Half year report from the website below. Key issue is whether they can get the rights issue away. With the market price now near to the rights price, there has to be some doubt over this. If they manage to raise funds, they stock looks undervalued - after the rights issue, they would have a market cap of around $80m.
nig
PPL presents its report on the six month period ended 30 June 2001.
The Group has continued to build on its position as a world leader in the transgenic development of therapeutic proteins and peptides and has two of its lead products in Phase II clinical trials for three indications.
The Group also has a developing expertise in the area of regenerative medicine based on its stem cell programme and cloning technology.
Equity Funding
In March 2001, following a period of well received extensive pre-marketing to potential new shareholders, predominantly in continental Europe and North America, PPL announced its intention to raise £40-45m through an Open Offer and International Offering. The proceeds of this fundraising were intended for the further development and exploitation of the Group’s product pipeline, to strengthen the financial position of the Company and for the recruitment of additional staff to increase production of the Group’s lead product, recombinant Alpha-1-Antitrypsin (recAAT), for use in Phase III clinical trials.
Unfortunately, due mainly to the prevailing uncertain world wide stock market conditions and some misplaced fears over the risk to the Group from the Foot and Mouth Disease outbreak, the anticipated support from potential new investors was not forthcoming and consequently the Open Offer and International Offering was withdrawn.
The Board of PPL is now able to announce that PPL has received non-binding commitments from a number of institutions to enable it to carry out a discounted rights issue at 50p per share in order to raise approximately £30 million, net of expenses.
PPL anticipates entering into an underwriting agreement and posting listing particulars to shareholders on or about Friday, 14 September 2001. There will be an analyst meeting held on that date.
Product Review
Alpha-1-Antitrypsin
PPL’s lead product, recombinant Alpha-1-Antitrypsin (recAAT), is being developed in collaboration with Bayer Corporation, Biological Products, a business unit affiliate of Bayer AG. Bayer is now responsible for recAAT’s further clinical development and subsequent world-wide marketing for hereditary emphysema and cystic fibrosis.
In May, Bayer Corporation and PPL jointly announced the receipt of Orphan Drug Designation in the EU from the Committee of Orphan Medicinal Products for recAAT in the indication of hereditary emphysema which, provided the product is first to market, entitles it to up to 10 years market exclusivity in the EU. PPL’s recAAT already holds Orphan Drug designation in the US for both hereditary emphysema and cystic fibrosis.
At the same time, the positive results of a Phase I (healthy volunteers) trial of PPL’s recAAT using Bayer’s selected AKITA inhalation device were reported. The results demonstrated that recAAT was efficiently delivered into the deep lung and was well tolerated, and that by using a higher concentration than PPL had used in earlier trials, the nebulisation time was significantly shortened, which will be more convenient for patients and should improve patient compliance.
As a run-in to a Phase III trial, it was agreed with one of the regulatory authorities that the safety of the new combination of increased recAAT concentration and AKITA inhalation device should be confirmed in patients by initially treating a small number. Accordingly, a 60 day daily dosing study involving 30 patients was undertaken in the USA. The dosing phase is now finished and a full set of data is being compiled for discussion with the FDA. The pivotal Phase III trial is then expected to begin.
The Phase III, multi-centre, placebo-controlled, randomised, double blind study will take place in 12 hospitals in the EU, Canada, Australia and New Zealand, led by the principal investigator Dr Jan Stolk of Leiden University Medical Centre in the Netherlands. In the trial, patients with AAT deficiency will be treated with either recAAT in an aerosol formulation or a placebo, and the progression of emphysema will be monitored over a two year period by CT scanning (a form of body scanning). PPL and Bayer believe a submission for marketing approval for recAAT from the regulators will be made in the third quarter of 2004. With orphan drug status, recAAT could be approved quickly, but for cash flow forecasting purposes, PPL has used the prudent assumption that the product will be approved mid 2005.
Other Products
Bile Salt Stimulated Lipase (BSSL)
PPL’s second product in clinical trials is BSSL. Following an earlier Phase II trial which demonstrated that the pancreatic digestive enzyme, BSSL, appears to be effective in liberating fats for use by the body in patients with pancreatic insufficiency, a further Phase II, single dose trial in seven adults with Cystic Fibrosis (CF) has been undertaken to obtain more information on required dose levels. The results of this study are anticipated shortly.
A purer, more concentrated dosage form for use with pre-term infants is also under development.
Fibrinogen
PPL is currently in discussion with several potential marketing partners for its single component fibrin sealant product, used for haemostasis and wound sealing. The product offers simpler and faster preparation for use in the surgery than currently sold competitive products and has the potential to reduce or prevent unwanted post surgical adhesions, features which appear to be attractive to potential partners.
PPL intends to initially launch a Fibrin 1 sealant produced from plasma derived fibrinogen and is in negotiation with a potential subcontract manufacturer for the supply of product for preclinical and clinical trials. PPL will subsequently introduce a recombinant product produced from transgenic fibrinogen.
Regenerative Medicine
In February, PPL announced that scientists at PPL Therapeutics Inc (PPL’s wholly owned US subsidiary) had demonstrated the production of multipotential stem cells without the need to go through an embryo intermediate. These findings have long term implications for more ethically acceptable methods of deriving cell based treatments for a number of human diseases. In the experiments which formed the basis of the announcement, fully differentiated skin cells were reverted first to stem cells and then transformed into a distinct population of cells of another type, in this case heart cells. A patent application for this technology has been filed.
The work, undertaken using funding from the US government under its Advanced Technology Programme (ATP), used bovine cells. The next challenge will be to repeat the experiment using human cells. PPL’s initial commercial target for its stem cell research is the production of insulin-producing, human pancreatic islet cells for the treatment of diabetes.
