RNS Number:6612O
K.S. Biomedix Holdings PLC
14 August 2003
KS Biomedix Holdings plc
("KSB" or "the Group")
Preliminary Results For The Year Ended 31 May 2003
Chairman's Statement
During the last 12 months KSB has had to contend with significant resource
constraints, which have limited our ability to move the clinical programmes
forward at a pace which reflects their considerable potential. Nonetheless,
significant headway has been achieved in the period under review. A full
report on the progress made during the last 12 months in developing our clinical
programmes and on the financial results is given in the reports that follow from
the CEO and CFO respectively.
Recommended Offer By Xenova plc ("Xenova")
Against this background, the Boards of KSB and Xenova, today, announce that they
have reached agreement on the terms of a recommended all share Offer for KSB by
Xenova ("The Acquisition"). Further details of the terms of the offer and the
timetable for acceptance are being announced separately.
Your board of Directors is recommending the offer unanimously and KSB directors
have provided irrevocable undertakings to Xenova to accept the offer in respect
of their respective shareholdings in the Group representing 48 per cent of the
share capital of KSB.
Background to the Recommended Offer
With the funding environment for development stage biotechnology companies
having been extremely difficult for some time, the Board has concluded that the
best way to realise the full potential within KSB's clinical pipeline is to
merge with another similar business to create a, new, stronger entity.
Following discussions with a number of potential parties, KSB has reached
agreement with Xenova.
The Directors of KSB believe that the offer by Xenova represents an excellent
opportunity to create an enlarged group with a therapeutic focus on oncology and
an expanded clinical pipeline of 12 product candidates, which will diversify the
overall risk profile of the portfolio and increase the chances of successfully
bringing new products to market. The enlarged group will have strong existing
corporate partners (including Nycomed, Celltech, Genentech, Lilly, Millennium,
Pfizer and QLT) and the opportunity to attract new partners through additional
licensing agreements. Furthermore, it is expected that the Acquisition will
result in cost savings through the rationalisation of the consolidated
development functions, operational sites and central support costs of the two
groups as well as re-prioritising the clinical programmes which may release
additional funds for reinvestment in the key drug candidates.
Your Board believes that the enlarged group will be better positioned to take
part in the expected further consolidation in the biotechnology sector and to
deliver greater shareholder value than the company could on a stand alone basis.
JOHN RENNOCKS
Chairman
Chief Executive's Review
As reported in last year's Annual Report, during the year ended 31 May 2002 KSB
re-focused its clinical pipeline solely on the development of drugs for niche
cancer indications, an area of significant unmet medical need. In the year
ended 31 May 2003, against a backdrop of a continuing difficult business climate
for biotechnology companies, the challenge for KSB has been to progress its lead
programmes and drive value out of the pipeline while controlling costs as
tightly as possible. Priority in the year was therefore given to the TransMID
programme for the development of a drug to treat brain tumours and to KSB303, an
antibody based drug for the treatment of pancreatic cancer. Key milestones have
been achieved in both projects.
Clinical Programme:
KSB has established a portfolio of products at all stages of clinical
development which offers a risk balanced pipeline and which, recognising the
attrition rate of products in pharmaceutical development, is not dependent on a
single product or a single technology platform.
The objective of our clinical programme is to develop medicines to treat cancer
in niche indications, which are poorly served by current therapies. Our
projects are focused in three oncology disease areas - brain, pancreatic and
ovarian. In all cases the prognosis for survival with current treatment
regimens is poor, often less than 12 months. Successful development of each of
these projects would therefore satisfy a significant, unmet medical need. A
common factor throughout the clinical projects is that we are developing
products that employ a biological 'vector', such as an antibody, to transport a
'lethal' warhead to the surface of solid tumours. In conjunction with our
clinical research partners, we have incorporated techniques into our clinical
projects to deliver these biological agents directly to the tumour surface to
enhance the safety, biodistribution and bioactivity of the drug. The merits of
these regional delivery techniques are being measured in the clinical trials by
comparison, where appropriate, with systemic delivery.
Portfolio Review:
* TransMID:
TransMID is a novel biopharmaceutical product in development for the treatment
of terminal brain cancer for which there is no known cure. The product is based
on the transferrin - mediated delivery of a modified diphtheria toxin, which is
capable of selectively killing cancer cells. Data from a completed Phase II
study conducted in oncology centres in the USA showed promising clinical
responses and improvement in survival times in patients with recurrent brain
cancer.
