Ark Therapeutics Preliminary Results for the Year Ended 31 December 2010
Published: Mar 09, 2011
Martyn Williams, CEO of Ark, commented:
"2010 has been a year of considerable change for Ark during which we made a number of strategic decisions to reduce the risk profile of the Company and improve its prospects for growth. We have significantly reduced our cost-base, resulting in a leaner and more focused business in 2011 and have refocused on our core strengths - an ability to innovate in areas of unmet need based on our world leading science and unrivalled biologics manufacturing expertise. We remain confident of achieving the short term objectives we have set ourselves, thereby bringing about a sustainable increase in market value."
For further information please contact:
Ark Therapeutics Group plc Tel: + 44 (0)20 7388 7722
Martyn Williams, CEO
Iain G Ross, Chairman
Financial Dynamics Tel: +44 (0)20 7831 3113
Ark Therapeutics Group plc
Ark Therapeutics Group plc is a specialist healthcare group (the "Group") addressing high value areas of unmet medical need within vascular disease and cancer. These are large and growing markets, where opportunities exist for effective new products to generate significant revenues.
Ark has an early stage pipeline emanating from collaborations with University College, London and the AI Virtanen Institute in Kuopio, Finland, the development of which it intends to progress in collaboration with pharmaceutical and biotech partners.
In addition Ark has the ability to off-set a proportion of its R&D costs and to generate sustainable revenues through the exploitation of its proprietary technology platform, process development, scale-up and manufacturing capabilities on behalf of third parties.
Ark has its origins in businesses established in the mid-1990s by Professor John Martin and Mr Stephen Barker of University College London and Professor Seppo Ylä-Herttuala of the AI Virtanen Institute at the University of Kuopio, Finland, all of whom remain consultants on the Company's research and development programmes.
Ark's shares were first listed on the London Stock Exchange in March 2004 (AKT.L).
This announcement includes "forward-looking statements" which include all statements other than statements of historical facts, including, without limitation, those regarding the Group's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Group's products and services), and any statements preceded by, followed by or that include forward-looking terminology such as the words "targets", "believes", "estimates", "expects", "aims", "intends", "will", "can", "may", "anticipates", "would", "should", "could" or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Group's control that could cause the actual results, performance or achievements of the Group to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Group's present and future business strategies and the environment in which the Group will operate in the future. Among the important factors that could cause the Group's actual results, performance or achievements to differ materially from those in forward-looking statements include those relating to Ark's funding requirements, regulatory approvals, clinical trials, reliance on third parties, intellectual property, key personnel and other factors. These forward-looking statements speak only as at the date of this announcement. The Group expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this announcement to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. As a result of these factors, readers are cautioned not to rely on any forward-looking statement.
2010 was not a good year for the shareholders of Ark Therapeutics Group plc and the value of your investment was reduced significantly.
Following my appointment as Chairman in September 2010, I am committed to working with an effective Board and Management team to re-build the business and to create realisable value for all shareholders.
The mantra for Ark for 2011 and beyond will be Focus, Realism and Results.
Focus on the key assets
· In the second half of 2010 tough decisions were taken, the Company's ongoing cost base was further reduced and a number of employees were let go. Prudent financial management will continue to be a key driver and accordingly we will not hesitate to make further cost cuts should the need arise.
· Following a strategic review in the latter part of 2010 the essential 'building blocks' in terms of our science, intellectual property, early stage products and manufacturing assets were identified and selected to form the foundation upon which we will re-build this business in 2011.
· The Board has been downsized and will further evolve to reflect the future needs of the business. In February 2011 we announced the appointment of a new Non-Executive Director, Dr David Bloxham, who has impressive and relevant research and development, corporate and manufacturing experience, all of which will be invaluable to the business.
Realism and professionalism in forming validating partnerships
· Ark intends to form significant third party partnerships and collaborations to support, validate and generate revenues, both from its innovative early stage in-house small molecule and gene-based development programs and its world class viral manufacturing assets.
· Ark intends to out-license the late-stage product assets which it can no longer afford to develop on its own, to discontinue the development of non-core assets and make disposals accordingly, as with the recent £2.7m disposal of the majority of the woundcare business.
Results should be transparent, measurable and time-related
· Clear timelines to achieving partnering, manufacturing and pipeline objectives.
· A sustainable increase in market value.
