results contd.
Licensed programmes
As well as Humira(TM), described above, CAT has a number of partners who have taken licences to CAT antibodies under arrangements whereby they have total responsibility for the pre- clinical/clinical development and marketing of the product candidates.
J695, a human anti-IL-12 monoclonal antibody being developed by Abbott and Wyeth Research continues to be tested in multi-centre Phase II clinical trials as a potential treatment for RA and Crohn's disease.
LymphoStat-B(TM), a human monoclonal antibody against B-Lymphocyte Stimulator (BLyS) being developed by Human Genome Sciences, Inc. (HGSI) entered a Phase I clinical trial to determine its safety and pharmacology in patients with systemic lupus erythematosus (SLE).
TRAIL-R1 mAb, an agonistic human monoclonal antibody that recognises TRAIL-Receptor-1 expressed on a number of solid tumours and haematopoietic cancer cells, is being evaluated as an anti-cancer treatment by HGSI. TRAIL-R1 mAb was isolated directly from CAT's libraries without needing further optimisation and it was delivered to HGSI just six months from the start of the project. This is the first CAT-derived human monoclonal antibody directed to a cell-surface receptor protein to enter clinical trials and acts as an agonist for apoptosis (ie: triggers cancer cells to undergo programmed cell death).
* January 2002 HGSI exercised an option for an exclusive licence on
TRAIL-R1 mAb.
* April 2002 Pre-clinical data presented by HGSI at the American
Association for Cancer Research (AACR) meeting demonstrated that
TRAIL-R1 mAb has anti-tumour activity in animal models of human
breast, colon and uterine cancers.
* April 2002 HGSI was granted regulatory clearance to begin Phase I
clinical trials of TRAIL-R1 mAb in the US in patients with advanced
cancer.
* August 2002 HGSI granted Takeda Chemical Industries an option to
develop and commercialise TRAIL-R1 mAb in Japan, while retaining
development and commercialisation rights for the US, Europe, and the
rest of the world.
Pre-clinical development programmes
There are currently five CAT-derived human monoclonal antibodies in pre-clinical development, both at CAT and at CAT's collaborators, including:
* The GC1000 series are human monoclonal antibodies against TGF beta that
are being jointly developed by CAT and Genzyme for non-ophthalmic
indications. Several candidates with differing specificities and
potencies have been identified and assessments of the potential
medical and commercial opportunities they present are currently being
evaluated. Pre-clinical studies of GC1008 have commenced. There is
considerable interest in the role played by TGF beta in tissue repair,
with overproduction of TGF beta inducing the deposition of excess
extracellular matrix, the hallmark of tissue fibrosis and scar tissue.
The development of fibrosis in internal organs can give rise to
conditions such as pulmonary fibrosis, liver cirrhosis and diabetic
nephropathy where progressive fibrosis leads to organ dysfunction and
ultimately organ failure. More than 100 other indications where anti-
TGF beta antibodies may have an important role to play, including
Acute Respiratory Distress Syndrome (ARDS), glioma and the treatment
of burns, have been identified. Overall, fibrotic diseases account for
a large number of cases of morbidity and mortality, with many millions
of patients affected worldwide. Together, CAT and Genzyme believe they
have a significant lead over other competitive approaches in the
development of new treatments for this major area of medical need that
is poorly served by existing medicines.
* TRAIL-R2 mAb is an agonistic human monoclonal antibody, which
recognises the TRAIL-Receptor-2 expressed on the surface of some types
of cancer cell. Early pre-clinical data presented at the AACR meeting
in April 2002 shows that TRAIL-R2 mAb has anti-cancer activity, and in
May 2002 HGSI exercised an option for an exclusive licence to TRAIL-R2
mAb. HGSI hopes to file an IND application for TRAIL-R2 mAb in the
first half of 2003. It is the third human monoclonal antibody to come
from CAT's collaboration with HGSI and is the second CAT-derived human
monoclonal antibody candidate directed to a cell-surface receptor
protein rather than a soluble cytokine.
* In June 2002 CAT granted Wyeth Research an exclusive product licence to
a human antibody identified by CAT against a disease target supplied
by Wyeth.
* In October 2002, CAT granted HGSI an option for an exclusive licence to
an antibody to an undisclosed target, the fourth human monoclonal
antibody to come from CAT's collaboration with HGSI.
