SR Pharma plc Preliminary Financial Results for the year ended 31 December 2005
23 June 2006, London - SR Pharma plc (London LSE: SPA) today announces its
preliminary financial results for the year ended 31 December 2005.
HIGHLIGHTS ****
* In July 2005 SR Pharma plc acquired Atugen AG for #7.5m.
* In July 2005 SR Pharma plc raised #10m of new investment from blue-chip
institutions, including a $3m equity investment by Introgen Therapeutics
Inc, a leading US biotech company.
* In September 2005 SR Pharma plc appointed Fulcrum plc to advise upon and
co-ordinate its pipeline development programme.
* In October 2005 SR Pharma plc selected a lead target for pancreatic and
liver cancer which will enter the clinic in the first half of 2007.
* In November 2005 SR Pharma plc appointed Eden BioDesign to develop a robust
manufacturing process for M.vaccae based products.
* Following the acquisition of Atugen and the adoption of International
Financial Reporting Standards, pre-tax losses amounted to #3.6m (2004: #
3.0m) in line with management expectations
* Cash of #9.1m at the end of the year (2004: #3.1m)
* Post year end, in March 2006 SR Pharma plc granted a licence to Merck Inc.
which will allow Merck to elucidate fully the therapeutic potential of a
target gene owned by Atugen.
* In April 2006 SR Pharma plc announced two key scientific publications in
Gene Therapy on the development and systemic applications of Atugen's
siRNA-lipoplex (AtuPLEX) technology for enabling in vivo its therapeutic
application in oncology.
* In June 2006 SR Pharma plc announced a key technical breakthrough with its
lyophilized (dry powder) liposomal-based siRNA formulation
* In the same month key collaborations with Genzyme, BioSpring and OctoPlus
were signed in respect of the manufacturing and formulation of GMP material
required to progress the pre-clinical development of SR's siRNA (AtuRNAi)
therapeutic molecules.
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 ASSETS****
Atugen 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 ESSENTIAL*******
During 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 Euro600,000.
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:
* The acquisition of Atugen AG in July 2005
* The subsequent fundraising for the enlarged Group completed in July 2005,
and
* The adoption of International Financial Reporting Standards (IFRS) for the
presentation of the Group Financial Statements
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
2005 2004
# #
Revenue 508,721 159,211
Research and development direct costs (1,659,494) (1,697,509)
Gross loss (1,150,773) (1,538,298)
Administrative expenses (2,747,531) (1,830,188)
Operating loss (3,898,304) (3,368,486)
Finance income 264,034 133,513
Finance costs (498) (71,445)
Loss for the year before taxation (3,634,768) (3,306,418)
Taxation credit for the year 50,000 350,255
Loss for the year after taxation transferred from (3,584,768) (2,956,163)
reserves
Loss per share (basic and diluted) 5.89p 12.38p
SR PHARMA PLC
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2005
2005 2004
# #
Non-current assets
Property, plant and equipment 246,970 39,950
Goodwill 6,380,166 -
Other Intangible assets 876,860 -
7,503,996 39,950
Current assets
Inventories 81,852 -
Trade and other receivables 445,352 242,195
Tax recoverable 50,371 276,175
Cash and cash equivalents 9,091,201 2,632,002
9,668,776 3,150,372
Liabilities
Trade and other payables 1,153,701 324,231
Provisions - current 189,680 189,680
Provisions - non current 142,260 331,940
1,485,641 845,851
Net Assets 15,687,131 2,344,471
Equity
Share capital 903,116 238,857
Capital Reserves 36,405,031 20,284,665
Translation reserve 142,803 -
Retained loss (21,763,819) (18,179,051)
Total Equity 15,687,131 2,344,471
SR PHARMA PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
AT 31 DECEMBER 2005
Share Capital Translation Retained
capital reserves reserve Loss Total
# # # # #
Balances at 1 January 238,607 20,166,593 - (15,222,888) 5,182,312
2004
(as restated)
Loss for the year
ended
