Vernalis Plc: Interim Results for the Six Months Ended 30 June 2006
WINNERSH, England, Sept. 12 /PRNewswire-FirstCall/ — Vernalis plc today announced its interim results for the six months ended 30 June 2006.
Highlights — U.S. commercial business fully operational detailing Apokyn(R) and Frova(R) — Strong financial position with closing cash of 50.9 million pounds sterling — Losses reduced at 19.4 million pounds (2005: 20 million pounds) — Frova(R) supplemental New Drug Application (sNDA) submitted to US FDA for the prevention of menstrual migraine (MM) — V1003 (partial opioid agonist) meets primary end point in Phase IIa study for the management of post-operative pain — Significant progress towards initiation of four further clinical trials in H2 2006 — V1512 (methylester of levadopa) Phase III study in Parkinson’s disease — V2006 (A(2A) antagonist) Phase II study in Parkinson’s disease — V24343 (CB(1) antagonist) Phase I study in obesity — Hsp90 (Hsp90 inhibitor) Phase I study in cancer — Entered into an agreement with Pfizer to sub-lease approximately half of premises at Granta Park, Cambridge Simon Sturge, chief executive officer of Vernalis, commented:
“Vernalis is continuing to show substantial progress toward becoming a self-funding, sustainable R&D driven commercial business. Establishing our U.S. operation with the successful launch of Apokyn(R) and completing the Frova(R) clinical trials for the short-term prevention of menstrual migraine were significant achievements. The second half of 2006 is expected to have substantial news flow as we progress our drug candidates through the clinic and boost our product revenues.”
U.S. Commercial Operation Fully Operational
During the first six months of 2006 Vernalis’ North American commercial business became fully operational and is now marketing the Company’s Parkinson’s disease drug, Apokyn(R) (apomorphine hydrochloride injection), as well as co-promoting its migraine drug, Frova(R) (frovatriptan succinate) 2.5 mg tablets alongside its partner, Endo Pharmaceuticals (Endo).
Apokyn(R)
Vernalis’ U.S. commercial operation has established its credibility through a significant increase in new prescriptions for Apokyn(R) following its re-launch in January 2006. However, gross sales for the first six months of 2006 of $2.3 million are somewhat below initial expectations because of lower levels of repeat business due to an under-reporting of patients who had discontinued their treatment during the period prior to acquisition by Vernalis. The lower sales in H1 2006 mean that, while we still believe gross sales for the full year will be within the guidance initially provided of $6 million – $7.5 million, we would now expect them to be at the lower end of this range. Net sales for the period, after provisions, were $1.8 million.
The substantial growth in new business, along with the new marketing initiatives including the Nurse Support Programme (The APOKYN(R) Circle of Care(TM)) and the introduction of product sampling, gives us considerable confidence in the potential of Apokyn(R).
Frova(R)
In May 2006 Vernalis completed the final Phase III pivotal efficacy study in MM patients who had failed on acute therapy, aimed at obtaining approval for Frova(R) for use as an intermittent, short-term preventative treatment for MM. This study achieved its primary end point and, together with the Phase III efficacy and safety studies previously conducted, resulted in the submission of the sNDA to the FDA. If the sNDA is successful, Vernalis expects FDA approval in mid-2007.
Development Portfolio Update Pain Franchise — V1003 (partial opioid agonist) – Achieved the primary endpoint in a Phase IIa study in acute post-operative pain. Vernalis is now working with its partner, Reckitt Benckiser, to identify the most appropriate development programme for nasal delivery of buprenorphine. — V3381 (dual NMDA antagonist/MAO-A inhibitor) – In August 2006, Vernalis started a Phase IIa trial in patients with neuropathic pain resulting from long-standing diabetes. Neurology Franchise — V1512 (methylester of levadopa) – This potential treatment for Parkinson’s disease has completed Phase II studies with a Phase III study expected to begin in H2 2006. — V10153 (thrombolytic) – Phase IIa trial in acute ischaemic stroke is on-going with the aim to determine whether V10153 can be clinically effective in patients up to 9 hours after the occurrence of a stroke. The trial is targeted to complete patient enrolment in H2 2006. — V2006 (A(2A) antagonist) – A series of Phase I trials has been completed. Vernalis’ partner, Biogen Idec, is now responsible for moving forward into Phase II trials which are expected to start in H2 2006. Other Programmes — V24343 (CB(1) antagonist) – This potent and selective cannabinoid receptor antagonist is a potential treatment for obesity and related disorders. Vernalis expects to start Phase I testing in overweight and mildly obese volunteers in H2 2006. — Hsp90 (Hsp90 inhibitor) – Vernalis’ partner, Novartis, has selected a clinical development candidate in this oncology programme. Phase I testing is expected to start in H2 2006. — MMPI-12 (metalloenzyme inhibitor) – Vernalis’ partner, Serono, has completed a Phase I study of this matrix metalloprotease inhibitor looking at its therapeutic potential in inflammatory disorders including multiple sclerosis. Financial Position
Revenues increased to 6.6 million pounds in the first six months of 2006 from 5.9 million pounds in the same period of 2005. In addition, Vernalis reduced its loss before taxes to 19.4 million pounds during the first half of 2006 as compared to 20.0 million pounds in the same period of 2005. Following a successful fund raising completed at the end of 2005, Vernalis’ cash resources at the end of June 2006 totalled 50.9 million pounds.
Simon Sturge and Tony Weir, CEO and CFO of Vernalis respectively, will today host an analyst / investor presentation and conference call at 9:00 am BST to discuss the interim results.
This may be accessed by dialling: +44(0) 1452 541076, and quoting ‘Vernalis conference call.’
