REG - Arecor Therapeutics - Final results for 2023
16/05/2024 07:00
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RNS Number : 6320O Arecor Therapeutics PLC 16 May 2024
Arecor Therapeutics plc
("Arecor", the "Company" or the "Group")
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023
- Delivery across the business leaves Arecor in strong position
- Continued momentum in diabetes portfolio with AT278 clinical trial on
track for key data readout in H1 2024
- First commercial launch of Arestat™ enabled product licensed to partner,
AT220, triggering milestone payment and now generating royalties
- Further expansion of partnership portfolio and licensing of products
incorporating Arestat™ technology
- Continued success of Ogluo® commercialisation increasing Tetris Pharma
product sales to £2.9 million (2022: £1.1 million)
- Total Group revenue of £4.6 million (2022: £2.4 million), 90%
year-on-year growth
Cambridge, UK, 16 May 2024: Arecor Therapeutics plc (AIM: AREC), the
biopharmaceutical company advancing today's therapies to enable healthier
lives, today announces its final audited results for the year ended 31
December 2023. The Annual Report and Accounts for the year ended 31 December
2023, will be posted to shareholders in due course together with the notice of
the 2024 Annual General Meeting.
Sarah Howell, Chief Executive Officer of Arecor, said: "2023 was another
strong year for Arecor across all areas of the business. The launch of the
first commercial product incorporating Arestat™ in late 2023 which is now
generating royalties under a worldwide license agreement was significant, and
a clear validation of the potential of our Arestat™ platform. We have also
continued to further strengthen our partnered portfolio and licensed
programmes and have seen continued traction with the European roll-out of
Ogluo®.
"I believe the Group is in a strong position and we are poised to deliver
against a number of key milestones in 2024, in particular, completion of the
Phase I trial of AT278 with results expected in H1. This concentrated, yet
very rapid-acting, insulin has the potential to disrupt the market for insulin
treatment as a critical enabler in the development of miniaturised and longer
wear insulin delivery systems, which are a significant area of focus today for
the major insulin device companies and innovators in the field. We look
forward to continued progress across the business in 2024 and delivering value
to our shareholders."
Operational Highlights (including post-period events):
· Diabetes - Continuing to build value
- Enrolment completed in second Phase I trial of ultra-concentrated,
ultra-rapid acting AT278 with results expected H1 2024
- Phase I trial data for ultra-rapid acting AT247 delivered via insulin pump
presented at ADA 83rd Scientific Sessions
- Research collaboration established with TRx Biosciences for the
formulation development of an oral glucagon-like peptide-1 (GLP-1) receptor
agonist product
- Research collaboration established with Medtronic to develop a novel, high
concentration, thermostable insulin for use by Medtronic's Diabetes business
in a next-generation implantable pump
· Licensed programmes - milestones and first royalties triggered
- Partner's commercialisation of AT220 triggered milestone payment and now
generating royalties on product sales under a worldwide license agreement
- AT307 transferred to Hikma and positive pre-IND meeting held between Hikma
and FDA confirming abbreviated 505(b)(2) regulatory pathway
- Sanofi announces intention to acquire from Inhibrx all assets and
liabilities associated with INBRX-101, currently in a registrational trial for
orphan disease AATD
· Partnership portfolio further strengthened
- Six new technology partnerships established with leading global companies
to enhance their proprietary products across a range of indications and stages
of development
· Tetris Pharma - continued success of Ogluo® roll-out
- Tetris Pharma product sales of £2.9 million (2022: £1.1 million) with a
focus on commercial roll-out of Ogluo®
· Key hires have strengthened capabilities with appointment of Dr.
Manjit Rahelu as Chief Business Officer and Dr. Helen Parris joins Group as
Senior Vice President, Commercial and General Manager of Tetris Pharma Ltd
· Susan Lowther decided to step down from her role as Chief Financial
Officer, Company Secretary and as a Board Director, to pursue new
opportunities
Financial Highlights:
· Total Income of £5.7 million (2022: £3.7 million) including grant
and RDEC income
· Total revenue of £4.6 million (2022: £2.4 million) representing 90%
growth
· Investment in Research & Development ('R&D') of £6.0 million
(2022: £8.6 million)
· Sales, General & Administrative ('S,G&A') expenses of £8.9
million (2022: £5.6 million)
· Loss after tax for the year of £8.6 million (2022: £9.3 million)
· Cash and short-term investments of £6.8 million at 31 December 2023
(2022: £12.8 million)
Analyst meeting and webcast today
Dr Sarah Howell, Chief Executive Officer, and Manjit Rahelu, Chief Business
Officer, will host a meeting and webcast for analysts and investors at 11.00am
BST today. Join the webcast here
(https://www.lsegissuerservices.com/spark/ARECORTHERAPEUTICS/events/5759650e-b6d0-4697-a58e-03f80b7f0c5c)
. A copy of the final results presentation will be released later this morning
on the Company website at www.arecor.com (http://www.arecor.com) . Please
contact ICR Consilium for details on arecor@consilium-comms.com
(mailto:arecor@consilium-comms.com) .
For more information, please contact:
Arecor Therapeutics plc www.arecor.com (http://www.arecor.com/)
Dr Sarah Howell, Chief Executive Officer Tel: +44 (0) 1223 426060
Email: info@arecor.com (mailto:sarah.howell@arecor.com)
Susan Lowther, Chief Financial Officer Tel: +44 (0) 1223 426060
Email: info@arecor.com (mailto:info@arecor.com)
Panmure Gordon (UK) Limited (NOMAD and Broker) Tel: +44 (0) 20 7886 2500
Freddy Crossley, Emma Earl (Corporate Finance)
Rupert Dearden (Corporate Broking)
WG Partners LLP (Financial Advisor) Tel: +44 (0)203 705 9321
Nigel Barnes, Satheesh Nadarajah
David Wilson, Claes Spang
ICR Consilium
Chris Gardner, David Daley, Lindsey Neville Tel: +44 (0) 20 3709 5700
Email: arecor@consilium-comms.com (mailto:arecor@consilium-comms.com)
Notes to Editors
About Arecor
Arecor Therapeutics plc is a globally focused biopharmaceutical company
transforming patient care by bringing innovative medicines to market through
the enhancement of existing therapeutic products. By applying our innovative
proprietary technology platform, Arestat™, we are developing an internal
portfolio of proprietary products in diabetes and other indications, as well
as working with leading pharmaceutical and biotechnology companies to deliver
therapeutic products. The Arestat™ platform is supported by an extensive
patent portfolio.
For further details please see our website, www.arecor.com
(http://www.arecor.com)
This announcement contains inside information for the purposes of the retained
UK version of the EU Market Abuse Regulation (EU) 596/2014 ("UK MAR").
Chair's statement
Leveraging cutting-edge technology to build a self-sustaining future
"Arecor has had an excellent year, with progress across all fronts, delivering
on our strategy through established and new partnerships, and advancements
within our proprietary insulin and specialty hospital products portfolios."
The past year has been one of continued growth and value creation for the
Group, with excellent commercial performance and increased revenue generation.
We have made robust clinical progress within our proprietary pipeline and
further cemented our reputation as partner of choice with major healthcare
companies who value our capability to develop clinically and commercially
differentiated therapies. In addition, our specialty pharmaceutical business,
Tetris Pharma, has been building sales momentum through the European roll-out
of its key diabetes product for severe hypoglycaemia. We have delivered across
all aspects of our strategy.
Core to our strategy is forging strong, win:win collaborations and
partnerships with companies that value the product differentiation that our
technology can provide. We put considerable efforts into building and
maintaining these long-term relationships, the returns from which are being
rewarded. We finished the year with the first product launch, in Europe, by a
partner incorporating Arecor's Arestat™ technology - a clear demonstration
of our strategy at work and an authorised validation and regulatory acceptance
of our platform. We believe that through collaboration, the success of our
partners becomes our success, and Sanofi's intention to acquire Inhibrx's
INBRX-101 exemplifies this, as the Arecor technology licensed to Inhibrx will
enter Sanofi's clinical pipeline. With multiple collaborations ongoing, we
expect to see many partnered launches in the coming years.
Given the central strategic role of partnerships to Arecor, the appointment of
Dr. Manjit Rahelu as Chief Business Officer was an important development,
strengthening our business development capability and ambition, focusing on
optimal partnerships at the optimal time and based on deeper relationships.
Since Manjit's appointment we have seen our partnership portfolio
significantly grow with both new and existing partners. These partnerships
build on using our proprietary technology to enhance a partner's existing
products. Through licensing our specialty hospital franchise products, at the
right time, for further collaborative development and commercialisation we add
the exciting prospect of additional recurring revenue streams and greater
value to the business from future returns. Momentum here is expected to
continue, bringing both new collaborations and further milestones and
potential royalties upon commercialisation.
Our diabetes franchise is advancing successfully through the clinical pathway
and we continue to build relationships with key therapeutic and device players
in the diabetes ecosystem. The medical need for improved therapies remains
high, as evidenced by the devastating impact that diabetes has on our health
and the heavy disease management burden globally. It remains at pandemic
levels with shifting demographics and lifestyles, and the clinical trends
towards better monitoring and tighter glucose control, creating a demand for
insulins that are faster acting - a key characteristic of our clinical insulin
candidates. These proprietary products have the potential to transform the
treatment paradigm, offering solutions to significant challenges and the
potential to facilitate revolutionary delivery systems, including smaller,
automated devices for people requiring higher, more frequent doses and
ultimately the artificial pancreas. With further clinical data due in H1 2024
from our ultra-concentrated, ultra-rapid candidate, AT278, we will have a
further opportunity to showcase the promise of a next-generation diabetes
therapy, enhanced for the benefit of patients.
Arecor has continued to develop as a company, especially in its commercial
capacity. The already dedicated and talented leadership team, led by Sarah
Howell, our CEO, has been expanded to strengthen our capabilities and
commercial experience. Dr. Helen Parris, who joined us in early 2024 as Senior
Vice President, Commercial and General Manager of Arecor's subsidiary company,
Tetris Pharma, brings a proven track record in commercialising products and
growing sales. Her leadership of that business is central to building on the
strong sales performance that we saw in 2023. We are grateful to Susan
Lowther, who as Chief Financial Officer and Board member has contributed such
a lot over the past 5 years and has now decided to step down. We look forward
to building our team further with a new Chief Financial Officer appointment.
As Chair of an innovative, exciting and successful company such as Arecor, I
care passionately about our industry, the impact it can have and the value it
can create. We depend on investors to support our companies to allow them to
flourish. We already have world-beating science and a strong commercial
capability, but it cannot progress optimally without complementary financial
backing. While the past 18 months has seen dampened market interest in
healthcare and life-science innovation, Arecor has been delivering on all its
milestones and I have no doubt that Sarah and the team will continue to
deliver and that, as the financial cycle evolves, recognition and support from
the markets for Arecor will pick up. I see the success of companies such as
ours as providing a rallying call to bring our community together and we hope
that you, our investors, will join us in driving the impact and value we know
can be achieved.
It is our ambition to transform patient care by enhancing existing therapeutic
medicines and, in doing so, build a significant biopharmaceutical company.
This can only happen through the hard work of our employees and through our
strong partnerships; I would like to thank both for their commitment,
innovation and excellence in delivery.
With clinical data results due, new partnerships to celebrate and a growing
revenue stream from royalties and milestones, 2024 is set to be yet another
exciting year for Arecor.
Andrew Richards
Non-Executive Chair
Chief Executive Officer's review
Successful delivery of strategy
"I believe Arecor is in a strong position, with the first product
incorporating the Group's Arestat™ technology, AT220, launched by our
partner and now generating royalties, an expansion of revenue and
value-generating partnerships with major pharmaceutical companies, continued
growth from sales of Ogluo® and excellent progress across our in-house
proprietary portfolio, where there is significant future value to be gained."
Diabetes - creating disrupter insulins
Diabetes has reached pandemic levels, with approximately 537 million adults
living with diabetes worldwide. There are still significant unmet needs in
diabetes care and the Group is focussed on developing much faster acting and
more concentrated insulins, to improve treatment options and outcomes for this
growing patient population within the existing $6.4 billion meal-time insulin
market.
Arecor's insulin candidates have the potential to significantly improve
healthcare outcomes for people living with diabetes. We continue to build the
value of our insulin programmes through the development of clinical strategies
and data packages which would best realise their future potential and maximise
partnering potential and value in the growing diabetes market.
The Group's second Phase I clinical study of ultra-concentrated, ultra-rapid
acting insulin candidate AT278 in the Type 2 diabetes population has completed
patient dosing and is on track to deliver results in H1 2024. These results
will enable the Group to finalise its strategy for the product, exploring all
options to create value.
