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Phynova Announces Final Results For Year Ended 30 September 2008
29 December 2008
Phynova Group plc
("Phynova" or the "Company")
PHYNOVA ANNOUNCES FINAL RESULTS FOR YEAR ENDED 30 SEPTEMBER 2008
Phynova (AIM: PYN), the developer of prescription pharmaceuticals derived from plants used in Chinese medicines, today announces its results for the year ended 30 September 2008.
These results are prepared in accordance with International Reporting Standards ("IFRS") and key highlights are as follows:
Financial highlights
Research / pipeline highlights
John Pool, Executive Chairman of Phynova said:
"I believe that the Group is at an exciting stage in its development, with the potential for generating revenues in the coming year, with discussions on some new out-licensing and collaboration deals well underway. Botanically derived drugs are now recognised by the FDA as having significant therapeutic value. China continues to expand, albeit more slowly in the current economic climate, and is becoming of greater significance in our field as a major global player and market. We are now well placed to take advantage of these opportunities."
- ENDS-
For further information, please contact:
Phynova Group plc
John Pool (Executive Chairman)
Tony Mills (CEO Phynova Limited)
Robert Miller (CEO Phynova China Limited)
Tel: 01993 880700
John East & Partners Limited
John East/Bidhi Bhoma
Tel: 020 7618 2200
Capital MS&L
Mary Clark/Anna Mitchell
Tel: 020 7 307 5330
Notes to editors:
About Phynova
Phynova (AIM: PYN) is a UK company developing new prescription pharmaceuticals derived from plants used in Chinese medicines. The Company is focused on viral and bacterial diseases, metabolic diseases and cancer. Phynova´s lead product for hepatitis C has now completed a Phase I/II trial in the US. Two further products, for fatty liver disease and post-operative ileus, are targeted for entry to the clinic and there are a further four products in preclinical development.
For further information please visit www.phynova.com.
CHAIRMAN´S STATEMENT
Despite the challenging environment, Phynova has made real progress in the development of its business in the past year. We have grown the Groups´ presence in China with important new commercial collaborations, made significant strides in the advancement of our pipeline of drug candidates through the development process, and are now generating strong commercial interest in our pipeline.
As previously reported, we have re-organised our Board and appointed two non-executive directors with strong pharmaceuticals backgrounds. We have also taken the opportunity to streamline our management and focus on the two core elements of our business: the development of our interests in China to generate a pipeline of novel new therapeutic candidates and the development and commercialisation of the pipeline in the West.
Development Programme
The further development and commercialisation of Phynova´s pipeline of drug candidates is key to the success of the Group. During the last several months Phynova has been in discussions with a number of potential licensing and development partners. In November the Company announced a commercial agreement with Norgine, a leading specialty pharmaceutical company. Under the terms of the collaboration, Norgine will assess certain of Phynova´s drug candidates in proprietary assays in order to measure their effectiveness in the treatment of liver disease. We are very pleased to be working with Norgine and we believe that this collaboration is the first of several we anticipate announcing in the near future.
Regarding the pipeline, I can report the following:
PYN17 - Financial constraints have prevented us from commencing the Phase IIb study planned to begin in 2008. The IND granted for the trial is still open and if sufficient funding becomes available or a partner is found for PYN17 we would carry on with the trial. We are also in talks with a regional pharmaceutical company to license PYN17 in an area of the world that has a very high rate of hepatitis C infections.
PYN 6 - Phynova´s anti-MRSA drug candidate has continued to show excellent efficacy in further pre-clinical studies carried out in the past year. Working with collaborators at Queen Mary, University of London, Phynova demonstrated that MRSA cultured in the presence of PYN6 does not become resistant to PYN6. These studies have also demonstrated that PYN6 appears to have a dual action on MRSA, inhibiting the growth of the bacterium, as well as a strong bactericidal action. As a consequence of these results, PYN6 will become Phynova´s next clinical candidate and first human studies are targeted to start within 12-15 months. In June 2007, a presentation on PYN6 was given at the American Society of Microbiology´s Annual General Meeting. PYN6 is an excellent candidate for rapid development and because of this, commercial discussions with interested parties are well underway.
PYN22 - is a candidate for the treatment of non-alcoholic fatty liver disease (NAFLD), considered to be the most common liver disorder in the Western world. NAFLD is closely associated with the metabolic syndrome and obesity. There is no evidenced-based treatment for NAFLD, and most pharmacological agents are primarily approved for other aspects of the metabolic syndrome, i.e. anti-obesity drugs and diabetic drugs. With the recent withdrawal of the marketing authorisation for one of the leading obesity drugs (rimonabant) that was being trialled for use in NAFLD, there is renewed interest from pharmaceutical companies to find novel treatments for this potential block-buster market. We are in commercial discussions with various specialty pharmaceutical companies about co-developing and/or out-licensing PYN22. Again, financial constraints have delayed the clinical development of PYN22. However, further funding or co-development/out-licensing deals could see PYN22 in the clinic within 12 months of financing.
