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REG - Arecor Therapeutics - FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

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RNS Number : 1310J  Arecor Therapeutics PLC  25 April 2022

Arecor Therapeutics plc

("Arecor", the "Company" or the "Group")

 

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

 

Positive Phase I clinical trial for AT278 ultra-concentrated ultra-rapid
acting insulin candidate for diabetes

 

Five new technology partnership agreements

 

Expansion of IP portfolio underpinning proprietary Arestat™ platform

 

Successful £20 million AIM IPO

 

Cambridge, UK, 25 April 2022: Arecor Therapeutics plc (AIM: AREC), a globally
focused biopharmaceutical company advancing today's therapies to enable
healthier lives, today announces its final results for the year ended 31
December 2021.

 

Sarah Howell, Chief Executive Officer of Arecor, said: "After a year of
significant progress in 2021, we are well positioned to continue to execute
our strategy in 2022 and beyond as we develop enhanced therapeutic products
that can truly transform patient care.  As we look forward, I am excited
about the opportunities ahead in 2022, especially within our proprietary
pipeline with additional clinical data for AT247 expected later in the year
following the excellent clinical results for the AT278 first-in-man study.
We have a strong pipeline of opportunities ahead within our Specialty Hospital
portfolio and I look forward to us continuing to build on our strong
partnering performance."

 

Operational Highlights (including post-period events):

 

·   AT247, an ultra-rapid acting insulin, advancing rapidly through
clinical trials

-      US Phase I clinical trial initiated in early 2022, following FDA
clearance of IND application

·   Positive Phase I clinical trial for AT278, an ultra-concentrated
ultra-rapid acting insulin

-      Significantly early accelerated PK/PD profile compared to market
leading comparator, NovoRapid®

-      Data to be presented at ATTD on 28 April 2022

·   Five new technology partnership agreements

·   Awarded £2.8 million Innovate UK grant to support Phase II development
of AT247

·   Expansion of global patent portfolio with grant of US, Canadian and
European patents underpinning the Arestat™ platform

 

Financial Highlights:

 

·   Successful IPO on AIM, raising £20 million

·   Total Income of £1.8 million (2020: £2.1 million)

·   Investment in R&D of £5.4 million (2020: £3.9 million)

·   Loss after tax for the period of £6.2 million (2020: £2.8 million)

·   Cash and cash equivalents of £18.3 million at 31 December 2021 (2020:
£2.9 million)

·   Debt free following the conversion of £4.4 million shareholder loan
notes into new ordinary shares

 

Analyst meeting and webcast today

 

Dr Sarah Howell, Chief Executive Officer, and Susan Lowther, Chief Financial
Officer, will host a meeting and webcast for analysts and investors at 11.00
am UK time today. Join the webcast here
(https://www.lsegissuerservices.com/spark/ARECORTHERAPEUTICS/events/2ebd509b-0646-46c2-bce0-e5ce9d444590)
. A copy of the final results presentation will be released later this morning
on the Company website at www.arecor.com. Please contact Consilium Strategic
Communications for details on arecor@consilium-comms.com / +44 203709 5700.

 

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)

 Mo Noonan, Communications                       Tel: +44 (0) 7876 444977

                                                 Email: mo.noonan@arecor.com (mailto:mo.noonan@arecor.com)

 Panmure Gordon (UK) Limited (NOMAD and Broker)
 Freddy Crossley, Emma Earl (Corporate Finance)  Tel: +44 (0) 20 7886 2500

 Rupert Dearden (Corporate Broking)

 Consilium Strategic Communications
 Chris Gardner, David Daley, Angela Gray         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 formulation 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 enhanced formulations of their 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

 

Innovation, partnerships and pace

 

"2021 set the foundations for a strong future for Arecor, through the
advancement of our innovative pipeline, expansion of our blue-chip partner
portfolio, our successful IPO, and the accelerated growth of the business as a
whole."

 

Arecor has the potential to become a world leading and self-sustaining
biopharmaceutical company, leveraging its cutting-edge technology to develop
enhanced versions of existing therapeutic products that can transform patient
care and lower burden on healthcare systems. For ambitious, innovative
businesses to flourish in the biopharmaceutical sector, it is important that
they build on outstanding technology, robust IP and have the scientific and
commercial skills both to deliver clinical success and to access global
markets. That mix of assets and capabilities, when applied strategically by a
talented management team offers the potential for both business success and
positive patient impact.  These are the solid foundations upon which Arecor
is built and give us strong confidence in the future potential of the
business.

 

Arecor benefits from its unique and proprietary technology platform: the
Arestat™ platform, which has been developed over many years to make it
broadly applicable to a whole range of biopharmaceutical problems. This leads
to multiple opportunities and the choice of where such platforms are optimally
applied is a key element of success for the business and a source of long-term
value. We have chosen to apply this platform to complex and difficult to
formulate biomolecules, working with partners where our technology can enable
and enhance their molecules. Alongside this, we also select and invest in our
own products that are enabled by the technology platform and where the
resulting proprietary product is clinically and commercially differentiated.

 

By applying Arestat™ to known therapeutic biomolecules we are maximising the
impact from our technology, accelerating a valuable clinical pipeline in a
cost-effective manner to deliver products that will provide patients with more
effective treatments to improve their quality of life. Our own pipeline of
diabetes products and 'ready to use' hospital products arise directly from
this approach. This year, these have received validation through both
exceptional clinical data and partnership progress.

 

The global pandemic, whilst devastating the way of life as we had known it,
has shone a light on the need for quicker-to-market medications and has shown
that innovation in healthcare can be applied at pace.  British scientists
have stepped up to the mark and delivered vaccines, treatments and diagnostics
at a speed that has not been seen before.  This appreciation of the strengths
of the UK biopharmaceutical sector has spread beyond COVID and provides
companies such as Arecor with a platform to demonstrate our capabilities, our
commercial ambitions and importantly, what we are doing to improve the lives
of patients.

 

At Arecor, we have made great strides during 2021.  We started the year
strongly on the back of successful clinical data from our first clinical
trials of our lead product, AT247, an ultra-rapid insulin.  We followed with
rapid advancement of our portfolio of proprietary products and through the
expansion of our partner portfolio with agreements with leading
pharmaceutical, medical technology and biotechnology companies such as Lilly,
Hikma and Intas.  With momentum gaining, we successfully floated Arecor on
the AIM market of the London Stock Exchange, raising £20 million, providing a
stable funding background to exploit the full potential of our platform. We
closed the year with our second insulin product, AT278, successfully
completing its first clinical trials with results at the highest end of our
expectations along with commercial progress with additional partner
agreements.

 

None of the progress during 2021 would have been achieved without the
commitment, dedication, and talent of the team at Arecor, led by Sarah Howell,
our CEO and Susan Lowther, our CFO. We owe thanks to all the team and to our
diligent and dedicated Board, including new members, Christine Soden and
Jeremy Morgan. Together they have guided the Company through a transformative
year from a little known yet shining example of British innovation at its
best, to an AIM listed, clinical development company with a clear mandate and
vision to develop affordable healthcare for all.

 

We have substantive plans for Arecor based on our strong foundations.  We are
at an exciting juncture in the growth of our business.  We know that our
Arestat™ platform has huge potential to bring enhanced treatments that
improve patient lives to market at a much quicker pace than traditional
methods. We thank you, our shareholders, for enabling us to maintain this
accelerated pace of growth, by continuing to support us, and believing in us.
Investment is the backbone to growth. We understand that many investors are
looking for ethical, sustainable growth in businesses with a strong management
team and a destiny compatible with their own ethos for positive impact. Arecor
is built on these core values. We are ambitious. But that ambition is backed
by talent, technology and know-how and we believe that with the right support
in place, we can maintain our trajectory through the advancement and expansion
of new and exciting opportunities across our proprietary and partnered
portfolios. That will allow us to grow into the great biopharmaceutical
company that Arecor can be and to generate substantial shareholder value.

 

 

 

 

Andrew Richards

Non-Executive Chair

23 April 2022

 

 

Chief Executive Officer's review

 

Building on strong foundations to deliver a transformational year

 

"I would like to thank our Board, our partners and stakeholders, who
collectively help and support us in achieving our vision.  Most importantly,
I would like to thank the fantastic team at Arecor for their skill, hard work,
resilience and commitment to Arecor and to congratulate them on the scientific
progress and partnering progress achieved during this pivotal year."

 

2021 has been a transformational year for Arecor where we have taken the
opportunities to drive the business forward and overcome challenges.  I am
proud of how adaptive and resilient our employees have been in the face of a
global pandemic.  It is through their continued engagement, energy and
expertise that we have been able to continue to make significant progress
towards our vision to leverage the Arestat(TM) technology platform to
transform patient care, and in doing so, build a large self-sustaining
biopharmaceutical company.