AT278 has the potential to be a critical enabler in the development of next
generation miniaturised and longer wear insulin delivery systems, which are a
significant area of focus today for the major insulin device companies and
innovators in the field. The insulin pump market was valued at around $5.3
billion in 2023 and is expected to grow with CAGR of 12.4% from 2024 to
2032 1 (#_ftn1) . ~20% of the total addressable patient population in the US
is using an insulin pump currently 2 (#_ftn2) . One of the barriers of use
for insulin pumps is the size of the current devices, therefore, bringing an
ultra-miniaturised pump to market presents a significant growth opportunity
for AT278 with a device partner. Arecor's clinical study is a randomised,
double-blind Phase I cross-over study in people who are overweight or obese
and suffer with Type 2 diabetes. Patients will receive one subcutaneous dose
of AT278, in a euglycemic clamp setting, comparing the insulin candidate's
pharmacokinetic (PK) and pharmacodynamic (PD) profile with NovoRapid® and
Humulin® R U-500. This study is important as it will compare the speed of
absorption and glucose lowering profile of AT278 compared to the best
treatment options available today for this patient population, where there is
a high unmet need and no concentrated, yet rapid acting, insulin options.
AT278 has the potential to add a significant new treatment option and
potentially become the gold standard insulin for this specific growing
population of people with diabetes with high daily insulin needs.
In June, the Group shared positive results from the second Phase I clinical
trial of AT247, our ultra-rapid acting insulin candidate, at the American
Diabetes Association (ADA) 83rd Scientific Sessions meeting. The data clearly
demonstrate faster insulin absorption than the best currently available rapid
acting insulins, NovoRapid® and Fiasp®, reinforcing AT247's potential to
enable even more effective disease management for people with Type 1 diabetes.
The availability of a truly ultra-rapid acting insulin is a critical step
towards a fully closed loop artificial pancreas system, a potentially
life-changing treatment option for people living with diabetes that has the
potential to improve health outcomes and reduce the significant burden of
managing this chronic disease.
Post-period, in March 2024, the Group established a research collaboration
with TRx Biosciences, a drug development company applying novel lipid
technology to the oral delivery of challenging molecules, for the formulation
development of an oral GLP-1 receptor agonist product. As the global market
for GLP-1 receptor agonists grows and their use increases, significant
challenges remain in their oral delivery. With current treatment options
mostly limited to injectable therapies, many patients in need are unable to
benefit from these highly effective treatments. The collaboration provides
scope for expansion to develop further oral peptide products, including
additional peptides and combination approaches which may be key in the
treatment of obesity-related health conditions, as well as peptide products
targeting multiple therapeutic areas.
In May 2024, the Group established a research collaboration with Medtronic, a
global leader in healthcare technology, to develop a novel, high
concentration, thermostable insulin for use by Medtronic's Diabetes business
in a next-generation implantable pump. This new insulin has the potential to
transform treatment for an extremely vulnerable patient group and the
collaboration is one of many that Arecor hopes to enable, to further enhance
the benefits of next-generation devices within the diabetes field.
Partnered portfolio - validating the value of the Arestat™ platform to
patients and growing a diversified revenue stream
We continue to expand our portfolio of revenue-generating licensed programmes
and technology partnership deals with leading pharmaceutical and biotechnology
companies. These partnerships have continued to build steadily since Arecor's
IPO and, following the appointment of Dr. Manjit Rahelu as the Group's Chief
Business Officer in April, provide both near-term revenue at the pre-license
stage with significant future license upside potential.
Our proprietary pipeline of specialty hospital products enabling alternative
faster, safer and more effective treatment options for patients and caregivers
in the hospital setting are gaining recognition with three products now under
license and moving through clinical development. As demand increases, our
extensive know-how and expertise in the development and delivery of
ready-to-use (RTU) and ready-to-administer (RTA) formulations for highly
complex point-of-care medicines presents a clear opportunity for Arecor to
negotiate high-value co-development and commercialisation license
collaborations with pharmaceutical partners.
Operational Review (including post-period events)
Licensed programmes - growing a diversified revenue stream
Commercialisation by Arecor's partner of the first product incorporating
Arestat™ technology, AT220, was a significant milestone for the Group,
further demonstrating the strength of our technology and its value to
partners, and ultimately patients. The first commercial sale in November
triggered a license milestone payment and Arecor is now receiving royalties on
product sales under a worldwide license agreement.
In addition to AT220, Arecor has two further partnered programmes under
license with Hikma and Inhibrx, both of which have been developed closer to
market in 2023 and generated license milestone payments during the year.
Arecor transferred development activities to Hikma early in 2023 for the RTU
injectable medicine AT307, which is advancing under the US FDA's abbreviated
505(b)(2) regulatory pathway. This pathway provides companies with an
abbreviated regulatory review process when evidence of safety and clinical
efficacy generated for an originator product is deemed suitable to be relied
upon in new marketing applications. We believe that this abbreviated 505(b)(2)
pathway can be utilised across our Specialty Hospital portfolio, where we are
developing enhanced, RTU and RTA formulations of existing therapeutic
products.
Post-period, in January 2024, Sanofi announced its intention to acquire
Inhibrx's assets and liabilities associated with INBRX-101 (AT292), an
Arestat™ formulated optimised recombinant human AAT-Fc fusion protein, for
treatment of patients with emphysema due to alpha-1 antitrypsin deficiency. A
registration-enabling clinical trial of INBRX-101 commenced in 2023 and data
are anticipated later in 2024. Sanofi's acquisition of Inhibrx further
endorses our Arestat™ platform and highlights the value of this novel
therapy for patients and its future commercial potential.
Technology partnerships - new revenue-generating collaborations
Our portfolio of technology partnerships with leading pharmaceutical and
biotechnology companies, to enhance their proprietary products across a range
of indications and stages of development, continues with four new agreements
signed in 2023 and one post-period. These collaborations highlight the
strength and the need for the Arestat™ technology platform, provide
near-term revenue generation as well as significant upside potential from
future licensing.
In November, the Group signed a further collaboration with an existing
partner, Lilly, to develop a novel liquid formulation with enhanced properties
of one of Lilly's key products. Following this, post-period in January 2024,
we agreed an expansion of an ongoing, exclusive formulation study
collaboration with the pharmaceutical division of one of the world's largest
chemicals marketing and pharmaceuticals companies, to develop a
differentiated, RTU liquid formulation of the company's product, AT351.
Earlier in the year we signed a further three agreements: a top 10
pharmaceutical company to develop an enhanced antibody formulation for one of
its investigational drugs, a follow-on collaboration to support the ongoing
development of a biosimilar product with a leading biopharmaceutical company,
and an additional formulation study agreement with an existing top five global
pharmaceutical partner to develop improved, stable, high concentration, liquid
formulations of its proprietary product.
Under these agreements, Arecor's partners fund the development work with
options to acquire the rights to the new proprietary formulations and
associated intellectual property under the Group's technology licensing model.
In December, the Group announced a co-development and exclusive licence option
agreement with a partner company for a high-value, ready-to-dilute oncology
product from Arecor's proprietary Specialty Hospital pipeline. The agreement
included co-development and regulatory work, which was undertaken by Arecor
generating revenue for the Group, and an option for the partner to exercise a
license to further develop and commercialise the product. That option was not
subsequently exercised by the partner company, due to commercial reasons, and
the product is retained in Arecor's proprietary Specialty Hospital portfolio.
Further technology partnerships, the out-licensing of programmes from those
partnerships, together with new licenses from the Group's proprietary
pipeline, are anticipated to drive revenue growth in 2024.
Tetris Pharma - continued success of Ogluo® roll-out
Our specialty pharmaceutical business, Tetris Pharma, continues to build sales
momentum through the commercial roll-out of its ready-to-use glucagon
auto-injector pen, Ogluo®, for severe hypoglycaemia. Tetris Pharma product
sales increased to £2.9m (2022: £1.1m for the five months ended 31 December
2022), driven by Ogluo®, which now represents the majority of product sales.
The appointment of Dr. Helen Parris in January 2024 as Senior Vice President,
Commercial and General Manager of Tetris Pharma, is a strong catalyst to drive
revenue growth.
Ogluo® is an important treatment for people with diabetes and their
caregivers that can provide them with the confidence to manage severe
hypoglycaemic events and Tetris Pharma is targeting gaining market share
within an existing c. £100 million market across the licensed territory.
Following earlier launches in the UK, Germany and Austria, in 2023 Tetris
Pharma launched the product in Denmark and Norway. An agreement signed in
September between Tetris Pharma and Goodlife Pharma B.V. established Goodlife
as the sole partner for the import, marketing and distribution of Ogluo® in
the BeNeLux region. That was followed, post-period in February 2024, with the
product's launch in the Netherlands.
Building a robust intellectual property portfolio
Underpinning our strategy, we have a comprehensive global patent portfolio of
>90 granted patents across key territories protecting both the Arestat™
technology platform as well as the enhanced versions of therapeutic medicines
that we develop leveraging Arestat™. During 2023, the portfolio was
bolstered with the addition of five key patents granted in US, Europe, China
and India, protecting Arecor's proprietary diabetes portfolio, an enhanced
monoclonal antibody platform and high value biologics formulations.
Post-period, in January 2024, the Group was granted an additional European
patent protecting novel formulations of AT278 and AT247.
Summary and outlook
With a first commercial product incorporating Arestat™ launched in late 2023
and generating royalties, license milestones triggered on partnered products
and new pharma technology partnerships, we continue to build value across our
pipeline of diabetes and specialty hospital products.
The growing recognition from leading pharmaceutical and biotechnology
companies of our formulation expertise both validates and highlights the
potential of our Arestat™ platform. In 2023 we saw the results of our
strategy at work, creating a broad revenue mix and realising the potential for
future growth in the coming years.
We are encouraged by the continued success of the Tetris Pharma roll-out of
Ogluo® across the UK and Europe, which is reflected in strong sales
performance as awareness and access to this key diabetes product increases.
With further partnerships anticipated from our in-house proprietary Specialty
Hospital portfolio, a growing revenue stream from royalties and milestones,
and key Phase I clinical data for AT278 expected in H1 2024, we look forward
building even greater value creation in 2024.
Sarah Howell
Chief Executive Officer
Financial Review
Our 2023 results reflect an increasing and broadening revenue base including
license milestones, our first product royalties and growing product sales.
Together with progression in our proprietary Diabetes portfolio, this provides
a strong foundation for continued growth.
Highlights:
· Total Income of £5.7 million (2022: £3.7 million) including grant
and RDEC income
· Total revenue of £4.6 million (2022: £2.4 million) representing 90%
growth
· Investment in Research & Development ('R&D') of £6.0 million
(2022: £8.6 million)
· Sales, General & Administrative ('S,G&A') expenses of £8.9
million (2022: £5.6 million)
· Loss after tax for the year of £8.6 million (2022: £9.3 million)
· Cash and short-term investments of £6.8 million at 31 December 2023
(2022: £12.8 million)
At the end of the financial year, the Group had cash and short-term
investments of £6.8 million (2022: £12.8 million) and was debt free. Cash
and operating expenditure are closely monitored.
Cashflow forecasts and going concern
In assessing the appropriateness of adopting the going concern assumption, the
Directors have reviewed detailed operating forecasts for the period ending 31
December 2025. The period considered as part of the going concern review is to
30 June 2025.
Operating cashflow forecasts assume that total Group revenue will increase,
building upon revenues of £4.6 million recognised in the financial year ended
31 December 2023. The base case with mitigations, indicates that the Group
would continue to operate on a going concern basis. The Directors are aware of
inherent uncertainties in the timing and quantum of revenue growth, the costs
of continued investment in R&D and future fundraising requirements.
Forecast cash balances are very sensitive to changes in forecast revenue which
directly impacts receipts. Consequently, there are significant uncertainties
in the operating cashflow forecast. Cash balances are expected to reduce from
the closing balance of £6.8 million reported at 31 December 2023. The extent
and timing of this reduction is a direct consequence of the levels of revenues
and timing of receipts, as operating costs are relatively fixed.
In reviewing the going concern analysis, the Directors considered a base case
which included an assumption that the Group's investment in R&D and
Intellectual Property (IP) of £3.9 million in the year ended 31 December 2023
(2022: £4.1 million) would continue. The base case with mitigations assumed
that investment in R&D and IP would be delayed, cut back or stopped. The
base case scenario assuming that the Group continued to invest in R&D
would require the Group to seek external funding during the going concern
assessment period.
The downside scenario eliminated forecast sales growth whilst maintaining
forecast operating expenditure including investment in R&D and IP. In the
downside scenario the Group would be required to raise further external
funding above the levels assumed in the base case.
In summary, the base and downside scenarios reflect a requirement for external
funding with the two reflecting different amounts of funding required.
The Directors consider that the factors set out above are not unusual or
unexpected for the Group at this stage in its development. However,
shareholders should be aware that there is uncertainty around the revenues and
the timing of receipts, as well as the ability of the Group to raise
sufficient funding to meet its forecast costs. These conditions represent a
material uncertainty which may cast significant doubt on the Group and
Company's ability to continue as a going concern and, therefore, it may be
unable to realise its assets and discharge its liabilities in the normal
course of business.
Further details are set out in the Going concern note in the financial
statements of the Annual Report.
