REG - C4X Discovery - Full Year Results
13/12/2021 07:00
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RNS Number : 3589V C4X Discovery Holdings PLC 13 December 2021
This announcement contains inside information
C4X Discovery Holdings plc
("C4XD", "C4X Discovery" or the "Company")
Full Year Results
A strong year positions C4XD portfolio for advancement and expansion in 2022
13 December 2021 - C4X Discovery Holdings plc (AIM: C4XD), a pioneering Drug
Discovery company, today announces its full year audited results for the year
ended 31 July 2021.
Dr Clive Dix, CEO of C4X Discovery, said: "2021 has been a tremendous year of
progress for C4XD across our entire portfolio, culminating in the signing of
our second major licensing deal with a global pharma company. The €414
million agreement with Sanofi for our IL-17A oral inhibitor programme further
demonstrates the value of our Drug Discovery expertise and business model of
driving shareholder value through early-stage revenue generating deals. There
is also significant partnering interest in NRF2.
I would like to take this opportunity to thank Craig Fox and Harry Finch for
their hard work and commitment throughout their tenure with us, and I welcome
two new Board members, Simon Harford and Dr Mario Polywka to the Company. As
we approach 2022, the successful £15 million financing in autumn 2020, along
with a roadmap of potential cash milestones over the next 24 months, allows us
to advance and broaden our portfolio as we look to build long-term value for
shareholders."
Operational Highlights (including post-period events)
· Exclusive worldwide licensing agreement with Sanofi for C4XD's
IL-17A oral inhibitor programme worth up to €414 million including:
§ €7 million upfront
§ €407 million in potential development, regulatory and commercialisation
milestones, of which €11 million is in pre-clinical milestones
§ Potential for single-digit royalties
· Indivior's Phase 1 with C4X_3256 progressing. Single ascending
dose study in healthy volunteers successfully completed in April 2021 and
preparation for multiple ascending dose study underway in parallel with the
conduct of an FDA requested additional 28-day toxicology study due to
toxicological findings observed with a competitor molecule
· NRF2 pre-candidate nomination and preliminary safety studies
continue, and poster presented at the virtual European Crohn's and Colitis
Organisation (ECCO) conference showing efficacy in a disease model
· α4β7 integrin inhibitor programme for the treatment of
inflammatory bowel disease ("IBD") generated multiple chemical series showing
significant selectivity vs α4β1 in vitro and oral bioavailability in PK
studies. In vivo investigation of functional inhibition following oral dosing
is underway
· C4XD has now taken on the leadership of the MALT-1 programme from
LifeArc to drive it towards the later stages of drug discovery and deliver a
commercial deal - three novel series identified, in vivo studies initiated
· Screening of Taxonomy3®-identified novel genes for Parkinson's
disease recently completed by collaboration partner Phoremost with validation
underway. Analysis of Ulcerative Colitis genetic dataset recently completed
and evaluation of identified novel genes being formulated
· Collaboration with GEN-COVID Consortium to investigate the role
genetics plays in the susceptibility, severity and prognosis between different
individuals with COVID-19 completed
· Conformetrix technology patent was granted in the USA
· Board changes with appointment of Simon Harford and Dr Mario
Polywka as Non-Executive Directors and resignation of Craig Fox as Chief
Scientific Officer and Dr Harry Finch as Non-Executive Director
Financial Highlights
· Revenue was £5.6 million (2020: £nil)
· Total loss after tax of £3.8 million or 1.96 pence per share
(2020: £7.8m or 8.10 pence per share)
· R&D expenses increased by 20% to £8.3 million (2020:
£6.9m), reflecting focused investment in key Drug Discovery programmes
· Net assets of £19.3 million (2020: £8.1m)
· Successful £15.0 million fundraise (before expenses) with a
total of 107,142,858 Placing Shares and 99,169,286 Warrants issued to new and
existing shareholders
· Net cash as at 31 July 2021: £17.1 million (31 July 2020:
£5.6m)
Analyst conference call today
Dr Clive Dix, Chief Executive Officer, and members of the management team will
host a webcast for analysts at 10am GMT today. A copy of the final results
presentation will be released later this morning on the Company website at
www.c4xdiscovery.com (http://www.c4xdiscovery.com) . Please contact
Consilium Strategic Communications for details on
C4XDiscovery@consilium-comms.com (mailto:C4XDiscovery@consilium-comms.com) /
+44 203 709 5700.
The Annual Report will be sent to shareholders prior to the Annual General
Meeting on 18 January 2022 and will be made available on the Company's website
at that time.
- Ends -
Contacts
C4X Discovery Holdings
Mo Noonan, Communications +44 (0)787 6444977
Panmure Gordon (UK) Limited (NOMAD and Broker)
Freddy Crossley, Emma Earl (Corporate Finance) +44 (0)20 7886 2500
Rupert Dearden (Corporate Broking)
C4X Discovery Media - Consilium Strategic Communications
Mary-Jane Elliott, Chris Gardner, Matthew Neal +44 (0)203 709 5700
Notes to Editors:
About C4X Discovery
C4X Discovery ("C4XD") is a pioneering Drug Discovery company combining
scientific expertise with cutting-edge Drug Discovery technologies to
efficiently deliver world‑leading medicines, which are developed by our
partners for the benefit of patients. We have a highly valuable and
differentiated approach to Drug Discovery through our enhanced DNA-based
target identification and candidate molecule design capabilities, generating
small molecule drug candidates across multiple disease areas including
inflammation, neurodegeneration, oncology and addictive disorders. Our
commercially attractive portfolio ranges from early-stage novel target
opportunities to late-stage Drug Discovery programmes ready for out-licensing
to partners and we have two commercially partnered programmes with one
candidate in clinical development.
We collaborate with leading pharmaceutical and life sciences companies to
enrich our expertise and take our assets through pre-clinical and clinical
development. Through early-stage revenue-generating licensing deals, we
realise returns from our high value pre-clinical assets which are reinvested
to maximise the value of our Drug Discovery portfolio. For more information
visit us at www.c4xdiscovery.com (http://www.c4xdiscovery.com) or follow us on
twitter @C4XDiscovery.
Chairman's Statement
Expanding our portfolio and collaborator network
"Entering into our small molecule IL-17A collaboration is a major milestone
for C4X Discovery and we are delighted to be working with Sanofi to create an
oral, convenient therapy."
We generated considerable momentum during the financial year ended 31 July
2021, expanding and advancing our proprietary portfolio of pre-clinical
programmes and entering into our second significant collaboration. Our new
collaboration with Sanofi around our oral IL-17A programme, not only validates
the strength of our portfolio but also our strategy to drive shareholder value
through early-stage revenue generating deals. The deal marks a major milestone
for C4X Discovery.
It is our belief that our IL-17A small molecule programme has the potential to
create a high value, efficacious and convenient, oral IL-17A therapeutic and
when combined with Sanofi's development capabilities, our programme can
address additional indications beyond psoriasis. We are delighted to be
working with Sanofi and look forward to seeing this programme advancing
towards the clinic.
We continue to advance a solid portfolio of novel, pre-clinical, small
molecule programmes applying our cutting-edge Drug Discovery technologies
which are able to deliver high quality, differentiated drug candidates for
development by pharma and biotech. While our proprietary portfolio is
predominantly focused in the area of inflammation, we are actively pursuing
other therapeutic areas including oncology and neurology. Potential partner
discussions are ongoing across our portfolio so that we can identify the right
opportunities for out-licensing our other lead programmes.
In October 2020, we completed a £15 million financing which was supported by
our key existing shareholders as well as new shareholders. Importantly, this
has enabled the Company to accelerate and broaden our proprietary portfolio of
unique assets to near term inflection points and to strengthen the balance
sheet as partnering discussions and strategic collaborations progress.
We continue to bring new skills and capabilities to our already diverse Board.
In April, we welcomed Simon Harford as a Non-Executive Director and Chair of
the Audit Committee. Simon has more than 30 years of financial and investor
relations expertise in global pharmaceutical companies, including GSK and
Lilly, and is currently the CFO at NASDAQ-listed Albireo Pharma. In November,
we welcomed Dr Mario Polywka as Non-Executive Director and successor to Dr
Harry Finch who has announced his retirement from the Board. Mario brings
industry expertise from key leadership and board roles within the sector
including 12 years as COO of Evotec SE. Together, Simon and Mario's
understanding of the global healthcare industry will be invaluable as we
continue to grow C4XD.
We also announced the resignation of Craig Fox, our Chief Scientific Officer,
in November. Craig will remain with C4XD until the end of March. He has
provided excellent guidance and leadership to the scientific team for six
years, and both he and Harry will be sorely missed. A search is underway for
Craig's successor and we will announce the new appointment in due course.
I would like to thank all of C4XD's employees and our partners for their
dedication, hard work and contributions during the year and our shareholders
for their continued support and belief in our vision.
Eva-Lotta Allan
Non-Executive Chairman
10 December 2021
CEO Statement
€414m agreement with Sanofi demonstrates value and quality of C4XD portfolio
"This has been a tremendous year of progress across our entire portfolio,
culminating in our second high-value deal with Sanofi. The £15 million
raised allows us to advance and broaden our portfolio as we look to build
value for shareholders."
We have made incredibly strong progress this year. In autumn 2020, we raised
£15 million, and advanced each of our key programmes, resulting in a €414
million licensing agreement with Sanofi for our IL-17A oral inhibitor
programme, demonstrating the value of C4XD's Drug Discovery expertise and our
business model. The psoriasis market alone is estimated to be worth c.$24
billion per annum by 2027(1), and when combined with Sanofi's development
capabilities, our programme has the potential to address additional
indications beyond psoriasis. With Sanofi now leading this programme, our team
continues to work with them on the earlier Drug Discovery work and we are
excited to see how this programme develops.
Indivior has also continued to make excellent progress on C4XD's oral Orexin-1
receptor antagonist C4X_3256, also known as INDV-2000, for the treatment of
addiction, which we out-licensed to them in 2018 for $294 million. With the
Phase 1 single ascending dose clinical trial completed, preparation for the
multiple ascending dose study is now underway.
Additional important milestones were met during the year and C4XD is now
working to progress the rest of the portfolio including our NRF2 programme for
inflammatory diseases, the α4β7 integrin inhibitor programme for
Inflammatory Bowel Disease ("IBD") and our MALT-1 inhibitor programme for
oncology and inflammation indications, where we have recently taken the lead
in the development programme from LifeArc. Whilst there is much Drug
Discovery work still to be done, we are reaching a stage where industry
players are closely monitoring the status of each programme.
It will be important over the coming year to assess and augment our portfolio
with the appropriate new target candidates, either through our own Drug
Discovery techniques or potentially through work with partners. With two
programmes now successfully partnered, a robust but carefully managed
financial base and a roadmap of potential cash milestones over the next 24
months, the Board believes that C4XD has shown how we can deliver significant
value for shareholders and we anticipate the coming year to continue apace.
In September we rebranded our website and corporate materials, resulting in a
more contemporary look which we feel reflects the real us - where we are
today, the pioneering scientific work that we do and the quality of companies
that we partner with - a new image to take us forward in line with our vision.
Post-period, we announced the departure of our CSO, Craig Fox and retirement
of Harry Finch, Non-Executive Director. We thank them for their hard work,
commitment and inspiration, and we wish them well in their future endeavors.
We also welcomed our two new Non-Executive Directors, Simon Harford and Mario
Polywka, who bring valuable expertise which will be critical as we look to
expand our portfolio and expedite new deals.
On behalf of the Board, I would like to thank our incredibly hard-working
employees. They have advanced key programmes across our portfolio and
without their commitment, we would not be where we are today. I am proud to
be working with such talented people.
Portfolio Review
Two partnered products with strong pipeline of Drug Discovery programmes
C4XD saw progress across its drug discovery portfolio, with a number of
programmes making significant advances, particularly in inflammation with the
announcement post period of a €414 million exclusive, worldwide
out-licensing agreement with Sanofi for our IL-17A inhibitor programme.
Together with advancements in early innovation projects and partnered
collaborations, C4XD continues to focus on building a sustainable pipeline of
potential future out-licensing opportunities.
Addictive disorders (Orexin-1 Antagonist)
Phase 1 clinical trial progressing
C4XD completed its first licensing deal in March 2018 with Indivior UK Limited
("Indivior") to further develop and commercialise C4XD's oral Orexin-1
receptor antagonist C4X_3256, also known as INDV-2000, for the treatment of
addiction. Under the terms of the agreement, C4XD received an upfront payment
of US$10 million and could receive up to US$284 million in development,
regulatory and commercialisation milestones in addition to royalties. In turn,
Indivior received a global and exclusive licence to C4X_3256 and all other
compounds in the same patent family and is responsible for the cost and
execution of the development of C4X_3256 in multiple indications. This patent
family is now granted in the main commercially relevant territories of the US,
Europe, Japan and China.
INDV-2000 has recently completed a Phase I first in human single ascending
dose clinical trial showing encouraging safety and pharmacokinetics in healthy
volunteers. Indivior has been requested to perform an additional 28-day
repeat-dose toxicology study by the FDA following non-clinical findings from a
competitor molecule. Preparation for the initiation of a multiple ascending
dose study to be conducted by Indivior is underway in parallel. To find out
more information, please follow this link
(https://www.indivior.com/resources/dam/id/593/Q2H1-2021-Indivior-Financial-Results-Investor-Presentation.pdf)
.