 

Underpinning our vision is our strategy to advance our pipeline of internal
proprietary products and partnered programmes.  Enabled by Arestat(TM), we
develop novel formulations of existing therapeutic medicines with enhanced
properties that would otherwise be unachievable; these can range from better
shelf-life through greater patient convenience to superior therapeutic
profiles.  The technology itself is very versatile and can be applied to a
wide range of therapeutic products, notably antibodies, biologics, peptides
and vaccines.

 

This approach enables Arecor and its partners to develop differentiated
patent-protected medicines achieving a desired therapeutic profile which bring
benefits to patients as well as generating commercial competitive advantage.

 

In combination, by licensing across our proprietary portfolio and technology
partnerships, we can fulfil our purpose of bringing life-changing treatments
to patients, while driving further shareholder value.

 

2021 saw further development of our proprietary products pipeline within the
diabetes and specialty hospital space.  Our focus is to develop our
proprietary pipeline products to optimal value inflexion points prior to
partnering with healthcare companies for late phase development and/or
commercialisation.

 

Within our diabetes franchise, we have made significant clinical progress
across our lead best-in-class insulin products.  These have been designed to
help people with diabetes better manage their blood glucose and improve
outcomes, reduce the burden of existing regimens and improve quality of
life.  With ~537 million people living with diabetes worldwide and ~56
million requiring insulin daily, improving insulins has never been more
critical.  Our best-in-class insulins also represent a significant commercial
opportunity for Arecor within an existing $7.3 billion prandial insulin
market.

 

In addition, we are building a pipeline of valuable product opportunities
within our specialty hospital care portfolio, which have the potential to
enable fast-acting, safe and effective treatment of patients, particularly
during the treatment of serious infections, cancer and emergency care.  We
have previously partnered two of our specialty hospital products with Hikma
under co-development and licensing agreements and these programmes have
continued to progress well throughout the year.

 

We continue to execute our partnering strategy, with advancements across our
four existing licensed programmes and adding an additional five pre-license
technology partnerships during the year with leading pharmaceutical companies
including Eli Lilly, Par Pharmaceuticals and Intas Pharmaceuticals.  These
partnerships validate the strength of, and the need for our Arestat(TM)
technology and bring near term revenue and significant upside potential from
existing and future licensing.

 

Building the right team has been critical to the success we have seen in 2021.
We continue to bring new skills and capabilities to our already diverse
Board.  In May, we welcomed Christine Soden and Jeremy Morgan as
Non-Executive Directors, who bring extensive financial and industry expertise
having held key leadership and board roles within the sector.  Together,
their understanding of the global healthcare industry will be invaluable as we
continue to grow Arecor. We would also like to take this opportunity to say
thank you to Andrew Lane, Jeremy Curnock-Cook and Alexander Crawford, who
stepped down from the Board, for their excellent guidance and leadership
during their tenure.  During the year, we have also continued to build out
the Arecor team enabling continued momentum and growth and we were delighted
to welcome Dr Lindsey Foulkes as Chief Operating Officer.

 

Finally, the £20 million proceeds from our oversubscribed AIM IPO June 2021
has significantly strengthened our balance sheet, with a cash balance at year
end of £18.3m.  On the back of this funding, we have been able to further
advance our proprietary pipeline, in particular our clinical stage diabetes
products.  We have continued to see real momentum in shareholder value since
the successful IPO as our scientific and commercial partnering progress has
been recognised and we would like to thank our investors for their continued
support.

 

Operational review

 

Diabetes: Clinical Progress with faster acting and more concentrated insulins,
AT247 and AT278

 

Our lead product, AT247, is an Arestat(TM) enabled novel formulation of
insulin designed to accelerate the absorption of insulin post injection, to
enable more effective management of blood glucose levels for people living
with diabetes, particularly around difficult to manage meal-times.  In a
first-in-man European Phase I clinical trial in Type I diabetic patients,
AT247 demonstrated favourable results with a faster acting and superior
glucose lowering pharmacokinetic/pharmacodynamic (PK/PD) profile when compared
to currently marketed best-in-class insulin products, Novo Nordisk's
NovoRapid® and Fiasp®.  This early clinical evidence suggests that AT247
may also facilitate a fully closed loop artificial pancreas, a potentially
life changing treatment option for people living with diabetes.  AT247
exhibited an earlier insulin appearance, exposure, and offset, with
corresponding enhanced early glucose-lowering effect compared with currently
marketed best-in-class insulins. Following on from this positive first-in-man
study, in 2021 Arecor initiated a US based Phase I clinical trial in patients
with Type I diabetes to further explore the clinical benefits of AT247. The
trial is comparing AT247 with NovoRapid® and Fiasp®, when delivered by
continuous subcutaneous infusion via an insulin pump over a period of 3 days,
with results expected during H2 2022.

 

Within the year we also announced positive headline results from the first
Phase I clinical trial of our second diabetes franchise product, AT278, an
ultra-concentrated ultra-rapid acting insulin.  AT278 has the potential to
disrupt the market for insulin treatment in people with diabetes, as the first
concentrated, yet rapid acting, insulin.  The study had been designed to
achieve PK/PD equivalence with a comparable dose of lower concentration
NovoRapid®, however, also achieved a superior PK/PD profile which was at the
highest end of our expectations.  With this best-in-class profile, AT278, not
only has the potential to provide more convenient and effective disease
management for those patients requiring high daily doses of insulin, generally
Type 2 diabetics, but can also be a key enabler in the miniaturisation of next
generation insulin delivery devices, which would be applicable to all insulin
taking diabetics, thus broadening the market potential.

 

Advancing Specialty Hospital Proprietary Portfolio

 

Arecor is focused on developing convenient, safe, ready-to-administer and
ready-to-use medicines, which are becoming increasingly important to enable
fast, safe and effective treatment of patients.   The portfolio consists of
medicines that are administered within the hospital setting by health care
professionals, particularly during the treatment of serious infections, cancer
and emergency care.  Arecor carefully selects products that have both
limitations for their use and delivery, such as powders that need to undergo a
complex mixing procedure (reconstitution) prior to use as well as products
that can be developed under an abbreviated development pathway, such as the US
FDA 505(b)(2) regulatory pathway.  The 505(b)(2) route relies, in part, on
published literature and other non-Company studies to support a marketing
application and hence presents a relatively fast, low cost and low risk route
to market for Arecor and its partners.  Two of Arecor's specialty hospital
products have been partnered to Hikma Pharmaceuticals under co-development and
licensing agreements.  Co-development of the first of these products, AT282,
is progressing well and we continue to believe in the commercial value of the
product, which has the potential to provide a safer, more convenient and
immediate treatment option for patients. We remain confident in reaching the
next license milestone in this programme within 2022.  In addition, to the
programmes partnered with Hikma, we are continuing to develop an in-house
portfolio of additional specialty pharmaceutical products, to generate the
data required to enter into further partnerships.

 

Expansion of revenue generating partnership deals

 

We have proven expertise in reformulating existing products to develop
proprietary differentiated medicines with enhanced properties.  The approach
and platform are validated by four licensed programmes with attractive
success-based economics including development and commercial milestones plus
royalties or equivalent once on the market: two specialty hospital products
with Hikma and two technology partnerships (a late stage biosimilar with an
undisclosed global player and an early-stage clinical programme with Inhibrx).

 

During the year, we further expanded our partnered portfolio and were
delighted to announce five new technology partnerships.  In each case, we are
applying our Arestat(TM) technology platform to generate novel formulations of
our partner's proprietary medicines with enhanced properties.  These
partnerships further validate the scientific need and commercial upside
potential from the application of the Arestat(TM) technology platform.  These
deals provide near-term revenues and, if successful, significant upside
potential from future licensing.

 

May 2021 - We were delighted to announce that we are collaborating with Lilly
again. In this case under an exclusive formulation study collaboration to
develop a differentiated, thermostable formulation of one of Lilly's
proprietary products intended for self-administration. The thermostable
formulation would allow greater convenience of use of the product by patients,
whilst maintaining its stability and integrity.

 

June 2021 - On the back of our proven expertise and track record developing
Ready-to-Administer ("RTA") and Ready-to-Use ("RTU") products within our
specialty hospital portfolio, we entered an exclusive formulation
collaboration with Par Pharmaceuticals to develop a differentiated, stable,
single dose, RTU formulation of one of Par's products for intravenous
administration. The new product formulation supports safe medication practices
and operational efficiency by eliminating the need for reconstitution.

 

Sept 2021 - We announced a formulation collaboration with a new partner, Intas
Pharmaceuticals, to develop a differentiated stable liquid product formulation
that supports improved usability for the patient compared to current marketed
products, and in particular, facilitates home use outside of a healthcare
environment.

 

Nov 2021 - We signed an exclusive formulation study collaboration with a
leading global medical products company to develop a differentiated, stable,
liquid drug product, for intravenous administration in two concentrations,
that is Ready-to-Administer.   This collaboration further demonstrates the
strength of our proprietary technology platform, Arestat(TM) in RTA medicines,
which are becoming increasingly important to enable fast, safe and effective
treatment of patients.