Key financial performance indicators
2023 2022
£'000s £'000s
Total Income 5,715 3,653
Formulation development projects 923 1,352
License milestones 683 -
Royalties 26 -
Product sales 2,941 1,051
Other operating income 1,142 1,250
Loss after tax (8,553) (9,260)
Cash, and short-term investments 6,751 12,806
Net Assets 9,527 17,455
Total Income increased to £5.7 million in the year (2022: £3.7 million),
including revenue of £4.6 million (2022: £2.4 million) and other operating
income of £1.1 million (2022: £1.3 million).
Revenue recognised in the year grew to £4.6 million (2022: £2.4 million), an
increase of 90%. Net Product sales of £2.9 million generated by Tetris Pharma
in the year increased by £1.9 million against sales of £1.0 million reported
for the five months ended 31 December 2022.
Formulation development revenue decreased to £0.9 million (2022: £1.4
million) as revenue recognition reflects the stages in formulation development
projects. Four new agreements were announced in the year, however new projects
announced in November and December had a modest impact on revenue recognised
in the year.
Other operating income of £1.1 million (2022: £1.3 million) was derived from
the final year of the £2.8 million Innovate UK grant awarded in March 2021
and £0.1m from the Government RDEC (Research and Development Expenditure
Credit) claim. The Group will continue to assess and apply to future grant
funding opportunities.
R&D expenditure of £6.0 million included the costs of the R&D teams,
Intellectual Property and clinical studies. Prior year R&D expenditure of
£8.6 million included clinical studies for ARE278-104 and US Phase I clinical
study for ARE-247-103, as follows:
Type of expenditure FY2023 FY2022
Research, Product Development, Clinical and Regulatory teams 3,194 3,349
Intellectual Property 541 555
Clinical studies 2,086 4,525
Share based payments 156 184
Total 5,977 8,613
S,G&A expenditure increased to £8.9 million (2022: £5.6 million) in the
year which included twelve months operating expenditure by Tetris Pharma Ltd.
Prior year expenditure included Tetris Pharma costs for the five months
post-acquisition.
An analysis of the costs charged to S, G & A is as follows:
Type of expenditure FY2023 FY2022
Facilities 436 270
Finance and Administrative 854 551
Pharmaceutical products 2,774 1,256
Commercial costs 2,593 1,154
Corporate Costs 1,576 1,871
Depreciation/amortisation 196 131
Share based payments 483 319
Total 8,912 5,552
Facilities costs of £0.5 million (2022: £0.2 million) included a full year
of Tetris Pharma office costs, a short-term portacabin lease which ended in
December 2023 together with repairs and maintenance to the Chesterford Park
building.
Pharmaceutical products costs of £2.8 million included the cost of goods sold
of £2.0 million (2022: £0.7 million) and inventory adjustments of £0.6
million (2022: £0.5 million). Commercial expenditure of £2.6 million (2022:
£1.2 million) comprised Contract Sales Organisation costs of £0.5 million
(2022: £0.1 million) together with other sales & marketing expenses at
Tetris Pharma and business development expenditure at Arecor.
Corporate costs of £1.6 million were lower than the prior year expenditure of
£1.9 million which included non-recurring costs of £0.2 million arising from
the acquisition of Tetris Pharma and the associated placing.
The loss after tax for the year ended 31 December 2023 reduced to £8.6
million (2022: £9.3 million).
Net assets of £9.6 million (2022: £17.5 million) included cash and
short-term investments of £6.8 million (2022: £12.8 million). Trade and
other receivables increased to £3.2 million (2022: £2.2 million) and
included trade receivables and grant debtors. Current liabilities increased to
£5.2 million (2022: £3.7 million).
Susan Lowther
Chief Financial Officer
Consolidated income statement
for the year ended 31 December 2023
31 December 31 December
2023 2022 Restated
Notes £000 £000
Revenue 6 4,573 2,403
Other operating income 7 1,142 1,250
Research and Development 8 (5,977) (8,613)
Sales, General & Administrative 8 (8,913) (5,552)
Operating loss (9,175) (10,512)
Other Income 5 -
Finance income 10 284 109
Finance expense 11 (15) (21)
Loss before tax (8,901) (10,424)
Taxation 12 347 1,164
Loss for the financial year (8,554) (9,260)
Basic and diluted loss per share (£) 13 (0.28) (0.32)
In the year ended 31 December 2023, there were no non-recurring expenses
incurred. The prior year Sales, General & Administrative costs included
£0.2million of non-recurring expenses incurred in the acquisition of Tetris
Pharma Ltd.
All results presented above are derived from continuing operations and are
attributable to owners of the Group.
Consolidated statement of financial position
At 31 December 2023
31 December 31 December
2023 2022
Notes £000 £000
Non-Current assets
Intangible assets 14 1,812 1,918
Goodwill 15 1,484 1,484
Property, plant and equipment 16 834 838
Other receivables 17 77 48
Total non-current assets 4,207 4,288
Current assets
Trade and other receivables 17 3,189 2,215
Current tax receivable 458 1,325
Cash and cash equivalents 18 5,093 4,765
Short-term investments 19 1,659 8,041
Inventory 20 771 1,131
Total current assets 11,170 17,477
Current liabilities
Trade and other payables 21 (4,903) (3,526)
Lease liabilities 22 (118) (202)
Provisions 23 (129) -
Total current liabilities (5,150) (3,728)
Non-current liabilities
Lease liabilities 22 (220) (86)
Provisions 23 (28) -
Deferred tax (452) (496)
Total non-current liabilities (700) (582)
Net Assets 9,527 17,455
Equity attributable to equity holders of the Group
Share capital 25 306 306
Share premium account 25 28,976 28,976
Share-based payments reserve 25 1,518 893
Other reserves 25 11,455 11,455
Merger relief reserve 25 2,014 2,014
Foreign exchange reserve 25 (20) (8)
Retained losses 25 (34,722) (26,181)
Total equity attributable to equity holders of the Group 9,527 17,455
The financial statements of Arecor Therapeutics plc, registered number
13331147, were approved by the Board of Directors and authorised for issue on
15 May 2024.
Sarah Howell, Director
Consolidated statement of changes in equity
for the year ended 31 December 2023
Share capital Share premium Other reserves Merger relief reserve Share-based payments reserve Foreign exchange reserve Retained losses Total equity
£000 £000 £000 £000 £000 £000 £000 £000
At 1 January 2022 278 23,348 11,455 519 - (17,051) 18,549
Comprehensive income for the year
Loss for the year - - - - - - (9,260) (9,260)
Transactions with owners
Issue of shares on acquisition of Tetris Pharma Ltd 7 - - 2,014 - - - 2,021
Issue of shares for working capital purposes 20 5,980 - - - - - 6,000
Share issue expense - (352) - - - - - (352)
Issue of shares on exercise of share options 1 - - - - - - 1
Reserve transfer - - - - (130) - 130 -
Share-based compensation - - - - 503 - - 503
Foreign exchange movements - - - - - (8) - (8)
Total transactions with owners 28 5,628 - 2,014 374 (8) 130 8,165
Equity as at 31 December 2022 306 28,976 11,455 2,014 893 (8) (26,181) 17,455
Consolidated statement of changes in equity
for the year ended 31 December 2023 (continued)
Share capital Share premium Other reserves Merger relief reserve Share-based payments reserve Foreign exchange reserve Retained losses Total equity
£000 £000 £000 £000 £000 £000 £000 £000
Equity as at 1 January 2023 306 28,976 11,455 2,014 893 (8) (26,181) 17,455
Comprehensive income for the year
Loss for the year - - - - - - (8,554) (8,554)
Foreign exchange movements - - - - - (12) - (12)
Transactions with owners
Reserve transfer - - - - (13) - 13 -
Share-based compensation - - - - 638 - - 638
Total transactions with owners - - - - 625 - 13 638
Equity as at 31 December 2023 306 28,976 11,455 2,014 1,518 (20) (34,722) 9,527
Consolidated statement of cash flows
for the year ended 31 December 2023
31 December 2023 31 December 2022 restated
£000 £000
Cash flow from operating activities
Loss for the financial year before tax (8,901) (10,424)
Finance income (284) (109)
Finance costs 15 21
Share-based payment expense 638 503
Depreciation 390 248
Amortisation 106 93
Foreign exchange movements 135 (69)
RDEC receivable (116) (118)
(8,017) (9,855)
Changes in working capital
Decrease in inventories 360 587
Increase in trade and other receivables (1,003) (48)
Decrease/(increase) in trade and other payables 1,377 (2,198)
Decrease/(increase) in provisions 157 -
Tax received 1,285 734
Net cash used in operating activities (5,841) (10,780)
Cash flow from investing activities
Acquisition of subsidiary net of cash acquired - 284
Purchase of property, plant and equipment (151) (299)
Sale of property plant and equipment 5 -
Purchase of intangible assets - (46)
Transfer of short-term investments to cash 6,382 (8,041)
Interest received 284 109
Net cash received from/(used) in investing activities 6,520 (7,993)
Cash flow from financing activities
Issue of ordinary shares - 6,000
Share issue costs - (352)
Repayment of loans 38 -
Capital payments on lease liabilities (203) (165)
Interest paid on lease liabilities (15) (21)
Repayment of working capital facility - (295)
Other interest paid - (7)
Net cash generated from financing activities (180) 5,160
Net Increase/(decrease) in cash and cash equivalents 499 (13,613)
Exchange (losses)/gains on cash and cash equivalents (171) 62
Cash and cash equivalents at beginning of financial year 4,765 18,316
Cash and cash equivalents at end of financial year 5,093 4,765
Notes to the consolidated financial statements
1. General information
Arecor Therapeutics plc ("Arecor" or the "Company") is a public limited
company registered in England and Wales at Chesterford Research Park, Little
Chesterford, Saffron Walden, CB10 1XL with registered number 13331147.
The principal activity of the Company is to act as a holding company. The
Company has two wholly owned trading subsidiaries; Arecor Limited and Tetris
Pharma Ltd (together with the Company, the "Group"). The Group's principal
activities are the research and experimental development of biotechnology, as
well as the sale and distribution of specialty pharmaceutical products.
Tetris Pharma Ltd and its wholly owned subsidiary Tetris Pharma B.V were
acquired in the prior year on 4 August 2022. Prior year comparatives therefore
only include five months of trading activity for these companies.
2. Change in accounting policy and restatement of the
prior year
The accounting policy relating to the treatment of Research and Development
Expenditure Credits (RDEC) has changed to align with recommended practice.
The change in accounting policy has been adopted during the year ended 31
December 2023, with the prior year figures also restated.
Previously, both RDEC and the Small and Medium Entity (SME) R&D tax relief
scheme were reported in the Income Statement as Taxation. RDEC claims are now
reported gross of any tax due as other income. The corresponding corporation
tax payable on this income is also reflected within the taxation line. This
change has no impact on the statement of financial position, therefore an
additional statement of financial position showing the impact of this change,
as prescribed in IAS 1 paragraph 40A, is not required.
By enacting this change, a balance of £0.1 million is reported as other
income for the year ended 31 December 2023. The restated prior year other
income balance has increased by £0.1 million with a corresponding reduction
in the taxation line.
3. Adoption of new and revised standards
New and amended accounting standards that are mandatorily effective for the
current year.
The following new and amended standards and interpretations were issued and
adopted during the year. They have not had a significant impact on the
consolidated financial statements:
• IFRS 17 - Insurance Contracts
• Amendments to IAS 1 - Presentation of Financial Statements and
IFRS Practice Statement 2 - Making Materiality Judgements: Disclosure of
material accounting policies
• Amendment to IAS 8 - Accounting Policies, Changes in Accounting
Estimates and Errors: Definition of accounting estimates
• Amendment to IAS 12 - Income Taxes: Deferred tax assets and
liabilities arising from a single transaction
• Amendment to IAS 12 - Income Taxes: International tax reform and
temporary exception for deferred tax assets and liabilities related to the
OECD pillar two income taxes
New and amended accounting standards that have been issued but are not yet
effective.
The following new or amended standards and interpretations are applicable in
future periods but are not expected to have a significant impact on the
consolidated financial statements.
Effective for periods beginning on or after 1 January 2024:
• Amendment to IFRS 16 - Leases: Leases on sale and leaseback
• Amendment to IAS 1 - Presentation of Financial Statements:
Non-current liabilities with covenants
• Amendments to IAS 7 - Statement of Cash Flows and IFRS 7 -
Financial Instruments: Supplier finance
Effective for periods on or after 1 January 2025:
• Amendments to IAS 21 - The Effects of Changes in Foreign Exchange
Rates: Lack of exchangeability
4. Significant accounting policies
Basis of preparation
The results have been extracted from the audited financial statements of the
Group for the year ended 31 December 2023. The results do not constitute
statutory accounts within the meaning of Section 434 of the Companies Act
2006. Whilst the financial information included in this announcement has been
computed in accordance with the principles of UK-adopted international
accounting standards ('IFRS'), IFRIC interpretations and the Companies Act
2006 that applies to companies reporting under IFRS, this announcement does
not of itself contain sufficient information to comply with IFRS.
