...Financial Summary
Operating Performance
In the nine months to 30 September 2003, Xenova's continuing revenues from licensing agreements, strategic partnerships and manufacturing outsourcing were 6.9m pounds ($11.4m) (2002: 10.7m pounds ($17.7m)).
In accordance with Xenova's revenue recognition policy, of the 6.9m pounds ($11.5m) received from QLT in 2001 as part of the tariquidar licensing agreement, 2.1m pounds ($3.5m) was included in the nine months to 30 September 2003, with a further 1.7m pounds ($2.9m) being deferred to future periods. Following the payment of the first milestone of 0.7m pounds ($1.2m) in the period, in respect of the OX40 programme with Genentech, 1.3m pounds ($2.2m) (2002: 0.6m pounds ($1.0m)) of the total upfront licence fee and milestone of 3.5m pounds ($5.8m) have been recognised in the first nine months, with a further 1.3m pounds ($2.1m) being deferred to future periods. Contract development revenue of 2.6m pounds ($4.3m) (2002: nil pounds) was recognised in the first nine months in respect of the ongoing Millennium collaboration on the novel DNA targeting agents. Other revenue included 0.8m pounds ($1.4m) (2002: 0.4m pounds ($0.7m)) in respect of ongoing contract manufacturing.
Net operating expenses from continuing operations in the period to 30 September 2003 were 17.2m pounds ($28.6m). Excluding the exceptional reorganisation costs of 2.3m pounds ($3.9m), the net operating expenses in the period to 30 September 2003 of 14.9m pounds ($24.7m) declined 13.4% compared to the same period in 2002 (17.2m pounds ($28.5m)). This was as a result of the initial cost savings from the reorganisations implemented in the first half of 2003.
Continuing operations research and development expenditure for the nine months to 30 September 2003 was 11.5m pounds ($19.1m), lower than the same period in 2002 (13.3m pounds ($22.1m)). The development costs under the Millennium licence agreement of 2.6m pounds ($4.3m) have been recovered. Other expenditure was incurred in respect of the Vaccines of Addiction programme; including the completion of a Phase II dose escalation study with TA-CD, the start of a Phase IIa cocaine administration trial with TA-CD, and completion of a Phase I study in TA-NIC.
Total continuing operations administrative expenditure for the nine months to 30 September 2003 of 6.1m pounds ($10.1m) (2002: 4.2m pounds ($7.0)) included 2.3m pounds ($3.8m) in respect of exceptional reorganisation costs and 0.9m pounds ($1.5m) in respect of goodwill amortisation arising on the acquisition of Cantab Pharmaceuticals plc in 2001. Administrative expenses, excluding both exceptional reorganisation expenses and the amortisation of goodwill, were 2.9m pounds ($4.7m) which reflected cost savings made since 2002 (2002: 3.4m pounds ($5.6m)). The subletting of excess facility space further reduced net expenses in the period by 0.3m pounds ($0.4m) (2002: 0.4m pounds ($0.7m)).
Following the announcement of the cessation of Phase III trials of tariquidar, the Group has undertaken a further cost saving reorganisation, which included a headcount reduction and project prioritisation.
Included in administrative expenses, within exceptional reorganisation costs, is 2.3m pounds ($3.8m) (2002: nil pounds) in respect of severance payments and a vacant leasehold provision. Total exceptional reorganisation costs are 3.3m pounds ($5.5m), including 1.0m pounds ($1.7m) in respect of the acquired KS Biomedix business. As a result of the above reorganisation, surplus facilities have become available at the main Cambridge site. The Group is currently in negotiations to sublet or surrender the remaining 20 year lease on this property. The charge made reflects a vacant leasehold provision which has been calculated based upon management's expectations of future subletting opportunities and surrender payments, discounted at a rate of 4% per annum.
The company continues to explore licensing opportunities for its pipeline products to maximise value for shareholders and reduce cash outflow.
The net loss per share from continuing operations in the nine months to 30 September 2003 was 5.2p (2002: 4.7p).
Treasury
Cash, short-term deposits and investments at 30 September 2003 totalled 10.6m pounds ($17.5m) (31 December 2002: 19.2m pounds ($31.9m)). Of this balance, cash was 3.9m pounds ($6.5m) and short-term deposits and investments were 6.7m pounds ($11.1m) at 30 September 2003 (31 December 2002: cash 2.6m pounds ($4.4m), short-term deposits and investments 16.6m pounds ($27.6m)).
Included in short-term deposits and investments is an investment in Cubist Pharmaceuticals Inc., which at 30 September 2003 is valued at 0.4m pounds ($0.7m) (31 December 2002: 0.3m pounds ($0.6m)).
On 16 September 2003, 23,500 of the 88,668 Cubist Pharmaceutical Inc. shares were sold for 0.2m pounds. During the quarter 0.2m pounds ($0.3m) of surplus fixed assets were sold at net book value.