Inflammation (NRF2 Activator)
Multiple therapeutic opportunities
The Company has identified a series of novel potent activators of the NRF2
pathway for the treatment of a variety of inflammatory diseases. These
keap-1 inhibitors in our oral NRF2 activator programme have been found to
significantly activate NRF2 following oral dosing, providing anti-inflammatory
and anti-oxidant activity. In C4XD studies, multiple lead compounds show
greater than 12-hour duration of action following low oral dosing on
activation of NRF2 in key tissues such as the lung, the liver and in blood.
There is significant partnering interest in this programme based on a limited
number of potent NRF2 activators with described oral bioavailability.
Interest in this therapeutic approach covers multiple therapeutic areas
including Chronic Obstructive Pulmonary Disease ("COPD"), IBD, Pulmonary
Arterial Hypertension ("PAH") and Sickle Cell Disease ("SCD"). Material
Transfer Agreement (MTA) studies are underway where C4X molecules are examined
by potential partners in their in-house biological assays and models linked to
their preferred disease indication.
The Company recently presented a poster at the virtual ECCO conference
demonstrating efficacy and antioxidant activity in an IBD model
(https://academic.oup.com/ecco-jcc/article/15/Supplement_1/S174/6286040).
Pre-candidate nomination studies and preliminary safety studies continue
including significant drug substance scale-up to support longer-term studies.
Inflammation (IL-17A Inhibitor)
Partnered with Sanofi for €414 million
C4XD has identified small molecules in its oral IL-17A inhibitor programme
that can selectively block IL-17 activity whilst maintaining molecular size of
the molecule in the traditional "drug-like" range. A novel, potent oral
series of IL-17A inhibitors that significantly reduce IL-17 induced
inflammation in vivo is being optimised towards candidate shortlist. In
April 2021, C4XD announced an out-licensing agreement with Sanofi for its
IL-17A inhibitor programme for up to €414 million. The Company has
received an upfront payment of €7 million and could receive up to a further
€407 million in potential development, regulatory and commercialisation
milestones, of which €11 million is in pre-clinical milestones, in addition
to single digit royalties. Sanofi will take control of the programme but
will continue to work with C4XD in the next discovery phase to utilise our
Conformetrix technology and expertise as the programme progresses towards the
clinic.
Haematological Cancer (MALT-1 Inhibitor)
C4XD has now taken the leadership role in the LifeArc collaboration
In November 2018, C4XD entered into a risk-share discovery collaboration with
LifeArc(®), a UK medical research charity, to progress medicinal chemistry
efforts on a MALT-1 inhibitor programme with applicability across oncology and
inflammation indications, with a primary focus on haematological cancers.
Three novel series have been identified by harnessing C4XD's Conformetrix
technology and data obtained in 2020 has demonstrated functional cell activity
and oral bioavailability. Optimisation studies have now delivered molecules
with at least equivalent potency to J&J's clinical candidate JNJ-67856633
and recently molecules with good oral PK profiles have been synthesised.
These will shortly be tested in vivo to show equivalent inhibition to that
achieved with JNJ-67856633. C4XD is now taking on leadership of the MALT-1
programme from LifeArc to drive it towards the later stages of drug discovery
and deliver a commercial deal.
Inflammation (α4β7 Integrin Inhibitor)
Significant progress
C4XD's oral α4β7 integrin inhibitor programme has identified novel, potent
and selective α4β7 integrin inhibitors for the treatment of IBD. In August
2020, the Company announced that significant progress has been made on C4XD's
early oral inhibitor programme targeting α4β7 integrin for the treatment of
IBD. Effective antibody therapy against this target is already approved,
removing the clinical target risk, but an effective oral therapy remains
highly sought after. C4XD has identified a second series of novel, potent and
selective inhibitors providing a further competitive edge for this programme.
This reaffirms the capability of C4XD's Conformetrix technology to discover
novel chemical scaffolds for high value challenging drug targets.
During 2021, Morphic Therapeutic, which has the most advanced oral small
molecule α4β7 Integrin Inhibitor programme, completed the Phase 1 clinical
study of its lead molecule MORF-057. High target occupancy was demonstrated
in blood at developable doses but with a twice daily profile. This leaves
the opportunity for a once-a-day profile to be a key competitive
differentiator which C4XD is aiming for in its programme. Both series have
demonstrated oral bioavailability in PK studies and there is particular focus
on improving PK properties to achieve a good oral half-life. A prototype
molecule has recently shown a signal in functionally inhibiting α4β7
integrin in vivo following oral dosing and this is currently being repeated to
confirm activity. External interest in this programme remains significant and
discussions should gain significant traction if the Company can demonstrate
robust activity in vivo after oral dosing when accompanied by a good oral
half-life potentially indicating a once-daily profile.
New Discovery Evaluation Stage Programmes
Following the completion of the transaction with Sanofi on the IL-17A
programme, several new evaluation stage programmes were initiated to establish
whether applying the Company's ligand design capabilities to a selection of
new targets could result in novel chemical series leading to additional
programmes in the pipeline. Updates on these evaluations will be provided in
the future once robust data has been generated exemplifying novel chemical
matter.
Taxonomy3(®)
C4XD continues to progress the validation of its proprietary
Taxonomy3®-derived novel targets for Parkinson's disease (PD), utilising a
diversified strategic approach with internal efforts in addition to a key
collaborative partner, Phoremost. Almost all genetic variation between
patients with and without Parkinson's is in the non-coding region of DNA where
these variants can affect expression of specific genes in a cell specific
manner. C4XD has focused on the impact of novel genes identified from this
analysis in phenotypic assays based on neuronal and microglial cells; two key
cell types identified in the pathophysiology in PD, with studies continuing.
Very recently, screening of 338 PD genes identified by Taxonomy3(®) using
Phoremost's Siteseeker technology has been completed in a neuroinflammation
microglial assay where peptides targeting a specific subset of these genes
have been found to inhibit the inflammatory signal. Follow-up studies are
underway to provide existing validation to these potential exciting novel
targets.
A new analysis of an ulcerative colitis patient genetic dataset has recently
been completed using Taxonomy3® and novel genetic variants have been
identified with investigation into these novel genes initiated. A subset of
these novel genes will be examined in key phenotypic cells assays relating to
IBD.
In August 2020, C4XD announced that it had entered a new collaboration with
the GEN-COVID consortium, a network of more than 20 hospitals in Italy led by
Professor Alessandra Renieri of the University of Siena. The collaboration
used the unique mathematical genetic analysis methodology of Taxonomy3(®) to
investigate the role genetics plays in the widely varied disease
susceptibility, severity and prognosis observed between individuals with
COVID-19. In contrast to other public domain genetic analysis, the GEN-COVID
study enabled the comparison of moderate to severe COVID-19 patients, removing
any genetic influence on the propensity to be infected with COVID-19.
Following completion of the analysis, whilst Taxonomy3® was able to separate
moderate and severe patients based on the overall genetic signature
(suggesting there is a genetic as well as environmental influence on disease
severity), none of the individual genes had a signal that was statistically
significant.
Outlook and summary
Following the €414 million agreement with Sanofi for our IL-17A oral
Inhibitor programme, C4XD is focused on driving forward its portfolio towards
future out-licensing opportunities, including NRF-2 where there is significant
partnering interest. Over the next 12-24 months we will look to advance and
augment our portfolio to deliver the next generation of high value,
commercially attractive candidates to secure strategic collaborations with
high quality partners and deliver value for our shareholders.
Clive Dix
Chief Executive Officer
10 December 2021
1. Plaque Psoriasis: Global Drug Forecast and Market Analysis to 2027,
GlobalData, December 2018
Financial Review
Continued support from shareholders
"We thank our shareholders for their continued support. The partnership with
Sanofi demonstrates our ability to deliver shareholder value and with a sound
financial base, we are focused on driving forward our portfolio of proprietary
assets to future out-licensing opportunities."
Revenue for the 12 months ended 31 July 2021 was £5.6 million (2020: £nil).
The revenue recognised in the current year is part of the €7 million upfront
payment from Sanofi on the signing of the IL-17A licence agreement.
R&D expenses, which comprise invoiced material costs, payroll costs and
software costs, have increased by 20% to £8.3 million for the year ended 31
July 2021 (2020: £6.9m). This reflects focused investment in key Drug
Discovery programmes as outlined in the Non-Executive Chairman's and CEO's
Statements.
Administrative expenses increased during the year to £3.2 million (2020:
£2.7m) as a result of the continued investment in people and infrastructure.
This year the R&D income tax credit receivable is £2.1m (2020: £1.8m)
and is reflective of the additional investment in R&D costs over the last
12 months.
The loss after tax for the year ended 31 July 2021 was £3.8 million (2020:
£7.8m). This equates to a basic loss per share of 1.96 pence per share (2020:
8.10 pence per share) and diluted loss per share of 1.82 pence per share
(2020: 8.10 pence per share)
A successful fundraise in November 2020 saw the Group raise £15.0 million
(before expenses) via a placing of 99,169,286 ordinary shares and an open
offer for 7,973,572 ordinary shares at 14 pence each. In addition, 99,169,286
warrants were issued over ordinary shares, exercisable at 28p per share with
an exercise period of 5 years.
The Group had net assets at 31 July 2021 of £19.3 million (2020: £8.1m) and
cash and cash equivalents of £17.1 million (2020: £5.6m).
Both cash and costs continue to be prudently and tightly managed.
These financial statements have been prepared on a going concern basis,
notwithstanding a consolidated operating loss for the year ended 31 July 2021
of £5.9 million (2020: £9.6m), revenues of £5.6 million (2020: £nil) and
net cash used in operating activities of £3.1 million (2020: £5.1m). The
Directors consider this to be appropriate for the following reasons:
The Board has prepared cash flow forecasts for the period to 31 July 2023,
being 21 months from the date of signing the financial statements, including
consideration of severe but plausible downside scenarios which takes into
account the delayed receipt of forecast R&D tax credits from HMRC and the
impact of price increases from its suppliers.
In the event that a cash shortfall arises in the forecast period, the Board
consider they are able to take reasonable mitigating action, which includes
but is not limited to a reduction in expenditure on certain discretionary
research programmes to focus purely on commercialising earlier stage drug
molecules, and reducing other discretionary administrative expenditure, which
would enable the Group and Company to continue to operate within its existing
cash resources during the forecast period without the need for additional
funding.
Brad Hoy
Chief Financial Officer
10 December 2021
Consolidated statement of comprehensive income
for the year ended 31 July 2021
Notes 2021 2020
£000 £000
Revenue 4 5,642 -
Cost of sales (90) -
Gross profit 5,552 -
Research and development expenses (8,263) (6,858)
Administrative expenses (3,182) (2,708)
Operating loss 5 (5,893) (9,566)
Finance income 7 1 5
Finance costs 7 (15) (18)
Loss before taxation (5,907) (9,579)
Taxation 8 2,063 1,790
Loss for the year and total comprehensive loss for the year (3,844) (7,789)
Loss per share
Basic loss for the year 9 (1.96)p (8.10)p
Diluted loss for the year 9 (1.82)p (8.10)p
The loss for the year arises from the Group's continuing operations and is
attributable to the equity holders of the parent.
There were no other items of comprehensive income for the year (2020: £nil)
and therefore the loss for the year is also the total comprehensive loss for
the year.
Both basic and diluted loss per share are reported due to the effect of
exercisable share options and warrants in issue.