The Group will publish full financial statements that comply with IFRS. The
auditor has reported on those accounts. Their report for the accounts of the
year ended 31 December 2023 was unqualified and did not contain a statement
under section 498(2) or (3) of the Companies Act 2006. The auditor's report
includes reference to the material uncertainty relating to going concern. See
below for more details of the going concern assessment performed by the Board
of Directors. The statutory accounts for the year ended 31 December 2022 have
been delivered to the Registrar of Companies and received an unqualified
auditor's report which did not draw attention to any matters by way of
emphasis and did not contain statements under s498 (2) or (3) of the Companies
Act 2006.
The financial information has been prepared using the historical cost
convention and under the assumption that the Group operates on a going concern
basis. The principal accounting policies adopted in the preparation of the
consolidated financial statements are set below. They have been consistently
applied to the period presented, unless otherwise stated.
The consolidated financial statements are presented in Great British pound
sterling which is also the Group's functional currency.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and the subsidiaries at 31 December 2023. All subsidiaries have a
reporting date of 31 December.
Control is achieved when the Company:
· has power over the investee;
· is exposed, or has rights, to variable return from its involvement
with the investee; and
· has the ability to use its power to affect its returns
The Company reassesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control listed above. Consolidation of a subsidiary begins when
the Company obtains control over the subsidiary and ceases when the Company
loses control of the subsidiary.
Specifically, the results of subsidiaries acquired or disposed of during the
period are included in the consolidated statement of comprehensive income from
the date the Company gains control until the date when the Company ceases to
control the subsidiary.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with the Group's
accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows
relating to transactions between the members of the Group are eliminated on
consolidation.
Operating segments
The Directors have considered the reporting of operating segments in line with
IFRS 8 - Operating Segments and believe that there is only one reporting unit
within the Group. The chief operating decision maker reviews the operating
results at a group consolidated level.
Business combinations
Business combinations are accounted for using the acquisition method as at the
acquisition date. This is considered to be the date at which control is
transferred to the Group. The consideration transferred for the acquisition is
the fair value of any equity interests issued by the Group. Identifiable
assets and liabilities assumed in the business combination are measured at
their fair value at the date of acquisition. This includes the value of any
intangible assets generated that could not previously be recognised by the
entity pre-acquisition.
The Group measures goodwill at the date of acquisition as the fair value of
the consideration less the recognised net amount of the identifiable assets
and liabilities acquired. Costs related to the acquisition other than those
associated with the issue of equity in the Group are expensed as they are
incurred.
Investments in subsidiaries
Investments in subsidiaries owned by the Company are included at cost less any
accumulated impairment charges.
Going Concern
In assessing the appropriateness of adopting the going concern assumption, the
Directors have reviewed detailed operating forecasts for the period ending 31
December 2025. The period considered as part of the going concern review is to
30 June 2025.
Operating forecasts include estimates of:
· Formulation Development revenues from existing and new agreements
· AT220 royalties received quarterly in arrears
· License and milestones received from new and existing license
agreements
· Pharmaceutical product sales and associated direct costs
· Operating expenses including committed clinical study costs
· IP expenditure to protect the Group's proprietary technology and
products
The Board considers that these operating forecasts represent a reasonable
estimate of the Group's forecast performance for the period to 30th June 2025.
Operating costs are controlled, and management has identified actions to
reduce or defer expenditure. Notwithstanding such cost control, the Group
reported an operating loss of £9.2million in the year ended 31 December 2023
as total income of £5.7 million was exceeded by operating costs of £14.9
million including investment in Research & Development.
Operating cashflow forecasts assume that total Group revenue will increase,
building upon revenues of £4.6 million recognised in the financial year ended
31 December 2023. The base case with mitigations, indicates that the Group
would continue to operate on a going concern basis. The Directors are aware of
inherent uncertainties in the timing and quantum of revenue growth, the costs
of continued investment in R&D and future fundraising requirements.
The timing and quantum of new license agreements are subject to negotiations
with pharmaceutical partners. The recognition of milestone revenue reflects
progress made by the license partner which is not under the Group's direct
control. Royalty income is forecast to increase following the market launches
of the licensed product, however the Group has no visibility over the timing
of such growth.
The anticipated step up in Tetris Pharma sales of pharmaceutical products in
the year ended 31 December 2024, represents a significant increase compared to
£2.9 million sales reported in the year ended 31 December 2023. The
lead-times and cash requirements to support this growth, specifically purchase
of bulk material and secondary packaging costs, are early in the working
capital cycle. Sales receipts occur much later linked to sales performance and
market adoption.
Due to the above inherent uncertainties, forecast cash balances are very
sensitive to changes in forecast revenue which directly impacts receipts.
Consequently, there are significant uncertainties in the operating cashflow
forecast. Cash and short-term investments are expected to reduce from the
closing balance of £6.8 million reported at 31 December 2023. The extent and
timing of this reduction is a direct consequence of the levels of revenues and
timing of receipts, as operating costs are relatively fixed.
In reviewing the going concern analysis, the Directors considered a base case
which included an assumption that the Group's investment in R&D and
Intellectual Property (IP) of £3.9 million in the year ended 31 December 2023
(2022: £4.1 million) would continue. The base case with mitigations assumed
that investment in R&D and IP would be delayed, cut back or stopped. A
base case scenario assuming that the Group continued to invest in R&D
would require the Group to seek external funding during the going concern
assessment period.
The downside scenario eliminated forecast sales growth whilst maintaining
forecast operating expenditure including investment in R&D and IP. In the
downside scenario the Group would be required to raise further external
funding above the levels assumed in the base case.
In summary, the base and downside scenarios reflect a requirement for external
funding with the two reflecting different amounts of funding required.
The Directors believe that the sales forecasts included in the going concern
review are reasonable and that management has identified actions to mitigate a
reduction in sales receipts, including raising additional funds and that
investment in R&D and IP could be delayed, cut back or stopped.
The Directors believe that the Company would be able to raise further
external funding from existing and new shareholders during the financial year
ending 31 December 2024, however as at the date of publication of this report,
this is not guaranteed.
The Directors consider that the factors set out above are not unusual or
unexpected for the Group at this stage in its development. However,
shareholders should be aware that there is uncertainty around the revenues and
the timing of receipts, as well as the ability of the Group to raise
sufficient funding to meet its forecast costs. These conditions represent a
material uncertainty which may cast significant doubt on the Group and
Company's ability to continue as a going concern and, therefore, it may be
unable to realize its assets and discharge its liabilities in the normal
course of business.
Revenue
Revenue is measured based on the consideration that the Group expects to be
entitled to in exchange for transferring promised goods and services. Revenue
is recognised to the extent that the Group obtains the right to consideration
in exchange for its performance. In accordance with IFRS 15 - Revenue from
Contracts with Customers, the following five-steps are applied:
· identify contracts with customers;
· determine performance obligations arising under those contracts;
· set an expected transaction price;
· allocate that price to the performance obligations; and then
· recognise revenues as and when those obligations are satisfied.
Formulation development
Revenue from the performance of formulation development projects is recognised
as the performance obligation defined in a contract is performed over time.
Possible performance obligations can include, but are not exclusively limited
to, completion of method development and pre-formulation activities,
completion of rounds of formulation optimisation, or completion of stability
studies. The progress of the work is dictated by project phases, hence time
passed best indicates the stage of completion of a service performed over
time, over the life of each element of the contract.
The Group's performance does not create an asset with an alternative use to
the Group and the Group has an enforceable right to payment for performance
completed to date.
Transaction prices are determined based on prices agreed in each contract
negotiated with each customer. This includes the allocation of the whole
contract price between each distinct performance obligation within each
contract.
The types of contracts entered into by the Group do not include any
obligations for returns or refunds, nor are warranties offered relating to the
work performed.
None of the practical expedients in IFRS 15 have been applied.
Licence agreements
Revenue from licence agreements, where it has been assessed as giving the
right to use the underlying intellectual property, is recognised at the
granting of the licence.
Where agreements combine the grant of a licence and the provision of services,
the consideration is allocated between the two elements based on the
identifiable elements of the separate performance obligations, being the
licence grant as described above and the distinct obligations included in the
research element.
If a licence includes variable consideration, typically in the form of
milestone payments, revenue is recognised when a milestone is achieved.
Royalty income
Following the grant of a licence for the intellectual property relating to a
formulation developed by Arecor Limited, royalties are due on the sale of any
product that incorporates that formulation. Royalties are sales-based variable
consideration relating to the grant of the license that are recognised in the
period that the licensee makes the sale. The level of royalty due is dependent
on the product and is agreed with the licensee at the time when the licence
agreement is signed. Royalties are reported to Arecor by the licensee at
agreed intervals, with payments made shortly thereafter.
Product sales
Product sales are recognised when the rights and obligation pertaining to
those items are transferred to the buyer. This is either on dispatch of the
goods from the warehouse, or on an ex-works basis where the goods are
available for the collection by the customer or their designated courier. When
the Group acts as principle for product sales, revenue is recognised as the
invoiced amount, net of any rebates, discounts or expected returns. When the
Group acts as an agent for product sales, revenue is recognised as the share
of the profit that the Group is entitled to as designated in the agreement
with the principle.
Non-government grants
Where the Group receives non-government grants, they are treated as revenue as
they have comparable performance obligations and conditions to other revenue
contracts. These grants typically relate to research projects.
Government grants
The Group receives UK government grants for research work. Grants are agreed
for named projects, offering reimbursement of specified costs incurred on
these projects. The grants are paid after each grant reporting period when the
claim is submitted, and there are no clauses requiring the Group to repay any
amounts as the funding is cost-based rather than outcome-based. The
administering body has the right to request information on any items within
each grant claim and to request an Independent Auditor's report. There are no
clawback provisions relating to the grants as they are not paid until after
the relevant expenditure has been incurred and agreed, and this is the only
condition.
Revenue-based grants have been credited to the statement of comprehensive
income in the period to which they relate and reported as other income.
Government Research and Development Expense Credit (RDEC)
Where research and development expenditure is incurred that is not eligible
under the Small and medium-sized enterprise (SME) tax relief scheme but is
eligible under the UK Government RDEC scheme, the associated gross income is
presented as other income in the Income Statement and other receivables within
current assets in the statement of financial position. The corresponding tax
payable on this income is included within the tax charge.
Research and development
Research expenditure is expensed as it is incurred. Development costs relating
to internally developed products are capitalised from the date at which all of
the following criteria can be demonstrated for a product:
· The technical feasibility of completing the project (so that an
intangible asset thereby generated will be available for use or sale);
· An intention to complete the project;
· An ability to use or sell an intangible asset generated by the
project;
· How an intangible asset generated by the project will generate
probable future economic benefits for the Group;
· The availability of adequate technical, financial & other
relevant resources to complete the development and to use or sell an
intangible asset generated by the project; and
· The ability to measure reliably the expenditure attributable to the
project.
Until all the above criteria are met, such costs are classified as research
expenditure and expensed accordingly. As drug products cannot be
commercialised until they have completed Phase III clinical trials and
received regulatory approval, the Group considers that the above criteria have
not been met for any current products and therefore all costs will continue to
be expensed until such time as they are met. Included within research
expenditure are all costs relating to the development and protection of the
Group's intellectual property. These are expensed through the statement of
comprehensive income.
Share-based payments
The Group operates equity-settled share-based payment schemes. Where
share-based payments (options) have been granted to employees, the fair value
of the share-based payments is measured at the grant date and charged to the
statement of comprehensive income over the vesting period.
A valuation model is used to assess the fair value, taking into account the
terms and conditions attached to the share-based payments. The fair value at
grant date is determined including the effect of market-based vesting
conditions, to the extent such vesting conditions have a material impact. It
also takes into account non-vesting conditions. These are either factors
beyond the control of either party (such as a target based on an index) or
factors which are within the control of one or other of the parties (such as
the Group keeping the scheme open or the employee maintaining any
contributions required by the scheme).
The cumulative expense recognised for equity-settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting
period has expired and the Group's best estimate of the number of equity
instruments that will ultimately vest.
Employee benefits
Defined contribution pension plan
The Group operates a defined contribution plan for its employees and pays
fixed contributions to a separate entity. Once the contributions have been
paid, the Group has no further payment obligations.
The contributions are recognised as an expense in the statement of
comprehensive income when they fall due. Amounts not paid are shown in
accruals as a liability in the balance sheet. The assets of the plan are held
separately from the Group in independently administered funds.
Intangible assets
Purchased Intangible assets are initially measured at cost. After initial
recognition, intangible assets are measured at cost less any accumulated
amortisation and any accumulated impairment losses.
Licenses capitalised on the acquisition of a subsidiary are measured at fair
value using an income approach that calculates the present value of excess
earnings over the license period at date of acquisition.
The annual rate of amortisation for each class of intangible asset is:
Category Period
Patents Straight line over their estimated useful life (18 years)
Licenses capitalised on acquisition Straight line over the life of the license
Software Straight line over 5 years
Goodwill arising on acquisition
Goodwill represents the excess of the fair value of the cost of acquisition of
a business over the fair value of the assets and liabilities acquired by the
Group at the date of acquisition.
Assets are grouped into cash generating units, which are defined as the
smallest group of assets that generate independent cash inflows to the other
assets of the Group. Goodwill is allocated to the cash generating units which
represent the lowest level at which management controls the related cash
inflows.
