LONDON, May 25 /PRNewswire-FirstCall/ -- BTG plc , the medical innovations company, today announced its preliminary results for the year ended March 31, 2006.
Financial highlights * Revenue 31% higher at 50.2m pounds Sterling (04/05: 38.3m pounds), reflecting strong growth in recurring royalties and litigation settlements * Revenue net of revenue sharing 31% higher at 29.5m pounds (04/05: 22.6m pounds) * Additional gains from sale of patents and investments, less provisions, of 7.4m pounds (04/05: 1.2m pounds) * Operating & administrative costs reduced by 23% to 24.3m pounds (04/05: 31.6m pounds) -- Expected to be below 21m pounds in the current financial year * Research & development expenses at 9.1m pounds (04/05: 16.8m pounds), reflecting lower Varisolve(R) expenses and more focused investment in BTG’s pipeline * Profit before tax of 1.5m pounds (04/05: loss of 34.8m pounds) * “Free” cash of 44m pounds (04/05 34.5m pounds) with over 9m pounds generated in the year * Group operating from a sustainable platform with the capacity to invest in the pipeline Operating highlights * Six programs added to pipeline * Clinical studies initiated on BGC20-1259 (Alzheimer’s disease) and BGC20-0166 (sleep apnoea); BGC 9331 -- plevitrexed (gastric cancer) phase II study arm fully enrolled * Progress in licensees’ programs: encouraging phase II results for Campath(R) in multiple sclerosis and TRX4 in type 1 diabetes * Successful commercialization of physical science assets: Teleshuttle, RFID, WebNav, NQR * Preparations made for Varisolve(R) phase II safety study and partnering discussions continuing
Louise Makin, BTG’s Chief Executive Officer, commented: “We are delighted to report these strong financial results and excellent progress in delivering on the strategy announced last May. With increasing revenues, reduced costs and a healthy cash balance, we can move forward with confidence and continue to build value by investing in our life sciences pipeline.”
Notes
A presentation will take place today for analysts at 9.30am at BTG plc, 10 Fleet Place, Limeburner Lane, London EC4M 7SB. The presentation will be webcast live on http://www.btgplc.com. High resolution images are available for the media to view and download free of charge from http://www.vismedia.co.uk.
Chairman’s statement
BTG’s results for the year to March 31, 2006 show a major improvement over the prior year with the net result being a profit before tax for the year of 1.5m pounds (04/05: loss of 34.8m pounds). Cash at the year end was 51.0m pounds (04/05: 34.5m pounds net of overdraft) of which we consider some 44m pounds is “free” cash after allowing for known commitments on the sale of the Teleshuttle patents, an increase of over 9m pounds in the year.
Revenues of 50.2m pounds (04/05: 38.3m pounds) generated net revenues after revenue sharing 31% higher at 29.5m pounds (04/05: 22.6m pounds). Underlying royalty revenues from marketed products including BeneFIX(R) and the two-part hip-cup grew strongly and the Group generated non-recurring revenues, being one-off settlements and milestones, of 10.7m pounds gross (04/05: 9.1m pounds) including the settlement with Zimmer over the two-part hip cup patents. The sale of investments and patents, including the sale of the Teleshuttle patents at the end of the year, resulted in net profits of 11.6m pounds (04/05: 2.2m pounds).
Investment in the development of Varisolve(R) reduced as expected to 4.5m pounds (04/05: 9.2m pounds). Overall investment in BTG’s drug development pipeline was lower at 3.6m pounds (04/05: 6.6m pounds) reflecting the clearer focus on key products.
The significant restructuring costs incurred last year set the scene for a 23% reduction in operating and administrative expenses to 24.3m pounds (04/05: 31.6m pounds). Further restructuring costs of 3.7m pounds were incurred to align operations with the new strategy and maintain cost control.
Disappointing progress in two investee companies has resulted in write-offs of 4.2m pounds with the major losses arising when SAMSys Technologies, Inc., the Canadian listed RFID company, went into liquidation reflecting the difficult environment in that technology space.
The Directors do not recommend payment of a dividend for the year.