In another ATP funded project, PPL Therapeutics Inc announced in April 2001, just one year after producing the world’s first cloned pigs, that its scientists had produced transgenic, cloned pigs. The transgenic pigs were produced from cells with an additional ‘marker gene’ introduced into their DNA structure and demonstrate the feasibility of producing a ‘knock out’ pig. A ‘knock out’ pig would have the specific gene that leads to the human immune system rejecting transplanted pig organs being inactivated, and PPL has achieved the required gene knock-out in pig cells, using its patented ‘gene targeting’ technology.
PPL is actively seeking partners and/or independent sources of funding for both its xenotransplantation and stem cell programmes.
Manufacturing Plant Funding
Whilst PPL was reassessing its alternative fund raising options, it was notified by Comdisco, one of the parties to the agreements put in place to secure the funding for the construction of a £42 million manufacturing plant for the production of recAAT, that it needed to alter the terms under which it had agreed with PPL a lease facility to supply equipment.
This prompted a fresh look at how the large scale purification equipment that was to have been supplied via lease finance from Comdisco could be financed. On the 12 July, PPL announced that it had reached agreements in principle with Bayer and the Royal Bank of Scotland that, together, could replace the elements of the funding package previously provided by Comdisco. Under the new arrangements Bayer will provide a guarantee to secure a £15 million term loan from the Royal Bank of Scotland (RBS). Bayer’s guarantee will be provided in exchange for the issue to Bayer of 5 million PPL shares, together with a five year warrant for a further 2.5 million shares at an exercise price of £1.20 per share, and reduces the guarantee to be provided by Scottish Enterprise by £5.3 million.
The net effect of issuing new shares and warrants to Bayer and the reduction in warrants which were to be issued to Comdisco and Scottish Enterprise is that up to 3.44 million additional shares will be issued. However, and importantly, these changes collectively reduce the overall cash required by PPL until the time when recAAT is anticipated to receive regulatory approval, by around £10 million.
Bayer’s willingness to provide a guarantee in return for equity further reinforces Bayer’s commitment to the overall success of PPL’s recAAT project. There are no significant changes to the recAAT Product Supply and Licence agreements with Bayer, and PPL will still receive a substantial share of ‘in-market’ revenues.
The issue of the guarantee by Bayer is, however, subject to formal approval by the Bayer board and is conditional on approval by PPL’s shareholders and on PPL completing a significant equity fund raising. The rights issue referred to above will satisfy this last condition.
As a result of the RBS loan and the Bayer guarantee, the final terms of the Manufacturing Facility Agreements will consequently differ from those approved by shareholders at the EGM on 19 February 2001. The new terms are, therefore, subject to further approval from shareholders, which will be sought at the same time as resolutions are proposed in connection with the rights issue.
Representation in Japan
Japan is the world’s second largest market for pharmaceuticals but can be difficult to access with new products or processes. To address this, in January 2001 PPL signed an exclusive, success driven, commercial representation agreement for the Japanese market with Nihon Nosan Kogyo, which has diversified business interests in biotechnology and is Japan’s largest animal feed manufacturer. Nihon Nosan will promote PPL’s transgenic production technology platform in Japan.
Foot and Mouth Disease
In February 2001 the UK saw the first major outbreak of Foot and Mouth Disease since the 1960s. PPL’s farm facilities in Scotland are, and always have been, maintained as closed quarantined farms with controlled access of people and consumables, etc, hence the risk of PPL’s animals contracting the disease was minimal. No outbreaks have occurred near PPL’s facilities and there have been no new cases of the disease in Scotland since mid May.
The risk of any such diseases seriously disrupting the Group’s activities in the future are also minimised by dividing PPL’s production flocks between two sites in each of the UK and New Zealand. Additionally, semen stocks of all its important lines are maintained in both countries.
Current Trading Position
In anticipation of a successful fund-raising and the imminent start of the Phase III trial, the Company made a pre-payment in July in connection with the design and build of the production plant and increased staff levels in production. Both of these factors resulted in the substantial increase in cash burn in July. The unaudited cash reserves as at 30 June, 2001 were £6.1 million. The unaudited cash reserves as at 31 July, 2001, the latest date to which management accounts are available, were £4.1 million.
Taking the above into account and assuming income is received from Bayer in accordance with its forecast orders for recAAT, the Company has sufficient cash, exclusive of new funds, to meet its anticipated requirements for the rest of this year.
However, in the unlikely event that the fund-raising does not proceed as anticipated and if, as a result, Bayer delayed the start of the Phase III trial and its purchase of recAAT, the Company would take appropriate steps to ensure that its cash burn was reduced.
Outlook
When the anticipated fund-raising is accomplished, PPL will be in a position to deliver the full value of the products in its pipeline for the benefit of shareholders.
Financial Review
Revenues for the half-year were £0.3m, operating expenses were £8.2m and the net loss for the period was £6.6m after interest received of £0.2m and provision for R&D tax credit of £0.7m. The increase in the loss over the comparable period in 2000 was £0.8m.
Administrative expenses were £2.3m, an increase of £0.9m over the comparable period last year. This is due to fees and expenses incurred in connection with the Circular to Shareholders, issued in February 2001, and subscription by Bayer AG, fees in respect of the aborted Open Offer and International Offer in April 2001, and legal fees associated with the conclusion of the funding package for the full scale manufacturing plant.
Capital expenditure in the period was £0.4m.
In connection with their collaboration on AAT, 4.6m new shares were issued to Bayer AG at a price of 215p generating £9.8m of investment into PPL.
Net cash inflow for the six months to 30 June 2001 totalled £3.7m leaving cash and cash equivalent balances of £6.2m. Net assets were £19.1m. |