Goodwill is tested annually for impairment or when events or changes in
circumstances occur that indicate that the carrying amount of the Goodwill may
not be recoverable. An impairment loss is recognised for a cash generating
unit if, and only if, the recoverable amount of the unit is lower than the
carrying amount of that unit. The value of the impairment will be equal to the
amount the carrying value of the cash generating unit exceeds the recoverable
amount of that unit.
Impairment costs recognised against a cash generating unit to which goodwill
has been allocated, are charged against the carrying amount of the goodwill.
Any remaining impairment charge is allocated pro-rata on the basis of the
carrying amount of each asset in the cash generating unit. If any impairment
is subsequently reversed, it can only be done so the on assets other than
goodwill and can only revert to the carrying value that would have been in
place had the impairment not occurred. Impairment losses allocated to goodwill
cannot subsequently be reversed.
Impairment of non-financial assets
At each balance sheet date, the Directors review the carrying amounts of the
Group's tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any
indication of impairment exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss, if any.
The recoverable amount is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific
to the asset for which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset is estimated to be less than its
carrying amount, the carrying amount of the asset is reduced to its
recoverable amount.
An impairment loss is recognised as an expense immediately. Where an
impairment loss subsequently reverses, the carrying amount of the asset is
increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset or
cash-generating unit in prior periods. A reversal of an impairment loss is
recognised in the statement of comprehensive income immediately.
Property, plant and equipment
Property, plant and equipment is stated at cost on acquisition less
depreciation and any accumulated impairment losses. Depreciation is provided
on a straight-line basis at rates calculated to write off the cost less the
estimated residual value of each asset over its expected useful economic life.
The residual value is the estimated amount that would currently be obtained
from disposal of the asset if the asset were already of the age and in the
condition expected at the end of its useful life. The residual values, useful
lives and depreciation methods are reviewed and adjusted prospectively if
appropriate, or if there is an indication of a significant change since the
last reporting date.
The annual rate of depreciation for each class of depreciable asset is:
Category Period
Leasehold improvements Straight line over term of building lease
Right of use lease assets - premises and equipment Straight line over term of asset lease
Other equipment Straight line over 3 to 5 years
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected to arise from the continued use of
the asset. The gain or loss arising on the disposal or retirement of an asset
is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in the statement of comprehensive
income.
Inventory
Inventory is stated at the lower of cost or net realisable value, being the
estimated selling price less costs to complete and sell. Products for resale
and raw materials are initially recorded at cost. When inventory is sold, the
capitalised costs are expensed. Where provisions are made in respect of
obsolete or slow-moving items, the net stock value is stated.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with
banks and other short-term highly liquid investments with original maturities
of three months or less.
Financial instruments
Recognition and derecognition
Financial assets and financial liabilities are recognised when the Group
becomes a party to the contractual provisions of the financial instrument.
Financial assets are derecognised when the contractual rights to the cash
flows from the financial asset expire, or when the financial asset and
substantially all the risks and rewards are transferred.
A financial liability is derecognised when it is extinguished, discharged,
cancelled or expires.
Classification and initial measurement of financial assets
Except for trade receivables (which do not contain a significant financing
component) that are initially measured at the transaction price in accordance
with IFRS 15, all financial assets are initially measured at fair value
adjusted for transaction costs (where applicable - this is not permitted for
financial assets at fair value through profit or loss: instead, transaction
costs are expensed as incurred).
Financial assets are classified into the following categories:
· Amortised cost
· Fair value through profit or loss (FVTPL)
· Fair value through other comprehensive income (FVOCI).
In the periods presented, the Group does not have any financial assets
categorised as FVOCI or FVTPL.
Trade receivables
The Group recognises a receivable when they have the right to an amount of
consideration that is unconditional. They arise principally through the
provision of goods and services to customers but also incorporate other types
of contractual monetary assets.
They are initially recognised at fair value and measured subsequent to initial
recognition at amortised cost using the effective interest method, less any
impairment loss.
Trade payables
Trade payables are recognised initially at their fair value, net of
transaction costs and subsequently measured at amortised costs less settlement
payments.
Provisions
The Group recognises provision against potential National insurance
contributions associated with share based payments in accordance with IAS 37
when there is a present obligation as a result of a past event, an outflow of
resources embodying economic benefit will be required to settle the obligation
and the value of the obligation can be reliably estimated. Provisions are
reviewed at the end of each reporting period and adjusted to reflect the
current best estimate of the obligation at that time. If it is no longer
probable that an outflow of resources embodying economic benefit will be
required to settle the obligation, the provision will be reversed.
Provisions are recognised as either current or non-current liabilities based
on the best estimate of when settlement of the obligation will fall due.
Discounting of any non-current provisions is only considered when the effect
is material.
Subsequent measurement of financial assets
Financial assets at amortised cost
Financial assets are measured at amortised cost if the assets meet the
following conditions:
· They are held within a business model whose objective is to hold the
financial assets and collect its contractual cash flows
· The contractual terms of the financial assets give rise to cash flows
that are solely payments of principal and interest on the principal amount
outstanding
After initial recognition, these financial assets are measured at amortised
cost using the effective interest method. Discounting is omitted where the
effect of discounting is immaterial. The Group's cash and cash equivalents,
and trade and other receivables fall into this category of financial
instruments.
Impairment of financial assets
In relation to the impairment of financial assets, IFRS 9 - Financial
Instruments requires an expected credit loss model to be applied. The expected
credit loss model requires the Group to account for expected credit losses
(ECL) and changes in the ECL at each reporting date to reflect changes in
credit risk since initial recognition of the financial assets. For the
purposes of this calculation, default is considered if there is no longer a
reasonable expectation that the balance is recoverable. This is determined by
considering the payment history and current financial status of the customer
as well as the wider economic environment at the time. The exact circumstances
of this may vary, so expected credit loss is considered on a case-by-case
basis for each customer.
IFRS 9 requires the Group to recognise a loss allowance for ECL on trade
receivables. In particular, IFRS 9 requires the Group to measure the loss
allowance for a financial instrument at an amount equal to the lifetime ECL if
the credit risk on that financial instrument has increased significantly since
initial recognition, or if the financial instrument is a purchased or
originated credit‑impaired financial asset. However, if the credit risk on a
financial instrument has not increased significantly since initial
recognition, the Group is required to measure the loss allowance for that
financial instrument at an amount equal to 12 months ECL.
The Group's trade receivables are grouped into 30-day periods and are assessed
for impairment based on experience of write-offs for each age of balance to
predict lifetime ECL, applying the simplified approach set out in IFRS 9. The
segmentation used is reviewed periodically to ensure it is still appropriate.
At present, all receivables are assessed as having the same risk profile hence
grouping is only by age to establish whether an impairment should be
recognised.
Classification and measurement of financial liabilities
The Group's financial liabilities include borrowings, trade and other
payables, and derivatives.
Financial liabilities are initially measured at fair value, and, where
applicable, adjusted for transaction costs unless the Group designated a
financial liability at fair value through profit or loss.
Subsequently, financial liabilities are measured at amortised cost using the
effective interest method except for derivatives, which are carried
subsequently at fair value with gains or losses recognised in the statement of
comprehensive income.
All interest-related charges and, if applicable, changes in an instrument's
fair value that are reported in the statement of comprehensive income are
included within finance costs or finance income.
Compound instruments
Where an instrument is initially assessed as containing both a liability
component and an equity component i.e., as a compound instrument, the fair
value of the liability component is established based on the fair value of a
similar liability that does not have an associated equity component, and the
residual balance assigned to the equity component. The liability component is
then measured at amortised cost; the equity component is not subsequently
remeasured. Where no equity component is noted, an embedded derivative may
arise.
If a financial liability includes an embedded derivative this is also
separated out at inception and initially and subsequently measured at fair
value.
Leases
The Group assesses whether a contract is or contains a lease, at inception of
the contract. The Group recognises a right of use asset and a corresponding
lease liability with respect to all lease arrangements in which it is the
lessee.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted by using the
rate implicit in the lease. If this rate cannot be readily determined, the
lessee uses its incremental borrowing rate.
The lease liability is presented as a separate line in the statement of
financial position.
The lease liability is subsequently measured by increasing the carrying amount
to reflect interest on the lease liability (using the effective interest
method) and by reducing the carrying amount to reflect the lease payments
made.
The Group remeasures the lease liability (and makes a corresponding adjustment
to the related right of use asset) whenever:
· The lease term has changed, in which case the lease liability is
remeasured by discounting the revised lease payments using a revised discount
rate
· The lease payments change due to changes in an index or rate or a
change in expected payment under a guaranteed residual value, in which cases
the lease liability is remeasured by discounting the revised lease payments
using an unchanged discount rate (unless the lease payments change is due to a
change in a floating interest rate, in which case a revised discount rate is
used)
· A lease contract is modified, and the lease modification is not
accounted for as a separate lease, in which case the lease liability is
remeasured based on the lease term of the modified lease by discounting the
revised lease payments using a revised discount rate at the effective date of
the modification
The right of use assets comprise the initial measurement of the corresponding
lease liability, prepayments made on the lease at or before the commencement
day, less any lease incentives received and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation and impairment
losses.
Right of use assets are recognised in a separate category of property, plant
and equipment and are depreciated over the shorter period of lease term and
useful life of the underlying asset.
For laboratory equipment purchased under a finance lease, the rights of
ownership pass to the Group at the end of the lease term and when all payments
have been made.
Under the current lease agreement for the premises, there are no specified
renewal options.
The depreciation starts at the commencement date of the lease.
Taxation
Current taxation
Current taxation for the Group is based on the local taxable income at the
local statutory tax rate enacted or substantively enacted at the reporting
date and includes adjustments to tax payable or recoverable in respect of
previous periods.
The Group takes advantage of Research and Development tax credits offered by
the UK Government. The value of these incentives reclaimable under the Small
and medium-sized enterprise (SME) tax relief scheme at 31 December each year
is calculated and presented as a current asset in the statement of financial
position and a credit to taxation in the income statement.
Deferred taxation
Deferred taxation is calculated based on the temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in
the historical financial information. However, if the deferred tax arises from
the initial recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects neither
accounting, nor taxable profit or loss, it is not recognised. Deferred tax is
determined using tax rates and laws that have been enacted or substantively
enacted by the reporting date and are expected to apply when the related
deferred tax asset is realised, or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that
future taxable profits will be available against which the temporary
differences can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a
transaction that affects neither the tax profit nor the accounting profit.
Changes in deferred tax assets or liabilities are recognised as a component of
tax expense in the statement of comprehensive income, except where they relate
to items that are charged or credited directly to equity in which case the
related deferred tax is also charged or credited directly to equity.
Current tax assets and liabilities and deferred tax assets and liabilities are
offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred tax assets and
liabilities relate to taxes levied by the same taxation authority on either
the same taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
Foreign currency
Transactions in foreign currencies are recorded at the rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies are translated at the rate of exchange ruling at the year-end date.
All differences are taken to the statement of comprehensive income.
The individual financial statements of each group company are prepared in its
own functional currency. For the purposes of the Group consolidated financial
statements, the financial performance and financial position of each company
is converted to pounds sterling, the functional currency of the Group, and the
presentation currency for the Group financial statements. For companies within
the Group that do not use pounds sterling as the functional currency, income
and expenditure is converted using an average rate for the period. Assets,
liabilities, equity and reserves are converted at the reporting date rate. The
financial statements are presented in round thousands.
Equity
Equity comprises the following:
· "Share capital" represents amounts subscribed for shares at nominal
value
· "Share premium" represents amounts subscribed for share capital, net
of issue costs, in excess of nominal value
· "Share-based payment reserve" represents the accumulated amounts
credited to equity in respect of options to acquire ordinary shares in the
Company
· "Other reserves" represents the merger reserve generated upon the
acquisition of Arecor Limited on 24 May 2021
· "Merger relief reserve" represents the merger reserve generated upon
the acquisition of Tetris Pharma Ltd on 4 August 2022
· "Retained earnings / losses" represents the accumulated profits and
losses attributable to equity shareholders
5. Critical accounting judgements and key sources of
estimation uncertainty
Critical accounting judgements
The preparation of financial information in conformity with generally accepted
accounting practice requires Directors to make estimates and judgements that
affect the reported amounts of assets and liabilities as well as the
disclosure of contingent assets and liabilities at the balance sheet date and
the reported amounts of revenues and expenses during the reporting period.
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The following are the significant judgements and key sources of estimation
uncertainty used in applying the accounting policies of the Group that have
the most significant effect on the historical financial information:
Impairment of goodwill
As required by IAS 36 - Impairment of Assets, goodwill is reviewed and tested
for impairment each year. The value in the use of the cash generating unit to
which the goodwill is associated are calculated and compared to the carrying
value of the assets. This requires management to estimate the present value of
future cashflows by applying an appropriate discount rate on the estimated
future performance of the cash generating unit. For goodwill generated on the
acquisition of Tetris Pharma Ltd, the factors considered include significant
reduction in sales forecasts, increasing costs or movements in exchange rates.