Share capital
The number of shares in issue stood at 243.7 million as at 30 September 2003 (31 December 2002: 139.1 million).
The Directors do not propose an interim dividend for 2003 (2002: nil).
Acquisition of KS Biomedix Holdings Plc
On 12 September the Group announced the successful acquisition of KS Biomedix Holdings plc. Under the terms of the offer made to KS Biomedix shareholders, 1.0714 shares in Xenova Group plc have been issued in exchange for each share held in KS Biomedix. An additional contingent deferred consideration of 10p per KS Biomedix share held will be paid in Xenova Group plc shares upon the commercial sale of the KS Biomedix TransMID(TM) product in either the US or European markets before 14 August 2011. Based upon a Xenova Group plc closing share price of 15.25 pence on 11 September this values KS Biomedix at 17.0m pounds ($28.3m) including the contingent deferred consideration payable in respect of TransMID(TM) of 6.5m pounds ($10.7m).
In the provisional calculation of the fair values of the assets and liabilities acquired, there have been no accounting policy adjustments made to the balance sheet values stated at 11 September. Intangible fixed assets acquired of 5.6m pounds ($9.3m) comprised goodwill in respect of the acquisition by KS Biomedix of KS Avicenna Inc in 2001, which has not been capitalised separately from the goodwill arising on the acquisition of KS Biomedix by Xenova. The provisional fair value of the assets and liabilities acquired is 7.2m pounds ($11.9m). The consideration totalling 17.6m pounds ($29.2m) (including 0.6m pounds ($0.9m) of acquisition expenses) generates goodwill upon acquisition of 10.4m pounds ($17.2m).The goodwill arising has been capitalised and amortised over the 10 year estimated useful life of the acquired business. In addition to the 0.6m pounds ($0.9m) of acquisition expenses, share issue costs of 0.6m pounds ($1.1m) were incurred.
In addition to acquiring 100% of KS Biomedix Holdings plc, Xenova acquired 100% of KS Canada Holdings Inc, KS Canada Inc and KS Avicenna Inc, as well as a 50% share in Discerna Ltd, a joint venture with Babraham Biosciences Technology Limited.
As part of the restructuring activities following completion of the acquisition approximately 26 positions have been lost across both head office and the research and development functions. Included within administration expenses for the period to 30 September 2003 is 0.7m pounds in respect of severance payments regarding the acquired business. The net operating loss included in the financial statement in respect of KS Biomedix for the period from acquisition to the 30 September 2003 is 1.5m pounds ($2.4m).
Consolidated Profit and Loss Account (unaudited)
for the periods ended 30 September 2003
Three months ended Nine months ended
30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept
2003 2003 2002 2003 2003 2002
$000 000 000 $000 000 000
pounds pounds pounds pounds
Turnover
(including
share of
joint venture)
Continuing
operations 4,527 2,725 4,025 11,435 6,883 10,939
Less: share
of joint
venture
revenue (5) (3) (123) (13) (8) (274)
Acquisitions 17 10 -- 17 10 --
Turnover 4,539 2,732 3,902 11,439 6,885 10,665
Operating expenses
Research and
development costs
Continuing
operations (5,604) (3,373) (4,902) (19,068) (11,477) (13,326)
Acquisitions (419) (252) -- (419) (252) --
(6,023) (3,625) (4,902) (19,487) (11,729) (13,326)
Administrative expenses
Continuing
operations (1,359) (818) (1,096) (4,738) (2,852) (3,351)
Continuing
operations:
exceptional
reorganisation
costs (482) (290) -- (3,865) (2,326) --
Continuing
operations
expenses:
amortisation
of
goodwill (485) (292) (293) (1,455) (876) (879)
(2,326) (1,400) (1,389) (10,058) (6,054) (4,230)
Acquisitions (415) (250) -- (415) (250) --
Acquisitions:
exceptional
reorganisation
costs (1,710) (1,029) -- (1,710) (1,029) --
Acquisitions
amortisation
of goodwill (71) (43) -- (71) (43) --
Total
administrative
expenses (4,522) (2,722) (1,389) (12,254) (7,376) (4,230)
Other operating
income
Continuing
operations 219 132 107 548 330 380
Total net
operating
expenses (10,326) (6,215) (6,184) (31,193) (18,775) (17,176)
Group operating
loss
Continuing
operations (3,188) (1,919) (2,282) (17,155) (10,326) (6,511)
Acquisitions (2,599) (1,564) -- (2,599) (1,564) --
(5,787) (3,483) (2,282) (19,754) (11,890) (6,511)
Continuing
operations:
share of
operating
(loss)/profit
of joint
venture (128) (77) 28 (317) (191) 63
Total operating
loss: Group
and share
of joint
venture (5,915) (3,560) (2,254) (20,071) (12,081) (6,448)
Interest (net) 110 66 130 545 328 464
Share of
interest
of joint
venture -- -- 2 5 3 5
Amounts
written
back
on/(off)
investments 60 36 (256) 269 162 (1,893)
Loss on
ordinary
activities
before
taxation (5,745) (3,458) (2,378) (19,252) (11,588) (7,872)
Tax on loss
on ordinary
activities 402 242 420 912 549 1,291
Loss on
ordinary
activities
after
taxation (5,343) (3,216) (1,958) (18,340) (11,039) (6,581)
Loss per
share
continuing
operations
(basic
and diluted) (1.4c) (0.9p) (1.4p) (8.7c) (5.2p) (4.7p)
Loss per
share
(basic
and diluted) (2.7c) (1.6p) (1.4p) (10.1c) (6.1p) (4.7p)
Shares used
in computing
net loss per
share
(thousands) 197,596 197,596 139,057 182,221 182,221 139,057
US Dollar amounts have been translated at the closing rate on 30 September
2003 (1.00 pound: $1.6614) solely for information.