Outlook
We have started the new financial year with a much lower cost base, a strong cash position and a clear focus. We expect that revenues from royalties on marketed products will cover operating and administrative costs. The anticipated revenues from future licensing deals, milestones and the ongoing commercialization of non-core assets, together with strong cash reserves, mean the Company is well placed to continue to build value by further developing our current portfolio and by in-licensing new, high potential programs to add to our development pipeline.
Discussions are progressing with potential partners for Varisolve(R), and the Board continues to believe this product is capable of achieving significant sales and generating future returns for BTG.
Sir Brian Fender Chairman Operating review
During the past year we continued our process of transforming BTG into a focused medical innovations company. During a period of considerable change, we have also delivered strong financial results.
At the start of the year we set out our goals: * Position BTG for profitability and sustainable growth * Reduce costs * Realize value from the physical sciences portfolio * Progress the development and partnering of Varisolve(R) * Continue to build value by investing in the pipeline
We have achieved a pre-tax profit for the year of 1.5m pounds and, thanks to growing recurring revenues and reduced costs, we can build the business in a sustainable manner. Operating and administrative costs reduced by 23% from 31.6m pounds to 24.3m pounds and going forward we anticipate these costs will be below 21m pounds. We have realized value from several physical sciences technologies including WebNav, RFID, NQR and, at the end of the year, Teleshuttle. This last deal generated an immediate net profit of 9.0m pounds and also provides the opportunity for additional significant returns and brings to an end the major litigation activities. We continued to invest in the pipeline, adding six new programs and spending 9.1m pounds on developing existing programs, including Varisolve(R).
Building value in the pipeline
Six programs were in-licensed during the year, including a series of selective EP4 receptor antagonists designed to treat painful conditions such as migraine headache. The lead compound, BGC20-1531, is completing preclinical studies in preparation for its first clinical study. Three acquisitions were made for the Drug Repositioning portfolio, two dermatology opportunities targeting head lice and fungal infections, and a novel oral formulation for an asthma product. Two earlier stage programs were in-licensed for the oncology portfolio.
Good progress was made in developing existing programs. In BTG’s pipeline, enrolment was completed for the phase II part of the phase I/II gastric cancer study of Plevitrexed (BGC 9331), in which 19 additional patients are expected to be dosed at the recommended level for follow-on studies.
BGC20-1259 completed preclinical development and commenced a phase I clinical study. To date, two cohorts of eight volunteers have been treated with single ascending doses. Dosing of the third cohort is expected to begin shortly, and planning for a multiple ascending dose study, which should begin around mid-year, is under way. BGC20-1259 is a unique multifunctional compound designed to act on the cognitive impairment, associated psychiatric symptoms such as depression and neurodegenerative aspects of Alzheimer’s disease.
A clinical proof of mechanism study commenced with BGC20-0166, a combination of two compounds shown in preclinical studies to alleviate sleep apnoea, a common condition in which sleep is interrupted by cessation of breathing and for which there is currently no pharmacological treatment. Ten patients have been treated and all 36 planned patients should have finished treatment by the end of the year.
In the current financial year we anticipate the completion of the plevitrexed (BGC9331) phase I/II trial, phase I for BGC20-1259 and the sleep apnoea proof of mechanism study.
Several licensees made advances with their development programs. Genzyme Corporation is continuing the development of Campath(R), its 3rd line treatment for chronic lymphocytic leukaemia (CLL), in a range of additional oncology indications and reported positive interim efficacy results of a phase II trial comparing Campath(R) with interferon beta-1a in multiple sclerosis. Genzyme anticipates commencing phase III studies in MS in the second half of 2006.
TolerRx, Inc. showed in a phase II trial in new-onset type-1 diabetes that the monoclonal antibody TRX4 significantly reduced the trial subjects’ requirements for insulin over the 18 months of follow-up. TRX4 was granted orphan drug status for this indication, which confers benefits including data exclusivity if successfully approved. Cougar Biotechnology progressed its European phase I study of abiraterone acetate, an inhibitor of testosterone biosynthesis targeting prostate cancer, and was granted approval to commence clinical studies in the US. Abiogen Pharma completed phase I studies of ABIO 08-01 (BTG1640) and is currently planning a phase II proof of concept study in anxiety.