Consolidated statement of changes in equity
for the year ended 31 July 2021
Share-
Issued based Capital
equity Share Warrant payment Merger contribution Revenue
capital premium Reserve reserve reserve reserve reserve Total
£000 £000 £000 £000 £000 £000 £000 £000
At 31 July 2019 2,602 32,256 - 736 920 195 (29,724) 6,985
Loss for the year and total comprehensive loss for the year - - - (7,789) (7,789)
- - -
Issue of share capital 614 8,598 - - - - - 9,212
Expenses of placing - (547) - - - - - (547)
Share-based payments - - - 206 - - - 206
Transactions with owners 614 206 - - 8,871
8,051 - -
At 31 July 2020 3,216 40,306 - 942 920 195 (37,513) 8,066
Loss for the year and total comprehensive loss for the year - - - (3,844) (3,844)
- - -
Issue of share capital 1,071 12,937 - - - - - 14,008
Expenses of placing - (551) - - - - - (551)
Issue of warrants - - 992 - - - - 992
Exercise of options 2 6 - - - - - 8
Exercise of warrants 13 345 (13) - - - 13 358
Share-based payments - - 249 - - - 249
Transactions with owners 1,086 249 - 13 15,064
12,737 979 -
At 31 July 2021 4,302 53,043 979 1,191 920 195 (41,344) 19,286
Company statement of changes in equity
for the year ended 31 July 2021
Share-
Issued based
equity Share Warrant payment Revenue
capital premium Reserve reserve reserve Total
£000 £000 £000 £000 £000 £000
At 31 July 2019 2,602 32,256 - 707 (32,987) 2,578
Profit for the year and total comprehensive profit for the year - - 24,752
- - 24,752
Issue of share capital 614 8,598 - - - 9,211
Expenses of placing -- (547) - - - (547)
Share-based payments - - - 206 - 206
Transactions with owners 614 8,051 - 206 - 8,871
At 31 July 2020 3,216 40,306 913
- (8,235) 36,200
Profit for the year and total comprehensive profit for the year - - 8,235
- - 8,235
Issue of share capital 1,071 12,937 - - - 14,008
Expenses of placing - (551) - - - (551)
Issue of warrants - - 992 - - 992
Exercise of options 2 6 - - - 8
Exercise of warrants 13 345 (13) - 13 358
Share-based payments - - - 249 - 249
Transactions with owners 1,086 12,737 979 249 13 15,064
At 31 July 2021 4,302 53,043 1,162 59,499
979 13
Statements of financial position
at 31 July 2021
31 July 31 July 31 July 31 July
2021 2021 2020 2020
Group Company Group Company
Notes £000 £000 £000 £000
Assets
Non-current assets
Tangible Fixed Assets 10 33 - 46 -
Right of Use Assets 10 377 - 378 -
Intangible assets 11 69 - 157 -
Goodwill 12 1,192 - 1,192 -
Investments in and loans to subsidiaries 13 - 59,493 - 36,200
1,671 59,493 1,773 36,200
Current assets
Trade and other receivables 14 574 6 438 -
Income tax asset 15 2,053 - 1,780 -
Cash and cash equivalents 16 17,103 - 5,648 -
19,730 6 7,866 -
Total assets 21,401 59,499 9,639 36,200
Liabilities
Current liabilities
Trade and other liabilities 17 1,647 - 1,166 -
Lease liabilities 18 217 - 189 -
1,864 - 1,355 -
Non-Current liabilities
Trade and other liabilities 17 64 - - -
Lease liabilities 18 187 - 218 -
251 - 218 -
Total liabilities 2,115 - 1,573 -
Net assets 19,286 59,499 8,066 36,200
Capital and reserves
Issued equity capital 19 4,302 4,302 3,216 3,216
Share premium 19 53,043 53,043 40,306 40,306
Share-based payment reserve 20 1,191 1,162 942 913
Warrant reserve 21 979 979 - -
Merger reserve 22 920 - 920 -
Capital contribution reserve 23 195 - 195 -
Retained earnings 24 (41,344) 13 (37,513) (8,235)
Total equity 19,286 59,499 8,066 36,200
Cash flow statements
For the year ended 31 July 2021
31 July 31 July 31 July 31 July
2021 2021 2020 2020
Group Company Group Company
Notes £000 £000 £000 £000
(Loss)/Profit after interest and tax (3,844) 8,235 (7,789) 24,752
Adjustments for:
Depreciation of tangible fixed assets 10 33 - 45 -
Depreciation of right-of-use assets 10 254 - 302 -
Amortisation of intangible assets 11 88 - 138 -
Reversal of impairment of investments in and loans to subsidiaries - (8,235) - (24,752)
Share-based payments 19 249 - 206 -
Finance income 7 (1) - (5) -
Interest payments on leases 24 15 - 18 -
Taxation (2,063) - (1,790) -
Changes in working capital:
(Increase)/decrease in trade and other receivables 14 (136) - 203 -
Increase/(decrease) in trade and other payables 17 545 - (486) -
(4,860) - (9,158) -
Cash outflow from operating activities
Research and development tax credit received 1,790 - 4,086 -
Net cash outflow from operating activities (3,070) (5,072)
Cash flows from investing activities
Increase in investment in and loans to subsidiaries - (14,815) - (8,664)
Purchases of tangible fixed assets 10 (20) - (14) -
Finance income 7 1 - 5 -
Net cash outflow from investing activities (19) (14,815) (9) (8,664)
Cash flows from financing activities
Payment of lease liabilities 24 (271) - (319) -
Proceeds from issues of ordinary share capital 19 15,366 15,366 9,212 9,211
Expenses of share capital issue 19 (551) (551) (547) (547)
Net cash inflow from financing activities 14,544 14,815 8,346 8,664
Decrease in cash and cash equivalents 11,455 - 3,265 -
Cash and cash equivalents at the start of the year 5,648 - 2,383 -
Cash and cash equivalents at the end of the year 17,103 - 5,648 -
Cash, cash equivalents and deposits at the end of the year 16 17,103 - 5,648 -
Approved by the Board and authorised for issue on 10 December 2021
Clive Dix
Chief Executive Officer
10 December 2021
Registered number: 09134041
Notes to the financial statements
1. Reporting entity
C4X Discovery Holdings plc (the "Company") is an AIM listed company
incorporated, registered and domiciled in England and Wales within the UK.
These Group financial statements consolidate those of the Company and its
subsidiaries (together referred to as the "Group" and individually as "Group
entities") for the year ended 31 July 2021.
The financial statements of the Company and the Group for the year ended 31
July 2021 were authorised for issue by the Board of Directors on XX December
2021 and the statement of financial position was signed on the Board's behalf
by Clive Dix.
The Company has elected to take the exemption under Section 408 of the
Companies Act 2006 not to present the parent company's statement of
comprehensive income. The parent company had a profit of £8,235,000 for the
year ended 31 July 2021 (2020: profit of £24,752,000) see note 13. The profit
in its entirety for the current and prior years was as a result of the
reversal of past impairments of the Company's investment in its subsidiary.
The significant accounting policies adopted by the Group are set out in note
3.
2. Basis of preparation
Statement of accounting compliance
The Group's and parent company's financial statements have been prepared in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 "Adopted IFRS" as they apply to the
financial statements of the Group for the period ended 31 July 2021.
Basis of measurement
The Company and Group financial statements have been prepared on the
historical cost basis.
The methods used to measure fair values of assets and liabilities are
discussed in the respective notes in note 3 below.
Going concern
Notwithstanding a consolidated operating loss for the year ended 31 July 2021
of £5.9 million (2020: £9.6m), revenues of £5.6 million (2020: £nil) and
net cash used in operating activities of £3.1 million (2020: £5.1m), the
Directors have prepared both the consolidated and Company financial statements
on a going concern basis, which the Directors believe to be appropriate for
the following reasons.
The Group completed a £14.5 million fundraising with new and existing
investors in November 2020. The Group also signed a licence deal in April 2021
with Sanofi for its intellectual property rights relating to the IL-17A
inhibitor compounds, where £6 million was received in an upfront payment. The
Group has cash and cash equivalents at 31 July 2021 of £17.1 million (2020:
£5.6m) and at 30 November 2021 had cash resources of £13.4 million.
The Board has prepared cash flow forecasts covering at least 12 months from
the date of signing the financial statements, including a severe but plausible
downside scenario which takes into consideration the anticipated impact of
COVID-19 and inflationary costs.
The severe but plausible downside scenario considered reflects a delay of six
months in the receipt of forecast research and development tax credits from
HMRC and a 20% increase in Contract Research Organisations (CRO) costs. The
base case and severe but plausible downside cash flow forecasts, which both
assume no further fund raising and no revenue generation during the forecast
period, indicate that the Group and Company have sufficient cash resources to
meet their liabilities as they fall due for at least 12 months from the date
of approval of these financial statements.
Based on the above factors the Board are satisfied that the Group and Company
have adequate resources to enable the Group and Company to continue
discharging their liabilities and realising their assets for at least 12
months from the date of approval of these financial statements. Accordingly,
they continue to adopt the going concern basis in preparing the Group and
Company financial statements.
In terms of the period beyond the going concern assessment period, the severe
but plausible downside scenario, indicates that existing cash resources would
be exhausted in approximately quarter one 2023. However, the Board consider
they are able to take reasonable mitigating actions, which includes but is not
limited to a reduction in expenditure on certain discretionary research
programmes to focus purely on commercialising earlier stage drug molecules,
and reducing other discretionary administrative expenditure, which would
enable the Group and Company to continue to operate within its existing cash
resources for a significantly extended period.
The Board have a reasonable expectation they will be able to raise further
equity or debt financing to support their ongoing research activities if
required. The Board also have a reasonable expectation that another licencing
deal will be signed and that a further milestone payment on the Orexin-1
contract will be achieved within the forecast period, although there can be no
guarantees that either of these events will occur, and they are not reflected
in the Board's base case or sensitised cash flow forecasts.
Functional and presentational currency
These financial statements are presented in Pounds Sterling, which is also the
functional currency of the Company and its subsidiaries. All financial
information presented has been rounded to the nearest thousand.
Use of judgements and estimates
The preparation of financial statements requires management to make estimates
and judgements that affect the amounts reported for assets and liabilities as
at the reporting date and the amounts reported for revenues and expenses
during the year. The nature of estimation means that actual amounts could
differ from those estimates. Estimates and judgements used in the preparation
of the financial statements are continually reviewed and revised as necessary.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to estimates are recognised prospectively.
Judgements
Judgements made in applying the Group's accounting policies that have the most
significant impact on the amounts recognised in the financial statements are:
Revenue recognition
When determining the correct amount of revenue to be recognised. This includes
making certain judgements when determining the appropriate accounting
treatment of key customer contract terms in accordance with the applicable
accounting standards. During the period, C4X signed an agreement with Sanofi
for the worldwide licensing of C4XD's IL-17A oral inhibitor programme.
Judgement was required in identifying the number of performance obligations in
the contract, specifically whether the transfer of intellectual property and
the delivery of research services represented different performance
obligations. The Group applied the guidance in IFRS 15 by considering whether
the licence was distinct from the promise to provide ongoing research services
through the duration of the research work plan set out in the agreement. As
such, revenue recognised from the delivery of research services is recorded
over time and this resulted in £0.5 million of revenue being spread over an
18 month period from the date of signing the deal. The alternative judgement
could be that the transfer of intellectual property and the delivery of
research services is one performance obligation which would result in the
upfront payment of £6 million being recognised over the length of the
research work plan estimated at 18 months. The Group concluded that these were
separate performance obligations as both the intellectual property and the
research work programme could be sold separately and the customer can benefit
from each on its own or together with readily available resources, so they are
capable of being distinct and they are set out as separate promises in the
contract.
Additional judgement was required in determining whether the transfer of
intellectual property gave the customer use at a time which the licence was
granted or a right to access. Management determined that the customer receives
the right to the drug molecule on the date that the IP is transferred over and
therefore the cash payment received constitutes handing over control of the IP
to Sanofi and is not dependent on any future outcomes. The impact of this
judgement resulted in recognising revenue in full of £5.5 million in the
period, being the residual balance of the upfront payment after allocating
revenue to the other performance obligation. Alternatively, management could
have assessed the transfer of intellectual property as a right to access of
the licence agreement date which would have resulted in deferring £2.75
million into next year.
Research and development
Careful judgement by the Directors is applied when deciding whether the
recognition requirements for capitalisation of research and development costs
have been met. In particular, judgement is required over whether technical
viability is proven and whether economic benefits will flow to the entity. The
Directors consider that these factors are uncertain until such time as
commercial supply agreements are considered likely to be achieved. Judgements
are based on the information available at each reporting date which includes
the progress with testing and certification and progress on, for example,
establishment of commercial arrangements with third parties. In addition, all
internal activities related to research and development of new products are
monitored by the Directors. Further information is included in note 3.
Estimates
The key sources of estimation uncertainty that have a significant risk of
causing material adjustment to the carrying amount of assets and liabilities
within the next financial year are discussed below.
· Revenue recognition
Estimation is involved in determining the correct amount of revenue to
recognise. This can be split into two components: (i) the allocation of the
transaction price between performance obligations and (ii) the timing of
revenue recognition in respect of the delivery of services, particularly where
there is an expectation that the customer will not fully exercise their rights
to services.
Firstly, the allocation of the transaction price for the revenue relating to
the ongoing research services has been calculated on a cost-plus margin basis.
The existing salaries of five full time equivalents ("FTE") which are
available under the terms of the contract have been combined and a commercial
margin has been applied to the cost of these employees. In calculating the
cost, an average FTE day rate has been taken and multiplied by the total
number of days expected to be worked over an 18 month period from the date of
signing the agreement which results in £0.5m of revenue being spread over the
length of the research work programme.
To arrive at the commercial margin used, management reviewed the results from
comparable drug discovery services, both emerging and well-established CROs,
to understand the margins that they are achieving. The Company's platform is
unproven and unvalidated commercially as a stand-alone paid-for drug discovery
software and consequently any paid-for commercial access to the software
would, at this stage, effectively be beta-testing and therefore attract a
margin at the lower range of those achieved by other providers.
· Intangible fixed assets and goodwill
The Group tests annually whether goodwill has suffered any impairment. The
Group also tests other intangible assets for impairment when indicators of
impairment arise. The potential recoverable amounts of intangible fixed assets
and goodwill have been determined based on a fair value less cost of disposal,
this has been calculated with reference to market capitalisation of the Group
(as explained in Note 12).
The Directors are satisfied that no reasonably possible change in this
estimate would result in the recognition of an impairment within the next
twelve months and accordingly the carrying value of goodwill and other
intangibles are not considered a significant estimate as at 31 July 2021
· Investments in and loans to subsidiaries
Loans to subsidiaries are tested for impairment using an expected credit loss
model. This requires estimation of the probability of default, the exposure at
default and the loss given default in order to calculate the expected credit
loss of the loans to subsidiaries. The key judgement made by management in the
expected credit loss calculations is the probability assumptions of the future
cashflows and the timing of the cashflows. The sensitivities are disclosed in
Note 13.