A replay facility will be available for 7 days by dialling: +44(0) 1452 550000, with the access code: 5493221#
Enquiries: Brunswick Group Jon Coles Justine McIlroy +44 (0)20 7404 5959 About Vernalis
Vernalis is a speciality bio-pharmaceutical company focused on products marketed to specialist neurologists. The company has two marketed products, Frova(R) and Apokyn(R), and a development pipeline focused on neurology and central nervous system disorders. The company has seven products in clinical development and development collaborations with leading, global pharmaceutical companies including Novartis, Biogen Idec and Serono:
Product Indication Phase Phase Phase Registration Market Marketing I II III Rights Apokyn(R) Parkinson’s x North Disease America Frova(R) Migraine x US milestones & royalties – Endo(EU – royalties) Frova(R) Menstrual x US Migraine milestones Prevention & royalties – Endo(EU – royalties) V1512 Parkinson’s x World Wide Disease (excl. Italy) V10153 Ischaemic x World Wide stroke V1003 Acute Pain x US Profit share Option Reckitt Benckiser V3381 Neuropathic x World Wide Pain V2006 Parkinson’s x US Disease Co-promotion Biogen Idec MMPI Multiple x None – Sclerosis royalty (Serono)
Vernalis has established a U.S. commercial operation to promote Apokyn(R) and co-promote Frova(R) alongside its North American licensing partner, Endo Pharmaceuticals, progressing the company towards its goal of becoming a sustainable, self-funding, R&D-driven, speciality bio-pharmaceutical company. For further information about Vernalis, please visit http://www.vernalis.com/.
Vernalis Forward-Looking Statement
This news release may contain forward-looking statements that reflect the Company’s current expectations regarding future events including the clinical development and regulatory clearance of the Company’s products, the Company’s ability to find partners for the development and commercialisation of its products, as well as the Company’s future capital raising activities. Forward- looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors including the success of the Company’s research strategies, the applicability of the discoveries made therein, the successful and timely completion of clinical studies, the uncertainties related to the regulatory process, the ability of the Company to identify and agree beneficial terms with suitable partners for the commercialisation and/or development of its products, as well as the achievement of expected synergies from such transactions, the acceptance of Frova(R) and Apokyn(R) and other products by consumers and medical professionals, the successful integration of completed mergers and acquisitions and achievement of expected synergies from such transactions, and the ability of the Company to identify and consummate suitable strategic and business combination transactions.
1. Strategy and operational review
Vernalis’ strategic goal is to become a sustainable, self-funding, R&D driven speciality bio-pharmaceutical company primarily focused on drugs for the treatment of neurology and CNS disorders. The Company has two marketed products, a pipeline of seven clinical drug candidate programmes as well as a strong research capability that expects to add two clinical programmes to its portfolio in H2 2006. Vernalis has established a commercial operation in North America to market Apokyn(R) and co-promote Frova(R) alongside its partner Endo, as well as to promote other products that it is developing in- house or may acquire.
Marketed Products Apokyn(R) – Advanced Parkinson’s Disease
Apokyn(R) is the only acute, intermittent therapy available in the U.S. for the treatment of immobilising “off” episodes associated with advanced Parkinson’s disease. It is administered, as needed, by means of an injector pen to treat periods of immobility in people with advanced disease. In April 2004, Apokyn(R) received FDA approval with Orphan Drug designation to treat advanced Parkinson’s disease patients in the U.S. who experience the severe “on/off” motor fluctuations that are unresponsive to other oral Parkinson’s disease therapies. Approximately 112,000 patients with Parkinson’s disease experience such “off” episodes despite optimal oral PD therapy. Apokyn(R) was launched in the U.S. in July 2004 and Vernalis acquired the North American commercial rights from Mylan in November 2005.
Mylan stopped promoting Apokyn(R) in July 2005. When Vernalis re-launched this promotion-sensitive product in February 2006, new prescriptions had diminished to almost zero. Apokyn(R) is sensitive to promotion due to patients’ requirement for close medical supervision during the initial administration in order ensure that each individual patient is individually titrated to their optimal dose and to minimise the risk of first dose side effects.
During the first half of 2006, Vernalis established several marketing initiatives as part of its Apokyn(R) re-launch strategy. Vernalis has worked closely with physicians to communicate the benefits of Apokyn(R) and reduce the barriers that prevent patients from starting to use the product. These efforts include a nurse support programme (The APOKYN(R) Circle of Care(TM)) where nurses assist physicians with the initial titration and may also visit patients in their home to ensure that they are comfortable using the drug and gaining the maximum benefit. In addition, Vernalis has introduced a sampling programme making it easier for the physician to initiate a patient and help ensure the patient will benefit from the drug prior to having incurred any expense.
Vernalis expects these types of activities to begin to impact levels of new prescriptions approximately three months after introduction. As a result, prescriptions initially remained at the low levels inherited from Mylan during the early part of the year, but have begun to increase substantially in recent months. Gross sales in H1 2006 were $2.3 million and are expected to be at the lower end of the initial guidance of $6 million to $7.5 million for the full year.
Apokyn(R) is indicated for the acute, intermittent treatment of hypomobility or “off” episodes associated with advanced Parkinson’s disease. It is used as an adjunct to other PD medications. Apokyn(R) is associated with severe nausea and vomiting and should be given with a concomitant antiemetic (trimethobenzamide).
Frova(R) – Acute Migraine
Frova(R) is a selective 5-HT(1B/1D) receptor agonist approved as an acute oral treatment for migraine headache and its associated symptoms. Frova(R) is a triptan and is distinguished from other triptans by its long half-life.
Vernalis has licensed North American rights for Frova(R) to Endo who reported net sales of the product of $20 million for H1 2006. Vernalis has co-promoted Frova(R) in the U.S. with Endo since February 2006.
In Europe, frovatriptan is marketed in twelve countries by Menarini. The drug was approved throughout the then 15 member states of the European Union via the mutual recognition procedure in January 2002. In the first half of 2006 Menarini launched frovatriptan in Slovakia (January 2006), Finland (March 2006), Czech Republic (June 2006) and Slovenia (June 2006). In Germany and Italy market share has grown to approximately 10 per cent and in excess of 12 per cent, respectively, of the overall triptan market.
