INTERIM MANAGEMENT REPORT
Chairman and Chief Executive’s Review
The first half of 2010 has been a period of great uncertainty for all stakeholders of Ark following the European Medicines Agency’s (“EMA”) recommendation that a further clinical trial was needed before Cerepro® could be approved and the subsequent initiation of a far-reaching strategic review. The results of this review were announced on 5 May 2010, with the Board concluding that shareholders’ interests were best served by a change of strategy to one of selective partnering of programmes together with a plan to monetise certain of the Company’s assets.
On 13 July 2010 the Company provided a detailed announcement on progress including an update on the Company’s key programmes, intellectual property and changes to the Board. Also, as stated at that time, negotiations are continuing with a number of companies regarding the potential sale of the Company’s woundcare subsidiary, as well as for a more formal collaboration partnership in respect of the manufacturing operations in Finland. As part of the July update, the Company announced that Iain Ross had been appointed as a consultant to the Company and since that time he has been working with Martyn Williams, CEO and the Board on identifying and implementing the strategic initiatives required to restore shareholder value. Mr Ross has presented his findings and recommendations to the Board and the Company confirms that the outcome of this review as finally agreed by the Board will be announced on 9 September 2010.
End of Offer Period
The Company also confirms that it is no longer in discussions regarding a potential offer for the Company. A number of discussions have been formally terminated in the last week and there has been no further dialogue with other parties whose approaches were deemed not to reflect the value of the Company's assets or were unable to make an indicative proposal. Therefore, the Company no longer remains in an offer period. As a result the Company is no longer required to hold a general meeting for the purposes of approving Iain Ross’ appointment to the Board. As such, it is proposed that the general meeting scheduled for 6 September 2010 be adjourned sine die. The appointment of Mr Ross as a Non-Executive Director will be confirmed following the 9 September 2010 update, subject to re-appointment at next year’s Annual General Meeting in accordance with the Company’s articles.
Financial Review
Revenues of £1.373m were recorded in the six months ended 30 June 2010 (six months ended 30 June 2009: £0.665m). Sales in the UK of woundcare products were £0.967m (six months ended 39 June 2009: £0.665m), the increase of 45% in the period reflecting the strong growth in KerraMax® sales following the launch in the second half of 2008 and the growth in Kerraped® and Flaminal® sales. Contract manufacturing revenue in the period totalled £0.406m (six months ended 30 June 2009: £nil).
Expenditure on research and development for the period totalled £6.1m (six months ended 30 June 2009: £8.0m), the decrease in the period is principally due to lower expenditure on Trinam® drug and collar manufacture for the clinical study, Trinam® licensing and Vitor™. In addition, the restructuring measures introduced at the beginning of the period resulted in lower headcount and operational support expenditure. These reductions in expenditure were offset in part by increased depreciation in the period following the commissioning of our biologics manufacturing facility in April 2009.
Selling, marketing and distribution costs for the period which relate principally to the woundcare products were £0.9m (six months ended 30 June 2009: £0.8m).
Other administrative expenses for the period totalled £2.9m (six months ended 30 June 2009: £2.8m). One-off costs associated with termination of employment in the period were largely offset by the costs savings as a result of the restructuring measures in the period.
Share-based compensation charges for the period were £0.1m (six months ended 30 June 2009: £0.4m). The large decrease in the charge arose from a reassessment of the probability of certain performance criteria being achieved on outstanding options, LTIPs and shares held in the Family Benefit Trust and it also reflects a reduction in headcount.
In the six months ended 30 June 2010, the Group earned interest of £0.1m on its cash deposits (six months ended 30 June 2009: £0.5m), the decrease reflecting lower interest rates and cash balances.
Other income for the period totalled £0.2m (six months ended 30 June 2009: £0.1m). Other expenses totalled £1.1m (six months ended 30 June 2009: £2.3m) and comprised exchange differences on translation of inter-company loans, fair value adjustments on Euro and US denominated cash balances. The exchange differences amounted to £0.8m and fair value adjustments totalled £0.2m for the six months ended 30 June 2010, reflecting the strengthening of Sterling over the same period (six months ended 30 June 2009: unrealised exchange gains amounted to £1.6m and fair value adjustments on Euro and US denominated cash balances of £0.6m).
Total net assets (defined as total assets less total liabilities) have decreased from £42.7m at 30 June 2009 to £26.1m at 30 June 2010, principally due to the decrease in cash and cash equivalents and money market investments (£14.1m at 30 June 2010 versus £28.6m at 30 June 2009). Property, plant and equipment at 30 June 2010 totalled £9.9m (30 June 2009: £12.5m).
Net cash outflow from operating activities for the period was £7.4m (six months ended 30 June 2009: £12.0m). Risks and Uncertainties
There are a number of potential risks and uncertainties that could have a material impact on the Group’s performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The risks which were identified and outlined in the Annual Report and Accounts 2009 in the Directors’ Report on page 24, which does not form part of this interim statement, and which include clinical and regulatory risk, competition and intellectual property risk, and economic, financial and counterparty risk, have not changed and therefore remain relevant for the remaining six months of 2010.
Andrew Christie, Chairman Martyn Williams, Chief Executive Officer
25 August 2010
Mo Noonan Senior Manager Financial Communications
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