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23 June 2006, London – SR Pharma plc (London LSE: SPA) today announces its preliminary financial results for the year ended 31 December 2005. HIGHLIGHTS
SR Pharma ( www.srpharma.com ) SR Pharma plc is a European biopharmaceutical company, listed on AIM. The Company has two operating subsidiaries Atugen AG ( www.atugen.com ) based in Berlin, Germany and Stanford Rook Ltd based in London, UK. Atugen is a leader in RNAi therapeutics. This Company has developed novel, chemically modified proprietary siRNA molecules ("AtuRNAi") and a proprietary delivery system ("AtuPLEX") both of which have advantages over conventional siRNA molecules and their delivery systems. Currently Atugen and its collaboration partners have lead molecules in pre-clinical development for a variety of therapeutic indications. Clinical development of AtuRNAi therapeutic molecules for systemic applications in Atugen’s oncology programs are targeted to start in 2007. Other AtuRNAi therapeutic programs of Atugen’s collaborators are scheduled to commence in 2H 2006. Stanford Rook Ltd is an immunotherapy based company which owns a proprietary Mycobacterium vaccae-based technology and related products, which have been evaluated in clinical trials for the treatment of asthma, cancer and tuberculosis. In addition this Company has a number of other proprietary immunotherapeutic compounds and related intellectual property. Currently the Company is in discussions with third parties regarding the co-development and out-licensing of M. vaccae and related products. Enquiries: For further information, please contact the following:
CHAIRMAN’S STATEMENT
A PERIOD OF POSITIVE CHANGE
The last 18 months has seen a complete re-shaping of SR Pharma’s business focus and strategy. The Company has made a strategic move into the fast moving RNAi technology sector which is set to revolutionise the identification and development of novel therapeutics for previously unmet medical needs and is very committed to growing critical mass in this sector. During the second half of the year ended 31 December 2005, the Company made excellent progress in developing its business in line with the plans set out in July 2005 when Atugen AG, a leader in siRNA therapeutics, was acquired for £7.5m and £10m of new funding was raised.
As a result of these transactions SR Pharma plc has now established itself as a well funded European biopharmaceutical company with two operating subsidiaries; Atugen AG in Berlin, Germany and Stanford Rook Ltd in London, UK. We are committed to making further strategic moves to strengthen our position both scientifically and financially and we anticipate further significant transactions during 2006/2007.
Notwithstanding the unsettled market conditions in mid 2006, SR Pharma has seen a significant and disappointing decline in the Company share price. This is frustrating for our shareholders and the frustration is shared by the Board and Management who continue to take the view that their priority must be to create high quality product development programmes which in turn will lead to the creation of a significant and sustainable increase in shareholder value in the medium term.
In addition, the Company continues to pursue active discussions at the highest level of the pharmaceutical industry, with significant interest in our proprietary technology base. The Company is also proactively exploring M&A discussions with like-minded and complementary businesses as part of its value building strategy.
A STRONG AND COMMITTED SHAREHOLDER BASE Following the move in late 2004 from the main market of the London Stock Exchange to AIM, the acquisition of Atugen AG and the subsequent £10m financing the Company’s shareholder base has been considerably strengthened and now comprises a number of blue chip investors including Insight, Fidelity, Artemis, Gartmore, Apax, MPM Capital and Novartis Venture Fund. In addition to these institutional shareholders, Introgen Therapeutics Inc., a US biotechnology company, holds a 9% stake in SR Pharma plc.
FINANCIAL STABILITY As of 31 December 2005 the Group had £9.1m in cash, which coupled with the forecasted mid-term revenue stream and in the absence of any further M&A transactions, means there is sufficient funding to support the Company’s development plans for the next 2 years. During the year we have reduced the personnel and facility costs in Atugen by 20% and 15% respectively and cut back operations in the UK to a core team. It is anticipated that any future M&A activity will be completed in conjunction with a further fundraising to support, as necessary, the enlarged entity. It is your Board’s aim to ensure that until profitability there is always a minimum of a two-year cash ‘runway’.
A SMART M&A STRATEGY Through the acquisition of Atugen AG the Company now has a stake at the cutting edge of medical science. SR Pharma is now a leading company in the RNAi sector and as a result the business focus has inevitably moved towards the US market where RNAi technology companies are highly valued. As a consequence in 2006/2007 your Board will look to increase significantly our presence in the US market through continued M&A activity and in addition announce a number of US based collaborations with pharmaceutical and biotech companies to validate, underpin and co-fund our product development programmes. In line with this strategy, in March 2006 the Company announced it had granted a licence to Merck Inc and as a result of increased interest and other strategic moves by pharmaceutical companies in the RNAi sector we anticipate further significant deals being announced in 2006/2007. Within our sector, it is normal and expected that big pharma collaborations can take a considerable time to complete and only when we have our own products in the clinic might we see a true acceleration in third party activity.