This last year has seen significant developments and progress with the TransMID
programme. Within the last 12 months, 4 agreements have been concluded with
commercial partners who have licensed the commercial rights to the product, each
for a specific geographic territory. The first of these licenses was granted to
Sosei Co. Limited, which was appointed as the licensee for the development and
commercialisation of TransMID in Japan in May 2002. The agreement is worth in
excess of $25 million to KSB over the product life cycle. In September 2002 the
Group announced that Nycomed had been appointed as the European partner in an
agreement worth in excess of $60 million. Additional licensing agreements were
concluded later in the year with Medison Pharma Limited for Israel and Ranbaxy
Laboratories Limited for India. As announced previously, KSB has retained the
rights to the product for North America in a strategy that the management team
believes will provide additional future value to shareholders.
Significant resource has also been committed, alongside our partners, in
finalising the design of the pivotal Phase III study and securing the
appropriate approvals from both the European and US authorities. Over 80
clinical investigation sites have agreed to participate in the study and
approvals to proceed have been received in some key European countries. Final
submissions have been made to the FDA and it is hoped that clearance to commence
the study will be received shortly. The approval process has taken longer than
originally envisaged, largely as a result of the need to work through the FDA's
recently introduced Special Protocol Assessment Committee, which is a lengthier
process than the normal submission route but which provides a more certain
regulatory path to product approval.
While the primary objective and resource commitment has been directed towards
preparing TransMID for its pivotal Phase III study, an additional Phase I study
was initiated in the USA in a paediatric patient population where brain tumours
represent a leading cause of death. In parallel the KSB team in Edmonton, Canada
have worked intensively to ensure that the TransMID manufacturing process and
facility meet the necessary standards to produce material not only for Phase III
but also for a licensed product. Sufficient drug material has now been produced
to support the pivotal studies and validation of the facility for licensure will
continue throughout the coming year in parallel with the pivotal study.
* KSB303:
Significant progress has been made with KSB303, a radio-labelled, high affinity,
chimeric monoclonal antibody that is being developed for a range of cancer
indications. The antibody is the first in-house developed antibody to move into
clinical development. In May 2002 the Company reported the successful outcome of
a Phase I imaging study in metastatic colorectal cancer patients. The data from
this study demonstrated that the antibody bound to its target on the tumour for
long periods confirming its potential to deliver tumour killing 'warheads' to
solid tumours. This product candidate has subsequently been moved into the next
stage of development, a Phase I/II clinical trial as a therapeutic product in
pancreatic cancer patients. The study is underway in three clinical centres in
Europe.
Pancreatic cancer is a common malignancy with approximately 38,000 new cases
reported each year in Europe and 30,000 cases per year in the USA. The majority
of these patients present with advanced disease and, with current therapeutic
approaches, the prognosis for this patient group is poor with overall long-term
survival of only 0.4%.
* KSB309/310:
With major resource commitments, both financial and human, being made to
TransMID and KSB303 as the primary value drivers in the business, progress with
the human antibody programme (KSB309 and KSB310 for head and neck cancer and
ovarian cancer respectively) has been constrained. Nevertheless, progress has
been made, with GMP antibody manufacture underway and additional pre-clinical
work initiated which will support future clinical studies and will help in
future discussions with potential licensing partners.
* Technologies:
In June 2001 KSB established a joint venture company, Discerna, with Babraham
Bioscience Technologies Limited ("BBT"). Discerna was established to enable
corporate partners, such as KSB, to accelerate early stage biopharmaceutical
product development through access to two leading edge drug discovery tools -
ribosome display and protein micro-array technology.
In the course of the last year Discerna made substantial progress with both its
technological and commercial development. In the period Discerna created the
first panel of potential therapeutic antibody candidates for KSB and initiated
work on deriving candidates from a second target supplied by the Company. The JV
company also announced the signing of its first two third party commercial
agreements. Under the first of these, a research evaluation agreement, Discerna
is applying ribosome display technology to generate therapeutic proteins against
a target supplied by a major US based pharmaceutical company. Under the second
agreement, Discerna is applying its technology in a similar way to a target
supplied by a European company, Randox Laboratories Limited for use in
diagnostic applications.
In addition to making progress with Discerna, KSB also accessed two further
important technologies during the year. In November 2002, KSB signed a
Co-operative Research and Development agreement with a division of the National
Institute of Health in the USA to develop a potent new cancer therapy. The
collaboration is in partnership with the same research group responsible for the
invention of TransMID and supports the Company's strategy of developing
biological agents to deliver cancer-killing warheads to tumours.
