Cyprotex Interim Results 2010
Despite a slow start to the year due to issues associated with the global economy, inclement weather, and volcanic ash Cyprotex delivered a robust performance and remained profitable and cash generative. This performance allowed the Company to invest in expanding its commercial activities and, post the period end, complete the transformational acquisition of Apredica, a Boston, US, based early ADME Tox Contract Research Organisation, including the toxicology assets and IP of Cellumen. The acquisition creates the world’s leading specialist early ADME Tox service provider and gives the Company an operational base in the US, the largest market for the Company’s combined services.
Financial Highlights
· Revenues up 1.3% to £2.48 million (H1 2009: £2.45 million) · Cash generation maintained with EBITDA* of £238,000 (H1 2009: £291,000) · Continuing profitability with net profit* of £122,500 (H1 2009: £159,800) · Cash flow from operations robust at £245,000 (H1 2009: £381,000) · Growth continues into the second half of 2010, with July’s revenue a record for the Company
* excluding share based payment charge
Operational Highlights
Expansion of Commercial activities
· Investment to effectively double UK main laboratory space and acquire necessary equipment to enable our UK laboratory to offer High Content Toxicology assays from late August 2010 branded as CyprotoxTM · One additional customer advanced to strategic partner level · Five new Cloe ® Select assays launched · Cloe ® Knowledge (an open-access ADME and PK knowledge base) released onto Cloe® Gateway · Appointment of key personnel helped achieve 20% sales increase in US
Key Hires and Management Changes
· Mr Benjamin Butterfield, Executive Director, Business Development, North America · New European (UK and Scandinavia) Business Development Manager · Dr Clive Dilworth promoted to Director of Laboratory Operations UK
Post period event - Acquisition Highlights
· Acquisition for £2.68million on 5 August 2010 of Apredica (based in Boston, USA) to create the world’s leading specialist early ADME Tox service provider · Gives the Company an operational base in the US, the largest market for the Company’s combined services, and immediate entry and credibility in the in vitro toxicology market · Acquisition satisfied by £1 million in cash from existing resources and the issue of 44,730,297 new ordinary shares · Apredica brings increased revenues (2009: £1.05 million) and profits (2009: EBITDA £0.1 million) · Dr Katya Tsiouan (Founder, CEO and CSO of Apredica joins the Cyprotex Board as CSO and Mr Douglas Bates (Founder, CBO) joins the Board as Chief Marketing Officer · Shortly before completion, Apredica acquired all of the intellectual property and assets of Cellumen, Inc. adding an advanced, proprietary High Content Toxicology platform to its portfolio of in vitro toxicology services
Steve Harris, Chairman of Cyprotex PLC, said:
“Our performance in the first half of 2010 held up nicely despite a slow start to the year because of issues associated with the global economy, inclement weather, and volcanic ash. While our competitors have released disappointing results in the comparative period, we have remained profitable and cash generative.
“This robust performance has allowed us to make some significant investments. The acquisition of our US-based rival, Apredica, which was preceded by Apredica’s acquisition of Cellumen’s intellectual property and assets, represents a transformational event for the Company. It gives the Company an operational base in the US (the largest market for our combined services), immediate entry and credibility in the in vitro toxicology market, plus advanced, proprietary toxicology technology. These acquisitions, along with our soon-to-open UK toxicology laboratory, enable the Company to immediately become a major player in the in vitro toxicology market, which we believe is the highest opportunity sector of pre-clinical research today.
“Our immediate focus is to rapidly integrate our acquisitions, and then focus on cross-selling opportunities of our existing and new offerings to our now much-expanded customer base. These opportunities, along with a record start to the second half, give us increased confidence in the outlook despite market conditions remaining challenging.”
Enquiries:
Cyprotex PLC Tel: +44 (0) 1625 505 100 Dr Anthony Baxter, Chief Executive Officer John Dootson, Chief Financial Officer Mark Warburton, Chief Operating Officer and Legal Counsel
ir@cyprotex.com www.cyprotex.com
Singer Capital Markets Limited (broker to Cyprotex) Tel: +44 (0) 203 205 7500 Shaun Dobson shaun.dobson@singercm.com
Claes Spang claus.spang@singercm.com www.singerscm.com
Financial Dynamics Tel: +44 (0) 20 7831 3113 Ben Brewerton Ben Atwell Mo Noonan
cyprotex@fd.com www.fd.com
Chairman’s statement
As stated last year in my Chairman’s statement, our aims for the future strategic direction of the Company are:
· Secure our revenue base and protect the business through future downturns · Increase the range and quality of our service · Improve our relationships with our current and new customers · Acquire profitable assets in complementary technologies and geographical locations
We have made considerable progress in each of these objectives.
Financial performance
Sales in the first half year were up 1.3% on the comparative period at £2.48 million.
We judged this a good performance given that 2010 commenced with a poor start. January, and to a lesser extent, February were under budget due to the global economic downturn, the severe weather that prevented our customers’ chemists getting to work, and the volcanic ash issue which prevented American and some European customers from shipping compounds to us for a time. However, March through June saw increasing momentum in revenues, allowing us to finish the half year in line with market expectations.