 

Dec 2021 - We signed an exclusive formulation study collaboration with a
global technology leader to develop an improved, stable, liquid formulation
for use within their molecular testing platform. This collaboration
demonstrates the breadth of applicability of our proprietary technology
platform, Arestat(TM) and expands our reach into new markets.

 

In these partnerships the partner is funding the development work and has the
option to acquire the rights to the new proprietary formulation and associated
Intellectual Property under a technology licensing model, allowing our
partners to further develop and commercialise the product.

 

Operating responsibly

 

As a biopharmaceutical company operating in the healthcare industry, it comes
with important responsibilities.  For us this means ensuring that we
integrate Environmental, Social and Governance (ESG) factors into our
operating methods, third party partner choices and indeed, the very culture of
Arecor.  We already have a diverse, inclusive and open culture within Arecor,
and believe that incorporating awareness of ESG into our daily activities will
enable ethical decision making which in turn will make us a stronger, better
company.  As a forward-looking business, we are committed to becoming an
ethical, sustainable business.

 

Outlook

 

After a year of significant progress in 2021, we are well positioned to
continue to execute our strategy in 2022 and beyond as we develop enhanced
therapeutic products that can truly transform patient care.  As we look
forward, I am excited about the opportunities ahead in 2022, especially within
our proprietary pipeline with additional clinical data for AT247 expected
later in the year following the excellent clinical results for the AT278
first-in-man study.  We have a strong pipeline of opportunities ahead within
our Specialty Hospital portfolio and I look forward to us continuing to build
on our strong partnering performance.

 

Through our innovative and proprietary technology platform, Arestat(TM), we
have the prospect of improving the lives of people living with chronic disease
and reducing the burden on health care systems.  I am looking forward to
continuing to lead and guide Arecor through its next period of growth and
ultimately towards building a self-sustaining biopharmaceutical business
bringing innovative therapeutic products to market that can truly improve care
for patients.

 

 

 

Sarah Howell

Chief Executive Officer

23 April 2022

 

Financial Review

 

IPO facilitates the advancement of our development portfolio with existing and
near-term revenue potential

 

"£20 million of new investment to advance our proprietary products, together
with five technology partnership agreements signed in the year, has provided a
strong foundation for growth. 2021 was a year of further progress and change
including our successful Admission to AIM on 3 June. We are proud to present
our first Annual Report and Accounts as a public company and thank our
shareholders for their continued support."

 

During the year ended 31 December 2021, the support of existing and new
shareholders enabled the Group to raise new investment of £20.0 million
(before expenses), via a placing of 8,849,558 ordinary shares at 226 pence per
ordinary share. Furthermore and prior to the admission to AIM, £4.4 million
of shareholder loan notes were converted into ordinary shares at 203 pence per
ordinary share.

 

At the end of the financial year, the Group was debt free and had a closing
cash balance of £18.3 million (2020: £2.9 million). Cash and costs are
carefully managed and focused on progressing our proprietary products.

 

Cashflow forecasts and going concern

 

The directors regularly review rolling 12 monthly cash flow forecasts. These
forecasts indicate that the Group expects to remain cash positive to complete
the planned clinical development studies for AT247 and AT278. This includes a
period of at least 12 months from the date of approval of these financial
statements.

 

Due to the uncertainty created by Covid-19, the cash flow forecast has been
stress tested. As a worst-case scenario, if all payments continued as forecast
and there were nil receipts, the Group would remain cash positive for the full
twelve months from the date of approval of these financial statements.

 

The accounts have therefore been prepared on a going concern basis.

 

Key financials

 

A summary of the financial KPIs is set out below:

 

                                                           2021     2020
                                                           £'000s   £'000s
 Total Income                                              1,798    2,150
 Revenue recognised from formulation development projects  1,158    778
 License or milestone revenue                              -        920
 Other operating income                                    640      452
 Loss after tax                                            (6,169)  (2,752)
 Net Assets                                                18,549   774

 

Revenue recognised from formulation development projects increased to £1.2m
in the financial year (2020: £0.8 million) and included revenue from five new
agreements signed in the year.

 

License or milestone revenue was nil in the year ended 31 December 2021 with
revenue in the prior year of £0.9m including the recognition of contractual
milestone and license fees. This reflects the periodic nature of such revenue
which is recognised in the financial year within which a license is granted or
a milestone achieved.

 

Total Income of £1.8 million (2020: £2.1 million) was derived from revenue
generating and grant funded projects.

 

Other operating income of £0.6 million (2020: £0.5 million) was derived from
the £2.8 million Innovate BioMedical Catalyst grant which was awarded in
March 2021, to support the Phase II development of AT247. The prior year grant
income reflected two Innovate grant funded projects which ended during that
year.

 

The loss after tax of £6.2 million (2020: £2.8 million) included R&D
expenditure which increased to £5.4 million (2020: £3.9 million) and was
focused on progressing our proprietary products. R&D expenditure in the
year included the Phase I clinical trial for AT278, with positive results
announced in September, together with expenditure related to the US Phase I
clinical trial of AT247, which commenced in January 2022.

 

Selling, General and Administrative expenses increased to £2.4 million (2020:
£1.6 million) together with non-recurring placing and admission costs of
£0.5m (2020: nil).

 

Net assets of £18.5 million (2020: £0.8 million) included a closing cash
balance of £18.3 million (2020: £2.9 million). Trade and other receivables
increased to £1.4 million (2020: £0.2 million) principally due to amounts
receivable under formulation development and grant project debtors. Current
liabilities increased to £2.3 million (2020: £1.4 million) and included
payables relating to the initiation of the US Phase I clinical trial of AT247.

 

Non-current liabilities of £0.1 million (2020: £2.1 million) were in respect
of a building lease. The prior year liability included shareholder loan notes
which converted into ordinary shares prior to Admission to AIM on 3 June 2021.

 

 

 

Susan Lowther

Chief Financial Officer

23 April 2022

Consolidated income statement

for the year ended 31 December 2021

 

                                               31 December  31 December
                                                2021        2020
                                        Notes  £000         £000

 Revenue                                5      1,158        1,698

 Other operating income                 6      640          452
 Research and development costs         7      (5,386)      (3,936)
 Administrative costs                   7      (2,851)      (1,642)
 Operating loss                                (6,439)      (3,428)

 Finance income                         10     1            3
 Finance expense                        11     (507)        (87)
 Loss before tax                               (6,945)      (3,512)

 Taxation                               12     776          760
 Loss for the financial year                   (6,169)      (2,752)

 Basic and diluted loss per share (£)   13     (0.27)       (0.17)

 

Included in Administrative costs for the current year are £462,000 of
non-recurring expenses relating to the listing of Arecor Therapeutics plc on
the London AIM Market on 3 June 2021 (also see note 8).

 

All results presented above are derived from continuing operations and are
attributable to owners of the company.

 

 

Consolidated statement of financial position

At 31 December 2021

 

                                                                    31 December  31 December

                                                                    2021         2020
                                                             Notes  £000         £000
 Assets
 Non-current assets
 Intangible assets                                           14     30           38
 Property, plant and equipment                               15     328          376
 Other receivables                                           16     48           48
 Total non-current assets                                           406          462

 Current assets
 Trade and other receivables                                 16     1,423        166
 Current tax receivable                                             776          758
 Cash and cash equivalents                                   17     18,316       2,898
 Total current assets                                               20,515       3,822

 Current liabilities
 Trade and other payables                                    18     (2,141)      (1,303)
 Lease liabilities                                           19     (126)        (105)
 Total current liabilities                                          (2,267)      (1,408)

 Non-current liabilities
 Lease liabilities                                           19     (105)        (192)
 Borrowings                                                  20     -            (1,698)
 Derivative financial liability                              20     -            (212)
 Total non-current liabilities                                      (105)        (2,102)

 Net Assets                                                         18,549       774

 Equity attributable to equity holders of the company
 Share capital                                               22     278          27
 Share premium account                                       22     23,348       11,594
 Share-based payments reserve                                       519          1,045
 Other reserves                                              22     11,455       -
 Retained loss                                                      (17,051)     (11,892)
 Total equity attributable to equity holders of the company         18,549       774

 

The financial statements of Arecor Therapeutics plc, registered number
13331147, were approved by the Board of Directors and authorised for issue on
23 April 2022.