Condensed Consolidated Balance Sheet (unaudited)
as at 30 September 2003
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 December
2003 2003 2002
$000 000 000
pounds pounds
Cash, short-term
deposits and investments 17,546 10,561 19,217
Other current assets 8,566 5,156 3,164
Fixed assets
(including goodwill) 46,335 27,889 15,249
Total assets 72,447 43,606 37,630
Current liabilities
(including provisions
& deferred income) 18,088 10,887 11,120
Shareholders' equity 54,359 32,719 26,510
Total liabilities
and shareholders' equity 72,447 43,606 37,630
US Dollar amounts have been translated at the closing rate on 30 September
2003 (1.00 pound: $1.6614) solely for information.
Notes to the Financial Statements
1 Basis of preparation
These unaudited statements, which do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985, have been prepared using the accounting policies set out in the Group's 2002 Annual Report and Accounts. The 2002 Annual Report and Accounts received an unqualified auditor's report and have been delivered to the Registrar of Companies.
There have been no changes to the Group's accounting policies in 2003.
The financial information has been prepared on a going concern basis. This assumes that additional funds are raised through either equity financing or licencing of our development programmes. In the event that additional funds are not secured, the company would immediately seek to further reduce its overheads and development expenditure on its drug candidates and would seek to licence rights to some of its drug candidates and technologies at an earlier stage than currently intended.
Notes to the Financial Statements
2 Acquisition of KS Biomedix Holdings Plc
On 12 September the Group announced the successful acquisition of KS Biomedix Holding plc. Under the terms of the offer made to KS Biomedix shareholders, 1.0714 shares in Xenova Group plc have been issued in exchange for each share held in KS Biomedix. An additional contingent deferred consideration of 10p per KS Biomedix share held will be paid in Xenova Group plc shares upon the commercial sale of the KS Biomedix TransMID(TM) product in either the US or European markets before 14 August 2011. Based upon a Xenova Group plc closing share price of 15.25 pence on 11 September this values KS Biomedix at 17.0m pounds including the contingent deferred consideration payable in respect of TransMID(TM) of 6.5m pounds.
Details of the book value and provisional fair value of the assets and liabilities of KS Biomedix as at 11 September are set out below:
Provisional
Book values Adjustments Fair values
000 000 000
pounds pounds pounds
Fixed assets
Tangible 3,296 -- 3,296
Intangible 5,569 (5,569) --
Investment in joint
venture - net assets 99 -- 99
Stock 9 -- 9
Debtors 1,991 -- 1,991
Cash and liquid investments 4,082 -- 4,082
Creditors falling
due within one year (2,249) -- (2,249)
Creditors falling
due after more than one year (61) -- (61)
Net assets acquired 12,736 (5,569) 7,167
Satisfied by:
Shares issued and
to be issued 10,551
Contingent deferred
consideration to be
settled by in shares 6,458
Expenses of acquisition 553
Total consideration 17,562
Goodwill arising on acquisition 10,395
In this provisional fair value table there have been no accounting policy adjustments made to the balance sheet values stated at 11 September. Intangible fixed assets acquired comprised goodwill in respect of the acquisition by KS Biomedix of KS Avicenna Inc in 2001, which has not been capitalised separately from the goodwill arising on the acquisition of KS Biomedix by Xenova. In addition to the 553,000 pounds of acquisition expenses, share issue costs of 633,000 pounds were incurred.
The goodwill arising on the acquisition of the KS Biomedix business has been capitalised and amortised over the 10 year estimated useful life of the acquired business.
In addition to acquiring 100% of KS Biomedix Holdings plc, Xenova acquired 100% of KS Canada Holdings Inc, KS Canada Inc and KS Avicenna Inc, as well as a 50% share in Discerna Ltd, a joint venture with Babraham Biosciences Technology Limited.
As part of the restructuring activities following completion of the acquisition approximately 26 positions have been lost across both head office and the research and development functions. Included within administration expenses for the period to 30 September 2003 is 0.7m pounds in respect of severance payments regarding the acquired business... |