The recoverable amount of the Parent's investment in subsidiary is tested for
impairment when indicators of impairment (or reversal of impairment) are
identified. The potential recoverable amounts have been determined based on a
value in use model. The recoverable amount has been determined to be £3
million. These calculations require the use of estimates both in arriving at
the expected future cash flows and the application of a suitable discount rate
in order to calculate the present value of these cash flows. Cash flow
estimates include the timing of signing future licence agreements and the
receipt of further milestone licence payments. These estimates were
benchmarked against the Group's own experience of such deals and external
sources of information within the industry. The assumptions and related
sensitivity analysis in these calculations are included in note 13.
3. Significant accounting policies
The accounting policies set out below are consistent with those of the
previous financial year and are applied consistently by Group entities.
Basis of consolidation
The Group financial statements consolidate the financial statements of C4X
Discovery Holdings plc and the entities it controls (its subsidiaries) drawn
up to 31 July each year.
All business combinations are accounted for by applying the acquisition method
as at the acquisition date, which is the date on which control is transferred
to the Group.
The Group measures goodwill at the acquisition date as:
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets
acquired and liabilities assumed.
Transaction costs related to the acquisition, other than those associated with
the issue of debt or equity securities, that the Group incurs in connection
with a business combination are expensed as incurred.
Subsidiaries are all entities controlled by the Group. The Group controls an
entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. All C4X Discovery Holdings plc's
subsidiaries are 100% owned. Subsidiaries are fully consolidated from the date
control passes.
All intra-Group transactions, balances and unrealised gains on transactions
between Group companies are eliminated on consolidation. Subsidiaries'
accounting policies are amended where necessary to ensure consistency with the
policies adopted by the Group.
Foreign currency transactions
Transactions in foreign currencies are initially recorded in the functional
currency by applying the spot rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are
retranslated at the functional currency rate of exchange ruling at the
reporting date. All differences are taken to the consolidated statement of
comprehensive income.
Segmental reporting
An operating segment is a component of an entity that engages in business
activities from which it may earn revenues and incur expenses, whose operating
results are regularly reviewed by the entity's chief operating decision maker
to make decisions about resources to be allocated to the segment and assess
its performance, and for which discrete financial information is available. As
at the reporting date the Group operated with only a single segment.
Revenue
IFRS 15 establishes principles for reporting useful information to users of
financial statements about the nature, amount, timing and uncertainty of
revenue and cash flows arising from an entity's contracts with customers. The
standard establishes a five-step principle-based approach for revenue
recognition and is based on the concept of recognising an amount that reflects
the consideration for performance obligations only when they are satisfied and
the control of goods or services is transferred.
The majority of the Group's contract revenue is generated from licenses and
services.
Management reviewed the contracts where the Group received consideration in
order to determine whether or not they should be accounted for in accordance
with IFRS 15. To date, the Group has entered into two transactions - the
second which was signed in the year - that generate revenue and meet the scope
of IFRS 15. After review of the contract with Sanofi, it was determined that
there were two performance obligations to be satisfied, the first being the
transfer of IP and the second being the provision of research services through
the "research work programme". Contract revenue is recognised at either a
point-in-time or over time, depending on the nature of the services and
transfer of goods.
Revenue generated from the sale of a licence may include promises to deliver
other goods or services in addition to the promised licence.
Revenue generated from services agreements is determined to be recognised over
time when it can be determined that the services meet one of the following:
(a) the customer simultaneously receives and consumes the benefits provided by
the entity's performance as the entity performs; (b) the entity's performance
creates or enhances an asset that the customer controls as the asset is
created or enhanced; or (c) the entity's performance does not create an asset
with an alternative use to the entity and the entity has an enforceable right
to payment for performance completed to date.
The Sanofi contract includes a separate performance obligation to deliver
research services. It was determined that the services provided to Sanofi
under the terms of the research work programme in the contract meets criteria
(a) above on the basis that the customer receives and uses the benefit as the
work on any new compounds is evolved and is therefore a separate performance
obligation and revenue should be recognised over time. The allocation of the
transaction price for the revenue relating to the ongoing research services
has been calculated on a cost-plus margin basis. The existing salaries of five
full time equivalents ("FTE") which are available under the terms of the
contract have been combined and a commercial margin has been applied to the
cost of these employees. In calculating the cost, an average FTE day rate has
been taken and multiplied by the total number of days expected to be worked
over an 18 month period from the date of signing the agreement which results
in £0.5m of revenue being spread over the length of the research work
programme.
Revenue generated from the sale of a licence to a customer is determined to be
recognised at a point in time when a promise to provide the customer with the
right to use the entity's IP is satisfied. Management determined that the
customer receives the right to the drug molecule on the date that the IP is
transferred over and therefore the cash payment received constitutes handing
over control of the IP to Sanofi and is not dependent on any future
outcomes. The general guidance is applied on performance obligations
satisfied at a point in time to determine the point in time at which the
licence transfers to the customer. In this scenario, the point of time was
deemed to be the effective date that all of the intellectual property was
transferred over to Sanofi. The allocation of the transaction price for the
sale of licence was deemed to be £5.6m which is the remainder of the upfront
payment received in the year after deducting for the revenue allocated to the
second performance obligation.
The contract with Sanofi also includes future milestone payments which are
contingent on the drug molecule passing various clinical trials testing at a
future point in time. As there can be significant variability in final
outcomes, the Group applies a constraint when measuring the variable element
within revenue, so that revenue is recognised at a suitably cautious amount.
The objective of the constraint is to ensure that it is highly probable that a
significant reversal of revenue will not occur when the uncertainties are
resolved. The constraint is applied by making suitably cautious estimates of
the inputs and assumptions used in estimating the variable consideration. The
constraints applied in recognising revenue mean that the risk of a material
downward adjustment to revenue in the next financial year is low.
Royalty payments will be received by the Group when the drug is marketed and
sold by Sanofi. Revenue on royalty payments is recognised when they are earned
which for the Group will be when Sanofi have developed the drug and sold a set
number of products. At this point, the royalty rate owed to Group is applied
to the portion of the net sales made by Sanofi on royalty-bearing products
that fall within the indicated range as set out in the sales agreement.
Deferred Revenue
Deferred revenue includes amounts that are receivable or have been received
per contractual terms but have not been recognised as revenue since
performance has not yet occurred or has not yet been completed. The Company
classifies non-current deferred revenue for any transaction which is expected
to be recognised beyond one year.
Government grants
Government grants are recognised when it is reasonable to expect that the
grants will be received and that all related conditions are met, usually on
submission of a valid claim for payment.
Government grants of a revenue nature are deducted from research and
development expenses in the consolidated statement of comprehensive income in
line with the terms of the underlying grant agreement.
Government grants relating to capital expenditure are deducted in arriving at
the carrying amount of the asset.
Research and development
Research costs are charged in the consolidated statement of comprehensive
income as they are incurred. Development costs will be capitalised as
intangible assets when it is probable that future economic benefits will flow
to the Group. Such intangible assets will be amortised on a straight-line
basis from the point at which the assets are ready for use over the period of
the expected benefit and will be reviewed for impairment at each reporting
date based on the circumstances at the reporting date.
The criteria for recognising expenditure as an asset are:
· it is technically feasible to complete the product;
· management intends to complete the product and use or sell it;
· there is an ability to use or sell the product;
· it can be demonstrated how the product will generate probable
future economic benefits;
· adequate technical, financial and other resources are available
to complete the development, use and sale of the product; and
· expenditure attributable to the product can be reliably measured.
Development costs are currently charged against income as incurred since the
criteria for their recognition as an asset are not met.
The Group utilises the government's R&D tax credit scheme for all
qualifying UK R&D expenditure. The credits are accounted for under IAS 12,
and presented in the profit and loss as a deduction from current tax expense
to the extent that the entity is entitled to claim the credit in the current
reporting period.
Leases
The Group applies the leasing standard IFRS16, to all contracts identified as
leases at their inception, unless they are considered short-term or where the
asset is of a low underlying value.
The Group has lease contracts in relation to property and office equipment. At
inception of a contract, the Group assesses whether a contract is, or
contains, a lease. A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in
exchange for consideration. To assess whether a contract conveys the right to
control the use of an identified asset, the Group uses the definition of a
lease in IFRS 16.
As a lessee
At commencement or on modification of a contract that contains a lease
component, the Group allocates the consideration in the contract to each lease
component on the basis of its relative stand-alone prices. However, for leases
of property the Group has elected not to separate non-lease components and
account for the lease and non-lease components as a single lease component.
The Group recognises a right-of-use asset and a lease liability at the lease
commencement date, at which point the Group assesses the term for which it is
reasonably certain to hold that lease. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease liability
adjusted for any lease payments made at or before the commencement date, plus
any initial direct costs incurred and an estimate of costs to dismantle and
remove the underlying asset or to restore the underlying asset or the site on
which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line
method from the commencement date to the end of the lease term, unless the
lease transfers ownership of the underlying asset to the Group by the end of
the lease term or the cost of the right-of-use asset reflects that the Group
will exercise a purchase option. In that case, the right-of-use asset will be
depreciated over the useful life of the underlying asset, which is determined
on the same basis as those of property and equipment. In addition, the
right-of-use asset is periodically reduced by impairment losses, if any, and
adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily
determined, the Group's incremental borrowing rate. Generally, the Group uses
its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest
rates from various external financing sources and makes certain adjustments to
reflect the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the
following:
• Fixed payments, including in-substance fixed payments;
• Variable lease payments that depend on an index or a rate, initially
measured using the index or rate as at the commencement date;
• amounts expected to be payable under a residual value guarantee; and
• the exercise price under a purchase option that the Group is
reasonably certain to exercise, lease payments in an optional renewal period
if the Group is reasonably certain to exercise an extension option, and
penalties for early termination of a lease unless the Group is reasonably
certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest
method. It is remeasured when there is a change in future lease payments
arising from a change in an index or rate, if there is a change in the Group's
estimate of the amount expected to be payable under a residual value
guarantee, if the Group changes its assessment of whether it will exercise a
purchase, extension or termination option or if there is a revised
in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment
is made to the carrying amount of the right-of-use asset, or is recorded in
profit or loss if the carrying amount of the right-of-use asset has been
reduced to zero.
The Group presents right-of-use assets that do not meet the definition of
investment property in "property, plant and equipment" and lease liabilities
in "loans and borrowings" in the statement of financial position. On a
significant event, such as the lease reaching its expiry date or the likely
exercise of a previously unrecognised break clause, the lease term is
re-assessed by management as to how long we can be reasonably certain to stay
in that property, and a new lease agreement or modification (if the change is
made before the expiry date) is recognised for the re-assessed term.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease
liabilities for leases of low-value assets and short-term leases. Assets which
fall into this category include office equipment. The Group recognises the
lease payments associated with these leases as an expense on a straight-line
basis over the lease term. The value of these leases is less than £1,000 per
annum.
COVID-19-related rent concessions
The Group has applied COVID-19-Related Rent Concessions - Amendment to IFRS
16. The Group applies the practical expedient allowing it not to assess
whether eligible rent concessions that are a direct consequence of the
COVID-19 pandemic are lease modifications. The Group applies the practical
expedient consistently to contracts with similar characteristics and in
similar circumstances. For rent concessions in leases to which the Group
chooses not to apply the practical expedient, or that do not qualify for the
practical expedient, the Group assesses whether there is a lease modification.
The total value of this was £10,462 for the year (2020: nil).
Finance income and costs
Finance income comprises interest income on funds invested. Interest income is
recognised as interest accrues using the effective interest rate method.
Finance costs comprise interest payments on right-of-use leases.
Income tax
Income tax expense comprises current and deferred tax. Income tax expense is
recognised in the consolidated statement of comprehensive income except to the
extent that it relates to items recognised directly in equity or in other
comprehensive income.
Current income tax assets and liabilities for the current and prior periods
are measured at the amount expected to be recovered from, or paid to, the tax
authorities. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted by the reporting date.
Deferred income tax is recognised on all temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the
financial statements with the following exceptions:
· where the temporary difference arises from the initial recognition
of goodwill or of an asset or liability in a transaction that is not a
business combination, that at the time of the transaction affects neither
accounting nor taxable profit nor loss; and
· in respect of taxable temporary differences associated with
investments in subsidiaries where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are measured on an undiscounted
basis using the tax rates and tax laws that have been enacted or substantially
enacted by the reporting date and which are expected to apply when the related
deferred tax asset is realised or the deferred tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable
that future taxable profits will be available against which differences can be
utilised. An asset is not recognised to the extent that the transfer or
economic benefits in the future are uncertain.
Tangible fixed assets
Owned assets
Property, plant and equipment assets are recognised initially at cost. After
initial recognition, these assets are carried at cost less any accumulated
depreciation and any accumulated impairment losses. Cost comprises the
aggregate amount paid and the fair value of any other consideration given to
acquire the asset and includes costs directly attributable to making the asset
capable of operating as intended.
Leased assets
Assets funded through finance leases and similar hire purchase contracts and
those previously classified as operating leases are now recognised in the
consolidated statement of financial position under IFRS 16 Leases as a right
of use asset. The lease note illustrates the recognition and subsequent
measurement of leased assets under IFRS 16.
Depreciation is computed by allocating the depreciable amount of an asset on a
systematic basis over its useful life and is applied separately to each
identifiable component.