At a time when many pharmaceutical companies are laying off R&D staff and small biotech companies are floundering, it is essential that we retain a sense of realism and generate value for our shareholders by focusing on the immediate key drivers in the business and building meaningful long-term partnerships.
We should be prepared to share the value creating potential of our assets to secure substantive third party collaborations, thereby increasing significantly the probability of success in terms of value creation and financial security. The Board will continue to assess opportunities to create value through organic growth and, as appropriate, explore M&A opportunities.
I would like to thank the management and staff in London and Kuopio for their continued efforts during what has been a very challenging time. In addition, on behalf of the Board, I would like to thank Dr Nigel Parker, Sir Mark Richmond and Dr Wolfgang Plischke, all of whom stood down during the period and, of course, Andrew Christie, the former Chairman who stood down as a Director in March 2011, for their contribution to the Company.
With a significantly reduced cost base, a focused and lower risk business strategy, 2011 will be an important year for the Company. I look forward to reporting progress on our exciting early stage programmes, announcing future partnering news and progress with our excellent process development and manufacturing scale-up capabilities in Finland.
Iain G Ross
Ark Therapeutics Group plc
9 March 2011
Chief Executive's review
As our Chairman stated, 2010 was a challenging year for Ark and its shareholders. The key events of the first half of the year following the decision of the EMA not to approve Cerepro® have been documented in our various releases in 2010.
Twelve months ago Ark faced an uncertain future with its late stage products being the subject of discussions with the regulators and with the Company carrying the infrastructure necessary to support late stage clinical programmes.
Today, much has changed. Following an exhaustive strategic review, the Company has refocused on its core strengths - an ability to innovate in areas of unmet need based on its world leading science and unrivalled biologics manufacturing expertise.
Our announcement on 9 September indicated that the Company was refocusing its development resources on four key, early stage programmes; EG011 in refractory angina, EG016 in peripheral vascular disease, EG013 in foetal growth restriction (FGR) and our NRP-1 antagonist programme EG014. We have begun in 2010 to assist Professor Seppo Ylä-Herttuala in his conduct of the first two above-named programmes which are being undertaken in conjunction with the AI Virtanen Institute and have seen good proof-of-principle in FGR in the period. Following excellent in vitro and in vivo results with NRP-1 antagonists in models of human cancer, we remain on track to achieve an optimised molecule. Discussions continue with a number of major companies, all of whom see NRP-1 as a very important target and recognise the important early success which Ark has achieved with this programme.
During 2010 we have responded to high levels of interest from third parties in our biologics manufacturing expertise and there are serious ongoing discussions with a number of companies who have acknowledged the quality of our GMP manufacturing capability in Finland. We look forward to updating you as these discussions progress.
In addition, Ark retains valuable intellectual property which it will continue to exploit and, in Cerepro® and Trinam®, has clinical stage assets which it will seek to monetise through out-licensing. The selection of key partners for our programmes is a fundamental part of our strategy as we move forward, serving to validate the quality of our science and provide funds for further development, thereby helping to de-risk our business. With a much reduced fixed cost base and a renewed emphasis on the management of costs, our cash resources are being used in ways which will directly promote the development of the Company's portfolio. The recent post period announcement of the agreement with Crawford Healthcare Ltd on the Woundcare business will provide further cash to enable the Company to meet its short term goals and enable the Company's management to focus exclusively on its core assets.
EG011 is being developed for treating patients suffering from refractory angina and is currently in an initial academic clinical study in Finland. The first patient was treated in the first half of 2010 and recruitment into the low dose arm of the study has now been completed. A second site has recently been opened and it is envisaged that the dose ranging part of this study will be completed during 2011, providing initial data which could be used in progressing the interest from other companies in this programme.
EG016 is designed to improve the outcome for people undergoing bypass procedures to overcome blockage of the main blood vessel to the lower leg. In an innovative approach to addressing poor "run off" into the smaller blood vessels, Ark is using its established adenoviral platform to deliver VEGF-D around the time of the main surgery. Recruitment of patients continues. For both EG011 and EG016 these are initial academic studies the results from which will be used to form the basis of formal development programmes with partners.
EG013 uses Ark's adenoviral gene therapy platform to restore adequate maternal vascularisation where foetuses are suffering severe growth restriction (FGR) as a result of a deficient blood supply. The efficacy of the concept has been very successfully demonstrated, improving foetal growth and development in an in vivo model of FGR. Ark scientists are now preparing the techniques required for toxicology studies necessary to obtain approval to initiate clinical trials.