 

Signed on behalf of the Board of Directors by:

 

 

 

Sarah Howell

Director

 

Consolidated statement of changes in equity

for the year ended 31 December 2021

 

                                               Share capital  Share premium  Other reserves  Share-based payments reserve  Retained losses  Total equity
                                               £000           £000           £000            £000                          £000             £000
 At 1 January 2020                             27             11,594         -               727                           (9,140)          3,208

 Comprehensive income for the year
 Loss for the year                             -              -              -               -                             (2,752)          (2,752)

 Transactions with owners
 Issue of shares                               -              -                              -                             -                -
 Share-based compensation                      -              -              -               318                           -                318
 Total transactions with owners                -              -              -               318                           -                318

 Equity as at 31 December 2020                 27             11,594         -               1,045                         (11,892)         774

 Loss for the year                             -              -              -               -                             (6,169)          (6,169)

 Transactions with owners
 Shares issued by Arecor Limited               1              -              -               -                             -                1
 Reserve transfer                              -              -              -               (1,010)                       1,010            -
 Share bonus issue                             139            (139)          -               -                             -                -
 Incorporation of Arecor Therapeutics Limited  -              (11,455)       11,455          -                             -                -
 Shares issued by Arecor Therapeutics plc      110            24,785         -               -                             -                24,895
 Share issue expense                           -              (1,437)        -               -                             -                (1,437)
 Share based compensation                      -              -              -               484                           -                484

 Issue of shares on exercise of options        1               -             -                -                            -                1
 Total transactions with owners                251            11,754         11,455          (526)                         1,010            23,944

 Equity as at 31 December 2021                 278            23,348         11,455          519                           (17,051)         18,549

 

 

Consolidated statement of cash flows

for the year ended 31 December 2021

 

                                                                  31 December 2021  31 December 2020

                                                           Notes  £000              £000
 Cash flow from operating activities
 Loss for the financial year before tax                           (6,945)           (3,512)
 Finance income                                            10     (1)               (3)
 Finance costs                                             11     507               87
 Share-based payment expense                               23     484               318
 Depreciation                                              15     163               160
 Amortisation                                              14     8                 8
 Foreign exchange movements                                       (5)               43
                                                                  (5,789)           (2,899)
 Changes in working capital
 Decrease / (increase) in trade and other receivables             (1,257)           384
 Increase / (decrease) in trade and other payables                838               363
 Tax received                                                     758               295

 Net cash from operating activities                               (5,450)           (1,857)

 Cash flow from investing activities
 Purchase of property, plant and equipment                 15     (69)              (52)
 Interest received                                                1                 3

 Net cash used in investing activities                            (68)              (49)

 Cash flow from financing activities
 Issue of ordinary shares                                  22     20,002            -
 Share issue costs                                                (1,437)           -
 New loans received                                        20     2,500             1,905
 Transaction costs on loan received                               -                 (65)
 Capital payments on lease liabilities                     19     (112)             (49)
 Interest paid on lease liabilities                        19     (22)              (18)
 Other interest paid                                              -                 -

 Net cash generated from financing activities                     20,931            1,773

 Net increase / (decrease) in cash and cash equivalents           15,413            (133)
 Exchange losses on cash and cash equivalents                     5                 (43)
 Cash and cash equivalents at beginning of financial year         2,898             3,074

 Cash and cash equivalents at end of financial year               18,316            2,898

 

 

 

Notes to the consolidated financial statements

 

1.            General information

 

Arecor Therapeutics plc ("Arecor" or the "Company") is a public limited
company incorporated on 13 April 2021 and 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
Group's activities and operations are carried out by Arecor Limited, the
Company's wholly owned subsidiary whose principal activities are research and
experimental development of biotechnology.

 

On 24 May 2021 Arecor Limited undertook a bonus issue of shares and share
options on the basis of five shares for every one share or share option held.

 

On 24 May 2021 all shareholders and convertible loan note holders in Arecor
Limited and the Company entered into a Share and CLN Exchange Agreement,
pursuant to which the Company acquired the entire issued share capital and
convertible loan notes in Arecor Limited.

 

On 24 May 2021 the Company was re-registered under section 92 of the Companies
Act as a public limited company.

 

On 2 June 2021, pursuant to a Shareholders' resolution passed on 26 May 2021
and class consents: a) the A ordinary shares, A1 ordinary shares and B
ordinary shares were converted into ordinary shares; b) the ordinary shares
were converted into C ordinary shares; and c) the Company renamed the C
ordinary shares into ordinary shares.

 

On 3 June 2021 the Company's shares were admitted to trading on AIM, a market
operated by The London Stock Exchange.

 

2.            Adoption of new and revised standards

 

New and amended accounting standards that are mandatorily effective for the
current year.

The following amended standards and interpretations were also effective during
the year, however, they have not had a significant impact on our consolidated
financial statements:

 

·      Amendments to IFRS 7, IFRS 9, IAS 39, IFRS 4 and IFRS 16 Interest
Rate Benchmark Reform Phase 2

·      Amendment to IFRS 16, 'Leases' - Covid-19 related rent
concessions

 

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.

 

·      Amendments to IAS 16: Property, Plant and Equipment - Proceeds
before Intended Use

·      Amendments to IFRS 3: Business Combinations - Reference to the
Conceptual Framework

·      Amendments to IAS 37: Provisions, Contingent Assets - Onerous
Contracts Cost of Fulfilling a Contract

·      Annual Improvements 2018 / 2020

 

3.            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 2021. 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 2021 was (i) unqualified, and (ii) did not include a
reference of any matters to which the auditor drew attention by way of
emphasis without qualifying their report and (iii) did not contain a statement
under section 498(2) or (3) of the Companies Act 2006.  Those financial
statements are for the first accounting period of Arecor Therapeutics plc.
Statutory accounts for Arecor Limited for the year ended 31 December 2020,
which incorporated an unqualified auditor's report, have been filed with the
Registrar of Companies.

 

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.

 

Predecessor accounting

 

Arecor Therapeutics was incorporated on 13(th) April 2021. On 24(th) May 2021,
the company acquired the entire share holding of Arecor Limited by means of a
share for share exchange and therefore becoming the parent member of the
Group.

 

As the two companies are considered under common control, they fall outside
the scope of IFRS 3 as a business combination. Under such circumstances, in
the absence to an IFRS that specifically applies to a transaction, IAS 8
states that "management shall use its judgement in developing and applying an
accounting policy that results in information that is relevant to the economic
decision making needs of users and is reliable". In making this judgement,
management shall refer to, and consider the applicability of the requirements
of IFRSs dealing with similar and related issues, and definitions, recognition
criteria and measurement concepts for assets, liabilities, income and expenses
in the Conceptual Framework for Financial Reporting. Management may also
consider the most relevant pronouncements of other standard-setting bodies
that use a similar conceptual framework to develop accounting standards, other
accounting literature and accepted industry practices.

 

Under these circumstances and conditions, management has opted to apply the
predecessor accounting methodology.  The general features of this approach
are that:

·      the assets and liabilities of the acquired business are accounted
for at their existing carrying values rather than fair value

·      no goodwill is recorded

·      the difference between the acquirer's cost of investment and the
acquiree's equity is presented as a separate reserve within equity on
consolidation

 

Management has used merger accounting to consolidate the two entities within
the Group. Under merger accounting principles, the assets and liabilities of
the subsidiaries are consolidated at book value in the Group financial
statements. The consolidated reserves of the Group have been adjusted to
reflect the statutory share capital of Arecor Therapeutics plc, with the
difference presented in equity as other reserves.

 

These consolidated financial statements are the first set of audited financial
statements for the Group. The prior period has been presented as the
continuation of Arecor Limited on a consistent basis as if the Group
reorganisation had taken place at the start of the earliest period presented.

 

 Prior period comparatives are that of Arecor Limited as no substantive
economic or financial changes have occurred.

 

Basis of consolidation

The consolidated financial statements incorporate the financial statements of
the Company and the entities controlled by the Company (subsidiaries) at 31
December 2021. The Parent Company was incorporated on 13 April 2021. Arecor
Therapeutics acquired the entire share capital of Arecor Limited on 1 June
2021 by means of a share for share exchange with all shareholders. At this
point it was deemed to have control of the subsidiary.

 

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.

 

Going Concern

The Directors have considered the Company's cashflow forecasts to the period
ending 12 months from the date of authorisation of the financial statements.
They have no grounds for concern regarding the Company's ability to meet its
obligations as they fall due and continue to operate within the existing cash
balance and working capital facilities, thus requiring no additional funding
to maintain liquidity. At the end of the period analysed, the Group will still
hold a portion of the funds raised during the year.

 

In reaching their decision to prepare financial statements on a going concern
basis, the Directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the
foreseeable future. In addition, the cash flow forecast has been stress tested
whereby in a worst-case scenario, if all payments continued as forecast and
there were nil receipts, the Group would remain cash positive for the full
twelve months from the date of approval of these financial statements.
Accordingly, they continue to adopt the going concern basis in preparing the
annual report and accounts.

 

The current COVID-19 pandemic has the potential to materially impact the
ability of the Group to execute its strategy and to negatively impact the
Group's cashflow forecast. At the date of approval of these financial
statements, the Group's operations have not been significantly impacted by the
crisis. The Directors are confident that at this time of economic uncertainty,
the Group has a stable cash position and all necessary actions have been taken
to protect the business from the impact of the COVID-19 pandemic.