The following bases and rates are used to depreciate classes of assets:
Building improvements - straight-line over remainder of lease period
Office equipment, fixtures and fittings - straight-line over three years
Right-of-use assets - straight-line from the commencement date to the end of the lease term
The carrying values of property, plant and equipment are reviewed for
impairment if events or changes in circumstances indicate that the carrying
value may not be recoverable, and are written down immediately to their
recoverable amount. Useful lives and residual values are reviewed annually and
where adjustments are required these are made prospectively.
A property, plant and equipment item is derecognised on disposal or when no
future economic benefits are expected to arise from the continued use of the
asset. Any gain or loss arising on the derecognition of the asset is included
in the consolidated statement of comprehensive income in the period of
derecognition.
Intangible assets
Intangible assets acquired either as part of a business combination or from
contractual or other legal rights are recognised separately from goodwill
provided they are separable and their fair value can be measured reliably.
This includes the costs associated with acquiring and registering patents in
respect of intellectual property rights.
Where intangible assets recognised have finite lives, after initial
recognition their carrying value is amortised on a straight-line basis over
those lives. The nature of those intangibles recognised and their estimated
useful lives are as follows:
Patents - straight line over 20 years
IP assets - straight line over five years
Software - straight line over five years
Goodwill
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is
allocated to cash-generating units and is not amortised but is tested annually
for impairment.
Impairment of assets
At each reporting date the Group reviews the carrying value of its plant,
equipment, intangible assets and goodwill to determine whether there is an
indication that these assets have suffered an impairment loss. If any such
indication exists, or when annual impairment testing for an asset is required,
the Group makes an assessment of the asset's recoverable amount.
An assets recoverable amount is the higher of an assets or cash-generating
units fair value less costs to sell and its value in use and is determined for
an individual asset, unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of assets. Where the
carrying value of an asset exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount. In
determining fair value less costs of disposal, an appropriate valuation model
is used, these calculations are corroborated by valuation multiples, or other
available fair value indicators. Impairment losses on continuing operations
are recognised in the consolidated statement of comprehensive income in those
expense categories consistent with the function of the impaired asset.
An assessment is made at each reporting date as to whether there is any
indication that previously recognised impairment losses may no longer exist or
may have decreased. If such indication exists, the recoverable amount is
estimated. A previously recognised impairment loss is reversed only if there
has been a change in the assumptions used to determine the asset's recoverable
amount since the last impairment loss was recognised. If that is the case the
carrying amount of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognised for
the asset in prior years. Such reversal is recognised in the consolidated
statement of comprehensive income unless the asset is carried at revalued
amount, in which case the reversal is treated as a valuation increase. After
such a reversal the depreciation charge is adjusted in future periods to
allocate the asset's revised carrying amount, less any residual value, on a
systematic basis over its remaining useful life.
The carrying values of plant, equipment, intangible assets and goodwill as at
the reporting date have not been subjected to impairment charges.
Investments in subsidiaries
Investments in subsidiaries are stated in the Company's statement of financial
position at cost less provision for any impairment.
Trade and other receivables
Trade receivables, which generally have 30 to 60 day terms, are measured at
amortised cost. Loss allowances for trade receivables are measured at an
amount equal to a lifetime expected credit loss ("ECL"). Lifetime ECLs are the
ECLs that result from all possible default events over the expected life of
the receivables. ECLs are a probability weighted estimate of credit losses.
Credit losses are measured as the present value of all cash shortfalls. The
gross carrying amount of trade receivables are written off to the extent that
there is no realistic prospect of recovery.
Cash, cash equivalents and short-term investments and cash on deposit
Cash and cash equivalents comprise cash at hand and deposits with maturities
of three months or less. Short-term investments and cash on deposit comprise
deposits with maturities of more than three months, but no greater than 12
months.
Trade and other payables
Trade and other payables are non-interest bearing and are initially recognised
at fair value. They are subsequently measured at amortised cost using the
effective interest rate method.
Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event and it is probable that an outflow
of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation.
The expense relating to any provision is presented in the consolidated
statement of comprehensive income, net of any expected reimbursement, but only
where recoverability of such reimbursement is virtually certain.
Provisions are discounted using a current pre-tax rate that reflects, where
appropriate, the risk specific to the liability. Where discounting is used,
the increase in the provision due to the passage of time is recognised as a
finance cost.
There were no provisions at 31 July 2021 (2020: £nil).
Financial instruments
i) Recognition and initial measurement
At the year end, the Group had no financial assets or liabilities designated
at fair value through the consolidated statement of comprehensive income
(2020: £nil).
Trade receivables and debt securities are initially recognised when they are
originated. All other financial assets and liabilities are initially
recognised when the Group becomes a party to the contractual provisions in the
instrument.
A financial asset (unless it is a trade receivable without a significant
financing component) or a financial liability is initially measured at fair
value plus, for items not measured at fair value through profit and loss
("FVTPL"), transaction costs that are directly attributable to its acquisition
or issue. A trade receivable without a significant financing component is
measured at the transaction price.
ii) Classification and subsequent measurement
Financial assets
On initial recognition a financial instrument is classified as measured at:
amortised cost, fair value through other comprehensive income ("FVOCI") or
FVTPL. Financial assets are not reclassified subsequent to their initial
recognition unless the Group changes its business model for managing financial
assets.
A financial asset is measured at amortised cost if it meets both the following
conditions and is not designated as FVTPL:
- it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
- its contractual terms give rise on a specified date to cash
flows that are solely the payment of principal and interest on the principal
outstanding.
On initial recognition of an equity investment that is not held for trading
the Group may irrevocably elect to present subsequent changes in the
investment's fair value in OCI. This election is made on an
investment-by-investment basis.
Financial assets at amortised cost are subsequently measured at amortised cost
using the effective interest method. The amortised cost is reduced by
impairment losses.
Financial liabilities
Financial liabilities are classified as measured at amortised cost or FVTPL. A
financial liability is classified as FVTPL if it is held-for-trading, it is a
derivative or it is designated as such on initial recognition. Other financial
liabilities are subsequently measured at amortised cost using the effective
interest method. Interest expense is recognised in profit or loss.
At the year end, the Group had no financial assets or liabilities designated
at FVOCI (2020: £nil).
Share capital
Proceeds on issue of shares are included in shareholders' equity, net of
transaction costs. The carrying amount is not remeasured in subsequent years.
Share-based payments
Equity-settled share-based payment transactions are measured with reference to
the fair value at the date of grant, recognised on a straight-line basis over
the vesting period, based on the Group's estimate of shares that will
eventually vest. Fair value is measured using a suitable option pricing model.
At each reporting date before vesting, the cumulative expense is calculated,
representing the extent to which the vesting period has expired and
management's best estimate of the achievement or otherwise of non-market
conditions and the number of equity instruments that will ultimately vest. The
movement in cumulative expense since the previous reporting date is recognised
in the consolidated statement of comprehensive income, with a corresponding
entry in equity.
Where the terms of an equity-settled award are modified or a new award is
designated as replacing a cancelled or settled award, the cost based on the
original award terms continues to be recognised over the original vesting
period. In addition, an expense is recognised over the remainder of the new
vesting period for the incremental fair value of any modification, based on
the difference between the fair value of the original award and the fair value
of the modified award, both as measured on the date of the modification. No
reduction is recognised if this difference is negative.
Where awards are granted to the employees of a subsidiary company, the fair
value of the awards at grant date is recorded in the Company's financial
statements as an increase in the value of the investment with a corresponding
increase in equity via the share-based payment reserve.
Warrant reserve
Proceeds from issuance of warrants, net of issue costs are included in the
warrant reserve. The warrant reserve is distributable and will be transferred
to retained reserves upon exercise or lapse of warrants
Defined contribution pension scheme
The Group operates a defined contribution pension scheme. The assets of the
scheme are held separately from those of the Group in an independently
administered fund. The amounts charged against profits represent the
contributions payable to the scheme in respect of the accounting period.
New accounting standards and interpretations
A number of new standards, amendments to standards and interpretations have
been endorsed by the EU and are effective for annual periods commencing on or
after 1 January 2021 or ending 31 July 2022 or thereafter and have not been
applied in preparing these consolidated financial statements and those are
summarised below. None of these are expected to have a significant effect on
the consolidated financial statements of the Group in the period of initial
application.
The following standards and interpretations have an effective date after the
date of these financial statements.
UK effective date
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS16 : Interest Rate 1 January 2021
Benchmark Reform - Phase 2
Research partnerships
The costs and revenues related to research partnerships are shared between the
parties in accordance with the terms of the agreement.
4. Segmental information
The Group operated as one single operating segment for the current and prior
financial years. This is the level at which operating results are reviewed by
the Chief Operating Decision Market (considered to be the Board of Directors)
to assess performance and make strategic decisions about the allocation of
resources.
Revenue from contracts with customers
2021 2020
£000 £000
Revenue recognised at a point in time
- Right-to-use licence revenue 5,540 -
Revenue recognised over time
- Research services revenue 102 -
Total revenue 5,642 -
Revenue in the current year is generated from a contract with a single
customer which was determined to have two performance obligations. The revenue
attributable to the transfer of intellectual property has been recognised at a
single point in time. The revenue attributed to the delivery of research
services is recognised over time and progress is measured based on costs
incurred to date as compared with the total projected costs.
Contract balances
Receivable balances in respect of contracts with customers are as follows:
2021 2020
£000 £000
Trade receivables - -
Contract liabilities represent the Group's obligation to provide services to a
customer for which consideration has been received. Contract liabilities are
included within deferred revenue on the Consolidated Statement of Financial
Position.
2021 2020
£000 £000
Deferred revenue - short term 330 -
Deferred revenue - long term 64 -
Total deferred revenue 394 -
Remaining performance obligations represent the value of partially satisfied
performance obligations within contracts with an original expected contract
term that is greater than one year and for which fulfilment of the contract
has started as of the end of the reporting period. The total remaining
consideration allocated to remaining performance obligations at July 2021 was
£394,000. The Group expects to recognise the remaining performance
obligations as revenue and will do so based upon costs incurred to date as
compared with the total projected costs.
Greater than 1 year
Less than Total
1 year
£000 £000 £000
Remaining performance obligations 330 64 394
Impairment losses recognised on receivables arising from contracts with
customers are £nil (2020: £nil).
Typical payment terms are 60 days after the occurrence of the relevant
milestone.
5. Operating loss
31 July 31 July
2021 2020
The Group £000 £000
Operating loss is stated after charging/(crediting):
Depreciation of property, plant and equipment (see note 10) 33 45
Depreciation on right-of-use assets (see note 10) 254 302
Amortisation of intangible assets (see note 11) 88 138
Research and development expense* 8,263 6,858
Grant income - (34)
Auditor's remuneration
Audit services:
-Fees payable to Company auditor for the audit of the parent and the 90 52
consolidated accounts
Fees payable in respect of the audit of subsidiary companies:
-Auditing the accounts of subsidiaries pursuant to legislation 30 26
-Other services 36 22
Total auditor's remuneration 156 100
*Included within research and development expense are staff costs totalling
£2,951,000 (2020: £2,335,000) also included in note 6.
6. Staff costs and numbers
31 July 31 July
2021 2020
£000 £000
Wages and salaries 3,551 2,725
Social security costs 409 304
Pension contributions 442 428
Share-based payments 249 206
4,651 3,665
Directors' remuneration (including benefits-in-kind) included in the aggregate
remuneration above comprised:
Emoluments for qualifying services 745 620
Directors' emoluments (excluding social security costs but including benefits
in kind) disclosed above include £195,000 paid to the highest paid Director
(2020: £162,000).
Retirement benefits are accruing to four Directors (2020: four Directors).
The average number of employees during the year (including Directors) was as
follows:
31 July 31 July
2021 2020
The Group Number Number
Directors 7 7
Technological staff 32 32
Administrative staff 7 7
46 46
Additional information on the emoluments and compensation, including cash or
non-cash benefits, of the Directors, together with information regarding the
share options of the Directors, and details of contributions paid to a pension
scheme on their behalf, is included within Tables 1 and 2 on page 36, which
forms part of these audited financial statements.
7. Finance income and costs
31 July 31 July
2021 2020
The Group £000 £000
Finance income
Bank interest receivable 1 5
1 5
Finance costs
Interest on lease liabilities 15 18
15 18
8. Income tax
The tax credit is made up as follows:
31 July 31 July
2021 2020
The Group £000 £000
Current income tax
UK corporation tax on losses in the year
Research and development income tax credit receivable (2,053) (1,780)
Adjustment in respect of prior years (10) (10)
Total current income tax (2,063) (1,790)
The tax assessed for the year varies from the standard rate of corporation tax 31 July 31 July
as explained below:
2021 2020
The Group £000 £000
Loss before taxation (5,907) (9,459)
Tax at standard rate of 25.00% (2020: 19.00%) (1,477) (1,797)
Effects of:
Expenses not deductible for tax purposes - 1
Movement in unprovided net deferred tax asset 86 69
Research and development tax credit receivable, net of R&D relief (662) (760)
surrendered
Share options exercised (CTA 2009 Pt 12 deduction) - -
Tax losses carried forward/(utilised) for which no deferred tax asset is - 707
recognised
Adjustment in respect of prior years (10) (10)
Tax credit in income statement (2,063) (1,790)
The Group has accumulated losses available to carry forward against future
trading profits. The estimated value of the deferred tax asset, measured at a
standard rate of 25% (2020: 19%), is £4,331,000 (2020: £3,265,000), of which
£nil (2020: £nil) has been recognised. Tax losses have not been recognised
as an asset as it is not probable that future taxable profits will be
available against which the unused tax losses can be utilised.