Frova(R) is approved for the treatment of migraines in adults. The most common adverse events include dizziness, fatigue, paresthesia, flushing, and headache.
Development Portfolio Pain Franchise Frova(R) – Prevention of Menstrual Migraine
Vernalis has completed a series of studies aimed at obtaining approval for Frova(R) for the intermittent, short-term prevention of MM and Vernalis’ partner, Endo filed an sNDA with the FDA in July 2006. Vernalis expects an approximate 10-month review for the sNDA with a potential approval in mid- 2007. If approved by the FDA for this new indication, Vernalis will receive a $40 million milestone payment from Endo.
The Frova(R) sNDA is supported by data from four clinical studies, the final of which, a second efficacy study, reported in May 2006. Patients in the study had previously failed on other acute therapies and were treated for three peri-menstrual periods (PMPs). The primary endpoint was the number of menstrual migraine-free PMPs. Both once and twice-daily dose regimens of Frova(R) demonstrated efficacy, with statistical significance compared to placebo (p<0.01 and p<0.001 respectively). In addition, both dose regimens achieved statistical significance in other measures of effectiveness. These secondary endpoints included an increased number of PMPs with one or no days of mild headache, reduction in headache intensity and a reduction in the use of rescue medication. The frequency of adverse events was similar across both active treatment arms and placebo.
V1003 – Post-Operative Pain
In March 2006, Vernalis completed a Phase IIa study of V1003 for the management of post-operative pain. The study achieved its primary end point of pain relief over the period of eight hours from drug administration and Vernalis and Reckitt Benckiser are now working together to identify the most appropriate development programme for nasal delivery of buprenorphine.
Vernalis has two other pre-clinical programmes based on the proprietary intranasal formulation for the delivery of buprenorphine in partnership with Reckitt Benckiser; V1004 for the treatment of chronic pain and V1005 for the treatment of opiate addiction.
V3381 – Neuropathic Pain
V3381 is a novel drug candidate that is being developed as a treatment for neuropathic pain. It has a dual mechanism of action (an NMDA antagonist and an MAO-A inhibitor) which gives it the potential to modulate pain at both central and peripheral targets.
In August 2006 Vernalis started a Phase IIa trial of V3381 in patients with neuropathic pain resulting from long-standing diabetes. The randomised, double-blind, crossover Phase IIa study is designed to assess safety, pharmacokinetics and preliminary efficacy of repeat dosing of V3381, with efficacy being assessed on a numerical point pain rating scale recorded using daily diaries. The trial, which is being conducted in the U.S. and Canada, will include approximately 30 patients and is planned to complete in 12 months.
V3381 is licensed from Chiesi and has previously undergone evaluation in pre-clinical and Phase I clinical studies, including two proof-of-concept studies in a human model of neuropathic pain.
Neurology Franchise
During 2005 Vernalis significantly expanded its Parkinson’s disease franchise which now consists of the marketed product Apokyn(R) and two development programmes V1512 and V2006. It is estimated that approximately 1.5 million people in the U.S. have Parkinson’s disease, a condition that results from selective degeneration of an area of the brain called the substantia nigra, which is located towards the base of the brain in the basal ganglia. Normally these nerve cells release dopamine – a chemical that transmits signals between nerve cells (called a neurotransmitter). This central signalling pathway is essential for the fine control of movement and posture, and breakdown results in the symptoms of Parkinson’s disease namely tremor, rigidity, slow movements and postural instability. Muscle rigidity can become so severe as to result in “freezing” also referred to as “off” episodes, when patients are rendered immobile. Patients also suffer from problems relating to impaired control of blood pressure (postural hypotension) and gut motility, which can impair the absorption of food and drugs.
The disease is progressive and the signs and symptoms generally worsen over time. However, while Parkinson’s disease may eventually be disabling, the disease often progresses gradually and with appropriate treatment many patients have a number of years of productive life after initial diagnosis.
V1512 – Parkinson’s Disease
V1512 is an innovative, patented effervescent formulation combining levodopa methylester, a more soluble form of levodopa, and carbidopa. Levodopa, commonly known as L-dopa, has been the cornerstone of Parkinson’s disease treatment for a number of years. After a number of years of therapy L-dopa may become less effective in controlling symptoms, and other complications such as unwanted movements (dyskinesias) can emerge. There is evidence that some problems such as a delay in the onset of action of some L- dopa doses during the day may be due to erratic absorption of the drug into the bloodstream, resulting from impaired functioning of the stomach and small intestine. Normal gut motility, called peristalsis, is essential for passage of food and solid dose form drugs (tablets and capsules) through the stomach to the parts of the intestine where absorption into the bloodstream takes place. V1512, being fully soluble in water, is administered in liquid form and therefore is less susceptible to impaired gastric motility as it can quickly pass through to the small intestine assisted only by gravity. Studies undertaken by Chiesi in Italy have shown that, in patients with motor complications leading to delayed effects or dose failures, the effervescent form of methylester of L-dopa works more rapidly than conventional L-dopa in tablet form.
Vernalis plans to initiate a Phase III programme of V1512 in H2 2006 aimed at obtaining regulatory approval in North America and Europe. Also in H2 2006, Vernalis plans to initiate a pharmacokinetic study of V1512 in Parkinson’s disease patients in order to compare the plasma levels of L-dopa with Sinemet(R), the most widely prescribed form of L-dopa treatment for Parkinson’s disease patients in the U.S.
V2006 – Parkinson’s Disease
V2006 is an adenosine A(2A) receptor antagonist in development as a potential novel treatment for Parkinson’s disease. A(2A) receptor antagonists act indirectly on dopaminergic systems and may possess advantages over conventional dopaminergic therapies. V2006 is anticipated to help restore motor function in patients with Parkinson’s disease with potentially fewer of the side-effects such as nausea and dyskinesia (uncontrolled movements) associated with conventional directly acting dopaminergic treatments.
