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Interim Results Period Ending 31 March 2009
29 June 2009
Phynova Group PLC
("Phynova" or the "Company")
PHYNOVA ANNOUNCES HALF-YEARLY RESULTS FOR PERIOD ENDING 31 MARCH 2009
Continuing turbulence in the world´s financial markets has resulted in difficult trading conditions for many companies including small life science companies such as Phynova.
Recognising the challenging environment that businesses operate in, the Company has focused its activities into three areas: developing its pharmaceutical pipeline, pursuing opportunities in functional ingredients, derived from the pharmaceutical pipeline; for the cosmetic, food and supplement industries; and a promising new area of commercial activity for Phynova, the registration and licensing of novel over the counter ("OTC") products under the Traditional Herbal Medicinal Products ("THMPs") registration scheme. The key to Phynova´s survival and future success will be its ability to generate near term revenues and monetise the value in its pipeline created over the last several years.
It is pleasing to report that this focus and careful management of resources has resulted in good operational progress despite the prevailing financial conditions. Phynova has continued to progress discussions with commercial partners and succeeded in raising additional funds from a placing predominantly from its existing investors in May 2009 of this year.
Phynova is also conscious that in the difficult market conditions in which we operate, the need to achieve critical mass may play an important role in the continued survival and commercial success of the Company. With this in mind, Phynova has recently retained City and Westminster Corporate Finance LLP to advise the Company on potential M&A opportunities.
Regarding the pipeline, I would like to highlight the following:
Phynova´s JV partner in China, Botanic Century, has recently received notification from the Chinese FDA of the approval of its application to begin clinical studies on its candidate drug, ´TQS´ for post operative ileus (the temporary stasis of the bowel that often follows abdominal surgery). Post operative ileus is a clinical problem recognised world wide and various estimates put the cost to the US health system alone at around $1 billion per year, mainly representing the increased time patients spend in hospital after surgery and before they can be sent home.
Phynova has the rights to this drug (´PYN9´) outside China and is already promoting the opportunity to western pharmaceutical companies in anticipation of Phase IIa clinical data expected in late 2009. We hope to negotiate valuable sublicensing deals during 2010 from this drug.
Phynova has always been conscious that it is vital to assure the Company´s potential commercial partners that the manufacture and supply of its drug candidates can be achieved. The board was therefore especially pleased to announce in February 2009 that it had established collaboration with Tasly Modern Chinese Medicine Resource Ltd, a subsidiary of the Tasly Group of Tianjin, China, one of the world´s largest producers of botanical drugs. This agreement paves the way for Phynova to access Tasly´s state of the art production facilities and thereby offer potential commercial partners excellent manufacturing and supply capabilities. This will be particularly relevant to the further development and manufacture of PYN9.
Elsewhere in the pipeline Phynova has continued to accumulate patents, vital for the support of its marketing efforts. Despite financial constraints preventing further clinical development of its lead drug candidate, PYN17 (symptomatic relief of the symptoms of chronic hepatitis C), Phynova has now been granted patents covering PYN17 in the major markets of Europe and the USA. We believe firmly that the advent of additional antiviral options in the treatment of chronic hepatitis C such as protease inhibitors will create new interest in the overall treatment of hepatitis C and will lead to a demand for the symptomatic treatment of those patients unable to access or tolerate the antiviral treatment regimes.
In addition, Phynova has added a UK patent on PYN22 (obesity/fatty liver) to its portfolio. With the recent withdrawal of certain high profile marketed drugs and drug candidates in clinical and pre-clinical trial in this treatment sector, we believe PYN22 offers an exciting alternative and is in active discussion with both UK and international companies about PYN22´s potential commercialisation.
Phynova has commissioned further work on PYN6, its topical candidate for MRSA, that shows the drug maintains its anti bacterial activities after formulation in simple topical gels. Reported resistance against commonly used topical treatments for MRSA is increasing and we believe PYN6 may offer a viable new approach to topical treatment. PYN6 is being actively promoted to companies in the acute and dermatological care pharmaceutical sectors.
Phynova has continued its discussions with Chinese pharmaceutical companies about the potential of its anti flavivirus candidate, PYN18. The Company is currently awaiting the results of key laboratory tests on PYN18 that are being carried out in a leading Sino-Japanese research institute and which will have a bearing on the future strategic direction taken with this candidate.
Opportunities in the functional ingredients and OTC herbal products sectors
Phynova continues to work closely with Botanic Century, not just on the ethical pharmaceutical opportunities already described, but also (appreciating the opportunities to access potential early revenues) increasingly in the related development of functional ingredients for both the food and cosmetic sectors. Together the companies have advanced the development of ´BCL-6´, the skin anti-ageing agent highlighted in the 2008 Annual Report. Phynova has obtained an exclusive world wide licence from Botanic Century for BCL-6 and through prospective strategic joint-ventures has begun to actively promote BCL-6 in Europe and the USA.
Phynova and Botanic Century have, in addition, commenced work on the commercialisation of other functional food ingredients that have potential in the prevention of symptoms associated with Type II diabetes and in combating fatigue and improving the quality of sleep in middle aged and older people.