The Group also has a deferred tax liability being accelerated capital
allowances, for which the tax, measured at a standard rate of 25% (2020: 19%)
is £9,000 (2020: £24,000).
The Group has a deferred tax asset for share-based payments, for which the
tax, measured at a standard rate of 25% (2020: 19%), is £298,000 (2020:
£179,000).
The net deferred tax asset of £289,000 (2020: £155,000) has not been
recognised.
9. Earnings per share
31 July 31 July
2021 2020
The Group £000 £000
Loss for the financial year attributable to equity shareholders (3,844) (7,790)
Weighted average number of shares
Ordinary shares in issue for purposes of basic EPS 196,261,295 96,123,309
Effect of potentially dilutive ordinary shares:
Number of exercisable share options and warrants 14,531,129 -
Ordinary share in issue for purposes of diluted EPS 210,792,424 -
Basic loss per share (pence) (1.96) (8.10)
Diluted loss per share (pence) (1.82) (8.10)
The exercisable share options and warrants are deemed to be dilutive in nature
where their exercise price is less than the average share price for the
period.
10. Tangible fixed assets
Office equipment, fixtures and fittings Building improvements Total
Right-of-use assets
The Group £000 £000 £000 £000
Cost
At 31 July 2019 236 38 - 274
Recognition of right-of-use assets - - 432 730
Adjusted balance at 31 July 2019 236 38 432 706
Additions 13 - 248 261
Disposals - - (137) (137)
At 31 July 2020 249 38 543 830
Additions 20 - 253 273
Disposals (17) - (248) (265)
At 31 July 2021 252 38 548 838
Depreciation
At 31 July 2019 163 33 - 196
Recognition of right-of-use assets - - - -
Adjusted balance at 31 July 2019 163 33 - 196
Provided during the year 40 5 302 347
Eliminated on disposal - - (137) (137)
At 31 July 2020 203 38 165 406
Provided during the year 33 - 254 287
Eliminated on disposal (17) - (248) (265)
At 31 July 2021 219 38 171 428
Net book value
At 31 July 2021 33 - 377 410
At 31 July 2020 46 - 378 424
The Company has no tangible fixed assets.
The Group recognises right-of-use assets with respect to its property leases.
11. Intangible assets
Patents IP assets Software Total
The Group £000 £000 £000 £000
Cost
At 31 July 2019 138 600 50 788
Additions - - - -
At 31 July 2020 138 600 50 788
Additions - - - -
At 31 July 2021 138 600 50 788
Amortisation
At 31 July 2019 53 410 30 493
Provided during the year 8 120 10 138
At 31 July 2020 61 530 40 631
Provided during the year 8 70 10 88
At 31 July 2021 69 600 50 719
Net book value
At 31 July 2021 69 - - 69
At 31 July 2020 77 70 10 157
Patents are amortised on a straight-line basis over 20 years. Amortisation
provided during the period is recognised in administrative expenses. The Group
does not believe that any of its patents in isolation are material to the
business.
IP assets and software are amortised on a straight-line basis over five years.
Amortisation provided during the period is recognised in administrative
expenses.
For impairment reviews see note 12.
The Company has no intangible assets.
12. Goodwill
Purchased goodwill Total
The Group £000 £000
Cost
At 31 July 2019, 31 July 2020 & 31 July 2021 1,192
1,192
Impairment
At 31 July 2019 - -
Provided during the year - -
At 31 July 2020 - -
Provided during the year - -
At 31 July 2021 - -
Net book value
At 31 July 2021 1,192 1,192
At 31 July 2020 1,192 1,192
The Group has determined that for the purposes of goodwill and other
intangibles (see note 11) impairment testing, the UK Operations represents the
lowest level within the entity that goodwill and other intangibles are
monitored for internal management purposes. This is consistent with the one
operating segment analysis within Note 4. Therefore, the Group only has one
cash-generating unit ("CGU").
Management assesses goodwill and other intangibles for impairment annually at
the year-end date.
For the year ended 31 July 2021 impairment reviews were performed by comparing
the carrying value of the cash-generating unit with their recoverable amount.
The recoverable amount of the cash-generating units has been determined based
on their fair value less costs to disposal. As there is only one CGU, the
Group has determined its market capitalisation at the year-end date to be a
good basis in determining the value of the underlying CGU. The market
capitalisation at the year-end date was £67 million.
The assessment by the Board determined that the recoverable amount of the CGU
exceeded their carrying value, and therefore no impairment was required.
The Directors are satisfied that no reasonably possible change in this
estimate would result in the recognition of an impairment within the next 12
months and accordingly the carrying value of goodwill and other intangibles
are not considered a significant estimate as at 31 July 2021.
For the year ended 31 July 2020, the recoverable amount of goodwill and
intangible assets for the Group financial statements were determined by a
value in use calculation. This calculation took into account cash flows from
expected future licence agreements at each expected contract milestone, and
the costs incurred in securing those licence agreements, discounted to present
value using a pre-tax discount rate of 25%. The cash flows were projected
until 2034 which reflected the early stage of a number of the research
programmes and the time period over which cash inflows were expected to occur.
The model included expected licence agreements in relation to the Group's four
core research programmes, with initial payments assumed for prudent modelling
purposes by FY23 along with additional milestone payments on the Orexin-1
licence agreement.
The key assumptions used in the net present value calculation were the timing
of signing future licence agreements, the upfront and milestone licence
payments and the discount rate used. These assumptions were benchmarked
against the Group's own experience of such deals and external sources of
information within the industry. The model did not assume any future royalties
were received.
The recoverable amount exceeded the carrying value of the combined intangible
assets and goodwill by £34.9 million.
The key assumptions considered most sensitive for the net present value
calculations were those regarding the timing of signing future licence
agreements and the value of up front and milestone licence payments. The
sensitivity analysis showed that all licensing opportunities could slip by 10
years before an impairment is triggered and all except one of the Group's
licensing opportunities could fail compared to the base case before an
impairment would be triggered.
No impairment charge was recorded during the period.
The Company has no goodwill.
13. Investment in and loans to subsidiaries
Investment in subsidiary Loans to group undertakings Total
The Company £000 £000 £000
Cost
At 31 July 2020 2,784 41,651 44,435
Additions 249 14,809 15,058
At 31 July 2021 3,033 56,460 59,493
Provision
At 31 July 2020 2,784 5,451 8,235
Provided during the year (2,784) (5,451) (8,235)
At 31 July 2021 - - -
Net book value
At 31 July 2021 3,033 56,460 59,493
At 31 July 2020 - 36,200 36,200
By subsidiary
C4X Discovery Limited
59,493
C4X Drug Discovery Limited -
Adorial Limited -
At 31 July 2021 59,493
Country of incorporation Principal activity Class of shares held 31 July
Subsidiary undertakings 2020
C4X Discovery Limited* England and Wales Research and development Ordinary 100%
C4X Drug Discovery Limited** England and Wales Dormant company Ordinary 100%
Adorial Limited* England and Wales Dormant company Ordinary 100%
Adorial Technologies Limited* England and Wales Dormant company Ordinary 100%
Adorial Pharma Limited* England and Wales Dormant company Ordinary 100%
*The registered office address is Manchester One, 53 Portland Street,
Manchester M1 3LD.
**The registered office address is C/O Schofield Sweeney Springfield House, 76
Wellington Street, Leeds, West Yorkshire LS1 2AY.
Investment in subsidiary
During the year, the impairment of the Parent's investment in its subsidiary
from the prior year has been reversed due to changes in the assumptions in the
underlying cash flows of the business that increased the estimated recoverable
amount. We note that there is high estimation uncertainty and judgement
involved in the preparation of the cash flow forecast and it is sensitive to
changes in key assumptions - particularly around the 25% discount rate used
and drug programme failure. For an impairment to arise, the discount rate
would need to increase from 25% to 27% (with no change in the cash flows).
Alternatively, one drug programme out of the five included in the model would
need fail for an impairment to arise (with no change in the discount rate).
The amount impaired in the prior year was £2,784,000.
Loans to group undertakings
There are no formal terms for the repayment of inter-company loans, none of
which bear interest and all of which are repayable on demand however the
Directors do not expect this amount to be settled within the next 12 months
therefore have classified this as a non-current receivable.
For the year ended 31 July 2021, the recoverable amount of loans to
subsidiaries is determined by using an expected credit loss model which takes
into account the probability of default, the exposure at default and the loss
given default at the year end.
The Company does not expect this amount to be recalled within the next 12
months and nor would the subsidiary be able to repay on demand and therefore
they have considered how they expect to recover the loan receivable and the
recovery period of the loan in calculating the expected credit loss.
The Company has assessed the expected credit loss by looking at the future
cashflows of the subsidiary. As the loan is held at 0% interest, the effective
rate of return (ERR) is deemed to be 0%.
This calculation takes into account the probability of expected cash flows
from future licence agreements at each contract milestone, and the costs
incurred in securing those licence agreements. The cash flows are projected
until 2034 which reflects the early stage of a number of the research
programmes and the time period over which cash inflows are expected to occur.
The model includes expected licence agreements in relation to the Group's four
core research programmes, with initial payments assumed for prudent modelling
purposes by FY23 along with additional milestone payments on the Orexin-1 and
IL-17A licence agreements.
The key judgement made by management in the expected credit loss calculations
is the probability assumptions of the future cashflows and the timing of the
cashflows.
The model demonstrates that the future cashflows amount to £65m. The ECL
provision is £nil (2020: £5,451,000) as the model shows sufficient headroom
when compared with the total value of the loan.
The calculation is sensitive to the key assumptions used in determining the
probability assumptions included in the ECL calculation.
The carrying amount of the loan receivable is sensitive to assumptions about
the future. A probability weighted future cash flow model has been used with a
total implied probability of 18%. In order for an impairment to arise, the
total implied probability would need to fall to 15%.
For the year ended 31 July 2020, the recoverable amount of investments in
subsidiaries in the parent company financial statements was determined by a
value in use calculation. This calculation took into account cash flows from
expected future licence agreements at each expected contract milestone, and
the costs incurred in securing those licence agreements, discounted to present
value using a pre-tax discount rate of 25%. The cash flows were projected
until 2034 which reflected the early stage of a number of the research
programmes and the time period over which cash inflows were expected to occur.
The model included expected licence agreements in relation to the Group's four
core research programmes, with initial payments assumed for prudent modelling
purposes by FY23 along with additional milestone payments on the Orexin-1
licence agreement.
The key assumptions used in the value in use calculation were the timing of
signing future licence agreements, the upfront and milestone licence payments
and the discount rate used. These assumptions were benchmarked against the
Company's own experience of such deals and external sources of information
within the industry. The model did not assume any future royalties were
received.
The recoverable amount of loans to subsidiaries was determined by using an
expected credit loss model which took into account the probability of default,
the exposure at default and the loss given default. The Directors also
considered the value in use of the Group. The model demonstrated that the
combined recoverable amount of the investments in and loans to subsidiaries
was £36.2m which resulted in a net impairment reversal of £24.8m. The
carrying amount of the investment in and loans to subsidiaries was sensitive
to assumptions about the future.
14. Trade and other receivables
31 July 2021 31 July 2021 31 July 2020 31 July
2020
Group Company Group Company
£000 £000 £000 £000
Trade receivables 21 - 14 -
Prepayments 307 - 329 -
Other receivables - 6 - -
VAT receivables 246 - 95 -
574 6 438 -
The Directors consider that the carrying amount of trade and other receivables
approximates to their fair value.
There were no revenue-related contract assets (2020: £nil).
All trade receivables are denominated in Pounds Sterling.
15. Income tax asset
31 July 2021 31 July 2021 31 July 2020 31 July 2020
Group Company Group Company
£000 £000 £000 £000
Research and development income tax credit receivable 2,053 - 1,780 -
2,053 - 1,780 -
16. Cash, cash equivalents and deposits
31 July 31 July 2021 31 July 31 July 2020
2021 2020
Group Company Group Company
£000 £000 £000 £000
Cash and cash equivalents 17,103 - 5,648 -
17,103 - 5,648 -
Cash and cash equivalents at 31 July 2021 include deposits with original
maturity of three months or less of £nil (2020: £nil).
An analysis of cash, cash equivalents and deposits by denominated currency is
given in note 27.
17. Trade and other payables
31 July 2021 31 July 2021 31 July 2020 31 July
2020
Group Company Group Company
£000 £000 £000 £000
Current Liabilities
Current payables 472 - 558 -
Other payables 127 - 134 -
Deferred revenue 330 - - -
Accruals 718 - 474 -
1,647 - 1,166 -
Non-Current Liabilities
Deferred revenue 64 - - -
64 - - -
Revenue-related contract liabilities are recognised as deferred revenue and
allocated to the time period in which they are estimated to be recognised as
revenue (2020: £nil).