Varisolve(R)
The IND for Varisolve(R), BTG’s novel microfoam sclerosant treatment for varicose veins, was released from clinical hold and a phase II study protocol was approved in the US in July 2005. BTG initiated new partnering discussions from September with a number of pharmaceutical, specialist and medical device companies. Discussions are proceeding as expected.
In anticipation of securing a commercialization agreement and following constructive dialogue with the FDA, preparations for the agreed phase II study have been progressed so that it can start without delay to the development timetable. Clinical trial materials have been sourced and eight varicose vein centers have been identified to take part in the study, which aims to show, using sensitive MRI techniques, that the presence of microbubbles in the middle cerebral artery that may result from treatment with Varisolve(R) does not cause subclinical damage. It is intended that a partner is signed up prior to commencing the study because there is a potential regulatory pathway that allows phase II and phase III to overlap.
BTG has also continued to add value to this program through further IP development, and patent coverage for Varisolve(R) now extends to 2024.
Capturing value from non-core assets
We are delighted with the progress made over the year in monetizing some of the physical science assets such as Teleshuttle, WebNav and RFID. This work is ongoing and we are seeking to sell or license a number of other physical science technologies, in fields such as telecommunications and flash memory, over the medium term.
We will also continue to simplify the portfolio and reduce costs by: * renegotiating terms on marginal licences to reassign or return the IP * terminating contracts for non-viable assets * managing our ventures investments such that we can maintain an economic and management interest in key assets while allowing dilution of holdings in non-core assets. Maintain cost control
Operating and administrative costs for the business reduced to 24.3m pounds and we are targeting ongoing costs of less than 21m pounds per annum. In achieving these savings we incurred restructuring charges of 3.7m pounds this year. The restructuring of the business is now complete although focus remains on maintaining tight cost control throughout the business.
Positioning BTG
In support of the new strategy and to promote our capabilities to potential partners we have increased our presence at industry conferences and partnering events. We moved from the FTSE support services sub-sector to the biotechnology sub-sector, and to help promote the new strategy to a wider group of international investors we appointed Piper Jaffray as joint broker and adviser alongside Credit Suisse.
Priorities for the year ahead
Our priorities for the year ahead are to continue the work we have commenced this year. The focus continues to be to:
* Build value in the pipeline through in-licensing and development activities * Secure a development and commercialization partner for Varisolve(R) * Capture full value from the ongoing monetization of non-core assets * Maintain cost control across all areas of the business * Further establish BTG within the industry as a credible and preferred development and licensing partner Financial review
The year ended March 31, 2006 saw a major shift in BTG’s strategy and financial results. Revenues grew significantly, cash generation was strong and costs were reduced. As a result the difference in financial performance from last year to this was very pleasing, with the Company moving from a loss after tax of 35.0m pounds in 04/05 to a profit of 1.4m pounds in 05/06. Whilst achieving this result the Company continued to invest to build its pipeline of R&D programs set to generate future earnings for the business.
Revenues and gains
BTG’s revenues fall into two main categories, royalty revenues from marketed products and the proceeds of one-off deals, settlements or milestones.
Royalty revenues in 05/06 were 39.5m pounds (04/05: 29.2m pounds), an increase of 35%. Most of BTG’s intellectual property is assigned to us on the basis that BTG pays a proportion of the royalty revenues it earns from the IP back to the licenser or source after deduction of certain costs. These payments, referred to as revenue-sharing, averaged 41% of royalty income in the year (04/05: 41%) although the terms vary patent by patent and by territory and technology from 10% to around 70%. As BTG moves forward and invests more significantly in the R&D assets it acquires, these revenue-sharing percentages should reduce but the impact on the net revenue “margin” will not be apparent for some years.
Net royalty revenues after revenue sharing increased from 17.8m pounds in 04/05 to 23.0m pounds this year, an increase of 29%. This significant increase in the year reflected the fact that Zimmer is now paying royalties on its sales of the artificial hip-cup design over which BTG holds patents, generating new net royalty income of 1.7m pounds. Without this income, the increase would have been 20% on a like-for-like basis. Revenues were also boosted by a particularly strong performance from BeneFIX(R) (recombinant Factor IX sold by Wyeth and Baxter) where net royalties increased by 23% in the year.