31 December 2004 - - - (2,956,163) (2,956,163)
Recognition of - 113,572 - - 113,572
share-based payments
Shares issued in the 250 4,500 - - 4,750
year
At 31 December 238,857 20,284,665 - (18,179,051) 2,344,471
2004 (restated)
Loss for the year
ended
31 December 2005 - - - (3,584,768) (3,584,768)
Recognition of - 1,954,514 - - 1,954,514
share-based payments
Shares issued in the 664,259 14,165,852 - - 14,830,111
year
Exchange differences
arising on
consolidation
of foreign operations - - 142,803 - 142,803
At 31 December 2005 903,116 36,405,031 142,803 (21,763,819) 15,687,131
SR PHARMA PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31ST DECEMBER 2005
2005 2004
Cash Flow from Operating Activities # #
Loss before taxation (3,634,768) (3,306,418)
Adjustments for:
Depreciation charges 111,253 37,623
Amortisation charges 104,265 -
(Profit)/Loss on sale of property,
plant and equipment (161) 556
Loss on write off of intangible assets 7,658 -
Charge for the year in respect of
Share-based payments 490,471 113,572
Foreign exchange gain (13,143) -
Provision against loan 100,000 -
Investment income (200,401) (133,513)
Interest expense 498 -
(3,034,328) (3,288,180)
Decrease/(increase) in trade and other 117,277 943,886
receivables
(Increase) in inventories (13,451) -
(Decrease)/increase in trade and other (127,192) (373,824)
payables
Cash (absorbed)/generated by operations (3,057,694) (2,718,118)
Interest paid (498) -
Taxation received 275,804 237,375
Net cash outflow from operating activities (2,782,388) (2,480,743)
Cash Flows from Investing activities
Acquisition of and investment in
Subsidiary
net of cash acquired (see Note below) (330,067) -
Loans to Subsidiaries - -
Loans made in the year - (100,000)
Interest received 200,401 133,513
Additions to property, plant and equipment (50,837) (18,769)
Additions to intangible assets (32,824) -
Proceeds of sale of property, plant and 1,529 500
equipment
Net cash (used in)/generated from (211,798) 15,244
investing activities
Cash Flows from Financing Activities
Proceeds from issue of share capital and 9,453,385 4,750
options
Increase/(Decrease) in cash & cash 6,459,199 (2,460,749)
equivalents
Cash and cash equivalents at start of year 2,632,002 5,092,751
Net increase/(decrease) in the year 6,459,199 (2,460,749)
Cash and cash equivalents at end of year 9,091,201 2,632,002
Notes to the Cash Flow Statement
Acquisition of Subsidiary
During the year the Group acquired the whole of the issued share capital of
Atugen AG. The fair value of the assets acquired and liabilities assumed were
as follows:
#
Property, plant and equipment 263,601
Intangible assets 937,033
Goodwill acquired 6,248,349
Inventories 68,401
Trade and other receivables 420,434
Cash 345,605
Trade and other payables (766,982)
Total purchase price 7,516,441
Less:
Consideration settled by issue of shares and (6,840,769)
warrants
675,672
Less:
Cash of Atugen AG (345,605)
Cash outflow on acquisition 330,067
The accompanying accounting policies and notes form an integral part of these
financial statements.
SR PHARMA PLC
NOTES
1. The above financial information does not constitute statutory accounts
within the meaning of Section 240, Companies Act 1985. The information for both
years has been extracted from the statutory accounts of the Group for the year
ended 31 December 2005 which have been audited by the Group's auditors Grant
Thornton UK LLP and whose report thereon is unqualified.
The accounts are being put to the members for approval at the forthcoming AGM
(see below) and have not yet been delivered to Companies House.
2 Adoption of International Financial Reporting Standards
2.1 Transition to International Financial Reporting Standards
The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards (IFRS) as adopted
by the EU and as issued by the International Accounting Standards Board (IASB).
The Group has adopted IFRS for the first time in its consolidated financial
statements for the year ended 31 December 2005. Previously the Group had
reported under United Kingdom Generally Accepted Accounting Principles ('UK
GAAP').