 

Revenue

Revenue is measured based on the consideration that the Group expects to be
entitled to in exchange for transferring promised goods and services. There
are two main revenue types: the first arises from the performance of
formulation development studies and the second from granting of licences. The
Group applies IFRS 15 Revenue from contracts with customers.  Revenue is
recognised to the extent that the Group obtains the right to consideration in
exchange for its performance and applies the five-step method to:

 

·      identify contracts with its 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 nature of this type
of work is that it takes places evenly within each phase of each contract.
During main contract phases, the progress of the work is dictated by physical
constraints e.g., required periods of observation which dictate the pace of
work, hence time passed best indicates the stage of completion of a service
performed over time, which is even 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 the contracts,
each of which is negotiated individually with the 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.

 

In general, revenue is billed in advance of performance of work for each phase
of a contract, meaning most arrangements give rise to contract liabilities as
each invoice is raised, and these liabilities are normally fully released
before the next billing point. Dependent on the nature of work involved in the
different phases of a contract, it can, on occasion be the case that phases
overlap.

 

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 and the distinct obligations included in the research element,
as described above.

 

Where licences include variable consideration, typically in the form of
milestone payments, revenue is recognised when a milestone is achieved.

 

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 rather than
licences.

 

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.

 

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 are met for a product:

 

·      The technical feasibility of completing the project (so that an
intangible asset thereby generated will be available for use or sale) can be
demonstrated

·      An intention to complete the project can be demonstrated

·      An ability to use or sell an intangible asset generated by the
project can be demonstrated

·      It is possible to demonstrate how an intangible asset generated
by the project will generate probable future economic benefits for the Company

·      It is possible to demonstrate 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

·      An ability to measure reliably the expenditure attributable to
the project can be demonstrated

 

 

Until all of 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 Company 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 into 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

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.

 

Patents are amortised over their estimated useful life of 18 years.

 

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.

 

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, except for
impairment losses on goodwill, which are not reversed.

 

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  Straight line over term of asset lease
 Other equipment            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.

 

Inventories

Inventories are 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 to
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 Company
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.

 

The Group's financial assets comprise trade receivables, other receivables
(excluding prepayments) and cash and cash equivalents

 

Trade payables

Trade payables are recognised initially at their fair value, net of
transaction costs and subsequently measured at amortised costs less settlement
payments.

 

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 requires an expected
credit loss model to be applied.  The expected credit loss model requires the
Company 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.

 

IFRS 9 requires the Company to recognise a loss allowance for ECL on trade
receivables. In particular, IFRS 9 requires the Company 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 Company 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 buckets 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 only by age in establishing whether or how much 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 Company 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 company at the end of the lease term and when all
payments have been made.

 

Under the current leasing agreement for the premises, there are no specified
renewal options. The lease was last renewed in August 2020 until December
2023.

 

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 Company takes advantage of Research and Development tax incentives offered
by the UK Government. The value of these incentives reclaimable 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.

 

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.

 

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

·      "Retained earnings / losses" represents the accumulated profits
and losses attributable to equity shareholders

 

4.            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 Company that have
the most significant effect on the historical financial information:

 

Impairment of property, plant and equipment

Judgement is applied to determine whether there are indicators of impairment
of the Company's property, plant and equipment. Factors taken into
consideration in reaching such a decision include the economic viability and
expected future financial performance of the asset and where it is a component
of a larger cash-generating unit, the viability and expected future
performance of that unit.

 

Revenue recognition

Management have used the five-step principle laid out under IFRS 15 when
assessing 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.

 

 

As each stage of a project is invoiced in advance, as per the agreed schedule
included in the project agreement, this also gives rise to deferred income. By
following the principles for revenue recognition, the Group is simultaneously
calculating the remaining contract liability. These balances are reviewed and
reconciled monthly to ensure they are aligned to the value of revenue
recognised for that phase of the contract.

 

Treatment of R&D expenditure

When considering whether Research and Development expenditure is eligible to
be capitalised, Management consider the criteria for capitalisation identified
under IAS38 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 that will enable them to be available for sale, the product must
have successfully completed phase III clinical trials and the appropriate
submission must be filed to the regulatory authority for final scientific
regulatory approval. As the Group's furthest progressed clinical candidates
(AT247 and AT278) are still 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. This is reviewed to ensure the spend it within the parameters of the
grant the value of the grant award is unchanged. All grant income received in
the year relates to an Innovate UK grant of £2.8m which was awarded in March
2021. Under the terms of the grant, payments are made quarterly in arrears
following the successful completion of an independent audit of the expenditure
claimed. At 31 December 2021, a balance of £395,596 was included within trade
debtors to reflect an audited and approved claim for the quarter ended 30
November 2021 that was still outstanding. At the reporting date a balance of
£15,988 was posted as accrued income to reflect the income due in relation to
the unaudited costs incurred in December 2021. Based on the successful claims
for the first three quarters of the grant, the Directors are satisfied that
this balance is recoverable.

 

Key sources of estimation uncertainty

Share based payments.

During the year, the Group has granted EMI approved 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. In the same period the Group also
granted non-EMI approved Long-Term Incentive Plan (LTIP) options to the
Leadership Team. As well as the continued employment of the individuals,
specific performance criteria are also required for the options to vest. Due
to the inclusion of these performance conditions, the fair value of the
options was calculated using a Monte Carlo simulation model.

 

To calculate the fair value of the options at the date of grant, a number of
estimates and judgements to establish the necessary inputs are required to be
entered into the model. These include the future volatility of the share
price, the use of an appropriate interest rate and behavioural considerations.
In addition to internal expertise, the Group has also taken external
consultation in preparing these calculations. The estimates and judgements,
along with supporting calculations have been reviewed by the Groups Audit and
risk committee.

 

The option price at date of grant is considered to be the share price at the
close of the previous day of trading. IFRS 2 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. For this to be possible, the share
price of the previous trading day is used so that the value is independently
verifiable by both parties.

 

On 3 June 2021, the company issued share options to a number of employees
which was the first day of trading of shares in Arecor Therapeutics plc.  The
opening price of £2.26 was used to calculate the fair value at the date of
grant, in the absence of a prior day closing share price.

 

R&D tax credits

The company calculates the expected R&D tax credit claimable 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 local tax authority.
The company uses an approach to calculate the balance that is consistent with
prior periods where claims have been successfully received. External experts
are also used to verify the calculations and assist with the submission
process to ensure it is in accordance with tax authority guidance. At 31
December 2021 the expected R&D tax credits claimable for the period was
£775,683 (2020: 758,257).

 

5.            Revenue and operating segments

 

The geographic analysis of the Group's revenue is as follows:

 

                31 December  31 December
                2021         2020
                £000         £000
 UK             71           7
 Europe         76           729
 USA            940          962
 Rest of world  71           -
                1,158        1,698

 

Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision makers. Information
reported includes revenue by project, 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.

 

Due to the size of the Group, there is only one revenue generating activity
and all activities are performed at a single location. Accordingly, the
Directors consider there to be a single operating segment.

 

                                   31 December  31 December
                                   2021         2020
                                   £000         £000
 Formulation development projects  1,014        666
 License agreements                -            920
 Non-Government grants             144          112
 Total revenue                     1,158        1,698

 

For the year ended 31 December 2021, revenue includes £80,000 (2020:
£240,000) included in the contract liability balance at the beginning of the
period. These balances arise because most customers pay at the beginning of
each work phase so the revenue arising from each payment is recognised as the
work is performed. These advance payments are reported  as a current
liability in the statement of financial position

 

During the year, three customers each contributed more than 10% of the
company's revenues, respectively £328,000 (28%), £260,000 (22%) and
£144,000 (12%) (2020: three customers, £538,000 (31%), £566,000 (33%) and
£347,000 (20%)).

 

6.            Other operating income

 

Other operating income comprises of grant income received from Government
grants. In March 2021, Arecor was awarded a £2.8m grant over three years by
Innovate UK for a project entitled "Transforming Diabetes Care" to enable the
development of a fully closed loop artificial pancreas system for use in
conjunction with the proprietary ultra-rapid acting insulin formulation,
AT247. Grant income is accrued monthly based on eligible costs incurred. Funds
are then received quarterly in arrears following completion of an independent
audit of the costs and submission to the grant authority. At 31 December 2021,
£16k of other operating income related to income that had been accrued and
not received (2020: £nil).

 

 

7.            Operating loss

 

                                                     31 December  31 December
                                                     2021         2020
                                                     £000         £000
 Operating loss is stated after charging:
 Audit fees                                          60           8
 Other audit services                                8            -
 Non-audit fees - other assurance services           40           -
 Depreciation of property, plant and equipment:
 -         Owned assets                              68           79
 -         Right of use assets under leases          95           80
 Amortisation of intangible assets                   8            8
 Research and Development (excl. employee costs)     3,570        2,635
 Sales, General and Admin (excl. employee costs)     395          262
 Non-recurring expenses                              462          -
 Foreign exchange losses/(gains)                     (5)          43
 Directors and employee costs (Note 9)               3,536        2,463

 

Auditors' remuneration

 

                                                                            31 December  31 December
                                                                            2021         2020
                                                                            £000         £000
 Audit of the Group and parent company accounts                             30           -
 Audit of the accounts of the Company's subsidiaries by the Group auditors  30           8
 Total audit fees                                                           60           8

 Audit related services                                                     15           -
 Tax compliance services                                                    8            -
 Tax advisory services                                                      11           -
 Corporate finance services                                                 175          -
 Total non-audit fees                                                       209          -

 

Non audit fees incurred in the year are allocated between other audit services
and non-recurring expenses in the income statement, and share premium for
costs associated with the listing on the London AIM market

 

8.            Non-recurring expenses

 

Non-recurring expenses refers to costs incurred as part of the listing on AIM
in June 2021 that were not eligible for capitalisation to the share premium
reserve. These costs have therefore been expensed to the income statement. Due
to the nature of the costs incurred in becoming a company listed on AIM, they
are considered to be non-recurring.