Other key products include Genzyme’s Campath(R), where sales of the product as a third-line treatment for CLL are growing steadily. Future sales may be significant should Genzyme’s development activities allow for this product to be used in second and first-line CLL, other cancers or in multiple sclerosis. BTG also earns low-level royalties on certain antibody humanization patents commercialized through the Medical Research Council. These patents apply to a selected range of monoclonal antibody products now reaching market. BTG’s royalties from these patents are anticipated to increase gradually over the coming years. The Group also earns good royalties from sales of artificial knee products and a range of other drug and device products. The patents underlying BTG’s royalties provide coverage over periods from 6 to 15 years.
Net royalties have increased by an average of around 10%-12% pa over the previous 5 years. Forecasts for 06/07 show some sales growth although shifts in revenue-sharing agreements on BeneFIX(R) would counteract likely sales increases on that product. As such the aggregate increase over the two years to March 31, 2008 is likely to return to the average annual range achieved in the recent past. 05/06 04/05 Increase/ Patent Gross Gross decrease coverage revenues revenues through m pounds m pounds m pounds Technology BeneFIX(R) 15.8 13.0 2.8 2011 Hip-cup 6.2 2.6 3.6 2019 Campath(R) 4.6 4.0 0.6 2017 MRC humanization IP 1.6 1.2 0.4 2015 Artificial knee 1.8 1.2 0.6 2011 Other 9.5 7.2 2.3 av. 2011 Royalty revenues 39.5 29.2 10.3 Other revenues 10.7 9.1 1.6 Total revenues 50.2 38.3 11.9
In addition, BTG earned significant revenues and generated gains from the licensing, sale or settlement of certain assets and transactions. Within licensing deals and settlements, BTG generated revenues of 7.5m pounds from the settlement in May 2005 with Zimmer with related revenue sharing costs of 3.4m pounds. Milestone receipts and licences granted on other patents generated a further 3.2m pounds gross and 2.4m pounds net.
Gross Net revenues revenues or or proceeds profits m pounds m pounds Zimmer settlement 7.5 4.1 Other settlements & milestones 3.2 2.4 Revenues from one-off transactions 10.7 6.5 RFID/Zebra 3.0 1.6 NQR/QRS 1.1 0.2 Teleshuttle/Twin Tech 20.0 9.0 Other 0.1 0.1 Sale of fixed assets 24.2 10.9 Kudos Limited & other 1.1 0.7 Sale of investments 1.1 0.7 Total 36.0 18.1
During the year BTG concluded the sale of three sets of assets within the physical sciences portfolio. Patents relating to radio-frequency ID tagging were sold to Zebra for gross proceeds of 3.0m pounds and a net gain of 1.6m pounds. QRS took and exercised an option to acquire rights to an explosives detection technology, NQR. The gross proceeds for this transaction could total $15m but given the long time period over which these revenues would be generated (12-14 years) and consequent uncertainty over collecting such proceeds, only $2m (1.1m pounds) has been recognized at this time. The largest transaction completed in the year was the sale of patents licensed from Teleshuttle to Twin Tech EU for gross proceeds of $35m (20.0m pounds). Costs, being revenue sharing and amounts due to advisors plus writing off the net book value of the assets, resulted in a net gain of 9.0m pounds.
The other main one-off transaction was the sale of shares held in a private company, Kudos, to AstraZeneca for a gain of 0.7m pounds.
Overall, one-off transactions in the year generated net revenues and gains of 18.1m pounds with cash generated of some 20m pounds once all liabilities are settled.
These revenues and gains were pleasing in that they demonstrated the Company’s ability to exit in an orderly and profitable way from the physical science assets. Further exits are anticipated in the next 12-24 months.
Cost containment and restructuring
BTG’s costs in 04/05 were high and included a significant expense relating to reorganizing and restructuring decisions taken during that year. In particular the results included an expense of 6.6m pounds in respect of uneconomic leases. Further reorganization costs were incurred during 05/06 following the decision to stop investing in new technologies in the physical sciences segment and a decision to outsource a number of administrative and IT functions. Costs relating to the salaries of those declared redundant in the current year were around 4.6m pounds, including certain incentive packages to ensure an orderly wind-down of the asset-realization. Sub-letting of certain of the company’s unoccupied property allowed some 0.9m pounds of provisions made in 04/05 to be written back, giving an overall charge of 3.7m pounds for the year.