The transition from UK GAAP to IFRS has been made in accordance with IFRS 1:
First-time Adoption of International Financial Reporting Standards. This
transition has resulted in a number of changes to the Group's accounting
policies in the following areas that have affected the amounts reported for the
current or prior years:
* IFRS 2: Share-based payments
* IFRS 3: Business combinations , and
* Excess of acquirer's interest in the net fair value of acquiree's
identifiable assets, liabilities and contingent liabilities over cost of
acquisition (IFRS 3)
The impact of these changes is discussed in detail later in this note. The
impact on earnings per share is disclosed in note 4.
2.2 Revised structure of balance sheet and income statement
The Group has modified its former balance sheet and income statement structure
on transition to IFRS to amend the classification and disclosure of its Capital
and Revenue Reserves, the impact of which is shown in the Statement of Changes
in Equity above and can be summarised as:
Equity Capital Retained
Capital Reserves Loss
As at 1 January 2004
As previously reported 238,607 20,162,719 (15,219,014)
Adjustment re IFRS 2: Share-based - 3,874 (3,874)
payments
As at 1 January 2004 as restated 238,607 20,166,593 (15,222,888)
under IFRS
2.3 Share-based payments
IFRS 2: Share-based payments requires recognition of equity-settled share-based
payments at fair value at the date of grant and the recognition of liabilities
for cash-settled share-based payments at the current fair value at each balance
sheet date. Prior to the adoption of IFRS 2 the Group did not recognise the
financial effect of share-based payments until such payments were settled,
unless required to do so under UITF 17.
In accordance with the transitional provisions of IFRS 2, the Standard has been
applied retrospectively to all grants of equity instruments after 7 November
2002 that were unvested as of 1 January 2005 and to liabilities for share-based
transactions existing at1 January 2005.
The opening balance sheet as at 1 January 2004 has been adjusted to reflect the
impact of options granted prior to that date. These have resulted in prior
period losses being increased by #3,874 and the opening balance sheet has been
adjusted to reflect the increased loss and the creation of a related reserve.
For 2004, the change in accounting policy has resulted in a net increase in
loss for that year of #113,572. The balance sheet at 31 December 2004 has been
adjusted to reflect the recognition of that loss and the creation of the
related reserve.
For 2005, the impact of the grant of options has been to increase losses by #
490,471.
During the year the Group also issued warrants in connection with its
acquisition of Atugen AG and in relation to the subsequent fundraising carried
out. The impact of implementing the requirements of IFRS 2 to these warrants is
to increase the cost of acquiring Atugen by #656,333 and to increase the costs
of the fundraising by #807,710. Consequently, the balance sheet at 31 December
2005 reflects the recognition of the cumulative liability in respect of all of
these share-based payments amounting to #2,071,960 as a Share-based payments
reserve.
2.4 Restatement of Balance Sheets
The impact of the adoption of IFRS on the balance sheets of the Group and the
Company at 31 December 2003 and 31 December 2004 is as follows:
Group Balance Sheet at 31 December 2003
as previously as restated
reported adjustment under IFRS
# # #
Non-current assets
Property, plant and equipment 59,860 - 59,860
Current assets
Trade and other receivables 1,336,081 - 1,336,081
Cash and cash equivalents 5,092,751 - 5,092,751
6,428,832 - 6,428,832
Liabilities
Trade and other payables 1,306,380 - 1,306,380
Net Assets 5,182,312 - 5,182,312
Equity
Share capital 238,607 - 238,607
Share premium account 19,978,803 - 19,978,803
Merger reserve 183,916 - 183,916
Share-based payment reserve - 3,874 3,874
Retained loss (15,219,014) (3,874) (15,222,888)
Total Equity 5,182,312 - 5,182,312
Group Balance Sheet at 31 December
2004
as previously adjustment as restated
reported under IFRS
# # #
Non-current assets
Property, plant and equipment 39,950 - 39,950
Current assets
Trade and other receivables 518,370 - 518,370
Cash and cash equivalents 2,632,002 - 2,632,002
3,150,372 - 3,150,372
Liabilities
Trade and other payables 513,911 (189,680) 324,231
Provisions - current - 189,680 189,680
Provisions - non current - 331,940 331,940
513,911 331,940 845,851
Creditors due after more than one year 331,940 (331,940) -
Net Assets 2,344,471 - 2,344,471
Equity
Share capital 238,857 - 238,857
Share premium account 19,983,303 - 19,983,303
Merger reserve 183,916 - 183,916
Share-based payment reserve 117,446 117,446 -
Retained loss (18,061,605) (117,446) (18,179,051)
Total Equity 2,344,471 - 2,344,471
3. Principal accounting policies
The financial statements have been prepared in accordance with International
Financial Reporting Standards as adopted by the EU and on the historical cost
basis.