 

9.            Remuneration of Directors and employees

 

The aggregate remuneration of persons (including management Directors)
employed by the Group during the period was:

 

                       31 December  31 December
                       2021         2020
                       £000         £000
 Wages and salaries    2,663        1,977
 Share based payments  484          277
 Social security       297          152
 Pension costs          92          57
                        3,536       2,463

 

The average monthly number of persons (including Directors) employed by the
Group during the period was:

 

                                        31 December  31 December
                                        2021         2020
                                        Number       Number
 Research, Development and Operations   26           21
 Sales, General Admin staff             4            3
 Executive and Non-Executive Directors  7            7
                                         37          31

 

Directors remuneration for Companies Act purposes amounts to:

 

                                                          31 December  31 December
                                                          2021         2020
                                                          £000         £000
 Remuneration of Directors
 Emoluments and fees for qualifying services              778          456
 Company contributions to money purchase pension schemes  26           14
 Gains on exercise of share options                       614          136
                                                          1,418        606

 

Remuneration of the highest paid Director

 

                                                          31 December  31 December
                                                          2021         2020
                                                          £000         £000
                                                          329          174

 Emoluments and fees for qualifying services
 Company contributions to money purchase pension schemes  14           7
 Gains on exercising share options                        402          136
                                                           745         317

 

Remuneration data for the Directors in the reporting period reflects total
amounts paid for services relating to Arecor Therapeutics plc and to its
subsidiary Arecor Limited.

 

Remuneration of Key Management Personnel including directors which is included
in staff costs:

 

                                 31 December  31 December
                                 2021         2020
                                 £000         £000

 Short term employment benefits  1,531        925
 Post-employment benefits        56           31
 Share based payments            434          244
                                 2,021        1,200

 

Key Management Personnel consists of the directors and the Leadership Team
(the Chief Scientific Officer, Chief Operating Officer, VP Business
Development, VP Development, VP Clinical Development, Regulatory Affairs &
Quality).

 

Prior period figures were services relating to Arecor Limited. Arecor
Therapeutics plc was incorporated on 13 April 2021.

 

 

10.          Finance income

 

                                      31 December  31 December
                                      2021         2020
                                      £000         £000
                                      1            3

 Interest received on bank balances
                                      1            3

 

11.          Finance expense

 

                                                                    31 December  31 December
                                                                    2021         2020
                                                                    £000         £000
 Interest on convertible loan notes                                 -            64
 Fair value movement on derivative                                  -            -
 Transactions costs on embedded derivative                          -            5
 Accelerated Finance costs upon conversion of loan notes to equity  485          -
 Interest expense on lease liabilities                              22           18
                                                                    507          87

 

Included in Finance expense is a charge of £485,000 relating to the
conversion of the convertible loan note instruments into ordinary shares at a
subscription price which was at a discount of 10% to the placing price at
Admission.

 

12.          Taxation

 

                                                   31 December  31 December
                                                   2021         2020
                                                   £000         £000
 Current tax (credit):
 Research & development tax credit receivable      (776)        (760)

 Total tax                                         (776)        (760)

 

                                                                                31 December  31 December
                                                                                2021         2020
                                                                                £000         £000
 Loss before tax                                                                (6,945)      (3,512)
 Loss on ordinary activities multiplied by standard rate of corporation tax in  (1,320)      (667)
 the UK of 19% (2020: 19%)
 Tax effects of:
 Expenses not deductible for tax purposes                                       180          54
 Enhanced R&D relief                                                            (523)        (521)
 Unrecognised deferred tax                                                      887          368
 Origination and reversal of timing differences                                 -            6

 Total tax (credit)                                                             (776)        (760)

 

At 31 December 2021, the Group has accumulated tax losses of £11,361,635
(2020: £6,647,063). No deferred tax asset was recognised in respect of these
accumulated tax losses due to uncertainty regarding the timing of
recoverability in future years. Under UK tax law currently enacted, the
accumulated tax losses are not limited by an expiry date.

 

 

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 / period.

 

Due to the losses incurred during all periods presented, a diluted loss per
share has not been calculated as this would serve to reduce the basic loss per
share.

 

                                            31 December  31 December
                                            2021         2020
                                            £            £
 Loss per share from continuing operations  (0.27)       (0.17)

 

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
                                                                         2021         2020
                                                                         £000         £000
 Loss used in the calculation of total basic and diluted loss per share   (6,169)     (2,752)

 

                                                                           31 December   31 December
                                                                           2021          2020
 Number of shares                                                          Number        Number
 Weighted average number of ordinary shares for the purposes of basic and   23,033,420   16,247,322
 diluted loss per share

 

14.          Intangible assets

 

 GROUP                 Patents
                       £000
 Cost
 At 1 January 2020     150
 Additions             -
 At 31 December 2020   150

 Additions             -

 At 31 December 2021   150

 Amortisation
 At 31 December 20219  104
 Charge for the year   8
 At 31 December 2020   112

 Charge for the year    8
 At 31 December 2021    120

 Net book value
 At 31 December 2020   38

 At 31 December 2021   30

 

Amortisation is recognised within administrative expenses.

 

 

15.          Property, plant and equipment

 

 GROUP                Leasehold improvements  Right of use assets - office lease  Other equipment  Total
                      £000                    £000                                £000             £000
 Cost
 At 31 December 2019  75                      277                                 831              1,183
 Additions            -                       141                                 100              241
 Disposals            -                       -                                   (20)             (20)
 At 31 December 2020  75                      418                                 911              1,404

 Additions            4                       -                                   111              115
 Disposals            -                       -                                   (8)              (8)
 At 31 December 2021  79                      418                                  1,014            1,511

 Depreciation

 At 31 December 2019  51                      169                                 669              889
 Charge for the year  15                      63                                  81               159
 Disposals            -                       -                                   (20)             (20)
 At 31 December 2020  66                      232                                 730              1,028

 Charge for the year  6                       62                                  95               163
 Disposals            -                        -                                   (8)              (8)
 At 31 December 2021  72                      294                                 817               1,183

 Net book value

 At 31 December 2020  9                       186                                 181              376

 At 31 December 2021  7                       124                                 197              328

 

16.          Trade and other receivables

 

                                          31 December  31 December
                                          2021         2020
                                          £000         £000
 Non-current receivables
 Other receivables                        48           48
                                          48           48

                                          31 December  31 December
                                          2021         2020
                                          £000         £000
 Trade and other receivables
 Trade receivables                        712          78
 Other receivables                        67           24
 Accrued income (other operating income)  16           -
 Prepayments                              628          64
                                          1,423        166

 

Included in prepayments at the reporting date was a balance of £479,000
relating to advance payments for a clinical study that started in early 2022.

 

An expected credit loss assessment has been performed and management have
concluded that no expected credit losses exist in relation to the Group's
receivables as at any of the reporting dates presented. This is because the
nature of the arrangements is that billings are usually before work is
performed, meaning that customers have a strong incentive to make payment in
order to ensure that the work proceeds on a timely basis.

 

17.          Cash and cash equivalents

 

                     31 December  31 December
                     2021         2020
                     £000         £000
 Cash at bank (GBP)  18,299       2,111
 Cash at bank (USD)  17           787
                     18,316       2,898

 

At the reporting dates presented all significant cash and cash equivalents
were deposited in the UK with large international banks.

 

18.          Trade and other payables

 

                                31 December  31 December
                                2021         2020
                                £000         £000
 Current
 Trade payables                 518          465
 Other tax and social security  85           51
 Other creditors                23           16
 Contract liabilities           349          80
 Accruals                       1,166        691
                                2,141        1,303

 

During the year the company entered into five new formulation development
agreements. Under the terms of the agreements Arecor Limited receives payments
in advance for the work to be undertaken. At 31 December 2021 advance payments
of £0.3 million were reported as contract liabilities.

 

Included within accruals at the reporting date was a balance of £0.442
million relating to costs incurred for a first clinical study in the U.S.
There was no prior year comparative.

 

19.          Leases

 

Right of use assets

The Group used leasing arrangements with a maximum term of 5 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. Where an interest rate implicit
in the lease is not readily available, the Group's incremental borrowing rate
is used instead. This is determined by reference to the interest application
on the Group's borrowings.

