025,000).

 

During the year, Director Harry Finch charged the Group £nil (2020: £nil) for services which he provided as a technical consultant and was owed £nil at 31 July 2021 (2020: £nil).

 

The Group

There were no sales to, purchases from or, at the year end, balances with any related party.

 

The Company

The following table summarises inter-company balances at the year end between C4X Discovery Holdings plc and subsidiary entities:

 


Notes

31 July

2021

31 July

 2020



£000

£000

Short term loans owed to C4X Discovery Holdings plc by:




C4X Discovery Limited

14

-

-

C4X Drug Discovery Limited


-

-

Adorial Limited


-

-



-

-

 

There are no formal terms of repayment in place for these loans and it has been confirmed by the Directors that the long-term loans will not be recalled within the next 12 months.

 

None of the loans are interest bearing.

 

29.  Compensation of key management personnel (including Directors)

 


2021

2020


£000

£000

Short-term employee benefits

1,476

1,199

Pension costs

151

164

Benefits in kind

2

2

Share-based payments

112

100


  1,741

  1,465

 

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