The principal accounting policies adopted are set out below.
3.1 Basis of consolidation
The group financial statements consolidate those of the Company and its
controlled subsidiary undertakings drawn up to 31 December 2005. Control is
achieved where the Company has the power to govern the financial and operating
policies of the entity so as to obtain benefits from its activities.
Acquisitions of subsidiaries are dealt with by the purchase method of
accounting.
The results of subsidiaries acquired or disposed of during the year are
included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring accounting policies into line with those used for
reporting the operations of the Group. All intra-group transactions, balances,
income and expenses are eliminated on consolidation.
3.2 Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of the acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquiree, plus
any costs directly attributable to the business combination. The acquiree's
identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 are recognised at their fair values at
the acquisition date.
Goodwill arising on acquisition is recognised as an asset and initially
measured at cost, being the excess of the cost of the business combination over
the Group's interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised. If, after reassessment, the
Group's interest in the net fair value of the acquiree's identifiable assets,
liabilities and contingent liabilities exceeds the cost of the business
combination, the excess is recognised immediately in profit or loss.
In arriving at the cost of acquisition, the fair value of the shares issued by
the Company is taken to be the mid-market price of those shares at the date of
issue. Where this figure exceeds the nominal value of the shares, the excess
amount is treated as an addition to reserves. The Group has credited the excess
amount to the Merger reserve since, under Section 131 of the Companies Act,
such excess amount arising where the Company acquires more than a 90% interest
in another entity is not treated as an addition to Share premium account.
3.3 Goodwill
Goodwill arising on the acquisition of a subsidiary represents the excess of
the cost of acquisition over the Group's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities of the subsidiary
at the date of acquisition. Goodwill is initially recognised as an asset at
cost and is subsequently measured at cost less any accumulated impairment
losses.
For the purpose of impairment testing, goodwill is allocated to each of the
Group's cash-generating units expected to benefit from the synergies of the
combination. Cash-generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the cash-generating
unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the
unit and then to the other assets of the unit pro-rata on the basis of the
carrying amount of each asset in the unit. An impairment loss recognised for
goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in
the determination of the profit or loss on disposal.
3.4 Revenue recognition
The Group's income consists of licence fees, milestone and option payments,
fees earned from target validation work, grant income and research and
development collaborations.
Licence fees, option and milestone payments for which the Group has no further
contractual duty to perform any future services are recognised on the date that
they are contractually receivable.
Where such fees or receipts require future performance or financial commitments
on behalf of the Group, the revenue is recognised pro rata to the services or
commitments being performed.
Revenues from target validation work or other research and testing carried out
for third parties are recognised when the work to which they relate has been
performed.
Government grants are dealt with as per note 3.5 below.
All other technology access fees, annual licence fees or other time-related
receipts are recognised as revenue on a straight line basis over the period of
the underlying contract.
3.5 Government Grants
Government grants towards the cost of staff employed in research and
development activities are recognised as income over the periods necessary to
match them with the related costs.
Government grants towards the cost of plant and equipment are treated as a
reduction in the cost of the asset to which they relate.
3.6 Foreign currency translation
SR Pharma's consolidated financial statements are presented in Sterling (#),
which is also the functional currency of the parent company. The individual
financial statements of each group entity are presented in the currency of the
primary economic environment in which the entity operates (its functional
currency).
In preparing the financial statements of the individual entities, transactions
in currencies other than the entity's functional currency (foreign currencies)
are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary items denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date.
Non-monetary items carried at fair value that are denominated in foreign
currencies are retranslated at the rates prevailing on the date when the fair
value was determined. Non-monetary items that are measured in terms of
historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in profit or loss for the period.