Phase I development of V2006 has been completed by Vernalis. Biogen Idec is conducting and funding future development and will pay milestones and royalties on the successful development and commercialisation of products. Vernalis has an option to co-promote products arising out of this collaboration in the U.S. Biogen Idec filed an Investigational New Drug Application (IND) in December 2005 and plans to commence Phase II studies in H2 2006.
V10153 – Ischaemic Stroke
V10153 is a novel thrombolytic protein which is being developed for the treatment of acute ischaemic stroke; a type of stroke that is caused by blockage of a blood vessel, unlike a hemorrhagic stroke which is caused by bleeding. Ischaemic stroke is the most common type of stroke, accounting for over 80 per cent of all strokes and occurs when a blood clot (thrombus) forms and blocks blood flow in an artery bringing blood to part of the brain. Current therapeutic options for stroke sufferers are severely limited.
In late 2005 Vernalis started a multi-centre Phase II clinical study of V10153 to determine whether this novel thrombolytic can safely benefit patients who have recently experienced an acute ischaemic stroke if administered up to nine hours after the stroke has occurred (the only current approved therapy, recombinant tissue plasminogen activator (rtPA), must be administered within the first three hours after a stroke has occurred). The study is being conducted in two parts, with Part A designed to identify a safe and potentially efficacious dose of V10153 which is targeted to complete patient enrolment in H2 2006. Part B of the study will be a placebo controlled extension of the study to confirm the initial indications of efficacy from Part A, subject to satisfactory regulatory review.
Apomorphine – Parkinson’s Disease
In November 2005, Vernalis entered into a collaboration with Britannia Pharmaceuticals Limited (Britannia) to explore the development of new formulations of apomorphine for the U.S. market. Vernalis has rights to Britannia’s technology to develop a continuous sub-cutaneous infusion of apomorphine and rights to negotiate terms for a nasal powder formulation of apomorphine, which is currently in clinical development in Europe.
Other Programmes V24343 – Obesity
Vernalis’ research group has successfully progressed a series of potent and selective cannabinoid receptor antagonists as novel treatments for obesity. CB(1) receptors, initially identified in the brain, are also present in several other peripheral tissues, including adipocytes (fatty tissues). These receptors are part of the endocannabinoid system, a natural physiological system that is thought to play a role in the regulation of both appetite and peripheral energy metabolism, thereby affecting body weight.
In August 2005, V24343 was selected as the lead clinical candidate and a pre-clinical programme, which includes process and formulation development, pre-clinical safety and drug metabolism and pharmacokinetics, is underway. Phase I studies are expected to commence in H2 2006.
MMP-12 – Multiple Sclerosis
In January 2005, Vernalis’ partner, Serono, started a Phase I clinical trial of a selective inhibitor of MMP-12 (matrix metalloprotease inhibitor 12). This is the first compound to enter the clinic resulting from the research collaboration, and, in accordance with the terms of the agreement, Vernalis received a milestone payment. The Phase I trial, which has now completed, was performed in healthy volunteers, with a primary objective of elucidating the safety, tolerability and pharmacokinetic properties of the compound. Serono is conducting and funding all development activities associated with any programme that enters the clinic, with Vernalis receiving milestone payments and royalties upon successful commercialisation of any product.
Hsp90 inhibitors – Oncology
Inhibition of Hsp90 is believed to have significant potential in the treatment of a broad range of cancers. This programme is utilising Vernalis’ structure-based design technology to identify potent and specific inhibitors of this novel drug target for use against various cancers. Vernalis has a research collaboration with Novartis to investigate inhibitors of Hsp90 and the two companies are conducting a joint research programme under which Novartis provides research funding to Vernalis for an initial three-year period from August 2004. In addition, Novartis is responsible for funding and conducting the development of product candidates as well as for commercialisation. In December 2005, Vernalis announced that Novartis had selected a clinical development candidate. The compound is expected to enter clinical development in H2 2006.
Research
Vernalis has a strong research capability focussed on the discovery of drug development candidates to treat diseases of the central nervous system (CNS) and cancer. The current therapeutic focus in CNS is pain and Parkinson’s disease, where both symptomatic and neuron-protection strategies are being pursued. Emphasis is placed on drug targets for which there is both strong evidence of therapeutic relevance and which are amenable to the Company’s drug candidate discovery technology. Where appropriate Vernalis forms collaborations in this area, an example of which is its adenosine A(2A) receptor antagonist programme partnered with Biogen-Idec. In cancer the emphasis is on targets that are capable of having pleiotropic effects on cancer cells i.e. single targets that can modulate the action of multiple growth promoting pathways used by cancer cells. With this approach it is hoped to produce effective treatments by preventing a tumour being able to survive by using a different complementary growth pathway as illustrated by the Company’s Hsp90 programme partnered with Novartis.
Vernalis uses and develops structure-based drug discovery methods for its programmes in order to increase the quality and discovery rate of drug candidate compounds. The Company’s approach is to generate as much 3 dimensional protein-molecule structural information as possible in the hit identification phase using virtual screening, a distinctive fragment (small parts of molecules) based discovery process, and molecular modeling. In turn, this structural information is used to design novel hit compounds, often combining key interaction features from a number of fragments and compounds together. These hits are then optimised using structure-guided medicinal chemistry. Drug candidate compounds emerging from this discovery process in both therapeutic areas are regularly reviewed and considered for partnering or internal development.