VALUE CREATING ASSETSAtugen AG has 30 employees, owns novel, chemically modified proprietary siRNA molecules ("AtuRNAi") and a proprietary in vivo delivery system ("AtuPLEX"). Clinical development of AtuRNAi therapeutic molecules for systemic applications in Atugen’s oncology programs are targeted to start in 2007. Other AtuRNAi therapeutic programs with third party collaborators are scheduled to enter the clinic in the second half of 2006. We have several lead siRNA molecules in pre-clinical development and at the research stage for other therapeutic indications. For the benefit of those readers unfamiliar with the RNAi sector we have included a brief overview in the annual report.
Also, I am pleased to report that Stanford Rook Ltd (SRL) has continued to operate as a separate subsidiary with its own proprietary Mycobacterium vaccae-based technology and related products for immunotherapy. In late 2005 Eden Biodesign Ltd, the operator of the National Biomanufacturing Centre, based in Liverpool, was appointed to assist SRL with the development of a robust manufacturing process for M.vaccae based products and discussions have commenced with third parties regarding the future commercial exploitation of this technology. In addition SRL has filed patent applications relating to a novel synthetic molecule which, from initial pre-clinical screening studies, demonstrates activity in allergic conditions. Also licensing discussions are underway in respect of the Inositol Phosphoglycans product portfolio and further announcements are expected in 2006/2007.
AN EMERGING R&D PIPELINE Since the acquisition of Atugen, SR Pharma has accomplished several key R&D milestones. We have established a pipeline of lead siRNA candidates for siRNA therapeutic applications in advanced cancers (in particular hepatocellular carcinoma and pancreatic carcinoma) and several lead siRNA molecules and respective formulations have already been tested in vivo for efficacy in animal models predictive of human diseases.
We have appointed a number of third party contractors including Fulcrum plc to assist and oversee the development of our siRNA therapeutics programme, OctoPlus to assist with the development of GMP grade formulations of our AtuPLEX lipid technology for systemic delivery and also we have appointed internationally respected consultants to assist with the regulatory and pre-clinical and clinical development issues. In addition in-house we have established fully functional lipid chemistry laboratories to synthesise and characterise lipid components and formulations and manufacturing agreements have been signed with Genzyme Pharmaceuticals and BioSpring to ensure the supply of GMP grade production for all components.
I am pleased to report that our lipid chemists have accomplished a key technical breakthrough by manufacturing a lyphilized (dry-powder) liposomal-based siRNA formulation. The dry powder formulation extends the shelf-life and simplifies the distribution chain, with a one-step reconstitution process enhancing ease of administration.
We remain on track to commence in early 2007 clinical trials of our proprietary siRNA molecules in patients with advanced cancers at the Charitè Hospital in Berlin. Professor Wiedenmann, Director of the Medical Clinic for Hepatology and Gastroenterology & Interdisciplinary Centre of Metabolism at the Charité, Berlin has agreed to oversee the clinical trials.
In addition we have further strengthened our IP portfolio by filing new patent applications covering the lipid components, the formulations used and specific siRNA sequences. As anticipated we have continued to file oppositions in the RNAi sector as appropriate.
We have continued the collaboration with our partner Quark Biotech, Inc. (QBI) in terms of the development of an AtuRNAi candidate indicated for Age-related Macular Degeneration (AMD). According to QBI this product is due to enter the clinic in 2006. QBI has started pre-clinical development with a second AtuRNAi candidate for the indication of Acute Renal Failure.
THIRD PARTY SUPPORT AND ENDORSEMENT WILL BE ESSENTIALDuring the year we strengthened the business development function within Atugen by appointing an internationally experienced Director of Business Development and as a result all major biotech and pharmaceutical companies with an interest in RNAi have been contacted and many visited. Accordingly a number of interesting discussions are ongoing whereby we are looking to set up a number of collaborations in the RNAi sector. Also we have achieved an extension of a high-profile public grant (RiNA grant) financed by Germany’s Federal Ministry of Education and Research; the State of Berlin and funds from the European Union for an additional 9 months worth approximately €600,000.
In conclusion, whilst 2005 was the year in which we made a dramatic move into RNAi, the true value of these strategic investments lie in the future and I believe that, by remaining patient and making the right moves in the future, we will be able to further consolidate our position over the next 12-18 months. Your Board believes that enhanced shareholder value will be built on the basis of creating a pipeline of proprietary RNAi products validated by meaningful third party collaborations and remains committed to achieving this goal.