These changes should lead to significantly lower running rates for administrative costs in future years.
Operating expenses, being patent and litigation expenses, were at a similar level to 04/05 with patent renewal fees slightly down, higher litigation costs relating to actions on the Zimmer, WebNav and Teleshuttle deals which have now settled and a high amortization charge following a full assessment of the likely values achievable from the patents in line with the new strategy.
Looking forward, litigation expenses are not expected to be material in the coming year, although circumstances may cause this to change. Amortization charges should reduce considerably following the sale or write-down of certain assets in the year and as such operating expenses for 06/07 are targeted to be significantly lower than the 7.5m pounds in the current year.
Administrative expenses at 18.3m pounds are 5.1m pounds or 22% below the levels of the prior year and savings achieved through the reorganization mean that 06/07 operating and administrative expenses should fall below 21m pounds, some 3m pounds below 05/06 levels.
An exchange gain of 1.5m pounds was achieved in the year on the conversion of certain foreign-currency denominated receipts into sterling although average exchange rates used to translate operating activities in the year were similar to those applying in the previous year. In the previous year exchange losses of 0.2m pounds were incurred. The level of such gains and losses is difficult to forecast and the effect may well be neutral in future years.
Research and development
R&D costs for the BTG group as a whole were 9.1m pounds of which 4.5m pounds related to Varisolve(R), 3.3m pounds to BTG pipeline projects, 0.3m pounds and 1.0m pounds in the operations of BTG’s subsidiary and associate companies respectively. This compares to 16.8m pounds in the prior year (9.2m pounds Varisolve(R), 6.3m pounds BTG directed and 1.3m pounds in subsidiaries and associates). In the case of Varisolve(R) and the other subsidiary and associate companies these represent the entire costs of the operations which are dedicated to research and development. In the case of BTG directed projects, this represents the external R&D costs paid to clinical research organizations and similar.
The expenditure of 4.5m pounds on Varisolve(R) in the year related to costs incurred in securing the manufacturing supply chain, including a one-off payment to the landlords of our Wrexham secondary-manufacturing site for profit mark-ups foregone on contract manufacturing. Activities were also centered on completing work required by the FDA and preparing for the upcoming phase II safety study. The costs of running Varisolve(R) activities in the 06/07 year excluding the phase II trial are likely to be around half of the 05/06 levels.
Progress in BTG’s pipeline has been pleasing. The expenditure of 3.3m pounds is in line with budget and the decrease over last year reflects a focusing down into a core portfolio rather than investing small amounts in large numbers of activities. BTG’s strategy as announced in May 2005 was to move this R&D investment to some 10m pounds pa over the coming 3 years as high-value opportunities are recognized and accessed and plans are in place to be in line with this objective.
Costs within BTG’s subsidiaries and associates are monitored actively and carefully through the arrangements put in place through our investment agreements.
Carrying value of investments
Regrettably charges of 4.2m pounds arose in the year upon the impairment in value of two investments. The majority of this arose upon the loan creditors of SAMSys Technologies Inc. calling in their debt. The assets of that company are being sold but the expectation is that after payment of liabilities there will be no return to shareholders. Accordingly the fair value of this investment of 3.7m pounds was expensed in the year. The balance relates to an investment in a private company, Ignios Limited, in which BTG has decided not to invest further.
Financial income and tax
BTG’s cash balances are invested in short-term and call deposits. Interest earned on deposits averaged 4.5% in the year.
The tax charge relates to certain withholding taxes on royalty income that are not relievable under double-taxation treaties.
Profit for the year and earnings per share
Overall BTG achieved a profit for the period of 1.4m pounds, an improvement of 36.4m pounds over the previous year’s loss of 35.0m pounds. Reductions in costs, increases in royalty income and gains from licences and sales of assets in the year have combined to generate this turnaround.
These profits represent earnings per share of 1.0p compared to a loss per share in 04/05 of 23.8p based on an average of 146.6m shares in issue (04/05:145.5m).