Discovery stage antibody programmes
CAT is currently working on 15 drug discovery projects. Of these CAT funds or co-funds around one third; the remaining projects are collaborator funded. The active programmes include Anti-IL-18R (with Amgen), a programme with Elan and one proprietary programme at a late-stage of drug discovery. CAT believes that up to five of these antibodies may enter pre-clinical studies in 2003.
Drug discovery programmes are also underway at those CAT partners who have licensed CAT's libraries for their own use, enabling CAT to broaden the application of its technologies for the creation of antibody therapeutic candidates.
* October 2001 CAT entered a collaboration and licence agreement with
Merck & Co., Inc. for the research and development of products
specific for a key target involved in disease mediated by HIV.
* December 2001 CAT entered a co-development collaboration with Amrad to
develop human monoclonal antibodies against the receptor for
granulocyte-macrophage colony stimulating factor (GMCSF-R) as a
potential therapeutic for RA, with CAT and Amrad jointly funding
development up to completion of Phase II trials. After this, CAT will
have responsibility for further trials and commercialisation. Amrad
retains an option to receive milestone and royalty payments or
participate jointly in development and commercialisation.
* January 2002 Amgen exercised an exclusive licence option to develop and
commercialise human monoclonal antibodies raised to an undisclosed
disease target. CAT received a licence fee and will obtain milestone
and royalty payments on any therapeutics commercialised by Amgen.
* August 2002 CAT expanded its existing relationship with Xerion
Pharmaceuticals into a research collaboration to evaluate a cell
surface protein involved in allergic reactions. CAT and Xerion jointly
own any intellectual property generated.
* September 2002 CAT signed a research agreement with Chugai, one of
Japan's leading pharma companies, to license CAT's libraries for
discovery and development of potential human antibody therapeutics.
* October 2002 CAT entered into a second agreement with Merck & Co., Inc,
granting Merck a licence to CAT's libraries. The libraries will be
used by Merck to support and promote discovery research and
development across a broad range of therapeutic areas.
In order to secure CAT's human monoclonal antibody drug pipeline into the future, CAT continues to develop its pool of drug targets. As part of this process, CAT has built a team which focuses on identifying and validating novel drug targets against which to develop new antibodies. To further this goal, CAT is using its own technology and also seeking access to external databases of targets or potential targets. To this end, in December 2001, CAT licensed Incyte Genomics' LifeSeq® Gold database and sequence-verified human cDNA clones, thus adding an additional source of potential genomics-derived targets for antibody drugs and complementing the access CAT already has to HGSI's proprietary genomics database.
Operations
During the year, work continued on CAT's new facilities, the "Milstein Building" at Granta Park. This new 66,000 sq. ft. building comprises laboratories and offices and will be occupied during December 2002, at which point the company's Melbourn premises will be vacated.
CAT announced in November 2001 that it had signed a long term agreement with Lonza Biologics to manufacture clinical trial supplies of antibody drugs to CAT for up to five years. This secures CAT access to manufacturing capacity for both ongoing programmes and future projects.
Financial Review
The following review is based on the Group's consolidated financial statements which are prepared under UK generally acceptable accounting principles ('GAAP').
Results of operations
Years ended 30 September 2002 and 2001
Revenues increased by 34 per cent to pounds 9.5 million in the 2002 financial year from pounds 7.1 million in the 2001 financial year.
The increase in revenue from the 2001 financial year to the 2002 financial year was primarily as a result of the achievement of product development milestones on collaborator funded programmes. Milestone payments of pounds 1.4 million were received in the 2002 financial year as compared to none in the 2001 financial year. Milestone payments are typically earned based on achievements in research and product development and may not be comparable from period to period. In the first half of the year a clinical milestone payment was received with the initiation of Phase I clinical trials on LymphoStat-B under the HGSI collaboration. During the third quarter a further clinical milestone was received from HGSI with the initiation of Phase I trials for TRAIL-R1 mAb and a technical performance milestone was received under another collaboration arrangement. All of the above milestone payments have been recognised in full as revenue under the Group's accounting policy.