Exchange differences arising on the retranslation of non-monetary items carried
at fair value are included in profit or loss for the period except for
differences arising on the retranslation of non-monetary items in respect of
which gains and losses are recognised directly in equity. For such non-monetary
items, any exchange component of that gain or loss is also recognised directly
in equity.
For the purpose of presenting consolidated financial statements, the assets and
liabilities of the Group's foreign operations (including comparatives) are
expressed in Sterling using exchange rates prevailing on the balance sheet
date. Income and expense items (including comparatives) are translated at the
actual exchange rates. Exchange differences arising, if any, are recognised in
Equity in the Group's Translation reserve. Cumulative translation differences
are recognised in profit or loss in the period in which the foreign operation
is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign
operation are treated as assets and liabilities of the foreign operation and
translated at the closing rate.
3.7 Defined contribution pension funds
The group pays contributions related to salary to UK employees' individual
pension schemes. The pension cost charged against profits represents the amount
of the contributions payable to the schemes in respect of the accounting
period. No separate provision is made in respect of non-UK employees.
3.8 Property, plant and equipment
The Group holds no property assets.
All plant and equipment is stated in the accounts at its cost of acquisition
less a provision for depreciation.
Depreciation is charged to write off the cost less estimated residual values of
plant and equipment on a straight line basis over their estimated useful lives.
All plant and equipment is estimated to have useful lives of between 3 and 5
years.
3.9 Other intangible assets and research and development activities
Other intangible assets include both acquired and internally developed
intellectual property used in research and operations. These assets are stated
at cost less amortisation.
Acquired intellectual property rights are capitalised on the basis of the costs
incurred to acquire the specific rights.
Costs associated with research activities are treated as an expense in the
period in which they are incurred.
Costs that are directly attributable to the development phase of new
intellectual property rights are recognised as intangible assets provided they
meet the following requirements:
* an asset is created that can be separately identified,
* it is probable that the asset created will generate future economic
benefits either through internal use or sale,
* sufficient technical, financial and other resources are available for
completion of the asset, and
* the expenditure attributable to the intangible asset during its development
can be reliably measured.
The costs of internally generated intellectual property are recognised as
intangible assets and they are subject to the same subsequent measurement
method as externally acquired intellectual property. However, until completion
of the development project, the assets are subject to impairment testing only
as described below. Amortisation commences upon completion of the asset.
Amortisation is applied to write off the cost less residual value of the
intangible assets on a straight line basis over their estimated useful life.
The principal rate used is 10% per annum. Amortisation is included within
administration expense.
Careful judgement by SR Pharma's management is applied when deciding whether
recognition requirements for development costs have been met. This is necessary
as the economic success of any product development is uncertain and may be
subject to future technical problems at the time of recognition. Judgements are
based on the information available at each balance sheet date.
3.10 Impairment testing of goodwill, other intangible assets and property,
plant and equipment
At each balance sheet date, the Group reviews the carrying amounts of its
property, plant and equipment and intangible assets to determine whether there
is any indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss (if any). Where it is not
possible to estimate the recoverable amount of an individual asset, the Group
estimates the recoverable amount of the cash-generating unit to which the asset
belongs.
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units). Goodwill is allocated to those cash-generating units that are expected
to benefit from synergies of the related business combination and represent the
lowest level within the Group at which management controls the related cash
flows.
Individual assets or cash-generating units that include goodwill and other
intangible assets with an indefinite useful life, or those not yet available
for use, are tested for impairment at least annually. All other individual
assets or cash-generating units are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable.
An impairment loss is recognised for the amount by which the assets or
cash-generating unit's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market conditions
less costs to sell, and value in use, based on an internal discounted cash flow
evaluation. Impairment losses recognised for cash-generating units to which
goodwill has been allocated are credited initially to the carrying amount of
goodwill. Any remaining impairment loss is charged pro rata to the other assets
in the cash generating unit.
3.11 Investments in subsidiaries
Investments in subsidiaries are included at cost less provisions for
impairment.
3.12 Financial instruments
Financial assets and financial liabilities are recognised on the Group's
balance sheet when the Group becomes a party to the contractual provisions of
the instrument.