In the period the company also licensed rights to the Triomics technology from
the technology transfer arm of Oxford University. Triomics is based on work by
researchers at Oxford who had identified protein structures in mammalian lungs
which can be used as 'scaffolds' to which other molecules can be attached giving
rise to 'smart' drugs with applications in cancer and possibly other disease
fields. Work is on-going in KSB's laboratories to engineer these scaffolds to
carry varying combinations of antibody fragments and cancer killing warheads
where the Triomic scaffold provides a means of delivering extraordinarily high
concentrations of cancer killing molecules thereby creating a more effective
treatment than a mono-molecular drug.
Operations:
KSB has continued to monitor its costs closely. Research and Development
expenditure has been reduced and group overheads have been cut, including a
reduction in headcount in the latter part of fiscal year ending 31 May 2003.
Throughout the year we have continued to work to achieve the appropriate blend
of experience required to carry forward our drug pipeline. In January 2003 we
announced the recruitment of Dr. David Cox to lead our Canadian operation. David
brings extensive experience of pharmaceutical development and manufacture and
management of contract manufacturing operations. Since his arrival, David has
further strengthened the management team in Edmonton establishing a team with
extensive experience of process development, drug manufacture, quality assurance
and regulatory affairs.
In May 2003, having completed the current TransMID manufacturing batch, the
Canadian operation launched its contract manufacturing operation with the first
revenue earning contracts expected before the end of 2003.
STEVEN POWELL
Chief Executive Officer
Chief Financial Officer's Review
The year to 31 May 2003 has been dominated by the requirement to conserve cash
resources insofar as possible while continuing to invest in our key clinical
development programmes. Reduced expenditure on these programmes year on year is
directly reflected in our reduced operating costs overall. Fixed costs have
also been reduced during the period under review.
As a consequence the Group's operating cash burn reduced significantly to #10.1
million (2002: #12.7 million). The total for the year is lower than forecast at
the interim stage as a result of additional steps taken during the second half
to conserve cash and as a result of the re-phasing of the costs of the TransMID
Phase III programme.
The key change in the financial statements this year is the inclusion of
revenues generated from our partnering activities surrounding the TransMID
programme.
As reported in the Chairman's statement the Company has received an offer to
acquire the business from Xenova plc. In these circumstances the directors have
considered carefully the carrying value of intangible assets and investments and
have concluded that it is appropriate to reflect the impairment in value implied
by the offer in the financial statements. As a result an additional #20.8
million of goodwill has been written off in the period over and above the normal
amortisation charge for the year of #3.3 million.
Profit & Loss Account:
Turnover rose to #1.3 million from #0.5 million. This increase was driven by
the inclusion of revenues from our partnering agreements with Nycomed Pharma A/S
and with Sosei Limited. Revenues from the sale of antibodies manufactured by
the Group for diagnostic purposes decreased slightly in the period to #183,000.
As noted above a total charge of #24.1 million for goodwill written off and
amortisation has been included in the current financial year. Other operating
expenses fell from #13.4 million to #11.1 million, driven by the overall
reduction in research and development expenditure to #8.7 million from #11.2
million. The loss on ordinary activities before net finance income reflects a
full year of costs associated with the Company's share of its joint venture,
Discerna Limited.
Finance income for the year was #0.5 million, down from #1.0 million in the
previous year, reflecting the reduced cash balances within the Group.
The Group's claim for Research and Development tax credits for the current year
is #0.8 million. The prior year's credit reflected the amount receivable in
respect of the two years ended 31 May 2002 of #1.1 million.
Balance Sheet & Cash Flow:
As noted above the directors have decided to reflect the impairment in value of
goodwill in the accounts for the year to 31 May 2003. Accordingly, a total of
#24.1 million has been written off the carrying value of goodwill in the year,
as a result of which this intangible asset is stated in the balance sheet at
#5.8 million at the year end. Tangible fixed assets have increased as a result
of the ongoing investment in the Canadian manufacturing facility in Edmonton.
This investment of #1.3 million during the period under review is being made in
line with the Group's strategy of establishing a facility in Canada capable of
supplying TransMID commercially and to undertake contract manufacturing business
for third parties.
Cash balances at the end of the year stood at #7.4 million down from #17.6
million last year. The cash flow statement shows net cash outflow from
operating activities (the Group's underlying cash burn) decreased to #10.1
million from #12.7 million. Taxation receipts relate to tax credits received
for research and development expenditure both in the UK and in Canada. Capital
investment rose to #1.4 million driven by the Canadian investment referred to
above. Acquisitions and disposals by the Group at #0.4 million represent the
investment during the period in the Group's joint venture Discerna Limited.