PYN9 - as has been well documented in the press over the last year, China´s drug regulatory agency, the SFDA, is going through a major re-structuring that has caused extensive delays in the normal course of its business. Unfortunately our JV partner, Botanic Century has been one of many Chinese drug development companies who have suffered as a result. Very recently there have been signs that the SFDA is beginning to function again and Botanic Century have had communication with the agency that suggests they will be able to begin the registration trial for PYN9 in the second quarter of 2009 and hopefully have Phase II data by the end of 2009. If this timeline is achieved, Phynova will be in a strong position to license out PYN9 in 2010.
PYN18 - is an antiviral candidate that has shown good activity against two flaviviruses; hepatitis C virus (HCV) and dengue virus. During the past year, the preclinical in vitro screening was furthered with confirmatory studies being carried out at the world-renowned virology labs of Prof Eric de Clercq at the Katholieke Universiteit Leuven in Belgium. Laboratory studies have confirmed that PYN18 has a potentially wide therapeutic index with very low toxicity in cell culture. Studies investigating the activity of PYN18 against dengue confirmed the data from initial screenings in Thailand and showed that it had significant antiviral activity against the dengue virus (MIC <1.2µg/mL) and appeared to have a novel mechanism of action, affecting late-stage viral processes. We are in advanced discussions with several Chinese organisations interested in the collaborative development of PYN18 for treating HCV, and are seeking charitable and/or government/military funding for the further development of the dengue programme.
PYN7 - Investigations of compounds obtained from the Hong Kong Jockey Club Institute of Chinese Medicine continued through 2008. The studies identified three compounds with activity to warrant further investigation and these compounds were screened against various cancer cell lines as well as non-cancerous cells with the compounds showing greater selectivity towards cancerous cells. The compounds were screened to investigate their combination with standard chemotherapy agents and showed good additive activity. Due to the early stage of this project and the current financial climate, this project has been temporarily put on hold so that greater resources can be injected into the projects closer to realising commercial/out-licensing revenues.
Phynova China
China has been the source of Phynova´s product pipeline for several years now and the Group has continued to benefit from its presence there during the last year. Our subsidiary Phynova China has made steady progress in developing its commercial relationships with our existing partners such as Botanic Century as well as establishing new ones with major companies in China such as Fosun Pharma and Tasly Pharmaceuticals.
Botanic Century, of which the Group owns 45 per cent and which, as a result of the agreements controlling its operations and activities, is accounted for as joint venture, has made good progress in a number of areas. As detailed above, the registration trial for PYN9 is scheduled to begin next year. Botanic Century already has a marketing and distribution agreement in place for PYN9 that will facilitate its rapid entry into the Chinese pharmaceutical market as soon as regulatory approval is granted. In addition to developing its drug pipeline, Botanic Century has over the last year begun to develop products for the nutraceuticals and cosmetics industries. An extract originally developed for the treatment of diabetes has shown good in vitro activity as an ‘anti-aging´ substance for the skin and discussions are underway to out-license it as a new cosmetic ingredient. Botanic Century has also developed a new supplement for people suffering from acne that has been introduced to the US market where sales of it have recently begun. One advantage of developing products for the non-pharmaceutical markets is that they can generate early revenues.
In July Phynova signed a Memorandum of Understanding with Fosun Pharma, one of China´s largest pharmaceutical groups to establish a strategic collaboration for the development of botanical drugs for the Chinese and global markets. Discussions are currently underway with other pharmaceutical companies with a view to creating co-development and commercial partnerships for several of Phynova´s pipeline candidates in China, which by 2010 is expected to be the world´s fifth largest pharmaceutical market (Source: www.researchandmarkets.com/reports/c60496).
China is fast gaining a reputation one of the most innovative R & D centres for drug research in the world and over the last year Phynova has continued to expand its research network amongst scientists and institutions involved in ‘cutting edge´ research relating to plant-derived drugs. Phynova has recently entered into a Collaboration Agreement with the School of Pharmacy at Suzhou University to co-develop novel botanical drugs. Phynova China´s research network has attracted the attention of Western pharmaceutical, cosmetic and nutraceutical companies who have expressed interest in collaborating with Phynova in order to discover and develop new plant-derived active compounds for their respective areas of interest and the Company anticipates signing research agreements with such companies next year.
Phynova´s management team has spent several years creating a significant ‘footprint´ in China. Given the confluence of favourable conditions in the Chinese pharmaceutical market together with Phynova´s well established presence and extensive research and commercial network in China, the upcoming year is an opportune moment to further expand Phynova´s business interests in China.
Financials
The results for the year ended 30 September 2008 are as per the attached income statement.