Finally I would like to thank the Board, the management and the staff for their support, hard work and tenacity over the last year and I look forward to seeing the benefits in the near future.
Iain G Ross Executive Chairman
FINANCIAL REVIEW
The financial statements have been affected by three major factors this year:
For a number of years the Group has been looking for suitable opportunities to expand and diversify its operations and the acquisition of Atugen presented the Group with a strategic position in an exciting area of novel therapeutic interest. The Group issued 22,905,318 ordinary shares and 3,125,926 warrants for ordinary shares in respect of the acquisition of Atugen, at a time when the shares of SR Pharma plc were trading at 27p. Further financial details of the acquisition are given in the notes to the financial statements. This transaction increases the assets held by the Group by approximately £7.5 million, reflecting this in both increased Share Capital and Share Premium Account. Direct costs of the transaction have been reflected in the acquisition costs.
Subsequent to the acquisition, the Group accessed further working capital by way of a fundraising with institutional investors. The Group raised £8.3 million via a placing with a number of institutions and at the same time secured a US$3 million equity investment as part of a strategic collaboration with Introgen Therapeutics Inc. of Austin, Texas, USA. In order to obtain this funding, the Group issued 43,513,044 new ordinary shares in total at 23p per share. Net of costs directly related to the fundraising paid by the Group, this produced additional cash of £9.45 million.
Due in part to the acquisition of Atugen and thus the expansion of the Group outside the United Kingdom, the Board decided that it would be appropriate to bring forward the adoption of IFRS to take effect in the current year. This has an impact not only on the figures as presented for 2005, but also the comparative figures for 2004 which have been amended to conform with IFRS.
Apart from certain re-descriptions of items within the financial statements, the major impact of adopting IFRS is the inclusion of a charge in respect of the options and warrants issued by the Group. This has given rise to an increase of £113,572 in the 2004 costs and an increase of £490,471 in the 2005 costs. Furthermore, the calculation of the cost of investment in Atugen and the cost of the fundraising charged against the Share Premium Account both include a sum in respect of the calculated fair value of the warrants issued as part of each transaction. The Company has set up a Share-based payment reserve as part of Capital Reserves to complete the picture.
With the impact of the above, and offset by the loss for the year, Total Equity rose from £2.34 million at 31 December 2004 to £15.69 million at 31 December 2005. With the much larger number of shares in issue at the end of the year, this is equivalent to an increase in net assets per shares from 9.8p per share at 31 December 2004 to 17.4p per share at 31 December 2005. The group was also holding bank balances of over £9 million at the year end (2004: £2.6 million), providing adequate financial resources for the immediate future.
The loss for the year before taxation rose from £3.3 million to £3.6 million. These results include 6 months of operations of Atugen since its acquisition, which contributed £1.25 million to the loss. Thus, setting aside the impact of Atugen, the group would have shown a loss for the year of £2.4 million, down from a loss of £3.3 million for 2004. The results reflect the fact that prior to the acquisition both the SR Pharma group and Atugen had continued to cut back on their research activities and switch resources into corporate activity in order to secure a suitable partner and adequate long-term financing for the continuation of the research and development programmes. The enforced change in emphasis due to financial constraints, and the impact of adopting IFRS 2 Share-based payments is reflected in the holding back of Research and Development costs whilst Administrative expenses rose by 50%. Of the increase in Administration expenses, approximately £700,000 relates to Atugen’s costs post acquisition, a further £300,000 relates to legal and corporate finance advice and almost £500,000 relates to the adoption of IFRSs. Without these, the core costs for the former SR Pharma Group had fallen in the year.
The Group continues to invest in its two main areas of technology, RNAi and Immunotherapy. As highlighted in the Chairman’s Statement, the Group has appointed independent consultants to assist in the development processes and following a period of planning and consolidation, the group has increased its rate of investment in its Research and Development programmes in order to maximise the benefit of these technologies. The Group will continue to seek opportunities to expand and strengthen its technology as well as the opportunity to diversify into other potentially profitable areas. At the same time, continued efforts are being devoted to restricting other areas of Administrative expenses to enable the Group’s resources to be channelled into more valuable and productive areas.
Melvyn Davies Finance Director
SR PHARMA PLC CONSOLIDATED INCOME STATEMENT YEAR ENDED 31ST DECEMBER 2005
SR PHARMA PLC CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2005
SR PHARMA PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 31 DECEMBER 2005
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