Financial assets include cash and financial instruments. Financial assets,
other than hedging instruments, can be divided into the following categories:
loans and receivables, financial assets at fair value through profit or loss,
available-for-sale financial assets and held-to-maturity investments. Financial
assets are assigned to the different categories by management on initial
recognition, depending on the purpose for which the investments were acquired.
The designation of financial assets is re-evaluated at every reporting date at
which a choice of classification or accounting treatment is available.
All financial assets are recognised on their settlement date. All financial
assets that are not classified as at fair value through profit or loss are
initially recognised at fair value plus transaction costs.
Derecognition of financial instruments occurs when the rights to receive cash
flows from investments expire or are transferred and substantially all of the
risks and rewards of ownership have been transferred. An assessment for
impairment is undertaken at least at each balance sheet date whether or not
there is objective evidence that a financial asset or a group of financial
assets is impaired.
Non-compounding interest and other cash flows resulting from holding financial
assets are recognised in profit or loss when received, regardless of how the
related carrying amount of financial assets is measured.
Trade receivables
Trade receivables are measured at initial recognition at fair value and are
subsequently measured at fair value less impairment losses. Appropriate
allowances for estimated irrecoverable amounts are recognised in profit or loss
when there is objective evidence that the asset is impaired. The allowance
recognised is measured as the difference between the asset's carrying amount
and the present value of estimated future cash flows discounted at an effective
interest rate computed at initial recognition.
Loans receivable
Loans receivable are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise when the Group
provides money directly to a debtor with no intention of trading the
receivables. Loans receivable are subsequently measured at amortised cost using
the effective interest method, less provision for impairment. Any change in
their value is recognised in profit or loss.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of change in value.
Financial liabilities and equity
Financial liabilities and equity instruments issued by the Group are classified
according to the substance of the contractual arrangements entered into and the
definitions of a financial liability and an equity instrument. An equity
instrument is any contract that evidences a residual interest in the assets of
the Group after deducting all of its liabilities. The accounting policies
adopted for specific financial liabilities and equity instruments are set out
below.
Equity instruments
Equity instruments issued by the Group, other than equity-settled share-based
payments which are described below, are recorded at the proceeds received net
of direct issue costs.
Credit risk
The Group's principal financial assets are cash and cash equivalents and trade
and other receivables. The credit risk on cash and cash equivalents is limited
since the counterparties are banks with high credit ratings. The amounts
presented in the balance sheet for trade and other receivables is stated after
allowance is made for any impairment loss.
3.13 Operating Leases
All leases are regarded as operating leases and the payments made under them
are charged to the profit and loss account on a straight line basis over the
lease term.
3.14 Inventories
Inventories comprise raw materials, supplies and purchased goods. At the
balance sheet date, inventories are stated at the lower of cost and net
realisable value. Net realisable value is the estimated selling price in the
ordinary course of business less any applicable selling expense.
3.15 Provisions
Provisions are recognised when the Group has a present obligation as a result
of a past event, and it is probable that the Group will be required to settle
that obligation. Provisions are measured at the directors' best estimate of the
expenditure required to settle the obligation at the balance sheet date, and
are discounted to present value where the effect is material.
3.16 Share-based payments
The Group issues equity-settled share-based payments to certain employees and
advisers. Equity-settled share-based payments are measured at fair value
(excluding the effect of non market-based vesting conditions) at the date of
grant. The fair value so determined is expensed on a straight-line basis over
the vesting period, based on the Group's estimate of the number of shares that
will eventually vest and adjusted for the effect of non market-based vesting
conditions.
Fair value is measured using a Binomial pricing model. The key assumptions used
in the model have been adjusted, based on management's best estimate, for the
effects of non-transferrability, exercise restrictions and behavioural
considerations.
3.17 Equity
Share capital is determined using the nominal value of shares that have been
issued.
The Share premium account includes any premiums received on the initial issuing
of the share capital. Any transaction costs associated with the issuing of
shares are deducted from the Share premium account, net of any related income
tax benefits.
The Merger reserve represents the difference between the nominal value and the
market value at the date of issue of shares issued in connection with the
acquisition by the group of an interest in over 90% of the share capital of
another company.