Details of the specific assumptions used in the current review are provided in
Note 15.
A review of the carrying value of the assets has been performed and at the
reporting date an impairment of goodwill is not required.
Revenue recognition
Management use the five-step principle in IFRS 15 - Revenue from Contracts
with Customers to assess the recognition of revenue from sales contracts to
determine the timing of revenue recognition. Rolling forecasts to monitor
project status and time to completion are reviewed to ensure that the amounts
recognised reflect the progression of the project and that balances remain
recoverable.
In accordance with the contract, each stage of a project is invoiced in
advance, which gives rise to deferred income. In applying the principles of
revenue recognition, the Group is simultaneously calculating the remaining
contract liability. The deferred revenue balances are reviewed and reconciled
each month so that the value of revenue recognised is aligned to a specific
phase of the contract.
Treatment of Research and Development expenditure
When considering whether Research and Development ("R&D") expenditure is
eligible to be capitalised, Management consider the criteria for
capitalisation identified under IAS 38 - Intangible Assets as follows:
· The technical feasibility of completing the asset so that it will be
available for use or sale
· The intention to complete the asset and use or sell it
· The ability to use or sell the asset
· The asset will generate probable future economic benefits and
demonstrate the existence of a market or the usefulness of the asset if it is
to be used internally
· The availability of adequate technical, financial and other resources
to complete the development and to use or sell it
· The ability to measure reliably the expenditure attributable to the
intangible asset
In order to confirm the technical feasibility of the Group's clinical
candidates the product must successfully complete clinical trials and the
appropriate submission must be filed to the regulatory authority for market
authorisation. As the Group's most advanced clinical candidates (AT247 and
AT278) are in the early stages of clinical development (phase I/II trials) all
costs incurred are expensed to the income statement.
Recoverability of grant debtors
Income received from Government grants is accrued as the relevant costs are
incurred. The accrual is reviewed to ensure the spend is in accordance with
the grant award. All grant income received in the year was derived from an
Innovate UK grant of £2.8 million which was awarded in March 2021. Under the
terms of the grant, reimbursement is received quarterly in arrears following
an independent audit of the expenditure claimed. At 31 December 2023 all
income in relation to the grant had been recognised. At the reporting date, a
balance of £0.3 million was included within accrued income. This balance was
paid on 18 April 2024. At the prior year reporting date a balance of £0.4
million was included in accrued income which represented income due from costs
incurred in December 2022.
Key sources of estimation uncertainty
Share-based payments
During the year, the Group has granted share options to staff. These options
have no other requirements than the employees continuing to be employed by the
Company until the option vesting date. These options were valued using the
Black-Scholes model.
The Group also granted Long-Term Incentive Plan (LTIP) options to the
Leadership Team which include specific performance criteria. The fair value of
these options was calculated using a Monte Carlo simulation model.
Estimates and judgements are used in the calculation of share-based payments.
This includes the future volatility of the share price and the use of an
appropriate interest rate.
IFRS 2 - Share-based Payment states that at the date of grant, both the entity
and the counterparty must have a shared understanding of the terms and
conditions of the arrangement. Accordingly, the share price of the previous
trading day is used as the exercise price in the option grant, so that the
value can be verified.
In addition to the share-based payment, an associated provision is posted
related to the corresponding employers national insurance liability that will
become due on exercise. These provisions are reviewed and updated annually to
reflect the expected charge based on the movement of the share price between
the reporting dates and the progression of the options towards vesting (in
both time and probability of vesting).
It should be noted that where a national insurance liability falls due on the
employer in relation to the share options, the option agreement states that
this cost will be re-imbursed by the option holder on exercise. As such a
corresponding receivable, equal to the value of the provided liability is
recorded in either current or non-current assets as required. There is
therefore no net liability due by the company for this expense.
R&D tax credits
The R&D tax credit claimable is based on the size and nature of the
qualifying expenditure. The balance recoverable is only confirmed at the point
that the claim is approved by the tax authority. The calculation is consistent
with prior periods where claims have been approved. External tax advisors
review calculations and the submission. At 31 December 2023 the expected
R&D tax credits claimable for the period was £0.5 million (2022: £1.4
million). The reduction in the balance claimable in the current year is due to
a reduction in the overall spend and the ineligibility of some of the R&D
expenditure claimed on the Innovate UK grant to also be claimed for R&D
tax credits.
Provision of obsolete and slow-moving stock
Pharmaceutical products are sold with a defined date of expiry. Management
carefully considers if inventory can be sold before that expiry date and with
an appropriate remaining shelf life to meet the needs of the customer and end
patient. Inventory is managed by reviewing both historic sales data and future
sales forecasts in relation to current stock levels to identify any
requirement.
Accruals for sales rebates due to wholesalers
Pharmaceutical product sales are recognised net of any sales rebates that are
due to wholesalers. As the rebates only crystalise at the point that the
wholesaler sells the inventory, management estimates the level of rebate that
will be incurred when the sale to the wholesaler is recognised. Wholesalers
provide detailed information regarding the level of rebates due on each
product. This is used to estimate the level of rebates that can be expected in
the future for each product. Management also have access to the wholesalers
inventory reporting which is used to confirm the level of inventory on which
the rebate is yet to crystalise.
Valuation of intangibles at the balance sheet date
The valuation of the intangibles principally reflects the license and
distribution agreement for Ogluo in the UK and Europe less any deduction
required following any annual impairment review. The in-use value of the
intangible assets associated with the cash generating unit are compared to the
carrying value of the assets within the unit at the reporting date to
determine if any indicators for impairment are evident. This assessment is
performed annually using the most recent forecasts available at the time.
External consultants with appropriate expertise are engaged where required to
provide information and calculations outside of the expertise of the business
(for example WACC calculations).
The value of the acquired net assets of Tetris Pharma Ltd together with
consideration paid, resulted in goodwill of £1.5 million. At the balance
sheet date, the intangible asset was not impaired.
6. Revenue and operating segments
The geographic analysis of the Group's revenue is as follows:
31 December 31 December
2023 2022
£000 £000
UK 2,893 1,136
Switzerland 488 240
Germany 332 78
Italy 274 -
Rest of Europe - 30
USA 556 784
India 30 135
4,573 2,403
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision makers. Information
reported includes revenue, expenditure by type and department, cashflows and
EBITDA for the Group.
The Board of Directors has been identified as the chief operating decision
makers and is responsible for allocating resources, assessing the performance
of the operating segment and making strategic decisions. Accordingly, the
Directors consider there to be a single operating segment.
31 December 31 December
2023 2022
£000 £000
Formulation development projects 923 1,352
Milestones and licenses 683 -
Royalties 26 -
Total Revenue recognised from contracts with customers 1,632 1,352
Sales of pharmaceuticals 2,941 1,051
Total revenue 4,573 2,403
For the year ended 31 December 2023, revenue includes £205,879 (2022:
£349,311) included in the contract liability balance at the beginning of the
period.
Pharmaceutical sales are limited to a small number of pre-wholesalers in each
territory who then sell on to a larger number of wholesalers. With respect to
formulation development revenues, four customers each contributed more than
10% of the formulation development revenues respectively £274,248 (30%),
£146,833 (16%), £91,334 (10%) £88,541 (10%) (2022: three customers,
£490,000 (36%), £240,000 (18%) and £135,000 (10%)).
At 31 December, the balance of receivables due from contracts with customers
totalled £0.6 million (2022: £0.3 million). At the reporting date, the
aggregate amount of revenue remaining to be recognised on signed agreements
totalled £0.7 million (2022: £0.5 million) This balance is forecast to be
recognised during 2024 and 2025. Formulation Development projects are split
into discrete phases where customers pay in advance for each phase. The
payment terms are specific to the customer and can extend up to 60 days from
receipt of invoice.
7. Other operating income
31 December 31 December
2023 2022 Restated
£000 £000
Grant Income 1,028 1,132
RDEC Claim 114 118
1,142 1,250
Other operating income of £1.1 million (2022: £1.3 million) was derived from
the final year of the £2.8 million Innovate UK grant awarded in March 2021
and £0.1 million from the Government RDEC (Research and Development
Expenditure Credit) claim. The Group will continue to assess and apply to
future grant funding opportunities.
8. Operating loss
31 December 31 December
2023 2022
£000 £000
Operating loss is stated after charging:
Audit fees (see below) 278 148
Non-audit services 12 10
Audit of grant claims - Other professional services 4 4
Depreciation of property, plant and equipment:
- Owned assets 198 108
- Right of use assets under leases 192 140
Amortisation of intangible assets 106 93
Research and Development costs not disclosed elsewhere in this note 3,539 5,958
Sales, General and Admin costs not disclosed elsewhere in this note 5,354 2,934
Non-recurring expenses - 171
Foreign exchange gains 135 (69)
Directors and employee costs (Note 9) 5,071 4,668
No non-recurring expenses were incurred in the year. Prior year costs were
expenses incurred in the acquisition of Tetris Pharma Ltd.
Auditors' remuneration
31 December 31 December
2023 2022
£000 £000
Audit of the Group and Parent Company accounts 68 67
Audit of the accounts of the Company's subsidiaries by the Group auditors 112 69
Audit fees for the current year 180 136
Additional audit fees for the prior year 98 12
Total audit fees 278 148
Non-audit services 12 10
Total non-audit fees 12 10
9. Remuneration of Directors and employees
The aggregate remuneration of persons (including Executive Directors) employed
by the Group during the period was:
31 December 31 December
2023 2022
£000 £000
3,793 3,574
Wages and salaries
Share-based payments 638 503
Social security 433 417
Pension costs 207 174
5,071 4,668
The average monthly number of persons (including Directors) employed by the
Group during the period was:
31 December 31 December
2023 2022
Number Number
Research, Development and Operations 30 34
Sales, General and Administration 13 10
Executive and Non-Executive Directors 7 7
50 51
Directors' remuneration for Companies Act purposes amounts to:
31 December 31 December
2023 2022
£000 £000
Emoluments and fees for qualifying services 951 917
Company contributions to money purchase pension schemes 39 37
Gains on exercise of share options - 206
990 1,160
Remuneration of the highest paid Director
31 December 31 December
2023 2022
£000 £000
Emoluments and fees for qualifying services 415 400
Company contributions to money purchase pension schemes 23 21
Gains on exercising share options - 51
438 471
Full details of Director's remuneration can be found within the Remuneration
Committee Report on pages 53-57
Remuneration data for the Directors in the current and prior year reflects
total amounts paid for services relating to Arecor Therapeutics plc and its
subsidiaries.
Remuneration of Key Management Personnel including Directors which is included
in staff costs:
31 December 31 December
2023 2022
£000 £000
Short-term employment benefits 1,926 1,824
Post-employment benefits 79 71
Share-based payments 620 489
2,625 2,384
Key Management Personnel consists of the Executive Directors and the
Leadership Team.
Share-based payment charges included charges for non-approved LTIP options.
Under the terms of the option agreements, the option holder will be liable for
any employer's national insurance payments due by the company upon exercise of
the option. These payments due are shown as current and non-current
receivables within Trade and other receivables.
10. Finance income
31 December 31 December
2023 2022
£000 £000
Bank interest received 283 102
Other interest received 1 7
284 109
11. Finance expense
31 December 31 December
2023 2022
£000 £000
Lease interest 15 18
Other interest expenses - 3
15 21
12. Taxation
31 December 31 December
2023 2022
£000 £000
Research & development tax credit receivable (458) (1,325)
Total tax (458) (1,325)
31 December 31 December
2023 2022 Restated
£000 £000
Loss before tax (8,901) (10,424)
Loss on ordinary activities multiplied by standard rate of corporation tax in (2,092) (1,981)
the UK of 23.5% (2022: 19.00%)
Tax effects of:
Expenses not deductible for tax purposes 443 253
Enhanced R&D relief (380) (910)
Surrender of losses at a different rate of tax from R&D tax credits 403 423
Prior period adjustment to R&D 40 -
Unrecognised deferred tax 1,271 1,097
Additional relief on capital expenditure - (20)
Origination and reversal of timing differences (32) (26)
Total tax (credit) (347) (1,164)
At 31 December 2023, the Group has accumulated tax losses of £25,384,567
(2022: £20,164,670). No deferred tax asset was recognised in respect of these
accumulated tax losses due to uncertainty regarding the timing of
recoverability in future years (2022: none). Under UK tax law currently
enacted, the accumulated tax losses are not limited by an expiry date.
The rate of UK Corporation tax increased from 19% to 25% on 6 April 2023.
Existing deferred tax liabilities had been calculated at the rate at which the
relevant balances were expected to be recovered or settled. This rate was 25%
and therefore existing deferred tax liabilities have not had to be remeasured.
There are no future factors at the reporting date that are expected to impact
the Group's future tax charge. The Group is not within the scope of the OECD
Pillar Two model rules.
13. Basic and diluted loss per share
Basic loss per share is calculated by dividing the loss attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year.
The diluted loss per share is considered to be the same as the basic loss per
share. Potential dilutive shares are not treated as dilutive where they would
result in a loss per share.