The Company´s cash position, as at 30 September 2008, was £375,811 and its cash position immediately prior to the date of these results was £69,000. In April 2008, Phynova raised £1.2 million before expenses by means of a placing of shares. These funds were raised through a placing of new ordinary shares at 40 pence per share with existing investors and other private investors.
Phynova´s American Depositary Receipts ("ADRs") were listed for trading on the OTCQX platform in New York in April 2008. This was undertaken in order to improve our liquidity and to increase our access to US based investors. However in order to make full use of the facility we need to visit and make presentations to US investors, which we have not done in view of the current financial environment. When investment activity picks up, we will do this.
The management continues to exercise prudent cash management demonstrated by relatively low administrative and operational costs.
Following our announcement in September 2008 that we need to raise additional cash resources, we have been holding discussions with our Nominated Advisor and certain investors. We have been encouraged by these discussions and hope to be able to announce the terms of a fund raising early in the New Year. These funds are necessary for the Company to continue to trade through to the medium term.
Future trading and liquidity risk
As noted above, the Group is in the development phase of its activities and has not yet completed the commercial licensing of any of its products. Therefore the group has generated significant losses in recent years (£7.7 million at 30 September 2008 and £2.0 million after tax credits for research and development expenditure for the year ended 30 September 2008). However the directors remain confident of the commercial viability of the product pipeline and consider that revenue from product licensing will be generated in 2009 and through subsequent years.
The directors have prepared profit and cash flow forecasts ("the forecasts") for the short term period to end February 2009 and for the year to 31 December 2009 based on current expectations of activity levels which latter forecasts include cash flow from licensing and product sales amounting to £1.6 million.
These forecasts also show that the Group requires additional funding from February 2009 in order to continue trading. The directors are seeking to arrange a placing of new shares which is planned to raise up to an additional £1.5 million and which is expected to be completed in early February 2009. Based on initial discussions with our Nominated Adviser and current and potential investors the directors consider that this fund raising should be achievable. This additional funding provides the level of funds shown in the forecasts to enable the Group to continue trading for at least the next 12 months, providing the revenue shown in the forecasts is achieved. In the event that there are delays in the generation of revenue from product licensing arrangements there may be a need to seek further funding from shareholders before the end of the next 12 month period. The directors intend to manage the cash flows of the Group carefully during January and February 2009 through a range of measures and consider that this close management of the payments profile should enable the Group to continue in a cash positive position through to the planned fund raising
The Group has no available bank or other funding facilities other than cash at bank.
Based on our current expectations of the support of our key investors on the continuing progress of product development and out-licensing discussions, and our ability to manage the short term payments of the Group through to the planned fund raising the directors consider that the Group will have adequate funding resources to continue in operational existence for the foreseeable future. Accordingly, we continue to adopt the going concern basis in preparing the annual report and accounts.
People
I would like to thank those board members who stepped down in September for their valuable contributions to the Group. As we enter a new phase in our development, having experienced pharmaceutical industry veterans on the Board is important and we are very pleased that Steve Harris and Dr Jin Li joined the board in September. We know that their experience and expertise will be of great assistance to the management team.
The Future
I believe that the Group is at an exciting stage in its development, with the potential for generating revenues in the coming year, with discussions on some new out-licensing and collaboration deals well underway. Botanically derived drugs are now recognised by the FDA as having significant therapeutic value. China continues to expand, albeit more slowly in the current economic climate, and is becoming of greater significance in our field as a major global player and market. We are now well placed to take advantage of these opportunities.
John Pool
Chairman
Consolidated Income Statement for the year ended 30 September 2008
Consolidated Statement of Changes in Equity for the year ended 30 September 2008
Consolidated Balance Sheet at 30 September 2008
Consolidated Cash Flow Statement For the year ended 30 September 2007
NOTES TO THE FINAL RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2008
1. Basis of preparation
The financial statements have been prepared on the going concern basis (as explained further below), under the historical cost convention and are in accordance with applicable accounting standards
Further information on future trading and liquidity risk is included in the Chairman´s Statement. Based on their current expectations of the intentions and support of key investors in the Company the directors have a reasonable expectation that the Group will be able to raise additional funding in the share issue planned for January 2009. Based on their current expectations of the progress of product development the directors have a reasonable expectation that revenue will be generated in line with the forecasts during this year and will be available to underpin the cash flows of the Group. In the event that this revenue is not generated the directors consider it likely that additional funding can be raised from shareholders at an appropriate time in 2009. Based on their expectations of their ability to manage the payments of the Group the directors consider that the cash flows can be managed in a way that maintains the Group in a cash positive position in the period through to the share issue. On these bases the directors consider that the Group will have adequate funding resources to continue in operational existence for the foreseeable future.
Accordingly the directors continue to adopt the going concern basis in preparing the annual report and accounts.