Equity-settled share-based payments are credited to a Share-based payment
reserve as a component of equity until related options or warrants are
exercised.
Foreign currency translation differences are included in the Translation
reserve.
Retained loss includes all current and prior period results as disclosed in the
income statement.
3.18 Taxation
The tax expense recognised in the Income Statement represents the sum of the
tax currently payable or receivable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Tax receivable arises from the UK legislation regarding the treatment of
certain qualifying research and development costs, allowing for the surrender
of tax losses attributable to such costs in return for a tax rebate.
Deferred tax is recognised on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such
assets and liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised. Deferred tax is
charged or credited to profit or loss, except when it relates to items charged
or credited directly to equity, in which case the deferred tax is also dealt
with in equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
3.19 Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the entity's accounting policies, management makes
estimates and assumptions that have an effect on the amounts recognised in the
financial statements. Although these estimates are based on management's best
knowledge of current events and actions, actual results may ultimately differ
from those estimates.
The key assumptions concerning the future, and other key sources of estimation
uncertainty at the balance sheet date, that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are those relating to the future recoverability of
intangible fixed assets and goodwill and the corresponding review for
impairment of those assets.
4. LOSS PER SHARE
The calculation of the loss per share is based on the loss for the financial
year after taxation of #3,584,768 (2004: loss #2,956,163) and on the weighted
average of 60,875,634 (2004: 23,872,872) ordinary shares in issue during the
year.
The figures for 2004 above have been restated to reflect the impact of the
adoption of IFRS. Changes in Group accounting policies are described in note 2
above. To the extent that those changes have had an impact on the results for
2005 and 2004 due to the adoption of IFRS 2: Share-based payments they have had
an impact on the amounts reported for loss per share. The implementation of
IFRS 2 has resulted in an increase in the reported loss per share of 0.47p in
2004 and 0.81p in 2005.
The options outstanding at 31 December 2004 and 31 December 2005 are considered
to be non-dilutive in that their conversion into ordinary shares would not
increase the net loss per share. Consequently, there is no diluted earnings per
share to report for either year.
5. CASH & CASH EQUIVALENTS
At 1 Cash At 31
January Flows December
Cash at bank 2005 2005
Instant access 1,830,115 616,704 2,446,819
accounts
Deposits 801,887 5,842,495 6,644,382
Total 2,632,002 6,459,199 9,091,201
Bank balances comprise cash held by the Group in current and short-term bank
deposits with an original maturity of three months or less. The carrying amount
of these assets approximate to their fair value. The deposits held at bank are
treated as cash equivalents under the definitions of IAS 7: Cash Flow
Statements. Although the sums are held on short term fixed rate deposit, they
are instantly available to the Group but only by breaking the terms of the
deposit which may incur minor penalties. During the year, the effective rates
of interest on fixed rate deposits ranged between 4.1% and 4.5% per annum.
AVAILABILITY OF ACCOUNTS
The full Annual Report will be posted to shareholders shortly and will be
available online at www.srpharma.com or from the Company's offices at Floor 26,
Centre Point, 103 New Oxford Street, London, WC1A 1DD.
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the 2006 Annual General Meeting of SR Pharma plc
will be held at Farmers and Fletchers Hall, 3 Cloth Street, London EC1A 7LD at
4.30 pm on Thursday 3 August 2006.
BY ORDER OF THE BOARD
J M DAVIES
Secretary
23 June 2006
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 scheduled
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 it 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.
Forward-Looking Statements
This press release includes forward-looking statements that are subject to
risks, uncertainties and other factors. These risks and uncertainties could
cause actual results to differ materially from those referred to in the
forward-looking statements. All forward-looking statements are based on
information currently available to SR Pharma and SR Pharma assumes no
obligation to update any such forward-looking statements.
Enquiries:
For further information, please contact the following:
SR Pharma plc Atugen AG
+44(0)20 7307 1620 +49(0)30 9489 2800
Iain Ross Executive Chairman Thomas Christély, CEO
Melvyn Davies Finance Director Dr. Klaus Giese, CSO
Northbank Communications
+44(0)20 7886 8150
Sue Charles
Justine Lamond
Rowan Minnion
END