31 December 31 December
2023 2022
£ £
Loss per share from continuing operations (0.28) (0.32)
The loss and weighted average number of ordinary shares used in the
calculation of basic loss per share are as follows:
31 December 31 December
2023 2022
£000 £000
Loss used in the calculation of total basic and diluted loss per share (8,554) (9,260)
31 December 31 December
2023 2022
Number of shares Number Number
Weighted average number of ordinary shares for the purposes of basic and 30,622,622 28,936,088
diluted loss per share
14. Intangible assets
Patents Licenses Software Total
£000 £000 £000 £000
Cost
At 1 January 2022 150 - - 150
Additions - 1,933 48 1,981
At 31 December 2022 150 1,933 48 2,131
Additions - - - -
At 31 December 2023 150 1,933 48 2,131
Amortisation
At 1 January 2022 120 - - 120
Charge for the year 8 83 2 93
At 31 December 2022 128 83 2 213
Charge for the year 8 89 9 106
At 31 December 2023 136 172 11 319
Net book value
At 31 December 2022 22 1,850 46 1,918
At 31 December 2023 14 1,761 37 1,812
Amortisation is recognised within administrative expenses. Licenses totalling
£1.9 million relate to the sales and distribution of Ogluo. These are
amortised over 16 years in line with the terms of the agreement (14.6 years
remaining).
Patents are amortised over the period of the patent life (1.8 years
remaining). Software is amortised over 5 years (4.1 years remaining), which is
considered to be its useful life.
15. Goodwill and acquisition of subsidiaries
The fair value of the assets acquired and the resulting goodwill arising on
the acquisition of Tetris Pharma Ltd is shown below. The fair value of the
consideration paid for the acquisition was £2,020,351.
Net assets acquired Book value Fair value adjustment Fair value
£000 £000 £000
Ogluo license and distribution agreement, UK and Europe (Intangible asset) - 1,781 1,781
UK Distribution agreements - Other products (intangible asset) 152 152
Property, plant and equipment 232 - 232
Inventory 1,719 - 1,719
Trade and other receivables 738 - 738
Cash at bank 284 - 284
Trade and other payables (3,579) 505 (3,074)
Trade facility (295) - (295)
Historic liabilities - (505) (505)
Deferred tax on intangibles - (496) (496)
Total (901) 1,437 536
Goodwill acquired 1,484
Total Consideration 2,020
Consideration was paid in the form of the issue of 651,726 ordinary shares in
Arecor Therapeutics plc. On the date of the transaction, the market value was
£3.10 per share.
31 December 31 December
2023 2022
£000 £000
Goodwill on the acquisition of Tetris Pharma Ltd 1,484 1,484
1,484 1,484
Historic liabilities were costs incurred prior to the acquisition which were
non-recurring therefore were considered separately to trade and other payables
in the fair value analysis.
Goodwill reflects the share for share consideration of £2million paid at the
date of acquisition.
In accordance with the Sale and Purchase Agreement dated 1st August 2022, the
acquisition of Tetris Pharma Ltd included deferred contingent consideration of
three earn out payments, which may become payable on the first, second and
third anniversary following completion.
The first earn out payment was subject to Tetris Pharma Ltd achieving
mid-single-digit million-pound net sales and a low single-digit million-pound
EBITDA loss in the 12-month period following completion.
Earn out accounts, prepared in accordance with the Sale & Purchase
Agreement, determined that the first earn out target was not achieved and
therefore deferred contingent consideration of £1,000,000 for the first earn
out period was not payable.
The goodwill arising at the date of acquisition has been tested for
impairment. The recoverable amount of goodwill has been calculated based on
their value in use with key assumptions including sales levels and projected
sales growth, the gross margins obtainable for the different products and
territories and assumptions surrounding the discount rates and terminal growth
rates that drive the models. The discount rates have been estimated using
pre-tax Weighted Average Costs of Capital (WACC) that reflect the current
market assessments of the time value of money. The primary reason for
movements in these rates between years is the movement in the underlying
risk-free rate (defined as the UK Government 30-year bond yield). Sales
forecasts and margin expectations are the latest forecasts being used by
Tetris Pharma Ltd that have been approved by the Board.
The key assumptions for the cash generating unit are as follows:
Key assumption 31 December 2023 31 December 2022
Pre-tax WACC 13% 16.7%
Terminal Growth 2% 2%
Revenue Growth 34% 51%
Average Gross Margin 27% 25%
When preparing the forecasts management have considered the levels of growth
in sales of Ogluo as the key driver towards profitability. When consolidating
the expectations for the different sales regions the overall levels of growth
from 2024 to 2028 are 48%, 135%, 32%, 21% and 11% respectively. When
considering the corresponding sales, the value in use of the CGU exceeds the
value of the assets by £1.4 million (41%) (2022: £0.9 million, 25%).
Management have reviewed the sensitivities of the impairment looking at the
overall sales expectations and the level of growth expected between years, in
particular the rate of growth in 2025 where a significant increase is
expected, and the corresponding impact on the subsequent years. In reviewing
these figures, Management considers a reasonably possible downside to these
estimates to be that growth is reduced by a factor of 20% compared to the
current expectations from 2025 to 2028. In reducing the level of sales growth,
the corresponding direct costs were reduced accordingly.
When this sensitivity is applied, the value in use of the CGU would be less
than the carrying value of the asset by £3.5m and would require an
impairment.
Management have evaluated the sensitivities surrounding the forecast sales and
the discount rate applied. The following scenarios would independently need to
occur for the value in use to not exceed the carrying value of the cash
generating unit, which would lead management to consider impairment:
· An increase in discount rate to 15.5% (2022: 18.4%)
· a reduction in forecast Ogluo sales growth and associated direct cost
from 2025 to 2028 of 5.5% in all years (reducing growth in 2025 to 2028 to
128%, 30%, 20% and 10%) (2022: 4.5% reduction in forecast sales)
· a reduction in gross margin for Ogluo of 1.6% points in all years
· a terminal growth rate of -1.7%
16. Property, plant and equipment
Leasehold improvements Right of use assets - Premises Right of use assets - Equipment Other equipment Total
£000 £000 £000 £000 £000
Cost
At 31 December 2021 79 418 252 762 1,511
Additions on acquisition of Tetris Pharma Ltd - 157 - 272 429
Additions 24 96 4 275 399
Disposals - - - (141) (141)
At 31 December 2022 103 671 256 1,168 2,198
Additions 40 274 - 111 408
Disposals - (142) - (97) (222)
At 31 December 2023 143 803 256 1,182 2,384
Depreciation
At 31 December 2021 72 294 178 639 1,183
Additions on acquisition of Tetris Pharma Ltd - 32 - 38 70
Charge for the year 11 98 42 97 248
Disposals - - - (141) (141)
At 31 December 2022 83 424 220 633 1,360
Charge for the year 23 165 27 175 390
Disposals - (108) - (92) (200)
At 31 December 2023 106 481 247 716 1,550
Net book value
At 31 December 2022 20 247 36 535 838
At 31 December 2023 37 322 9 466 834
17. Trade and other receivables
31 December 31 December
Non-current receivables 2023 2022
£000 £000
Amounts receivable from employees 27 -
Other receivables 50 48
77 48
31 December 31 December
Current receivables 2023 2022
£000 £000
Trade receivables 2,268 664
Other receivables 102 273
Amounts receivable from employees 129 -
Accrued income 87 -
Accrued grant income (other operating income) 280 562
Prepayments 323 716
3,189 2,215
Included in prepayments at the reporting date was a balance of £nil (2022:
£0.3 million) relating to advance payments for clinical studies.
Amounts receivable from employees relates to employers NIC on unapproved LTIP
share options that will be reclaimable from the employee upon exercise of the
options.
A credit loss assessment has been performed and management have concluded that
no expected credit losses exist in relation to the Group's receivables at the
reporting dates presented or over the coming 12-month period (2022: £ nil).
18. Cash and cash equivalents
31 December 31 December
2023 2022
£000 £000
Cash at bank (GBP) 4,299 1,603
Cash at bank (USD) 570 1,713
Cash at bank (EUR) 224 1,449
5,093 4,765
19. Short-term investments
31 December 31 December
2023 2022
£000 £000
Short-term investments held in notice accounts 1,659 6,041
Short-term investments held in fixed term accounts - 2,000
1,659 8,041
At the reporting date all significant cash and cash equivalents were deposited
in the UK with large international banks.
20. Inventory
31 December 31 December
2023 2022
£000 £000
Finished goods or goods for re-sale 479 412
Goods for packaging and packaging materials 258 651
Bulk pharmaceutical materials 34 68
771 1,131
Finished goods, goods for re-sale and goods for packaging relate to
pharmaceutical products sold by Tetris Pharma Ltd. A reduction in the
inventory levels of goods for packaging included a write down of products with
a limited shelf-life to the net realisable value.
During the year £1,954,407 of inventory was recognised as an expense (2022:
£685,568). In addition, £737,010 (2022: £529,430) was recognised as an
expense in relation to writing down inventory to its net realisable value. A
total of £193,033 of inventory write downs from the prior year were reversed
in the year to 31 December 2023 (2022: £50,700).
The reduction in bulk pharmaceutical materials was due to the consumption of
clinical grade material in clinical studies in the year.
21. Trade and other payables
31 December 31 December
2023 2022
£000 £000
Trade payables 2,246 1,709
Other tax and social security 100 120
Other creditors 192 217
Contract liabilities 232 206
Accruals 2,133 1,274
4,903 3,526
During the year, Arecor Limited entered into 4 (2022: 2) new formulation
development agreements. At 31 December 2023 amounts paid in advance of £0.2
million (2022: £0.2 million) were reported as contract liabilities. These are
expected to be recognised within the next financial year.
Included within accruals at the reporting date was a balance of £0.3 million
(2022: £0.3 million) relating to clinical study costs. Current and prior year
balances relate to different clinical studies.
22. Leases
Right of use assets
The Group has leasing arrangements with a maximum term of five years (2022:
five years) relating to property, plant and equipment.
When a lease begins, a liability and right of use asset are recognised based
on the present value of future lease payments.
Net book value of leased assets held as fixed assets
Leasehold Property Equipment Total
£000 £000 £000
NBV at 1 January 2023 247 36 283
Additions 274 - 274
Depreciation charge in the year (165) (27) (192)
Disposal of Asset (34) - (34)
NBV at 31 December 2023 322 9 331
Balance at 1 January 2022 124 74 198
Additions: carrying amount on acquisition of Tetris Pharma Ltd 125 - 125
Additions 96 4 100
Depreciation charge in the year (98) (42) (140)
Disposal of Asset - - -
Balance at 31 December 2022 247 36 283
Outstanding lease liabilities
Leasehold Property Equipment Total
£000 £000 £000
Balance at 1 January 2023 251 37 288
Additions 272 - 272
Interest applied 13 2 15
Payments in the year (186) (29) (215)
Disposal (22) - (22)
Balance at 31 December 2023 328 10 338
Repayments:
Within 1 year 131 9 140
2-5 years (inclusive) 234 1 235
Less:
Future finance charges (37) - (37)
Present lease obligations 328 10 338
In the statement of financial position:
Due within 12 months (current) 109 9 118
Due in more than 12 months (non-current) 219 1 220
At 31 December 2023 328 10 338
Leasehold Property Equipment Total
£000 £000 £000
Balance at 1 January 2022 157 74 231
Additions on acquisition of Tetris Pharma 122 - 122
Other additions 96 4 100
Interest applied 16 6 22
Payments in the year (140) (47) (187)
Disposal - - -
Balance at 31 December 2022 251 37 288
Repayments:
Within 1 year 188 30 218
2-5 years (inclusive) 84 10 94
Less:
Future finance charges (21) (3) (24)
Present lease obligations 251 37 288
In the statement of financial position:
Due within 12 months (current) 175 27 202
Due in more than 12 months (non-current) 76 10 86
At 31 December 2022 251 38 288
23. Provisions
NIC Liability Provision Total Provisions
£000 £000
Balance at 1 January 2023 - -
Provision created in the year 157 157
Use of provision - -
Release of provision - -
Balance at 31 December 2023 157 157
Balance expected to be utilised within 12 months (current) 129 129
Balance expected to be utilised in more than 12 months (non-current) 28 28
The NIC liability provision relates to amounts that will become due to HMRC
upon exercise of unapproved LTIP share options granted to Key Management and
Directors. This liability is offset by a corresponding asset as this cost will
be paid by the share option holders upon exercise of the options. No
provisions were in place for the year ended 31 December 2022.
24. Financial instruments
Classification of financial instruments
The fair value hierarchy groups financial assets and liabilities into three
levels based on the significance of inputs used in measuring the fair value of
the financial assets and liabilities. The fair value hierarchy has the
following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The level within which the financial asset or liability is classified is
determined based on the lowest level of significant input to the fair value
measurement.
The tables below set out the Group's accounting classification of each class
of its financial assets and liabilities.
31 December 31 December
Financial assets at amortised cost 2023 2022
£000 £000
Trade receivables 2,268 664
Other receivables 102 228
Accrued income 87 562
Accrued grant income 280 -
Cash, cash equivalents and short-term investments 6,752 12,806
9,489 14,257
All of the above carrying values are approximate to the fair values at the
reporting date.