Revenues recognised from licence fees increased from pounds 1.6 million for the 2001 financial year to pounds 1.7 million in the 2002 financial year reflecting revenues recognised from the new licence fees received in the 2002 financial year in addition to licence fees recognised in both periods which were received in the 2001 and prior financial years. CAT received non-recurring licence fees following the grant of five exclusive product licences during the 2002 financial year. Three were to HGSI, for TRAIL-R1 mAb during the first quarter of the financial year, TRAIL-R2 mAb in the third quarter and one further antibody in the final quarter of the financial year. In addition, licences for undisclosed targets have been granted to Amgen and Wyeth Research. During the 2001 financial year one non-recurring licence fee was received pursuant to collaborative arrangements with HGSI. Revenues derived from these licence payments have been deferred and are being spread over the shorter of the licence term or the period to expiration of the relevant patents.
Contract research fees increased from pounds 5.4 million in the 2001 financial year to pounds 5.6 million in the 2002 financial year. Through both 2001 and 2002, contract research fees were recognised from ongoing collaborations with HGSI, Wyeth Research and Pharmacia. In addition, fees were recognised during the 2002 financial year from Merck & Co., Inc as a result of the research and development arrangement entered into in October 2001.
During the 2002 financial year revenue of pounds 0.7 million was recognised under an agreement with Drug Royalty Corporation (DRC) as compared to pounds 0.1 million in the 2001 financial year. Under the agreement, the Group received a payment of pounds 1.5 million in 1994 in return for rights to a percentage of revenues (and certain other payments) received by the Group over a period terminating in 2009. This obligation was bought out during the 2002 financial year resulting in the remaining balance of deferred income of pounds 0.6 million being released and recognised as revenue.
CAT's direct costs are typically fees payable as a percentage of its revenues. Substantially all of the direct costs reported in these financial statements are DRC's share of revenues. Direct costs were pounds 0.4 million in the 2001 financial year, falling to pounds 0.1 million in the 2002 financial year. This fall in costs is due to the termination of the agreement with DRC.
Operating expenses for the 2002 financial year were pounds 47.5 million (pounds 39.6 million excluding DRC transaction costs) compared to pounds 27.8 million in the 2001 financial year reflecting the continuing increase in scale and complexity of CAT's activities.
Research and development expenses increased to pounds 31.3 million in the 2002 financial year from pounds 21.4 million in the 2001 financial year. The increase reflects a significant rise in spend on clinical trials over the last two years, both on CAT funded programs and on CAT's co-funded collaboration with Genzyme. Research and development staff numbers increased from 212 at the start of the 2001 financial year to 251 at the end of the 2002 financial year.
General and administrative expenses increased to pounds 16.2 million (pounds 8.3 million excluding the DRC transaction costs) in the 2002 financial year from pounds 6.4 million in the 2001 financial year. General and administrative expenses include pounds 7.9 million of costs incurred with regard to the two DRC transactions entered into during the 2002 financial year (2001: none). CAT made a bid for DRC in January 2002, however a competing offer was subsequently accepted. Following acceptance of the competing offer, CAT bought out its obligation to DRC for pounds 6.1 million with the issue of 463,818 CAT shares to DRC. The professional fees incurred in CAT's bid and buy-back were pounds 1.8 million. Other general and administrative expenses include fees relating to patent litigation of pounds 1.9 million in the 2002 financial year compared to pounds 2.0 million in the 2001 financial year.
Staff numbers rose over the 2002 financial year from 247 to 293 (the average over the year was 274) and in the 2001 financial year from 180 to 247 (the average over the year was 224). There was a credit during both the 2002 and 2001 financial years of pounds 0.2 million for employer's National Insurance payable on the exercise of certain options granted in December 1999. The charge for the cost of shares to be allocated under employee share schemes was pounds 0.6 million in the 2002 financial year compared to pounds 0.4 million in the 2001 financial year.
Total depreciation expenses increased from pounds 2.1 million in the 2001 financial year to pounds 2.6 million in the 2002 financial year. This reflected a substantial investment in fixed assets, particularly the fitting out and equipping of the Franklin Building during the 2001 financial year and the Milstein Building during the 2002 financial year. Amortisation expenses amounted to pounds 0.9 million in the 2002 financial year and pounds 0.4 million in the 2001 financial year. Amortisation of the Aptein patents was pounds 0.4 million in both of the above financial years. Amortisation of the Incyte licence purchased during the 2002 financial year was pounds 0.5 million (2001: none.)