Expected Development Progress — V1512: Start of Phase III in Parkinson’s disease H2 06 — V2006: Start of Phase II in Parkinson’s disease (Biogen)* H2 06 — V24343: Start of Phase I in obesity H2 06 — Hsp90: Start of Phase I (Novartis)* H2 06 — V10153: Completion of recruitment of Phase IIa in stroke H2 06 * Milestone due to Vernalis Financial Commentary Income Statement
Revenue for the six months ended 30 June 2006 was 6.6 million pounds (2005: 5.9 million pounds) and comprised 1.0 million pounds (2005: nil pounds) in respect of sales of Apokyn(R), 1.5 million pounds (2005: 1.6 million pounds) in respect of European revenues from frovatriptan, a release of a 0.3 million pounds (2005: nil pounds) provision in relation to returns and rebates for frovatriptan and 3.8 million pounds (2005: 4.3 million pounds) in respect of revenue recognised under collaboration agreements. The Apokyn(R) sales this year follow the acquisition of the rights to the product from Mylan in November 2005 and represent gross sales of $2.3 million less provisions of $0.5 million for potential returns and rebates. Revenue in respect of collaboration agreements of 3.8 million pounds results from the release of deferred income of previously received initial payments from Endo, Biogen Idec and Novartis and the funding from Endo in respect of the U.S. co-promotion of Frova(R).
Cost of sales increased to 3.1 million pounds (2005: 2.3 million pounds) and comprised 0.2 million pounds (2005: nil pounds) in respect of Apokyn(R), 0.5 million pounds (2005: 0.6 million pounds) in respect of European revenues from frovatriptan and 2.4 million pounds (2005: 1.7 million pounds) in respect of amortisation of acquisition costs of Apokyn(R) and frovatriptan.
Other income of 0.6 million pounds (2005: nil pounds) relates to compensation for damaged inventory of Frova(R).
Research and development expenditure increased to 15.4 million pounds (2005: 12.4 million pounds). In 2006, expenditure of 9.4 million pounds (2005: 8.3 million pounds) was incurred on internally funded R&D and 6.0 million pounds (2005: 4.1 million pounds) on external costs associated with development of the product portfolio. The increase to internally funded R&D is due to inflation and higher average headcount levels. The increase to external costs is due to the broader development portfolio following the acquisition of Cita Neuropharmaceuticals Inc. (Cita) and Ionix Pharmaceuticals in 2005 and costs incurred on product manufacture and Phase II studies for V10153.
Selling, general and administrative expenses increased to 10.9 million pounds (2005: 10.6 million pounds). Following establishment of the US commercial operations in the second half of 2005 and the acquisition of Apokyn(R) in November 2005; sales and marketing expenditure of 4.7 million pounds (2005: 0.2 million pounds) was incurred. A provision for future rental costs associated with properties not utilised within the Group of 1.4 million pounds (2005 nil pounds) was made following reassessment of the likely occupancy periods of tenants. Other administration expenses amounted to 4.8 million pounds (2005: 4.0 million pounds) with the increase due to inflation, insurance costs and higher levels of professional fees. In 2005 a goodwill impairment charge of 6.4 million pounds was incurred.
Interest receivable and similar income increased to 4.7 million pounds (2005: 2.3 million pounds) and comprised interest receivable of 1.3 million pounds (2005: 1.0 million pounds), exchange gains of 3.3 million pounds (2005: 1.0 million pounds) and an implicit interest receipt of 0.1 million pounds (2005: 0.4 million pounds) relating to the fair value accounting for the deferred payments due from Endo. The increase in interest receivable reflects higher average cash balances following the fund raising in December 2005. The exchange gains in 2006 principally relate to retranslation of the $50 million loan from Endo and the deferred consideration which may become payable to the former shareholders of Cita, the Canadian company which Vernalis acquired in 2005. The gain arises because of the strengthening of sterling compared to the US$ in the first half of 2006 (in the first half of 2005 sterling weakened compared to the US$). Interest payable and similar charges decreased to 1.8 million pounds (2005: 3.0 million pounds) and comprised interest payable of 0.8 million pounds (2005: 0.7 million pounds), exchange losses of 0.6 million pounds (2005: 2.0 million pounds) and an implicit finance charge of 0.4 million pounds (2005: 0.3 million pounds) on loans repayable by instalments. The exchange loss in 2006 results from retranslation of the $15 million deferred consideration due from Endo in September 2006 and arises due to the strengthening of sterling referred to above.
The loss for the six months ended 30 June 2006 was 18.4 million pounds (2005: 19.0 million pounds).
Balance Sheet
Non-current assets at 30 June 2006 amounted to 89.1 million pounds (31 December 2005: 91.7 million pounds) with the decrease resulting principally from the amortisation charge in respect of acquired product rights carried on intangible assets. The carrying value of intangible assets amounts to 82.0 million pounds (31 December 2005: 84.3 million pounds) and reflects amounts paid to third parties to acquire the rights to frovatriptan, Apokyn(R), V1512, V3381 and V1003.
Current assets at 30 June 2006 amounted to 70.2 million pounds (31 Dec 2005: 93.1 million pounds). Inventories were 0.5 million pounds (31 Dec 2005: 0.8 million pounds) and principally related to Apokyn(R). Current trade and other receivables were 18.8 million pounds (31 Dec 2005: 24.0 million pounds). The reduction is due to the receipt in the period of 2.1 million pounds in respect of R&D tax credits and the unwinding of a tax assisted financing arrangement entered into by Cita. This resulted in a decrease to both other receivables the other payables of 3.6 million pounds. Cash resources comprising held to maturity financial assets of 35.1 million pounds (31 Dec 2005: 28.1 million pounds) and cash and cash equivalents of 15.8 million pounds (31 Dec 2005: 40.2 million pounds) reduced to 50.9 million pounds (31 Dec 2005: 68.3 million pounds). The reasons for the decrease are explained in the cash flow section below.