These financial statements have been published in accordance with International Financial Reporting Standards (IFRS and IFRIC interpretation) published by the International Accounting Standards Board (IASB) as adopted by the European Union ("EU adopted IFRS") and with those parts of the Companies Act 1985 applicable to companies preparing its financial statements in accordance with IFRS. This is the first time the group has prepared its financial statements in accordance with IFRS, having previously prepared its financial statements in accordance with UK GAAP. Details of how the transition from UK accounting standards to EU adopted IFRS has affected the Group´s reported financial position, financial performance and cash flows are given in Note 3.
2. Basis of accounting
The preparation of the consolidated financial statements in accordance with IFRS resulted in changes to the accounting policies compared with the most recent Group financial statements prepared under UK GAAP. These accounting policies have been applied to all periods presented in these results and are in accordance IFRS, as adopted by the European Union, and International Financial Interpretations Committee ("IFRIC") interpretations that were applicable for the year ended 30 September 2008.
The Group has elected to make use of the exemptions available in IFRS 1 as follows:
 IFRS 2 ‘Share-based Payments´ has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 October 2006.
 IFRS 3 ‘Business Combinations´ has not been applied retrospectively to business combinations that occurred before 1 October 2006.
3. Explanation of transition to IFRS
This is the first year that the Group has presented its full financial information under IFRS. The transition to IFRS has had no impact on the Group cash flow statement, other than on the layout. The last financial statements under UK GAAP were for the year ended 30 September 2007 and the date of full transition to IFRS was therefore 1 October 2006. The impact of the transition to IFRS was disclosed in the interim financial statements.
4. Loss per share
The calculation of the basic and diluted loss per share is based on the loss on ordinary activities after tax and on the weighted average number of ordinary shares in issue during the period. The loss and weighted average number of shares used in the calculation are set out below:
At 30 September 2008, the Company had 3,652,964 share options and warrants outstanding (2007 – 5,690,920). The share options have not been included in the calculation of the diluted loss per share as they would dilute a loss per share and therefore ‘antidilutive´ under IAS33 "Earnings Per Share".
In previous years the research and development credit was recognised on a received basis but for 2008 has been recognised on an accrued basis and is also recorded within debtors.
The tax assessed for the year is different than the standard rate of corporation tax in the UK. The differences are explained below:
There is no deferred tax in either the current or prior period.
The directors are not aware of any factors which may affect future tax charges.
The group has tax losses of approximately £5,925,000 (2007: £4,557,847) to carry forward against profits of the same trade. The related deferred tax asset of £1,718,000 has not been recognised on the basis that its future economic benefit is not certain.
There is no deferred tax in either the current or prior period.
The directors are not aware of any factors which may affect future tax charges.
The group has tax losses of approximately £5,925,000 (2007: £4,557,847) to carry forward against profits of the same trade. The related deferred tax asset of £1,718,000 has not been recognised on the basis that its future economic benefit is not certain.
6. Other receivables
All receivables fall due for payment within one year.
As of 30 September 2008, there are no receivables either past due or impaired (2007 - £nil). The Group does not hold any collateral as security and the maximum exposure at the reporting date is the fair value of each class of receivable.
7. Reserves
Share issue expenses amounting to £153,373 have been deducted from the share premium account during this year. The following describes the nature and purpose of each reserve within owners´ equity:
8. Dividend
No dividends were paid or proposed in respect of the year ended 30 September 2008.
9. Copies of the Report & Accounts
Copies of the Report and Accounts will be posted to shareholders shortly, and will be available from the Company´s registered office Phynova House, 18 Blenheim Office Park, Long Hanborough, Oxon OX29 8LN and will be available from the Company´s website www.phynova.com .
10. Financial information
The financial information presented for the Group does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985.
The 2008 figures are based on audited financial statements for the year ended 30 September 2008. The statutory accounts will be delivered to the Registrar of Companies following the company´s annual general meeting. The auditors do not expect to issue a qualified report or for the audit report to contain a statement under the Companies Act 1985, s 237(2) or (3). The auditors have informed the directors that their audit report in respect of the group financial statements will contain an emphasis of matter paragraph in respect of future trading and liquidity risk (going concern) and the carrying value of investments in the joint venture on the group balance sheet. The emphasis of matter paragraphs will indicate that significant uncertainty exists in respect of the going concern of the group and draw attention to the support for the recorded carrying value of the investment in the joint venture.
The comparatives for the full year ended 30 September 2007 are based on the latest published audited accounts, but are subject to unaudited restatement to IFRS as endorsed for use in the European Union. They are not the Company´s full statutory accounts for that year. A copy of the statutory accounts for that year which were prepared in accordance with UK GAAP has been delivered to the Registrar of Companies. The auditors´ report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report(s) and did not contain a statement under section 237(2)-(3) of the Companies Act 1985
28/12/2008
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