Net interest income fell to pounds 6.4 million in the 2002 financial year from pounds 9.3 million in the 2001 financial year. Average balances of investments in liquid resources decreased during the 2002 financial year as cash was consumed by operating activities which, alongside lower prevailing rates of interest, resulted in reduced interest income.
Liquidity and capital resources
During the 2002 and 2001 financial years, CAT's net cash used by operating activities was pounds 26.8 million and pounds 19.2 million respectively, in each case resulting principally from operating losses, offset by depreciation, amortisation and other non-cash movements. In the 2002 financial year operating losses were also offset by increases in creditors (particularly trade creditors).
CAT received pounds 0.9 million research and development tax credit during the 2002 financial year. The credit was based on the level of expenditure incurred on research and development activities during the 2000 financial year. No similar tax credits were received in the comparative period.
CAT made capital expenditures of pounds 10.0 million and pounds 3.5 million in the 2002 and 2001 financial years, respectively. CAT's capital expenditures are primarily for laboratory equipment, laboratory facilities and related information technology equipment. Approximately half the increase in capital expenditures from the 2001 to 2002 financial year was due to the fit out of the Milstein Building situated on Granta Park. The Milstein building comprises approximately 66,000 sq ft and has been constructed specifically for CAT to lease. Soon after the completion of the Milstein Building, CAT will be vacating the premises it currently leases in Melbourn with an agreement having been reached with the landlord whereby CAT has an option to surrender the leases early. The remainder of the increase in capital expenditure was as a result of investment in laboratory equipment made during the 2002 financial year.
CAT's net cash inflow from financing activities during the 2002 and 2001 financial years was pounds 1.4 million and pounds 15.4 million respectively, in each case primarily resulting from the issue of ordinary shares. No significant financing transactions were completed during the 2002 financial year. In the 2001 financial year shares were issued to Genzyme for US$20 million as part of a strategic collaboration.
As at 30 September 2002, CAT had net current assets of pounds 123.8 million. CAT does not currently borrow to finance its operations. CAT's creditors at the end of the 2002 financial year included a total of pounds 11.1 million of deferred income, representing non-refundable income received which will be recognised in future periods. The corresponding amount in the 2001 financial year was pounds 11.0 million.
CAT has incurred net losses of pounds 28.2 million and pounds 11.8 million in the 2002 and 2001 financial years respectively. As at 30 September 2002 CAT had an accumulated loss of pounds 83.8 million. CAT's losses have resulted principally from costs incurred in performing research and development on human monoclonal antibody product candidates, and from general and administration costs associated with CAT's operations.
As at 30 September 2002, CAT had cash and marketable securities of approximately pounds 129.8 million. CAT has invested funds that are surplus to its requirements in interest bearing marketable securities.
Financial outlook for 2003
Recurring revenues, representing contract research revenues and income from licensing arrangements entered into prior to 30 September 2002, are expected to be in the range of pounds 3 to pounds 4 million for the 2003 financial year. Additional revenues may arise from technical and clinical milestone payments and any further licensing or contract research arrangements, including extentions to existing arrangements. Assuming approval in the first half of 2003, royalty revenues for CAT from Humira are expected to commence in the 2004 financial year. Cash receipts from collaborators and licencees in the 2003 financial year are expected to be at least comparable to 2002.
A further significant increase in operating costs is expected over the level incurred in the 2002 financial year. This reflects in particular additional spending on clinical trials and further increases in infrastructure costs. Staff numbers are not expected to increase significantly from current levels.
Capital expenditure over the year is expected to be significantly lower than last year's level as spend on CAT's new facilities at Granta Park (Milstein Building) will fall substantially with the completion of the fit out in the first quarter. Total capital expenditure for the year is expected to be of the order of pounds 6 million; in addition the second installment on the Incyte Lifeseq Gold database license was made in October 2002.
It is anticipated that CAT's net cash burn for the current year, taking account of expected revenues, will be up to pounds 40 million. This compares with the figure for the 2002 financial year of pounds 28.3 million. The expected increase is primarily due to the increase in operating costs as described above offset by lower levels of capital expenditure...
contd. |