Non-current liabilities amounted to 54.9 million pounds (31 Dec 2005: 69.6 million pounds). The reduction is principally due to the classification of 12.1 million pounds ($20 million) in respect of the $50 million loan from Endo within current liabilities. For the purpose of classification of creditors, it is assumed that frovatriptan is approved by the FDA for the short-term prevention of menstrual migraine thus triggering a payment from Endo to Vernalis of $40 million. Endo has the right to withhold 50% of this payment and use it to reduce the balance outstanding on the loan and therefore $20 million has been classified within current liabilities. In addition 2.4 million pounds of deferred income has been transferred from non current to current liabilities.
Current liabilities amounted to 39.5 million pounds (31 December 2005: 32.3 million pounds) with the increase due to the reclassification of 12.1 million pounds of the Endo loan referred to above. This increase was offset by a reduction of 3.6 million pounds in respect of the tax assisted financing referred to above and a reduction in the provision for frovatriptan returns of 0.5 million pounds.
Cash Flow
Cash resources, comprising held to maturity financial assets and cash and cash equivalents, decreased from 68.3 million pounds at 31 December 2005 to 50.9 million pounds at 30 June 2006. The decrease of 17.4 million pounds results from utilisation of 20.6 million pounds in the operations of the business and 0.1 million pounds on the purchase of tangible fixed assets offset by receipt of R&D tax credits of 2.0 million pounds and net interest received of 1.3 million pounds. The cash utilised in the operations of the business will benefit from the receipt of $15 million from Endo in the second half of the year.
Property
In September 2006, Vernalis entered into an agreement with Pfizer to sub- lease approximately half of its premises at Granta Park, Cambridge for an initial period of five years.
Outlook
We continue to concentrate our activities on building the commercial business in North America and progressing our pipeline of product candidates. We are confident that the marketing initiatives undertaken to re-launch Apokyn(R) will increase prescription levels substantially.
We are continuing to make significant progress with our growing development pipeline and a number of milestone payments are potentially becoming payable in respect of projects being developed by our partners. The sNDA for Frova(R) for the short-term prevention of MM has been filed with the FDA and their review is expected to be completed in mid 2007. If approved, a milestone of $40 million is payable to Vernalis. V10153 and V3381 are progressing in Phase II clinical studies. A Phase III study with V1512 and a Phase I study with V24343 are both planned to start shortly. Our partners plan to start a Phase II study with V2006 and a Phase I study with an Hsp90 inhibitor later this year with a milestone payable to Vernalis in each case. As a result, the second half of the year is expected to be a busy period of clinical development.
Unaudited consolidated balance sheet as at 30 June 2006 30 June 30 June 31 December 2006 2005 2005 Note pounds 000 pounds 000 pounds 000 Assets Property, plant and equipment 1,998 1,120 1,910 Goodwill 4 4,869 1,643 4,851 Intangible assets 5 81,964 31,811 84,345 Available-for-sale financial assets 230 585 601 Other receivables – 8,132 – Non-current assets 89,061 43,291 91,707 Inventories 526 62 752 Trade and other receivables 6 18,773 20,550 24,013 Held-to-maturity financial assets 35,134 34,736 28,052 Cash and cash equivalents 15,730 15,175 40,243 Current assets 70,163 70,523 93,060 Total assets 159,224 113,814 184,767 Liabilities Borrowings 7 (17,740) (28,758) (30,938) Other non-current liabilities 8 (7,153) (2,702) (7,412) Deferred income (24,037) (28,876) (26,457) Provisions (5,981) (6,413) (4,780) Non-current liabilities (54,911) (66,749) (69,587) Borrowings 7 (12,119) – (33) Trade and other liabilities 8 (19,248) (11,639) (22,971) Deferred income (5,119) (5,182) (5,147) Provisions (3,051) (2,837) (4,169) Current liabilities (39,537) (19,658) (32,320) Total liabilities (94,448) (86,407) (101,907) Net assets 64,776 27,407 82,860 Shareholders’ equity Share capital 47,280 41,655 47,280 * Share premium 369,633 331,777 369,324 Other reserves 180,999 154,849 180,958 * Retained deficit (533,136) (500,874) (514,702) Total shareholders’ equity 64,776 27,407 82,860 * Restated – See Note 1 Unaudited consolidated income statement for the six months ended 30 June 2006 12 months 6 months 6 months ended 31 ended 30 ended 30 December June 2006 June 2005 2005 Note pounds 000 pounds 000 pounds 000 Revenue 2 6,619 5,901 14,131 Cost of sales (3,137) (2,299) (4,991) Other Income 621 – – Research and development expenditure (15,427) (12,438) (26,491) Selling, general and administrative expenses (10,941) (10,556) (15,483) Selling, general and administrative expenses are as follows: Goodwill impairment – 6,371 6,371 Restructuring costs – – 102 Sales and marketing 4,749 175 1,601 Provision for vacant leases 1,356 34 29 Other 4,836 3,976 7,380 10,941 10,556 15,483 Operating loss (22,265) (19,392) (32,834) Interest receivable and similar income 3 4,703 2,322 3,892 Interest payable and similar charges 3 (1,793) (2,966) (5,490) Loss on ordinary activities before taxation (19,355) (20,036) (34,432) Tax credit on loss on ordinary activities 921 1,016 1,584 Loss for the period (18,434) (19,020) (32,848) Loss per share (basic and diluted) 9 (5.9)p (10.6)p (16.3)p Unaudited consolidated statements of changes in shareholders’ equity For the half year ended 30 June 2005 Share Share Other Retained capital