 

                                                                      31 December  31 December
                                                                      2021         2020
                                                                      £000         £000
 Additions to right of use assets                                     46           189
 Depreciation charge - right of use assets                             (95)        (80)
 Carrying amount at the beginning of the year - right of use assets:   247         138
 Carrying among at the end of the year - right of use assets:          198         247

 

 

                                        31 December  31 December
                                        2021         2020
                                        £000         £000
 Interest expense on lease liabilities  22           18
 Total cash outflow for leases          (134)        (67)

 

                    31 December  31 December
 Lease liabilities  2021         2020
                    £000         £000
 Current            126          105
 Non-current        105          192
                    231          297

 

20.          Borrowings

 

                         31 December  31 December
                         2021         2020
                         £000         £000
 Non-current
 Convertible loan notes  -            1,698

 Total borrowings        -            1,698

 

                      31 December  31 December
                      2021         2020
                      £000         £000
 Non-current
 Embedded derivative  -            212

 

Convertible loan note instruments

On 28 October 2020, Arecor Limited executed a convertible loan note instrument
which constituted £1,905,474 unsecured convertible loan notes. The notes had
a five-year life, accruing interest at 8 per cent., and earlier conversion
possible if one of a number of triggering financing events has occurred. Based
on the Company's expectations of its short-term future, the fair value of the
embedded derivative at issue representing the possible variation was estimated
based on the expected settlement which would result in noteholders receiving
an effective discount on the market price as of the conversion. On this basis
it had an estimated opening value of £211,508 and will be remeasured to fair
value each reporting date until the loan is redeemed or converted. The host
contract is measured at amortised cost. Costs on the issue of the notes were
apportioned between the host debt and derivative elements; those relating to
the host debt are included in the amortised cost calculation and those
relating to the derivative were written off to the income statement
immediately and included in interest expense.

 

On 31 March 2021, Arecor Limited executed a supplemental loan note instrument
for £2,500,000 unsecured convertible loan notes.

 

The terms of these instruments included interest payable at the rate of eight
per cent. Per annum. The loan notes plus accrued, unpaid interest could be:

a) converted into shares on the admission to a recognised investment exchange
including AIM;

b) converted into shares upon raising equity capital of at least £8,000,000;
or

c) redeemed on the first business day after the fifth anniversary of the date
of issue.

 

Following the adoption by the Company of the convertible loan notes and
completion of the Share and CLN Exchange on 24 May 2021, the convertible loan
notes in Arecor Limited were released. The convertible loan stock of
£4,405,474 in the Company was converted into ordinary shares, immediately
prior to Admission, at a 10% discount to the placing price. This has been
treated as a finance expense in the Consolidated Statement of Comprehensive
Income.

 

Interest accrued was disregarded on conversion in accordance with the terms of
the instruments

 

Reconciliation of liabilities arising from financing activities

 

                         At 1 January 2021  Cash received  Legal fee paid  New leases  Interest accrued / fair value movement  Repaid in cash  Converted to Equity  At 31 December 2021
                         £000               £000           £000            £000        £000                                    £000            £000                 £000

 Lease liabilities       297                -              -               46          22                                      (134)           -                    231
 Embedded derivative     212                -              -               -           -                                       -               (212)                -
 Convertible loan notes  1,698              2,500          60              -           (64)                                    -               (4,194)              -
                         2,207              2,500          60              46          (42)                                    (134)           (4,406)              231

 

                         At 1 January 2020  Cash received  Legal fee paid  New leases  Interest accrued / fair value movement  Repaid in cash  At 31 December 2020
                         £000               £000           £000            £000        £000                                    £000            £000

 Lease liabilities       158                -              -               188         18                                      (67)            297
 Embedded derivative     -                  212            -               -           -                                       -               212
 Convertible loan notes  -                  1,694          (60)            -           64                                      -               1,698
                         158                1,906          (60)            188         82                                      (67)            2,207

 

21.          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 only financial instrument measured at fair value in the balance sheet is
the embedded derivative which is classified as Level 3 according to the above
definitions. There were no transfers in or out of Level 3 in the year.

 

There are no financial instruments classified at Level 1 or Level 2 in the
years presented.

 

 

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  2021         2020
                                     £000         £000
 Trade receivables                   712          78
 Other receivables                   115          72
 Accrued income                      16           -
 Cash and cash equivalents           18,316       2,898
                                     19,159       3,048

 

All of the above financial assets' carrying values are approximate to their
fair values, as at all reporting dates presented.

 

                                          31 December  31 December
 Financial liabilities at amortised cost  2021         2020
                                          £000         £000
 Trade payables                           518          465
 Other payables                           23           16
 Lease liabilities                        231          297
 Borrowings                               -            1,698
 Accruals                                 623          691
                                          1,395        3,167

 

In the view of management, all of the above financial liabilities' carrying
values approximate to their fair values as at all reporting dates presented.

 

                                               31 December  31 December
 Financial liabilities measured at fair value  2021         2020
                                               £000         £000
 Embedded derivative                           -            212
                                               -            212

 

Convertible loan note instruments

On 28 October 2020, Arecor Limited executed a convertible loan note instrument
which constituted £1,905,474 unsecured convertible loan notes.

 

On 31 March 2021, Arecor Limited executed a supplemental loan note instrument
for £2,500,000 unsecured convertible loan notes. The terms of these
instruments included interest payable at the rate of eight per cent. Per
annum. The loan notes plus accrued, unpaid interest could be:

a) converted into shares on the admission to a recognised investment exchange
including AIM;

b) converted into shares upon raising equity capital of at least £8,000,000;
or

c) redeemed on the first business day after the fifth anniversary of the date
of issue.

 

Following the adoption by the Company of the convertible loan notes and
completion of the Share and CLN Exchange on 24 May 2021, the convertible loan
notes in Arecor Limited were released. The convertible loan stock of
£4,405,474 in the Company was converted into ordinary shares, immediately
prior to Admission, at a 10% discount to the placing price. This has been
treated as a finance expense in the Consolidated Statement of Comprehensive
Income. Interest accrued was disregarded on conversion in accordance with the
terms of the instruments.

 

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.

 

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 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.

 

Interest rate risk

The Group's only exposure to interest rate risk is the interest received on
the cash held on deposit, which is immaterial, and the interest on borrowings.
Borrowings are at a fixed interest rate, so the interest rate risk is
considered to be immaterial.

 

Foreign exchange risk

The Group's transactions are carried out substantially in Great British pound
sterling. The Group holds non-domestic cash balances but currently does not
consider it necessary to take action to mitigate foreign exchange risk due to
management's view of the immateriality of that risk. The level of risk from
foreign exchange exposure is under constant review and the Directors will take
steps to mitigate any significant risks as needs arise.

 

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 2021 and 2020 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 2021
 Trade payables       518     518       -       -       -       -
 Other payables       108     108       -       -       -       -
 Lease liabilities    252     8         63      71      102     8
 Borrowings           -       -         -       -       -       -
 Accruals             623     475       148     -       -       -
                      1,501   1,109     211     71      102     8

 

 

 

                      Total  Within 2  Within   Within   Within  Within

months

                                       2 -6     6 - 12   1-2     2-5

months
months
years

                                                                 years
                      £000   £000      £000     £000     £000    £000
 At 31 December 2020
 Trade payables       465    465       -        -        -       -
 Other payables       16     -         16       -        -       -
 Lease liabilities    333    5         57       63       124     84
 Borrowings           2,287  -         -        -        -       2,287
 Accruals             691    -         691      -        -       -
                      3,792  470       764      63       124     2,371

 

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
                            2021         2020
                            £000         £000
 Equity                     18,573       774
 Cash and cash equivalents  (18,316)     (2,898)
 Borrowings                 -            1,698
 Net borrowings              257         (426)

 

The Board of Directors monitors the level of capital as compared to the
Group's commitments and adjusts the level of capital as 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 year. The Directors believe that they
have been able to meet their objectives in managing the capital of the Group.