EG014 is a programme developing small molecule antagonists to the neuropilin-1 receptor (NRP-1) for treatment of cancer. Potent drug-like compounds have been generated and Ark believes it has a dominant patent position around their structural space. In vivo studies with antagonists have demonstrated a slowing of tumour growth, associated with reduced tumour vascularisation. Lead optimisation is progressing, and significant progress has been made with improving pharmacokinetic properties. As reported above, discussions continue with a number of major pharmaceutical companies which have registered real interest in this programme.
As we announced in September, a major focus of the company going forward is to exploit our world leading manufacturing capability in Kuopio, Finland. As well as state of the art facilities the Company has management and personnel skills to develop and validate manufacturing processes for a wide range of virally delivered and other biological products. Ark's strategy is not to set itself up as a contract manufacturing organisation (CMO) but rather to develop deeper collaborative partnerships with a limited number of companies. Detailed discussions continue with a number of such companies who wish to avail themselves of our unrivalled expertise.
Patent Portfolio Update
In November we reported that we had reached an amicable settlement with the Australian company Vegenics Ltd in relation to the Finnish arbitration proceedings initiated by them in respect of the use of the VEGF-D gene in Trinam®. This agreement gives the Company wider access to the use of VEGF-C and D genes.
The prosecution of the ACE Stroke patent in the USA is being actively progressed. Granting of this patent would trigger the next milestone receipt from the Company's existing licensing agreement with Boehringer Ingelheim and would also enable further exploitation of this patent. In May we reported the opposition to this patent in Europe was upheld by the European Patent Office (EPO). Later in the period the Company filed an expedited appeal to the EPO. The appeal hearing is expected to take place during the second half of 2011 which if successful would enable further exploitation of this patent in Europe.
Summary and Outlook
2010 has been a year of considerable change for Ark involving many difficult decisions relating to the Company's programmes and a significant number of its valuable and committed workforce. I believe Ark has emerged from this process with an increased enthusiasm and determination to succeed through the exploitation of its key skills and assets.
In 2011 we expect to see the validation of our view of the pre-eminence of our manufacturing capability through the announcement of important strategic partnerships as well as being able to confirm the significant third party interest in our early stage programmes, in particular our NRP-1 antagonist. Later in the year, we expect to be able to announce initial results from the EG011 Phase I clinical study in Finland and look forward to further positive results in our FGR programme as we move towards the final pre-clinical stage. We are also focused on achieving positive news regarding the exploitation of our intellectual property portfolio.
We ended the year with £10.6 million of cash and, with the reductions in our cost base already implemented, the disposal of the majority of the woundcare business and as we make further progress with manufacturing agreements I remain confident that our current cash will enable us to achieve the short term objectives which we have set out. In the words of our new Chairman, Iain Ross, we are focused, realistic and results-driven.
Chief Executive Officer
9 March 2011
The pre-exceptional loss from continuing operations before tax decreased significantly as a result of the restructuring activities announced on 9 September (£15.2m in 2010 compared to £20.2m in 2009). These restructuring activities included reducing headcount across all functions at our UK and Finland sites and ceasing activity on our late-stage clinical trials, resulting in the reduction of pre-exceptional research and development expenses from £15.6m in 2009 to £10.8m in 2010.
Exceptional items arising during the year comprised redundancy costs associated with the restructuring and the impairment of goodwill relating to Ark Therapeutics Oy.
The loss from discontinuing operations, which relates to the operations of the woundcare business, amounted to £0.3m (2009: £0.9m)
Cash and money market investments at 31 December 2010 totalled £10.6m (2009: £21.5m).
Results of Operations
Years ended 31 December 2010 and 2009
Revenue from continuing operations in 2010 totalled £0.8m, relating wholly to manufacturing activities (2009: £0.2m). The remainder of revenue from continuing operations recorded in 2009 of £1.2m was for a milestone receipt due under the licensing agreement with Boehringer Ingelheim. In future years an increasing proportion of revenue is expected to come from the out-licensing of early stage products together with manufacturing revenue.
Research and development expenses
Ark conducts research at its facilities in Kuopio, Finland, at University College London and through a specialist chemistry sub-contractor. Clinical studies are carried out by approved clinical research organisations within Europe and North America under the close supervision of senior project managers employed by the Group. Pre-exceptional research and development expenditure in 2010 was £10.8m (2009: £15.6m), the decrease principally due to the cessation of all late stage clinical trials and the cost saving measures put in place as a result of the restructuring. Research and development expenses comprise clinical development costs, manufacturing development costs and research costs and are detailed below.