18. Lease liabilities
31 July 2021 31 July 2021 31 July 2020 31 July
2020
Group Company Group Company
£000 £000 £000 £000
Current Liabilities
Lease liabilities 217 - 189 -
217 - 189 -
Non-Current Liabilities
Lease liabilities 187 - 218 -
187 - 218 -
When measuring lease liabilities for leases that were classified as operating
leases, the Group discounted lease payments using its incremental borrowing
rate at 1 August 2019. The weighted average rate applied is 4.25%.
£000
2021
Balance at 1 August 2020 407
Cash outflow (271)
New leases 253
Fair value movement recorded in finance costs 15
At 31 July 404
2021
£000
2020
Balance at 1 August 2019 460
Cash outflow (319)
New leases 248
Fair value movement recorded in finance costs 18
At 31 July 407
2020
19. Issued equity capital
Ordinary shares Share capital Deferred shares Warrant reserve Share premium Total
Deferred shares
The Company Number Number £000 £000 £000 £000 £000
Allotted, called up and fully paid ordinary shares of 1p
57,792,636 577 32,256
At 31 July 2019 2,025,000 2,025 - 34,858
Issue of share capital on placing - 57,303,367 573 - - 8,022 8,595
Issue of share capital on open offer - 3,907,141 39 - - 547 586
Issue of share capital on subscription by Directors - 200,000 2 - - 28 30
Expenses of placing, open offer and subscription by Directors - - - - - (547) (547)
119,203,144 1,191 40,306
At 31 July 2020 2,025,000 2,025 - 43,522
Issue of share capital on placing - 99,169,286 992 - - 11,899 12,891
Issue of share capital on open offer - 7,973,572 80 - - 1,037 1,117
Issue of warrants on placing - - - - 992 - 992
Issue of share capital on exercise of share options - 188,125 2 - - 6 8
Issue of share capital on exercise of warrants - 1,278,570 13 - - 345 358
Expenses of placing, open offer and subscription by Directors - - - - - (551) (551)
227,812,697 2,277 53,042
At 31 July 2021 2,025,000 2,025 992 58,336
Share capital Deferred shares Warrant reserve Share premium Total
The Group £000 £000 £000 £000 £000
Allotted, called up and fully paid ordinary shares of 1p
577 32,256
At 31 July 2019 2,025 - 34,858
Issue of share capital on placing 573 - - 8,022 8,595
Issue of share capital on open offer 39 - - 547 586
Issue of share capital on subscription by Directors 2 - - 28 30
Expenses of placing, open offer and subscription by Directors - - - (547) (547)
1,191 40,306
At 31 July 2020 2,025 - 43,522
Issue of share capital on placing 992 - - 11,899 12,891
Issue of share capital on open offer 80 - - 1,037 1,117
Issue of warrants on placing - - 992 - 992
Issue of share capital on exercise of share options 2 - - 6 8
Issue of share capital on exercise of warrants 13 - - 345 358
Expenses of placing, open offer and subscription by Directors - - - (551) (551)
2,277 53,042
At 31 July 2021 2,025 992 58,336
During November 2019, £7.6 million (before expenses) was raised via a placing
of 46,466,667 ordinary shares, a subscription by Directors for 200,000
ordinary shares and an open offer for 3,907,141 ordinary shares at 15 pence
each.
During November 2020 £15.0 million (before expenses) was raised via a placing
of 99,169,286 ordinary shares and an open offer for 7,973,572 ordinary shares
at 14 pence each. In addition, 99,169,286 warrants were issued over ordinary
shares, exercisable at 28p per share with an exercise period of 5 years.
The deferred shares of £1 carry no right to participate in dividends in
respect of any financial year, until there shall have been paid to the holders
of the ordinary shares £1 per ordinary share in respect of the relevant
financial year; subject thereto, the deferred shares and the ordinary shares
shall rank equally in respect of any further dividends in respect of the
relevant financial year as if they constituted one class of share.
20. Share-based payment reserve
The Group £000
At 31 July 736
2019
Share-based 206
payments
At 31 July 942
2020
Share-based 249
payments
At 31 July 1,191
2021
£000
The Company
At 31 July 707
2019
Share-based 206
payments
At 31 July 913
2020
Share-based 249
payments
At 31 July 1,162
2021
The share-based payment reserve accumulates the corresponding credit entry in
respect of share-based payment charges. Movements in the reserve are disclosed
in the consolidated statement of changes in equity.
A charge of £249,000 has been recognised in the statement of comprehensive
income for the year (2020: £206,000).
This includes £46,342 (2020: £427) of incremental fair value on replacement
of options.
Share option schemes
The Group operates the following share option schemes all of which are
operated as Enterprise Management Incentive ("EMI") schemes insofar as the
share options being issued meet the EMI criteria as defined by HM Revenue
& Customs. Share options issued that do not meet EMI criteria are issued
as unapproved share options, but are subject to the same exercise performance
conditions.
C4X Discovery Holdings plc Long Term Incentive Plan ("LTIP")
Grant in September 2009
Share options were granted to a staff member on 29 September 2009. The options
granted are exercisable in the event of the listing of the Company, its
acquisition or at the absolute discretion of the Board. The exercise price was
set at 2.05 pence (the original exercise price of £22.00 was adjusted for a
subdivision of 1,075 share options in C4X Discovery Holdings plc for each
share option originally held in C4X Discovery Limited), being the estimated
fair value of the shares on the day preceding the issue of the share options.
The fair value benefit is measured using a Black Scholes model, taking into
account the terms and conditions upon which the share options were issued.
Grant in August 2012
Share options were granted to staff on 28 August 2012. The options granted are
exercisable in the event of the listing of the Company, its acquisition or at
the absolute discretion of the Board. The exercise price was set at 5.58 pence
(the original exercise price of £60.00 was adjusted for a subdivision of
1,075 share options in C4X Discovery Holdings plc for each share option
originally held in C4X Discovery Limited), being the estimated fair value of
the shares on the day preceding the issue of the share options. The fair value
benefit is measured using a Black Scholes model, taking into account the terms
and conditions upon which the share options were issued.
Grant in July 2013
Share options were granted to staff on 4 July 2013. The options granted are
exercisable in the event of the listing of the Company, its acquisition or at
the absolute discretion of the Board. The exercise price was set at 5.58 pence
(the original exercise price of £60.00 was adjusted for a subdivision of
1,075 share options in C4X Discovery Holdings plc for each share option
originally held in C4X Discovery Limited), being the estimated fair value of
the shares on the day preceding the issue of the share options. The fair value
benefit is measured using a Black Scholes model, taking into account the terms
and conditions upon which the share options were issued.
Grant in May 2014
Share options were granted to staff on 27 May 2014. The options granted are
exercisable in the event of the listing of the Company, its acquisition or at
the absolute discretion of the Board. The exercise price was set at 5.58 pence
(the original exercise price of £60.00 was adjusted for a subdivision of
1,075 share options in C4X Discovery Holdings plc for each share option
originally held in C4X Discovery Limited), being the estimated fair value of
the shares on the day preceding the issue of the share options. The fair value
benefit is measured using a Black Scholes model, taking into account the terms
and conditions upon which the share options were issued.
Grant in June 2015
Share options were granted to staff and Directors on 8 June 2015. The options
granted are exercisable at any time between three years and 10 years of them
being granted. There are no performance criteria attached to the options. The
exercise price was set at 100.0 pence, being the price at which shares were
placed in the IPO in October 2014. The fair value benefit is measured using a
Black Scholes model, taking into account the terms and conditions upon which
the share options were issued. Options which had not been cancelled or lapsed
were replaced on 28 July 2020.
Grant in December 2015
Share options were granted to a Director on 8 December 2015. The options
granted are exercisable, subject to meeting certain performance criteria, at
any time between three years and 10 years of them being granted. The exercise
price was set at 77 pence, being the average of the mid-market closing price
over the three days prior to 8 December 2015. The fair value benefit is
measured using a Black Scholes model, taking into account the terms and
conditions upon which the share options were issued. Options which had not
been cancelled or lapsed were replaced on 28 July 2020.
Grant in November 2016
Share options were granted to staff and a Director on 23 November 2016. The
options granted are exercisable, at any time between three years and 10 years
of them being granted. The exercise price was set at 105 pence, being the
average of the mid-market closing price over the three days prior to 23
November 2016. The fair value benefit is measured using a Black Scholes model,
taking into account the terms and conditions upon which the share options were
issued. Options which had not been cancelled or lapsed were replaced on 28
July 2020.
Grant in February 2017
Share options were granted to staff and a Director on 1 February 2017. The
options granted are exercisable, at any time between three years and 10 years
of them being granted. The exercise price was set at 91 pence, being the
average of the mid-market closing price over the three days prior to 1
February 2017. The fair value benefit is measured using a Black Scholes model,
taking into account the terms and conditions upon which the share options were
issued. Options which had not been cancelled or lapsed were replaced on 28
July 2020.
Grant in May 2017
Share options were granted to staff on 17 May 2017. The options granted are
exercisable, at any time between three years and 10 years of them being
granted. The exercise price was set at 90 pence, being the average of the
mid-market closing price over the three days prior to 17 May 2017. The fair
value benefit is measured using a Black Scholes model, taking into account the
terms and conditions upon which the share options were issued. Options which
had not been cancelled or lapsed were replaced on 28 July 2020.
Grant in September 2017
Share options were granted to staff on 26 September 2017. The options granted
are exercisable, at any time between three years and 10 years of them being
granted. The exercise price was set at 77 pence, being the average of the
mid-market closing price over the three days prior to 26 September 2017. The
fair value benefit is measured using a Black Scholes model, taking into
account the terms and conditions upon which the share options were issued.
Grant in October 2018
Share options were granted to staff and Directors on 16 October 2018 pursuant
to the EMI 2014 Plan. The options granted are exercisable, at any time between
three years and 10 years of them being granted. The exercise price was set at
89.2 pence, being the average 30 day closing price of the ordinary shares to
16 October 2018. The fair value benefit is measured using a Black Scholes
model, taking into account the terms and conditions upon which the share
options were issued. Options which had not been cancelled or lapsed were
replaced on 28 July 2020.
Grant in November 2019
Share options were granted to staff and Directors on 29 November 2019 pursuant
to the EMI 2014 Plan. The options granted are exercisable, at any time between
three years and 10 years of them being granted. The exercise price was set at
16.2 pence, being the average five-day volume weighted average price of the
ordinary shares to 29 November 2019. The fair value benefit is measured using
a Black Scholes model, taking into account the terms and conditions upon which
the share options were issued.
Grant in December 2019
Share options were granted to staff on 1 December 2019 pursuant to the EMI
2014 Plan. The options granted are exercisable, at any time between three
years and 10 years of them being granted. The exercise price was set at 42.0
pence, based on the last 200-day moving average prior to 1 December 2019. The
fair value benefit is measured using a Black Scholes model, taking into
account the terms and conditions upon which the share options were issued.
Grant in February 2020
Share options were granted to staff on 10 February 2020 pursuant to the EMI
2014 Plan. The options granted are exercisable, at any time between three
years and 10 years of them being granted. The exercise price was set at 27.8
pence, based on the last 200 day moving average prior to 10 February 2020. The
fair value benefit is measured using a Black Scholes model, taking into
account the terms and conditions upon which the share options were issued.
Grant in June 2020
Share options were granted to staff on 2 June 2020 pursuant to the EMI 2014
Plan. The options granted are exercisable, at any time between three years and
10 years of them being granted. The exercise price was set at 15.5 pence,
based on the last 200 day moving average prior to 2 June 2020. The fair value
benefit is measured using a Black Scholes model, taking into account the terms
and conditions upon which the share options were issued.
Cancellation and regrant of existing options in July 2020
A number of unvested share options were cancelled and reissued to staff and
Directors on 28 July 2020. The regrant brings the strike price of the share
options into line with the current market price of the Company's shares and
should now deliver a viable incentive and reward package to the employees and
Directors of the Company. The regrant options have an exercise price of 16
pence, being the closing price of the Ordinary Shares on 28 July 2020. The
options can be exercised at any time between three years and 10 years of them
being granted. The fair value benefit is measured using a Black Scholes model,
taking into account the terms and conditions upon which the share options were
issued.
The Group designated the new equity instruments as replacements for the
cancelled equity instruments and as such, modification accounting has been
applied. As the new options have an increased fair value compared to the
previous awards, the incremental fair value of £154,571 is recognised over
the modified three-year vesting period, in addition to the amount recognised
based on the grant date fair value of the original instruments, which
continues to be recognised over the remainder of the original vesting period.
The charge in the current year on the new options amounted to £46,342 (2020:
£427).
Grant in December 2020
Share options were granted to staff and Directors on 14 December 2020 pursuant
to the EMI 2014 Plan. The options granted are exercisable, at any time between
three years and 10 years of them being granted. The exercise price was set at
20.0 pence, being the average five-day volume weighted average price of the
ordinary shares to 11 December 2020. The fair value benefit is measured using
a Black Scholes model, taking into account the terms and conditions upon which
the share options were issued.
Grant in May 2021
Share options were granted to staff on 05 May 2021 pursuant to the EMI 2014
Plan. The options granted are exercisable, at any time between three years and
10 years of them being granted. The exercise price was set at 41.34 pence,
being the average five-day volume weighted average price of the ordinary
shares to 05 May 2021. The fair value benefit is measured using a Black
Scholes model, taking into account the terms and conditions upon which the
share options were issued.