premium reserves deficit Total (restated) (restated) pounds 000 pounds 000 pounds 000 pounds 000 pounds 000 Balance at 1 January 2005 39,492 305,842 154,417 (481,854) 17,897 Revaluation of assets available for sale – – (95) – (95) Net expense recognised directly in equity – – (95) – (95) Loss for the period – – – (19,020) (19,020) Total recognised expense for the period – – (95) (19,020) (19,115) Issue of equity share capital 2,163 28,112 – – 30,275 Expenses on issue of share capital – (2,177) – – (2,177) Equity share options charge – – 527 – 527 Balance at 30 June 2005 41,655 331,777 154,849 (500,874) 27,407 Revaluation of assets available for sale – – 16 – 16 Exchange loss on translation of overseas subsidiaries – – (31) – (31) Net expense recognised directly in equity – – (15) – (15) Loss for the period – – – (13,828) (13,828) Total recognised expense for the period – – (15) (13,828) (13,843) Issue of equity share capital 5,625 63,791 – – 69,416 Reclassification of share premium to merger reserve – (24,400) 24,400 – – Expenses on issue of share capital – (1,844) – – (1,844) Shares to be issued – – 1,034 – 1,034 Equity share options charge – – 690 – 690 Balance at 31 December 2005 47,280 369,324 180,958 (514,702) 82,860 Revaluation of assets available for sale – – (371) – (371) Exchange loss on translation of overseas subsidiaries – – (168) – (168) Net expense recognised directly in equity – – (539) – (539) Loss for the period – – – (18,434) (18,434) Total recognised expense for the period – – (539) (18,434) (18,973) Refunded expenses on issue of share capital – 309 – – 309 Equity share options charge – – 580 – 580 Balance at 30 June 2006 47,280 369,633 180,999 (533,136) 64,776 Unaudited consolidated cash flow statements for the six months ended 30 June 2006 12 months 6 months 6 months ended 31 ended 30 ended 30 December June 2006 June 2005 2005 pounds 000 pounds 000 pounds 000 Cash flows from operating activities Loss for the period (18,434) (19,020) (32,848) Taxation (921) (1,016) (1,584) Depreciation 865 568 921 Loss on disposal of tangible fixed assets 2 1 12 Amounts written off goodwill – 6,371 6,371 Amortisation and disposal of intangible fixed assets 2,381 2,031 3,983 Option charge 580 527 1,217 Interest receivable (4,703) (2,322) (3,892) Interest payable 1,793 2,966 5,490 Exchange loss/(gain) 5 (12) (511) (18,432) (9,906) (20,841) Changes in working capital Decrease/(increase) in inventories 231 (13) (703) Decrease/(increase) in receivables 3,610 (587) 7,914 Decrease in liabilities (2,993) (90) (133) Decrease in provisions (201) (1,528) (1,807) Decrease in deferred income (2,448) (2,075) (4,529) Cash used in operations (20,233) (14,199) (20,099) Taxation received 2,074 2,307 4,284 Taxation paid (40) – – Interest paid (27) (5) (8) Net cash used in operating activities (18,226) (11,897) (15,823) Purchase of tangible fixed assets (127) (211) (589) Acquisition of subsidiary undertakings net of cash acquired (418) – (3,104) Sale of tangible fixed assets – 1 – Purchase of intangible fixed assets – (575) (16,570) Interest received 664 398 710 Interest received on financial assets held to maturity 593 312 898 Net cash used in investing activities 712 (75) (18,655) Cash flows from financing activities Movement in held-to-maturity financial assets (7,082) (19,737) (13,052) Issue of shares – 30,275 72,958 Share issue (costs)/refunds 310 (1,880) (3,996) Capital element of finance lease payments (75) (18) (23) Net cash generated from financing activities (6,847) 8,640 55,887 Foreign exchange on cash and cash equivalents (152) 184 511 Movements in cash and cash equivalents in the period (24,513) (3,148) 21,920 Cash and cash equivalents at the beginning of the period 40,243 18,323 18,323 Cash and cash equivalents at the end of the period 15,730 15,175 40,243 Note 1 – Basis of preparation
This financial information comprises the consolidated interim balance sheets as of 30 June 2006, 30 June 2005 and 31 December 2005 and related consolidated interim statements of income and cash flows for the six months and 12 months then ended of Vernalis plc.
In preparing this financial information management has used the principal accounting policies as set out in the Group’s annual financial statements for the year ended 31 December 2005.
The Group has chosen not to adopt IAS 34, ‘Interim financial statements’, in preparing its 2006 interim statements and, therefore, this interim financial information is not in compliance with IFRS.
The interim financial information has not been audited and does not constitute statutory accounts within the meaning of section 240 of the companies Act 1985 but has been reviewed by the auditors in accordance with bulletin 1999/4 issued by the Auditing Practices Board. The Group’s statutory accounts for the year ended 31 December 2005, prepared under IFRS, have been delivered to the Registrar of Companies; the report of the auditors on these accounts was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985.
In 2005 the Group acquired Cita NeuroPharmaceuticals Inc and Ionix Pharmaceuticals Limited. Both acquisitions included consideration satisfied by the issue of equity shares in the Group, in exchange for 100% of the equity share capital of the acquired companies. These shares qualified for merger relief (s131) under the Companies Act, and any premium is required to be credited to a merger reserve. This was credited to the share premium reserve in the 2005 financial statement. Accordingly, the comparative figures as at 31 December 2005 for share premium and other reserves have been restated.
2 Revenue
The revenue analysis in the table below is based on the country of registration of the fee-paying party.