Clinical development costs
Major expenditures during the year included the costs of the Trinam® Phase III study. It is anticipated that 2011 will see a greater proportion of expenditure on the early-stage clinical programmes including toxicology.
Manufacturing development costs
Manufacturing development costs decreased during 2010 again primarily due to the reduced headcount and other cost-saving measures put in place as a result of the restructuring. Significant expenditure included the manufacture and testing of GMP material for the prioritised early-stage programmes.
Research costs in the period totalled £2.8m (2009: £3.8m), again reflecting cost-saving measures put in place as a result of the restructuring.
Other administrative expenses
Pre-exceptional other administrative expenses for the period were £5.0m (2009: £5.3m). These administrative expenses consist primarily of remuneration for employees in executive and operational functions (including finance, commercial development, legal and IT), facilities costs and professional fees.
The share-based compensation credit for the period amounted to £0.6m (2009: a charge of £0.4m). The credit in the year arose from a reassessment of the probability of certain non-market based performance criteria being achieved on outstanding options and LTIPs. It also reflects a reduction in headcount in 2010.
Other income and expenses
Other income and expenses comprised exchange differences, fair value gains and losses on hedging arrangements, the cost of foreign currency options and income from EU and Government grants. During the year the Group recognised other expenses of £0.3m compared with £0.7m in 2009. This decrease arose from unrealised exchange differences on inter-company loans, with a loss of £0.5m recorded in the current period versus a loss of £1.0m in 2009. These Euro denominated loans were granted to the Finnish subsidiary, Ark Therapeutics Oy by Ark Therapeutics Limited, in order to finance the new biologics manufacturing facility. In addition, EU and government grant income during the year totalled £0.4m (2009: £0.5m).
The Group invests its surplus cash in bank deposits of up to one year in accordance with the terms of the Investment Policy approved by the Board. This policy has as its principal aim the security of the Group's cash balances and contains strict criteria on minimum credit ratings and maximum deposit size. Net interest receivable comprises the interest income generated from cash invested in term and overnight deposits. In the year ended 31 December 2010 the Group earned investment income of £0.1m (2009: £0.6m) on cash deposits. The decrease was due to the fall in interest rates achievable as well as the lower level of cash and money market investments.
There were no UK corporation tax charges for the year under review due to the incidence of tax losses. We continue the policy of surrendering tax losses for cash by making research and development tax claims to the tax authorities and anticipate a tax credit receivable of £1.0m in respect of the year ended 31 December 2010 (2009: £1.3m), the decrease resulting from the lower level of qualifying research and development expenditure in the year.
Loss per share
The basic and diluted loss per share for 2010 from continuing and discontinued operations was 8 pence (2009: 10 pence). The basic and diluted loss per share from continuing operations only was 8 pence (2009: 9 pence).
Total net assets (defined as total assets less total liabilities) have reduced from £35.6m at 31 December 2009 to £18.8m at 31 December 2010, principally as a result of the operating cash outflows during the period.
The net cash outflow from operating activities for the year was £10.7m (2009: £19.5m). Ark's net cash outflow from capital expenditure was £0.3m (2009: £1.6m), the decrease reflecting the lower expenditure on the biologics manufacturing facilities in Kuopio, Finland. Intangible capital expenditure included licence payments to access technology used in Ark's development programmes.
The Board operates an Investment Policy governing the investment of the Group's cash resources, under which the primary objective is to invest in low risk cash or cash equivalent investments to safeguard the principal, ensuring that these resources remain available to fund the Group's operations.
Chief Financial Officer
9 March 2011
Directors' responsibilities statement
The Directors are responsible for preparing the annual report, Directors' remuneration report and the Group and the Company financial statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare such financial statements for each financial year. Under IAS Regulation the Directors are required to prepare Group financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union ("EU"). The Group Financial Statements are also required by law to be prepared in accordance with Article 4 of the IAS Regulation and the Companies Act 2006. The Directors have also chosen to prepare the parent Company financial statements under IFRSs as adopted by the EU. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
· properly select and apply accounting policies; and
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and
· provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
· make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Group financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors confirm to the best of their knowledge that:
(a) the financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
(b) the business review, which is incorporated in the Directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.