Our underlying trading performance remains sound, with cash generated from operations and the EBITDA* corresponding well with that achieved in the first half of 2009, highlighting the robust nature of our business. Net profit* of £122,500 was slightly lower than for the comparable period in 2009 (£159,800) in part due to foreign exchange effects.
Customer relationships
The Company continues to make progress in its commercial activities. Most importantly, we have secured one additional ‘strategic’ customer. A ‘strategic’ customer is one that on current run rate provides over £250,000 per year in revenues.
We have also significantly de-risked the business in the sense that our top six customers have spread their revenues in percentage terms, permitting the Company to not be so reliant on a handful of customers. Our top six customers account for 58% revenues H1 2010 v 63% H1 2009. Additionally the contribution from our largest customer is now down to 20% from 29% in the comparable period. The client portfolio from Apredica is even less concentrated than our own. Combining the two will allow us to enjoy a much more diversified and granular client base than we had in past years.
The last three years have seen a significant drop off of Cyprotex’s revenues from the US. In April 2010, Cyprotex hired Benjamin Butterfield as Executive Director, Business Development, North America. Ben brings a wealth of sales experience from competitor companies in the ADME Tox and cardiac safety arena and his sales initiatives have increased Cyprotex’s US sales by over 20%.
We have also recently hired a replacement Business Development Manager for the UK and Scandinavia.
During the first half of the year we changed our NOMAD and Brokers from Execution-Noble to Singer Capital Markets. We are expecting a note from our new broker to be published within the next month.
Product Developments
Cyprotex’s range of services are offered under the Cloe® (‘Cyprotex-Lead-Optimisation-Engine’) trade mark and include Cloe® Screen (high throughput ADME screens), Cloe® Select (customised ADME screens) and Cloe® Predict (Pharmacokinetic prediction services). As we have reported previously, we have invested significantly in buying in new state-of-the-art equipment and developing new, mainly customised Cloe® screen assays. These initiatives have yielded substantially enhanced revenues for the business, which we expect to continue going forward as our experience is that new assays take time to achieve market acceptance and penetration. We have continued this process in the first half of 2010, launching five new assays:
· CYP2C8 mechanism based inhibition · CYP2B6 inhibition · Brain tissue binding · CYP2B6 reaction phenotyping · Bioanalytical method development and validation
Further new assays are in advanced development. They will be released during the second half of the year.
The Cloe® Predict offering has delivered disappointing revenues, although we are enjoying a gradual increasing take up of this service offering amongst our customers. Cyprotex’s Scientific Computing Group, which develops these software algorithms, has been successful in securing grants to develop new software products. These grants help substantially to cover the operational costs of this effort.
We have invested in a new, purpose-built building consisting of three laboratories. These will be dedicated to housing our new offerings in in vitro toxicology services. The new offerings will be launched on 20 August 2010. The laboratory will be officially opened on 1 October 2010.
Clearly, much work is needed to integrate all of the new services that Apredica brings to the Company. We do not underestimate the challenges of this integration process. We know well the risks of growth by M&A. The Company considered many US partners. The process took much longer than we anticipated a year ago. We believe we have found an acquisition that meets all of our criteria:
· US operations · In vitro toxicology expertise · Proprietary technology
Our Post Period Acquisitions
One of our long-standing objectives for the business has been to acquire a secure, revenue- generating operational base in the United States – the world’s largest market for our services in early ADME Tox screening and prediction. The acquisition of Apredica not only satisfies these objectives, it has also given the Company immediate entry, critical mass, and advanced proprietary technology in the in vitro technology market. Not only was Apredica itself a well-respected provider of in vitro toxicology services (including High Content Toxicology), but shortly in advance of our acquisition of Apredica, Apredica acquired all the IP, technology, assets and wherewithal from Cellumen to offer an advanced, proprietary High Content Toxicology screening service . We view the Cellumen acquisition as a major strategic and revenue-generating asset, as this technology has been validated by several large pharmaceutical companies and governmental research laboratories.
The combined acquisition gives Cyprotex:
· The position of being the largest international specialist provider of ADME Tox contract research services · Laboratory and customer service operations in the US, the world’s largest market for ADME Tox CRO services · A doubling of its share of the US ADME Tox market · Immediate entry and critical mass in the in vitro toxicology market · The immediate ability to offer customers 11 additional services, primarily in toxicology · Advanced, proprietary predictive in vitro toxicology platform · Significant cross-selling opportunities among Cyprotex, Apredica, and Cellumen' s customers · A strengthened Board and Management team · Improved economies of scale
Outlook
The CRO market is still suffering from the economic downturn with our larger competitors in pre- clinical services continuing to report a significant reduction of business. However, we are also pleased to note that the momentum that we gathered in the second quarter of the year has continued into the second half with Cyprotex and experiencing a record trading month in July.
With this excellent start to H2, the recent double acquisition and the opening of our new toxicology laboratories in the UK, the Board have has renewed confidence that the Company is on track to meet market expectations for both revenues and profitability.
Steve Harris Chairman