31 December 31 December
Financial liabilities at amortised cost 2023 2022
£000 £000
Trade payables 2,246 1,709
Lease liabilities 338 283
Accruals 2,133 1,503
4,717 3,495
In the view of management, all of the above financial liabilities' carrying
values approximate to their fair values as at all reporting dates presented.
Fair value measurements
This note provides information about how the Group determines fair values of
various financial assets and financial liabilities.
Fair value of financial assets and financial liabilities that are not measured
at fair value on a recurring basis
The Directors consider that the carrying amounts of financial assets and
financial liabilities recognised in the historical financial information
approximate their fair values (due to their nature and short times to
maturity).
Fair value of financial liabilities that are measured at fair value on a
recurring basis
The fair value of derivative financial instruments has been estimated using a
valuation technique based on the expected timing of when the debt will convert
into shares. The resulting value is then discounted to take account of the
time value of money, with government bond yields used to establish an
appropriate discount factor. There have been no changes in the methods or
assumptions applied between initial recognition of the instrument and the
year-end reporting. There were no derivative assets or liabilities at the
year-end (2022: none).
Financial instrument risk exposure and management
The Group's operations expose it to degrees of financial risk that include
liquidity risk, credit risk, interest rate risk.
Credit risk
The Group's credit risk, being the risk that the other party defaults on their
contractual obligation, is primarily attributable to its cash balances and
receivables.
The credit risk on liquid funds is limited because the third parties are large
international banks with a credit rating of at least A.
The Group's maximum credit risk amounts to the total of trade and other
receivables, cash and cash equivalents. Credit risk relating to trade
receivables is considered to be very low because most contracts are billed in
advance of each project stage so work could be suspended by the Group in the
event of delayed payment. This provides a natural mitigation of credit risk.
Receivables status is monitored on a regular basis to identify balances
extending beyond their due dates. Action is then taken to determine if the
credit risk is perceived to have changed.
Credit default is defined as a failure by a customer to meet their contractual
obligations to make payment on an outstanding liability without undue reason
or prior agreement or confirmed intention not to make payment on an invoice in
breach of the contract.
Due to the nature of the contracts, there is a regular ongoing dialogue
between the Group and its customers. These customers are spread across a range
of geographic locations.
The Group has no major concentration of credit risk other than with its own
subsidiaries. The performance of these subsidiaries is closely monitored by
the Directors. The Directors confirm that the carrying amounts of balances
owed by the subsidiaries is equal to their fair value.
Interest rate risk
The Group's interest rate risk is the interest received on the funds held on
deposit.
Treasury is managed for the Group using a combination e of instant access,
notice accounts and fixed term deposits. The objective is to mitigate risk
whilst ensuring sufficient resources are available to fund group operations.
At the balance sheet date, the Group did not have any borrowings (2022: none).
Foreign exchange risk
The Group's transactions are carried out substantially in Great British pound
sterling. The Group holds non-domestic cash balances to cover committed costs.
The level of risk from foreign exchange exposure is regularly reviewed and the
Directors take action to manage significant risks.
Liquidity risk
In managing liquidity risk, the main objective of the Group is to ensure that
it has the ability to pay all of its liabilities as they fall due. The Group's
activities are funded by equity investment, grant income and revenue.
The table below shows the undiscounted cash flows on the Group's financial
liabilities as at 31 December 2023 and 2022 on the basis of their earliest
possible contractual maturity.
Total Within 2 Within Within Within Within
months 2 to 6 6 - 12 1 to 2 2 to 5
months months years years
£000 £000 £000 £000 £000 £000
At 31 December 2023
Trade payables 2,246 2,246
Other payables 192 192
Lease liabilities 374 28 46 64 124 112
Accruals 2,101 905 1,191 5
4,913 3,371 1,237 64 124 117
Total Within 2 Within Within Within Within
months 2 to 6 6 - 12 1 to 2 2 to 5
months months years years
£000 £000 £000 £000 £000 £000
At 31 December 2022
Trade payables 1,709 1,709 - - - -
Other payables 217 217 - - - -
Lease liabilities 314 23 102 93 45 51
Accruals 1,503 1,115 388 - - -
3,743 3,064 490 93 45 51
Capital management
The Group's capital management objectives are:
· To ensure the Group's ability to continue as a going concern
· To provide long-term returns to shareholders
The Group defines and monitors capital on the basis of the carrying amount of
equity less cash and cash equivalents as presented on the face of the balance
sheet and as follows:
31 December 31 December
2023 2022
£000 £000
Equity 9,527 17,455
Cash, cash equivalents and short-term investments (6,752) (12,806)
Net capital 2,775 4,649
The Board of Directors monitors the level of capital compared to the Group's
commitments and adjusts the level of capital which is determined to be
necessary by issuing new shares. The Group is not subject to any externally
imposed capital requirements.
These policies have not changed in the current or prior year. The Directors
believe that they have been able to meet their objectives in managing the
capital of the Group.
25. Share capital
31 December 31 December
2023 2023
Number Nominal value
£000
Ordinary shares - par value £0.01
Allotted, called up and fully paid
Ordinary shares of £0.01 30,626,986 306
At 31 December 2023 30,626,986 306
31 December 31 December
2022 2022
Number Nominal value
£000
Ordinary shares - par value £0.01
Allotted, called up and fully paid
Ordinary shares of £0.01 30,618,183 306
At 31 December 2022 30,618,183 306
The Company has a single class of Ordinary share that bear no rights to fixed
income.
The following shares were issued in the periods presented:
Share Share
Number Capital Premium
£000 £000
At 1 January 2023 30,618,183 306 28,976
Issue of Ordinary shares of £0.01 on exercise of share options 8,803 - -
At 31 December 2023 30,626,986 306 28,976
Share Share
Number Capital Premium
£000 £000
At 1 January 2022 27,835,024 278 23,348
Issue of Ordinary shares of £0.01 2,000,000 20 5,980
Share issue expense - - (352)
Issue of ordinary shares of £0.01 as consideration for the acquisition of 651,726 7 -
Tetris Pharma Ltd
Issue of Ordinary shares of £0.01 on exercise of share options 131,433 1 -
At 31 December 2022 30,618,183 306 28,976
Share Premium
Proceeds received in addition to the nominal value of any shares issued have
been included in share premium less registration and other regulatory fees and
net of related tax benefits.
Share premium increases in the prior year arose from a placing of £6 million
to provide working capital and an issue of shares as consideration for the
acquisition of Tetris Pharma Ltd. Details of the movements can be found in the
comparative statement of changes in equity.
Share-based payment reserve
The share-based payment reserve represents the accumulated amounts credited to
equity in respect of options to acquire ordinary shares in the Company held by
employees and Directors.
Other reserves
Other reserves reflect the balance of the investment by Arecor Therapeutics
plc in its subsidiaries. On 24 May 2021, Arecor Therapeutics acquired the full
share capital of Arecor Limited by means of a one for one share swap. The
investment in the subsidiary at that time was valued as the net assets of
Arecor Limited on the date of the transaction.
Merger relief reserve
Merger relief reserve represents the merger reserve generated upon the
acquisition of Tetris Pharma Ltd on 4 August 2022.
Foreign exchange reserve
Foreign exchange reserve represents the impact of translating subsidiaries
that use a foreign currency as their reporting currency to GBP for the
purposes of preparing the consolidated financial statements.
26. Share-based payments
Share Options
The Company operates an All-Employee Share Option Plan (AESOP) and grants
share options to eligible employees. A grant of options under the AESOP was
made on 23 May 2023 at an exercise price of £2.55 per share. The options vest
on the third anniversary of the date of grant. As there are no performance
criteria linked to these options, the fair value of the options was calculated
using the Black Scholes mode using the following assumptions:
Grant on 23 May 2023
Exercise price £2.55
Volatility 65%
Expected dividends Nil
Risk free interest rate 4.2%
Fair value per share £1.18
Option life 10 years from date of grant
The risk-free interest rate is taken from the Bank of England UK Government
Gilts yield, discounted over a period of 3 years.
Volatility has been derived by taking data from a pool of six companies
considered to be comparable in size and activity. Volatilities for these
companies were calculated for the previous five years where data was available
to understand the impact of recent global events. This data was used to
estimate the volatility.
The Company's Long Term Incentive Plan (LTIP) is principally used to grant
options to Executive Directors and Senior Management. A grant of options under
the LTIP was made on 23 May 2023 at an exercise price of £0.01 per share. The
LTIP options will vest after three years, subject to meeting defined
performance criteria.
Firstly, 60% of the total option grant vests one third (or 20%) on each
anniversary of the date of grant if the total shareholder return target in
relation to the techMARK mediscience index is achieved. The remaining 40% of
the LTIP grant vests subject to defined commercial objectives being met by the
Group during the three-year option term.
As there are separate performance criteria, the fair value of the options
vesting for each criteria were calculated separately.
To calculate the fair value of the LTIP options which vest based on market
performance, a Monte Carlo simulation model was used. The charge for the
second 40% of LTIP options was calculated using the Black Scholes model with
an adjustment for the likelihood of the conditions being met.
For the LTIP option grants in the year the following assumptions were used:
Grant on 23 May 2023
Share price at date of grant £2.55
Exercise price £0.01
Volatility 65%
Expected dividends nil
Risk free interest rate 4.2% pa
Fair value per share - market performance objectives £1.71
Fair value per share - Commercial objectives £2.54
Option life 10 years from date of grant
The ordinary shares acquired on exercise of the LTIP options are subject to a
holding period of a minimum of one year from the date of vesting.
Number of options
Balance at 1 January 2022 1,414,944
Options vested and exercised (131,433)
AESOP options granted 312,750
LTIP options granted 270,000
Options lapsed (AESOP and LTIP) (238,458)
Balance at 31 December 2022 1,627,803
Options vested and exercised (8,803)
AESOP options granted 86,250
LTIP options granted 190,000
Options lapsed (AESOP and LTIP) (236,917)
Balance at 31 December 2023 1,658,333
Details of the number of share options and the Weighted Average Exercise Price
(WAEP) outstanding during each period presented are as follows:
Directors Staff
31 December 2023 Number of WAEP Number of WAEP
Options £ Options £
Outstanding at the beginning of the year 799,333 0.66 828,470 1.43
Issued - - 276,250 0.80
Exercised - - (8,803) 0.01
Expired - - (236,917) 1.25
Outstanding at the year end 799,333 0.66 859,000 1.29
Number vested and exercisable at 31 December 2023 113,334 121,671
Weighted average remaining contractual life (years) 7.8 8.5
Directors Staff
31 December 2022 Number of WAEP Number of WAEP
Options £ Options £
Outstanding at the beginning of the year 682,666 0.57 732,278 1.19
Issued 199,333 0.70 383,417 1.64
Exercised (82,666) 0.01 (48,767) 0.01
Expired - - (238,458) 1.32
Outstanding at the year end 799,333 0.66 828,470 1.43
Number vested and exercisable at 31 December 2022 56,666 2.26 76,237 2.42
Weighted average remaining contractual life (years) 8.8 9.12
The Group recognised total share-based expenses of £0.6 million (2022: £0.5
million).
27. Related party transactions
Key management personnel are identified as the members of the Leadership Team.
The remuneration of the Directors is disclosed in Note 9.
28. Financial commitments
In August 2022, the Group signed agreements with The Medical University of
Graz and Joanneum Research Forschungsgesellschaft GmbH, both based in Graz,
Austria to provide specialised clinical research services relating to a
European based clinical study of AT278, which started in early 2023. The study
was subsequently extended in November 2023. The total financial commitment to
this ongoing study that is yet to be billed to Arecor Limited is €0.4
million.
29. Dividends
No dividends were paid or approved during the year (2022: £nil).
30. Ultimate controlling party
The Directors do not consider there to be an ultimate controlling party.
31. Post balance sheet events
On 23(rd) April 2024 it was announced that Susan Lowther had decided to step
down from her role as Chief Financial Officer, Company Secretary and as a
Board Director, to pursue new opportunities. Her employment will end on 22
July 2024.
Share options granted to Susan on 3 June 2021, in accordance with the
Long-Term Incentive Plan (LTIP), could vest and become exercisable before the
employment end date, if the Board determines that the performance condition
has been met at the end of the three-year term in June 2024.
Options granted on 5 December 2022 will lapse at the employment end date, in
accordance with the LTIP rules. From the date of grant up until 31 December
2023, share based payment costs of £45,420 were recognised in the income
statement. These costs will be released in the year ending 31 December 2024.
AESOP options granted on 3 June 2021 fully vest at the end of the three-year
term in June 2024. Susan will be considered a Good Leaver in accordance with
the scheme rules and will have six months from the employment end date to
exercise the option grant. The options will lapse if an exercise does not
occur within the six months period.
AESOP options granted on 16 November 2022 will lapse at the employment end
date, in accordance with the scheme rules. From the date of grant up until 31
December 2023, share based payment costs of £8,556 were recognised in the
income statement. These costs will be released in the year ending 31 December
2024.
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