These results include a number of charges that arise under IFRS rather than UK GAAP although the charges in the 05/06 year are broadly comparable to those in the 04/05 accounts restated under IFRS.
Position at the year end
At March 31, 2006 BTG’s net assets were 42.2m pounds, an improvement of 3.2m pounds in the year.
Non-current assets
The value of BTG’s non-current assets fell by some 10m pounds in the year to 24.6m pounds. Intangible assets stood at 7.1m pounds with additions of 2.3m pounds being offset by disposals of 2.2m pounds and amortization charges of 3.9m pounds. The intangible assets held, mostly patents, are written off over the remaining life of the patent or their useful economic life if shorter and are subject to regular impairment reviews.
The net book value of the Group’s fixed assets reduced by 1.1m pounds from 10.7m pounds to 9.6m pounds through depreciation and currency movements. The major asset held is the Wrexham secondary-manufacturing plant for Varisolve(R) which is still in the course of construction and as such is not yet depreciated.
Investments in associates reduced from 3.6m pounds to 2.7m pounds, reflecting losses incurred in those companies plus additions and impairment charges. The associates are private companies engaged in research and development. Mesophotonics Ltd. is developing photonic crystal nano devices, Protez Pharmaceuticals is developing new antibiotics to overcome the problem of drug resistance and Senexis Ltd. is developing small molecule drugs in the CNS space. Other investments represent holdings in companies where BTG owns under 20% of the share capital and investments in a number of venture capital funds. The largest individual investment is in Xention Discovery Limited, a drug discovery company focused on ion channels. In total BTG invested 1.8m pounds in these companies and funds during the year (04/05: 2.7m pounds). Commitments to follow-on funding of the investment portfolio stood at 2.9m pounds as at March 31, 2006.
Current assets, current and non-current liabilities
The trade and other receivables were 10.1m pounds at March 31, 2006 compared to 7.4m pounds at the prior year end, with the increase broadly in line with increased revenues.
Current liabilities at 30.6m pounds were in line with those at the previous year end of 28.9m pounds although trade payables include some 7.0m pounds in respect of unpaid costs on the Teleshuttle deal concluded near the year end.
Non-current liabilities at 12.9m pounds include 9.6m pounds in respect of the net deficit on the company’s defined benefit pension plan, together with provisions largely against future lease liabilities on onerous leases. A deficit repair schedule has been agreed with the trustees of the pension plan that will see the company contributing 2.2m pounds pa to the fund in addition to the current service charges over the next 6 years.
Cash
BTG’s cash and cash equivalents as at March 31, 2006 were 51.0m pounds compared to 34.5m pounds at March 31, 2005. This cash balance was reduced shortly after the year end in settling the 7.0m pounds of unpaid liabilities on the Teleshuttle deal mentioned above. Accordingly the “free cash” balance was around 44.0m pounds, an improvement of over 9m pounds in the year.
The Company’s profit for the year of 1.4m pounds included non-cash charges of 3.9m pounds for amortization and impairment, 0.9m pounds for depreciation, 2.0m pounds of non-cash charges in reaching the profit on sales of assets, 5.2m pounds in reducing the value of associates and investments and around 0.8m pounds in respect of charges for share options. The Group invested 2.3m pounds in acquiring intangible assets and 1.8m pounds in additional investments, spent 2m pounds in reducing the pension scheme deficit and reduced provisions by 3m pounds. 4.3m pounds was also generated from the exercise of share options. These items, with adjustments for working capital changes, account for the 9m pounds of cash generation.
Consolidated income statement for the year ended March 31, 2006 Year ended March 31 Note 2006 2005 m pounds m pounds Revenue 2 50.2 38.3 Revenue sharing (20.7) (15.7) Revenue net of revenue sharing 29.5 22.6 Operating and administrative expenses 3 (24.3) (31.6) Restructuring costs 4 (3.7) (11.8) Operating expenses (28.0) (43.4) Varisolve(R) development (4.5) (9.2) Other research and development (3.6) (6.6) Share of results of associates (1.0) (1.0) Research and development expenses (9.1) (16.8) Profit on disposal of assets and investments 5 11.6 2.2 Amounts written off associates and investments (4.2) (1.0)