6 months 6 months 12 months ended 30 ended 30 ended 31 June 2006 June 2005 December 2005 pounds 000 pounds 000 pounds 000 United Kingdom 29 153 2,178 Rest of Europe 1,513 1,623 3,622 North America 5,070 4,118 8,317 Rest of the World 7 7 14 6,619 5,901 14,131 An analysis of revenue by category is set out in the table below: 6 months 6 months 12 months ended 30 ended 30 ended 31 June 2006 June 2005 December 2005 pounds 000 pounds 000 pounds 000 Product sales 2,777 1,565 3,602 Royalties 29 85 110 Collaborative 3,813 4,251 10,419 6,619 5,901 14,131 3 Finance credit/(charge) (net) 6 months 6 months 12 months ended 30 ended 30 ended 31 June 2006 June 2005 December 2005 pounds 000 pounds 000 pounds 000 Interest receivable and similar income Interest on cash, cash equivalents and held-to-maturity assets 1,326 969 1,997 Exchange gains on other payable 202 – – Exchange gains on long-term loan 2,263 – – Exchange gain on deferred consideration 839 – – Exchange gains on other receivable – 956 1,320 Unwinding of discount on other receivable 69 374 531 Other interest receivable 4 23 44 4,703 2,322 3,892 Interest payable and similar charges Loans repayable wholly or partly within five years 787 675 1,489 Finance leases 27 3 4 Exchange loss on other receivable 625 – – Exchange loss on long-term loan – 1,683 2,987 Exchange loss on other payables – 324 429 Exchange loss on deferred consideration – – 257 Unwinding of discount on deferred consideration on purchase of intangible assets 250 – – Unwinding of discount on royalty buy-out from GSK 34 121 94 Unwinding of discount on provision 70 112 226 Other interest payable – 48 4 1,793 2,966 5,490 Net finance credit/(charge) 2,910 (644) (1,598) 4 Goodwill 30 June 30 June 31 December 2006 2005 2005 pounds 000 pounds 000 pounds 000 Cost At 1 January 20,431 17,223 17,223 Additions through business combinations – – 3,208 Other 18 – – At end of period 20,449 17,223 20,431 Aggregate impairment At 1 January 15,580 9,209 9,209 Impairment charge for the period – 6,371 6,371 At end of period 15,580 15,580 15,580 Net book value at end of period 4,869 1,643 4,851 Net book value at beginning of period 4,851 8,014 8,014 5 Intangible assets Assets Assets not yet in use in use Total pounds 000 pounds 000 pounds 000 Cost At 1 January and 30 June 2006 50,400 42,425 92,825 Aggregate amortisation At 1 January 2006 8,480 – 8,480 Charge for the period 2,381 – 2,381 At 30 June 2006 10,861 – 10,861 Net book value at 30 June 2006 39,539 42,425 81,964 Cost At 1 January 2005 37,408 600 38,008 Additions separately acquired – 631 631 Disposals – (300) (300) At 30 June 2005 37,408 931 38,339 Aggregate amortisation At 1 January 2005 4,797 – 4,797 Charge for the period 1,731 – 1,731 At 30 June 2005 6,528 – 6,528 Net book value at 30 June 2005 30,880 931 31,811 Cost At 1 January 2005 37,408 600 38,008 Additions through business combinations – 41,327 41,327 Additions separately acquired 12,992 798 13,790 Disposals – (300) (300) At 31 December 2005 50,400 42,425 92,825 Aggregate amortisation At 1 January 2005 4,797 – 4,797 Charge for the period 3,683 – 3,683 At 31 December 2005 8,480 – 8,480 Net book value at 31 December 2005 41,920 42,425 84,345 6 Trade and other receivables 30 June 2006 30 June 2005 31 December 2005 pounds 000 pounds 000 pounds 000 Other receivables – 8,132 – Non-current trade and other receivables – 8,132 – Trade receivables 2,817 1,211 2,292 Interest receivable 595 403 524 Research and development tax credits 2,897 5,142 3,996 Other receivables 8,808 9,024 12,969 Prepayments and accrued income 3,656 4,770 4,232 Current trade and other receivables 18,773 20,550 24,013 Total trade and other receivables 18,773 28,682 24,013 7 Borrowings 30 June 2006 30 June 2005 31 December 2005 pounds 000 pounds 000 pounds 000 U.S. dollar secured loan 17,391 28,758 30,839 Obligations under finance leases 349 – 99 Non-current borrowings 17,740 28,758 30,938 U.S. dollar secured loan 11,970 – – Obligations under finance leases 149 – 33 Current borrowings 12,119 – 33 Total borrowings 29,859 28,758 30,971
The US dollar secured loan relates to $50 million borrowed from Endo, net of the finance charges of 0.2 million pounds, and interest payable of $4.7 million (2.6 million pounds) which the Group has elected to roll up into the loan at June 2005, December 2005 and June 2006. It is secured against all royalty and milestone income receivable by Vernalis in respect of the licence deal with Endo. Endo has the right to offset half the royalty payments and milestones payable to Vernalis against the loan from 2007. The weighted average interest rate is 5 per cent. fixed for the term of the loan.
8 Trade and other liabilities 30 June 2006 30 June 2005 31 December 2005 pounds 000 pounds 000 pounds 000 Royalty buy out from GSK 2,621 2,702 2,788 Deferred consideration 4,532 – 4,624 Non-current trade and other liabilities 7,153 2,702 7,412 Trade payables 3,293 2,379 3,975 Taxation and social security payable 861 736 301 Other payables – 21 3,626 Accruals 8,742 5,721 7,825 Royalty buy-out from GSK – 2,782 – Deferred consideration for acquisitions 6,352 – 7,244 Current trade and other liabilities 19,248 11,639 22,971 Total trade and other liabilities 26,401 14,341 30,383 9 Loss per share
Basic loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Since the Group is loss-making there is no such dilutive impact.
12 months 6 months 6 months ended 31 ended 30 ended 30 December June 2006 June 2005 2005 Attributable loss (pounds 000) 18,434 19,020 32,848 Weighted average number of shares in issue (000) 311,464 179,834 202,174 Loss per share (basic and diluted) (5.9)p (10.6)p (16.3)p
All potential ordinary shares including options and deferred shares are anti-dilutive.
Vernalis plc
CONTACT: Simon Sturge, Chief Executive Officer, or Tony Weir, ChiefFinancial Officer, or Julia Wilson, Head of Corporate Communications, all ofVernalis plc, +44-118-977-3133; or Jon Coles, or Justine McIlroy, both ofBrunswick Group, +44-0-20-7404-5959
Web site: http://www.vernalis.com/