Share options are awarded to management and key staff as a mechanism for
attracting and retaining key members of staff. The options are granted at no
lower than either: (i) market price on the day preceding grant; or (ii) in the
event of abnormal price movements at an average market price for the week
preceding grant date. Options may be granted at prices higher than the market
price on the day preceding grant where the Board believes it is appropriate to
do so. These options vest over a three-year period from the date of grant and
are exercisable until the tenth anniversary of the award. Exercise of the
award is subject to the employee remaining a full-time member of staff at the
point of exercise. The fair value benefit is measured using a Black Scholes
valuation model, taking into account the terms and conditions upon which the
share options were issued.
The following tables illustrate the number and weighted average exercise
prices of, and movements in, share options during the year.
2021 2020
The Group and Company Number Number
Outstanding at 1 August 7,057,522 3,786,853
Granted during the year 4,019,000 6,387,447
Exercised during the year (188,125) -
Lapsed/cancelled (950,650) (3,116,778)
Outstanding at 31 July 9,937,747 7,057,522
Exercisable at 31 July 606,950 795,075
During the year ended 31 July 2021, 188,125 were exercised (2020: nil).
Weighted average exercise price of options
2021 2020
The Group and Company Pence Pence
Outstanding at 1 August 17.34 76.58
Granted during the year 20.84 18.53
Exercised during the year 4.07 -
Outstanding at 31 July 18.61 17.34
A total of 4,019,000 share options were granted during the year (2020:
6,387,447). These included no replacement options (2020: 2,714,298). The range
of exercise prices for options outstanding at the end of the year was 5.58
pence - 100.00 pence (2019: 2.05 pence - 100.00 pence).
For the share options outstanding as at 31 July 2021, the weighted average
remaining contractual life is 8.5 years (2020: 8.8 years).
The following table lists the inputs to the models used for the years ended 31
July 2021 and 31 July 2020.
The Group and Company 2021 2020
Expected volatility (%) 52.5% 52.5%
Risk-free interest rate (%) 0.35%-1.00% 0.35%-1.00%
Expected life of options (year's average) 3 years 3 years
Weighted average exercise price (pence) n/a n/a
Weighted average share price at date of grant (pence) 20.84 18.53
The expected life of the options is based on historical data and is not
necessarily indicative of exercise patterns that may occur. The expected
volatility reflects the assumption that the historical volatility is
indicative of future trends, which may also not necessarily be the actual
outcome.
No other features of options granted were incorporated into the measurement of
fair value.
21. Warrant reserve
The Group and Company £000
At 31 July -
2019
Warrant premium -
At 31 July -
2020
Warrant 992
premium
Exercise of warrants (13)
At 31 July 979
2021
During the year a total of 99,169,286 (2020: Nil) warrants associated with the
fundraising were issued to all places, being one warrant for every share,
excluding those investors seeking to claim EIS relief in relation to their
investment. The value attributed to these warrants is 1p per share from the
14p per share price of the raise.
The warrants are exercisable at 28p (2020: Nil) per ordinary share and are to
be exercised within 5 years of being issued.
During the year a total of 1,278,570 warrants (2020: Nil) were exercised
during the year
The following tables illustrate the number and movements in, warrants during
the year.
2021 2020
The Group and Company Number Number
Outstanding at 1 August - -
Granted during the year 99,169,286 -
Exercised during the year (1,278,570) -
Lapsed/cancelled - -
Outstanding at 31 July 97,890,716 -
Exercisable at 31 July 97,890,716 -
22. Merger reserve
The Group £000
At 31 July 2019, 31 July 2020 and 31 July 920
2021
The merger reserve arises as a result of the reverse acquisition requirements
of IFRS 3 meaning the consolidated accounts are presented as a continuation of
the C4X Discovery Limited accounts along with the share capital structure of
the legal parent company (C4X Discovery Holdings plc).
23. Capital contribution reserve
The Group £000
At 31 July 2019, 31 July 2020 and 31 July 195
2021
24. Retained earnings
The Group £000
At 31 July 2019 (29,724)
Loss for the year (7,789)
At 31 July (37,513)
2020
Loss for the year (3,844)
Warrant reserve movement 13
At 31 July (41,344)
2021
The Company £000
At 31 July (32,987)
2019
Profit for the year 24,752
At 31 July (8,235)
2020
Loss for the year 8,235
Warrant reserve movement 13
At 31 July 13
2021
25. Leases
Leases as lessee (IFRS16)
The Group leases premises under non-cancellable operating lease agreements.
Right‑of‑use assets related to leased properties that do not meet the
definition of investment property are presented as property, plant and
equipment (note 10).
Land and Total
Buildings
Group Group
£000 £000
2021
Balance at 1 August 2020 378 378
Depreciation charge for the year (254) (254)
Additions to right-of-use assets 253 253
Derecognition of right-of-use assets (248) (248)
Depreciation eliminated on derecognition of right-of-use assets 248 248
377 377
2020
Balance at 1 August 2019 432 432
Depreciation charge for the year (302) (302)
Additions to right-of-use assets 248 248
Derecognition of right-of-use assets - -
Depreciation eliminated on derecognition of right-of-use assets - -
378 378
Amounts recognised in income statement
31 July 2021
Interest on lease liabilities 15 15
15 15
31 July 2020
Interest on lease liabilities 18 18
18 18
Amounts recognised in statement of cash flows
31 July 2021
Lease payments 271 271
271 271
31 July 2020
Lease payments 319 319
319 319
26. Commitments
At 31 July 2021, the Group had capital commitments amounting to £nil in
respect of orders placed for capital expenditure (2020: £nil).
27. Financial risk management
Overview
This note presents information about the Group's exposure to various kinds of
financial risks, the Group's objectives, policies and processes for measuring
and managing risk, and the Group's management of capital.
The Board has overall responsibility for the establishment and oversight of
the Group's risk management framework. The Executive Directors report
regularly to the Board on Group risk management.
Capital risk management
The Group reviews its forecast capital requirements on a half-yearly basis to
ensure that entities in the Group will be able to continue as a going concern
while maximising the return to stakeholders.
The capital structure of the Group consists of equity attributable to equity
holders of the parent, comprising issued share capital, reserves and retained
earnings as disclosed in notes 19 to 24 and in the Group statement of changes
in equity. Total equity was £19,286,000 at 31 July 2021 (£8,066,000 at 31
July 2020).
The Group is not subject to externally imposed capital requirements.
Liquidity risk
The Group's approach to managing liquidity is to ensure that, as far as
possible, it will always have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group's reputation.
The Group manages all of its external bank relationships centrally in
accordance with defined treasury policies. The policies include the minimum
acceptable credit rating of relationship banks and financial transaction
authority limits. Any material change to the Group's principal banking
facility requires Board approval. The Group seeks to mitigate the risk of bank
failure by ensuring that it maintains relationships with a number of
investment grade banks.
At the reporting date the Group was cash positive with no outstanding
borrowings.
Categorisation of financial instruments
Loans and receivables Financial liabilities at amortised cost
Group
Company
Financial assets/(liabilities) £000 £000 £000 £000
31 July 2021
Trade receivables 21 - 21 -
Inter-company short-term loan to subsidiary - - - -
Cash, cash equivalents and deposits 17,103 - 17,103 -
Trade and other payables* - (599) (599) -
Lease liabilities - (404) (404) -
17,124 (1,003) 16,121 -
31 July 2020
Trade receivables 14 - 14 -
Inter-company short-term loan to subsidiary - - - -
Cash, cash equivalents and deposits 5,648 - 5,648 -
Trade and other payables* - (692) (692) -
Lease liabilities - (407) (407) -
5,662 (1,099) 4,563 -
*Excluding accruals and deferred revenue.
The values disclosed in the above table are carrying values. The Board
considers that the carrying amount of financial assets and liabilities
approximates to their fair value.
The main risks arising from the Group's financial instruments are credit risk
and foreign currency risk. The Board of Directors reviews and agrees policies
for managing each of these risks which are summarised below.
Credit risk
The Group's principal financial assets are cash, cash equivalents and
deposits. The Group seeks to limit the level of credit risk on the cash
balances by only depositing surplus liquid funds with multiple counterparty
banks that have investment grade credit ratings.
The Group trades only with recognised, creditworthy third parties. Receivable
balances are monitored on an ongoing basis with the result that the Group's
exposure to bad debts is not significant. The Group's maximum exposure is the
carrying amount of trade receivables as disclosed in note 14, which was
neither past due nor impaired. All trade receivables are ultimately overseen
by the Chief Executive Officer and are managed on a day-to-day basis by the
finance team. Credit limits are set as deemed appropriate for the customer.
The maximum exposure to credit risk in relation to cash, cash equivalents and
deposits is the carrying value at the balance sheet date.
Foreign currency risk
The Group is exposed to currency risk on sales and purchases that are
denominated in a currency other than the respective functional currency of the
Company and its subsidiaries. Other than Pounds Sterling ("GBP"), the
currencies that sales and purchases most often arise in are US Dollars (USD)
and Euros. Transactions in other foreign currencies are limited.
The Group may use forward exchange contracts as an economic hedge against
currency risk, where cash flow can be judged with reasonable certainty.
Foreign exchange swaps and options may be used to hedge foreign currency
receipts in the event that the timing of the receipt is less certain.
There were no open forward contracts as at 31 July 2021 or at 31 July 2020 and
the Group did not enter into any such contracts during 2021 or 2020.
The split of Group assets between Sterling and other currencies at the year
end is analysed as follows:
GBP USD EUR 2021 Total GBP USD EUR 2020 Total
The Group £000 £000 £000 £000 £000 £000 £000 £000
Cash, cash equivalents and deposits 11,094 35 5,974 17,103 5,623 16 9 5,648
Trade receivables 21 - - 21 14 - - 14
Trade payables (494) (80) (25) (599) (654) (3) (35) (692)
10,621 (45) 5,949 16,525 4,983 13 (26) 4,970
Sensitivity analysis to movement in exchange rates
A reasonably possible strengthening (weakening) of the euro or US dollar
against sterling at 31 July would have affected the measurement of financial
instruments denominated in a foreign currency and affected equity and profit
or loss by the amounts shown below. This analysis assumes that all other
variables, in particular interest rates, remain constant and ignores any
impact of forecast sales and purchases
Profit or loss Equity
Strengthening Weakening Strengthening Weakening
£000 £000 £000 £000
31 July 2021
EUR (5% movement) 313 (283) 313 (283)
USD (5% movement) (2) 2 (2) 2
31 July 2020
EUR (5% movement) (3) 2 (3) 2
USD (5% movement) 2 (1) 2 (1)
Interest rate risk
As the Group has no borrowings the risk is limited to the reduction of
interest received on cash surpluses held at bank which receive a floating rate
of interest. The principal impact to the Group is the result of interest
bearing cash and cash equivalent balances held as set out below:
31 July 2021 31 July 2020
Fixed rate Floating rate Total Fixed rate Floating rate Total
The Group £000 £000 £000 £000 £000 £000
Cash, cash equivalents and deposits - 17,103 17,103 - 5,648 5,648
The Company
Cash, cash equivalents and deposits - - - - - -
As the majority of cash and cash equivalents are held on floating deposit and
the overall level of interest rates is low, the exposure to interest rate
movements is immaterial.
Maturity profile
Set out below is the maturity profile of the Group's financial liabilities at
31 July 2021 based on contractual undiscounted payments including contractual
interest.
Less than One to five Total
one year years
2021 £000 £000 £000
Financial liabilities
Trade and other payables * 599 - 599
Lease liabilities 217 187 404
816 187 1,003
2020
Financial liabilities
Trade and other payables* 692 - 692
Lease liabilities 218 189 407
881 218 1,099
*Excluding accruals and deferred revenue. Trade and other payables are due
within 3 months.
The Directors consider that the carrying amount of the financial liabilities
approximates to their fair value.
As all financial assets are expected to mature within the next 12 months an
aged analysis of financial assets has not been presented.
28. Related party transactions
During the year there were no subscriptions by Directors for ordinary shares
(2020: 200,000 ordinary shares at 15 pence each).
During the year, shareholder Aquarius Equity Partners Limited charged the
Group £11,588 (2020: £15,450) for monitoring fees and was owed £nil at 31
July 2021 (2020: £nil).
During the year, The Aquarius IV Fund LLP, a fund managed by shareholder
Aquarius Equity Partners Limited, held 2,025,000 deferred shares of £1 each
(2020: £2,025,000).
During the year, Director Harry Finch charged the Group £nil (2020: £nil)
for services which he provided as a technical consultant and was owed £nil at
31 July 2021 (2020: £nil).
The Group
There were no sales to, purchases from or, at the year end, balances with any
related party.
The Company
The following table summarises inter-company balances at the year end between
C4X Discovery Holdings plc and subsidiary entities:
Notes 31 July 31 July
2021 2020
£000 £000
Short term loans owed to C4X Discovery Holdings plc by:
C4X Discovery Limited 14 - -
C4X Drug Discovery Limited - -
Adorial Limited - -
- -
There are no formal terms of repayment in place for these loans and it has
been confirmed by the Directors that the long-term loans will not be recalled
within the next 12 months.
None of the loans are interest bearing.
29. Compensation of key management personnel (including Directors)
2021 2020
£000 £000
Short-term employee benefits 1,476 1,199
Pension costs 151 164
Benefits in kind 2 2
Share-based payments 112 100
1,741 1,465
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