 

22.          Share capital

 

                                      31 December  31 December
                                      2021         2021
                                      Number       Nominal value
                                                   £000
 Ordinary shares - par value £0.01

 Allotted, called up and fully paid
 Ordinary shares of £0.01             27,835,024   278
 At 31 December 2021                  27,835,024   278

 

 

 

                                      31 December  31 December
                                      2020         2020
                                      Number       Nominal value
                                                   £000
 Ordinary shares - par value £0.01

 Allotted, called up and fully paid
 Ordinary shares of £0.01             135,245      1
 A Ordinary shares of £0.01           1,397,715    14
 A1 Ordinary shares of £0.01          24,600       -
 B Ordinary shares of £0.01           244,776      2
 C Ordinary shares of £0.01           913,182      9
 At 31 December 2020                  2,715,518    27

 

The following shares were issued in the periods presented:

 

                                                                                            Share    Share
                                                                                Number      Capital  Premium
                                                                                            £000     £000
 At 1 January 2021 - Arecor Limited                                             2,715,518   27       11,594

 Issue of Ordinary shares of £0.01                                              62,493      1        -
 Five to one bonus issue on all shares                                          13,890,055  139      (139)
 Total Ordinary shares allotted, called up and fully paid in Arecor Limited at  16,668,066  167      11,455
 24 May 2021

 One to one share swap with Arecor Therapeutics ordinary shares at par          16,668,066  167      -
 Conversion of loan notes                                                       2,165,908   21       4,873
 Issue of ordinary shares of £0.01 during listing                               8,849,558   88       19,912
 Costs associated with issue of ordinary shares of £0.01                                             (1,437)
 Issue of Ordinary shares of £0.01                                              151,492     2        -

 At 31 December 2021                                                            27,835,024  278      23,348

 

                                         Share    Share
                              Number     Capital  Premium
                                         £000     £000
 At 1 January 2020            2,673,219  27       11,594
 Allotments
 Ordinary shares of £0.01     32,299     -        -
 B Ordinary shares of £0.01   10,000     -        -
 At 31 December 2020          2,715,518  27       11,594

 

The Ordinary Shares, A Ordinary Shares, A1 Ordinary Shares, B Ordinary Shares
and C Ordinary Shares constitute separate classes of shares but rank pari
passu, except on a return of capital whereby detailed terms apply to the order
of priority of the share classes as set out in the Company's Memorandum &
Articles of Association.

 

On 2 June 2021, pursuant to a Shareholders' resolution passed on 26 May 2021
and class consents:

a) the A ordinary shares, A1 ordinary shares and B ordinary shares were
converted into ordinary shares;

b) the ordinary shares were converted into C ordinary shares; and

c) the Company renamed the C ordinary shares as ordinary shares

 

This resulted in 16,668,066 existing ordinary shares.

 

On 2 June 2021, 2,165,908 ordinary shares were issued pursuant to the share
and convertible loan note conversion.

 

On 3 June 2021 8,849,558 ordinary shares were issued by the Company pursuant
to the placing and admission to AIM, raising £20 million before expenses.

 

Share Premium

Proceeds received in addition to the nominal value of the shares issued during
the period have been included in share premium less registration and other
regulatory fees and net of related tax benefits. Costs of new shares issued to
share premium in the period amounted to £24,784,599. Registration and other
regulatory fees incurred as a result of these transactions amounted to
£1,436,778.

 

Other reserves

Other reserves reflect the balance of the investment by Arecor Therapeutics
plc in it's 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.

 

23.          Share based payments

 

Share Options

On 2 June, certain employees entered into an EMI option exchange agreement
where they agreed to release an option over shares in Arecor Limited ('Old
Option') for a replacement option over shares in the Company ('Rollover
Option'). The Rollover Options are treated as having been granted on the date
on which the Old Option was granted, with the earliest grant date being 12
December 2018 and the latest grant date being 3 November 2020.

 

The Rollover Options are subject to graded vesting: one third vest on the
first anniversary of the date of grant and two thirds vest in equal
instalments over the following 24 months. The Rollover Options are subject to
the same conditions which applied to the Old Option. The exercise price is
£0.01 per share.

 

The Company operates an All-Employee Share Option Plan (AESOP) and grants EMI
share options to eligible employees. A grant of options under the AESOP was
made on 3 June at an exercise price of £2.26 per share. The options are
subject to graded vesting with one third vesting on the first, second and
third anniversary of the date of grant. A second grant was also made on 24
November 2021 to new employees with an exercise price of £4.15 per share.
Vesting conditions for these options were the same as those granted on 3 June.
As there are no performance criteria linked to these options, the fair value
of the options was calculated using the Black Scholes model.

 

For the EMI option grants in the year the following assumptions were used.

 

                          Grant on 3 June  Grant on 24 November
 Exercise price           £2.26            £4.15
 Volatility               65%              65%
 Expected dividends       nil              nil
 Risk free interest rate  0.163%           0.602%
 Fair value per share     £0.97            £1.79

 

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 3 June at an exercise price of £0.01 per share. The LTIP
options will vest after three years subject to meeting a performance criteria
of total shareholder return in relation to the techMARK mediscience index over
the same period. 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
Due to the additional performance criteria included in the vesting conditions,
the fair value of the options was calculated using a Monte Carlo simulation
model.

 

For the LTIP option grants in the year the following assumptions were used.

 

                               Grant on 3 June  Grant on 24 November
 Share price at date of grant  £2.26            £4.15
 Exercise price                £0.01            £0.01
 Volatility                    65%              65%
 Expected dividends            nil              nil
 Risk free interest rate       0.27% pa         0.66% pa
 Fair value per share          £1.61            £3.62

 

                                                Number of options
 Opening Balance at 1 January 2020              144,100
 Options vested and exercised                   (42,299)
 Options lapsed                                 (1,319)
 Options granted                                21,250
 Balance at 31st December 2020                  121,732

 Options vested and exercised pre-bonus issue   (62,493)
 Options lapsed pre-bonus issue                 (3,000)
 Balance pre-bonus issue (23/5/2021)            56,239

 Bonus issue (five to one basis)                281,195
 EMI Options granted                            492,250
 LTIP options granted                           775,000
 Options vested and exercised post-bonus issue  (151,492)
 Options lapsed post bonus issue                (38,248)
 Balance at 31 December 2021                    1,414,944

 

The rollover options have been treated as a modification of the original
options, adjusted for the bonus issue of five share options for every one
share option held and the corresponding dilution of the fair value of each
option. The vesting period of the rollover options is unchanged.

 

The fair values of share-based compensation expenses are estimated using the
Black-Scholes option pricing model for the AESOP scheme and the Monte Carlo
simulation model for the LTIP scheme. Both schemes rely on a number of
estimates, such as the expected life of the option, the volatility of the
underlying share price, the risk-free rate of return, and the estimated rate
of forfeiture of options granted. Management apply judgement in determining
the most appropriate estimates to use in the option pricing model.

 

 

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 2021                                     Number of  WAEP    Number of  WAEP
                                                      Options    £       Options    £
 Outstanding at the beginning of the year             72,333     0.01    49,399     0.01
 Exercised pre-bonus issue                            (45,639)   0.01    (16,854)   0.01
 Expired pre-bonus issue                              -          -       (3,000)    0.01
 Bonus issue (five to one)                            133,470    0.01    147,725    0.01
 Exercised post-bonus issue                           (77,498)   0.01    (73,994)   0.01
 Issued post-bonus issue                              600,000    0.65    667,250    1.81
 Expired post-bonus issue                             -          -       (38,248)   0.73

 Outstanding at the year end                          682,666     0.57    732,278    1.61

 Number vested and exercisable at 31 December 2021    31,000     0.01    17,025     0.01
 Weighted average remaining contractual life (years)  9.21       -       9.41       -

 

                                                      Directors        Staff
 31 December 2020                                     Number of  WAEP  Number of  WAEP

                                                      Options    £     Options    £
 Outstanding at the beginning of the year             93,000     0.01  51,100     0.01
 Issued                                               -          0.01  21,250     0.01
 Exercised                                            (20,667)   0.01  (21,632)   0.01
 Expired                                              -          0.01  (1,319)    0.01

 Outstanding at the year end                          72,333     0.01  49,399     0.01

 Number vested and exercisable at 31 December 2020    32,723     0.01  12,813     0.01
 Weighted average remaining contractual life (years)  8.32             8.78

 

The Group recognised total expenses of £484,000 (2020: £277,000) in the
statement of comprehensive income in relation to share options accounted for
as equity-settled share-based payment transactions during the year.

 

24.          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.

 

In the period and pre-Admission to AIM the Company paid consultancy fees of
£62,000 (2020: £38,000) to one Non-Executive Director and one former
Non-Executive Director who are also shareholders.

 

At the reporting date, balances outstanding to Alan Smith in lieu of services
provided as a Board member were £8,750

 

In October 2020, three Non-Executive Directors subscribed to the loan notes
offered by Arecor Limited. Upon conversion of the loan notes to ordinary
shares in Arecor Therapeutics plc, the Non-Executive Directors received the
following number of shares:

 

 Director         Shares received
 Andrew Richards  11,648
 Andrew Lane      1,215
 Alan Smith       10,345

 

 

 

25.          Financial commitments

 

In December 2021, the Group signed two agreements with Prosciento Inc, a
leading Contract Research Organisation based in San Diego, CA. to provide
specialised clinical research services relating to the US based clinical study
of AT247. At the reporting date, fees incurred relating to these agreements
totalled £0.3 million ($0.4 million USD).

 

26.          Dividends

 

No dividends were paid or approved during the period ended 31 December 2021
(2020: nil)

 

27.          Ultimate controlling party

 

The Directors do not consider there to be an ultimate controlling party.

 

28.          Post balance sheet events

 

The Group initiated a US Phase I clinical trial in early 2022, following
clearance by the US Federal and Drug Administration of an Investigational New
Drug application in 2021.

 

There were no adjusting or significant non-adjusting events between 31
December 2021 and the approval of the financial statements.

 

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