Under the EU directive for THMPs, all herbal products currently on sale in the EU will have to either be registered and compliant with the directive by April 2011 or be removed from the market. Only a small number of THMPs have been registered so far and it appears that companies involved in the manufacture and sales of herbal products have been slow to react to the threat posed by the new regulations. As a result there is good commercial opportunity for companies such as Phynova who have the expertise to identify and register new THMPs and to then license them to multiple partners within the EU. Phynova is in discussion with potential partners who would fund this project in return for a license to use the products and although these discussions are at an early stage, the response has been very encouraging.
Financial review
This is the second interim report by the Group presented under International Financial Reporting Standards.
In the six months ended 31 March 2009, Phynova recorded a pre-tax loss of £0.7 million, (2008: £2.4 million) which was in line with management´s expectations. Research and development costs of £91,000 have reduced over the six months ended 31 March 2009 (six months ended 31 March 2008: £513,000; year ended 30 September 2008: £683,000) largely due to the completion of Phase l studies for PYN17, a reduction in research and development staff numbers, and a shortage of cash resources. Research & Development costs are expected to remain low in the future as the Company seeks to create partnerships in which the licensee or co-developer would be expected to provide financial support.
We continue to look at ways of controlling and reducing administrative costs.
The Company´s cash position, as at 31 March 2009, was £42,000. In May 2009, Phynova raised £537,170 before expenses by means of a placing with existing investors. These funds were raised through a placing of new ordinary shares at six pence per share with existing investors and private investors who predominantly benefited from the tax relief offered by the UK Government´s Enterprise Investment Scheme.
The carrying value of the group´s investments reflects the company´s expectation of delivering future licencing agreements and raising the necessary funding to be able to enter into such agreements.
In the Directors´ opinion preparing the interim financial statements on a going concern basis is appropriate given the assumption of raising further funding later this year.
We anticipate a stronger second half of the year with progress being achieved in commercial discussions regarding collaborative deals. As a research and development company Phynova would expect to incur losses which should be mitigated when planned revenues arise from collaboration deals. As announced in May 2009 and based on cash flow forecasts, Phynova anticipates requiring additional finance in the second half of 2009 to enable its strategy to be implemented.
The Board continually reviews and controls administrative costs and cash flow and has identified a number of areas to better manage its cash resources. These include de-listing from the OTCQX platform in New York and delaying the commencement of pre-clinical studies. In addition, senior management and Non-Executive Directors have agreed to take reduced salaries from April 2009 until such time as the Company´s cashflow permits.
The Board is hopeful that a licensing deal can be achieved in the latter part of 2009 and I look forward to updating you as to progress with these discussions.
Steve Harris
Chairman
29 June 2009
CONSOLIDATED INCOME STATEMENT
For the six months ended 31 March 2009 
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 March 2009
CONSOLIDATED SUMMARISED BALANCE SHEET AS AT 31 MARCH 2009
CONSOLIDATED SUMMARISED CASH FLOW STATEMENT
AS AT 31 MARCH 2009
NOTES TO THE HALF-YEARLY FINANCIAL INFORMATION
For the six months ended 31 March 2009
1. Basis of preparation
The unaudited Consolidated Interim Report was approved by the Board of Directors on 29 June 2009.
The consolidated interim financial information for the six months ended 31 March 2009 and for the six months ended 31 March 2008 is unaudited,
The financial information in this interim announcement does not constitute statutory accounts within the meaning of Section s434 of the Companies Act 2006.
The comparative financial information for the year ended 30 September 2008 does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The statutory accounts of Phynova Group plc for the year ended 30 September 2008 have been reported on by the Company´s auditors and have been delivered to the Registrar of Companies.
The report of the auditors was unqualified, but included a reference to matters to which the auditors drew attention by way of emphasis without qualifying their report in respect of the going concern basis of preparation and the carrying value of investments in the group accounts as well as amounts due from subsidiary companies in the parent company accounts.
The auditor´s report did not contain statements under Section 237(2) or 272(3) of the Companies Act 1985.
2. Basis of accounting
The interim financial statements have been prepared on the basis of the accounting policies expected to apply for the financial year to 30 September 2009. These policies are in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRSs) as endorsed by the European Union.
The accounting policies applied in the preparation of these interim financial statements are consistent with those used in the financial statements for the year ended 30 September 2008.
The interim financial statement has been prepared on a going concern basis as described in the Chairman´s Statement (Financial review) on pages 1-4.
3. 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 calculations are set out below:
At 31 March 2009, the Company had 506,051 (31 March 2008: 5,203,991) share options and warrants outstanding, equivalent to 2 per cent of the Company´s enlarged share capital, on the basis of all the share options being exercised before expiration. The share options have not been included in the calculation of the diluted loss per share as they would dilute a loss.
4. Post balance sheet events
In May 2009, the Company raised a further £477,801 net of expenses of additional capital through the issue of 8,952,836 ordinary shares at 6 pence per share with existing investors and private investors.
5. Dividends
The Directors do not recommend the payment of an interim dividend.
6. Tax note
The company has not submitted a corporation tax claim in respect of R&D tax credits in the six month period to 31 March 2009 (six month to March 2008: £231,000, year to 30 September 2008 £420,000).
7. Copies of interim accounts
Copies of the Interim Results will be available from our website www.phynova.com or by written request to the Company´s registered office.
29/06/2009
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