Conclusion:
The Group has retained tight control over its fixed cost base and continues to
monitor variable expenditure on clinical trials closely. Expenditure on
programmes will continue to be curtailed until such time as the Group has been
able to address the resource shortfall that currently exists.
IAN MISCAMPBELL
Chief Financial Officer
KS Biomedix Holdings plc
Consolidated Profit & Loss Account for the Year Ended 31 May 2003
Note 2003 2002
# #
TURNOVER 1,314,206 445,370
Cost of sales (41,303) (157,045)
__________ __________
Gross profit 1,272,903 288,325
Research & development expenses (8,694,546) (11,201,684)
__________ __________
Amortisation of goodwill (3,277,584) (2,867,882)
Goodwill written off (20,852,237) -
Other administrative expenses (2,422,044) (2,178,141)
__________ __________
Administrative expenses (26,551,865) (5,046,023)
__________ __________
Operating expenses (35,246,411) (16,247,707)
__________ __________
OPERATING LOSS (33,973,508) (15,959,382)
Share of loss of joint venture (171,086) (98,620)
Amortisation of goodwill arising on investment in joint (217,701) (187,791)
venture
__________ __________
LOSS ON ORDINARY ACTIVITIES BEFORE NET FINANCE INCOME (34,362,295) (16,245,793)
Finance income (net) 452,243 983,996
__________ __________
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION 2 (33,910,052) (15,261,797)
Tax on loss on ordinary activities 751,436 1,083,425
__________ __________
Retained loss for the year (33,158,616) (14,178,372)
__________ __________
Loss per share - basic (51.5p) (22.7p)
__________ __________
Loss per share - diluted (51.5p) (22.7p)
__________ __________
All activity in both periods relates to continuing operations.
Consolidated Statement of Total Recognised Gains and Losses for the Year Ended
31 May 2003
2003 2002
# #
Loss for the year (33,158,616) (14,178,372)
Loss on foreign currency translations (5,241) (17,865)
__________ __________
Total losses recognised (33,163,857) (14,196,237)
__________ __________
Consolidated Balance Sheet as at 31 May 2003
Note 2003 2002
# #
Fixed assets
Goodwill 5,778,093 29,907,914
Tangible assets 3,079,553 1,964,882
Investments 139,884 93,671
__________ __________
8,997,530 31,966,467
__________ __________
Current assets
Stocks 8,662 44,582
Debtors 1,752,304 2,569,122
Short-term deposits 5,401,582 17,275,000
Cash at bank and in hand 2,010,693 328,459
__________ __________
9,173,241 20,217,163
Creditors: Amounts falling due within one year (1,794,306) (2,684,030)
__________ __________
Net current assets 7,378,935 17,533,133
__________ __________
Total assets less current liabilities 16,376,465 49,499,600
Creditors: Amounts falling due after more than one year (251,032) (266,750)
__________ __________
Net assets 16,125,433 49,232,850
__________ __________
Capital and reserves
Called-up share capital 1,147,654 1,136,404
Share premium account 48,275,736 46,961,037
Shares to be issued 22,370,828 23,640,337
Other reserves 419,287 419,287
Profit and loss account (56,088,072) (22,924,215)
__________ __________
Equity shareholders' funds 3 16,125,433 49,232,850
__________ __________
Consolidated Cash Flow Statement for the Year Ended 31 May 2003
Note 2003 2002
# #
Net cash outflow from operating activities 4 (10,111,951) (12,664,515)
Returns on investments and servicing of finance 539,678 1,203,868
Taxation 1,245,800 47,443
Capital expenditure (1,383,159) (475,567)
Acquisitions and disposals (421,158) (4,524,835)
__________ __________
Cash outflow before management of liquid resources and finance (10,130,790) (16,413,606)
Management of liquid resources 11,873,418 (683,242)
Financing (59,875) 16,957,021
__________ __________
Increase/(decrease) in cash in the year 1,682,753 (139,827)
__________ __________
1. Basis of preparation
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 May 2003 or 2002, but is derived from
those accounts. It has been prepared using the same accounting policies as those
adopted in preparing the statutory accounts for the year ended 31 May 2002.
The financial statements have been prepared on a going concern basis which
assumes that the company will be able to continue in operational existence for
the foreseeable future. At 31 May 2003 the Group's budget indicated that it did
not have sufficient funds to allow it to continue to operate for 12 months from
the date of signing of the financial statements.
Today the directors have announced a transaction that, if completed, will lead
to the group being acquired by Xenova Group plc. The directors believe that
after the acquisition, Xenova will be able to provide sufficient funding to
enable the Group to operate as a going concern.
There is uncertainty regarding the acquisition as it is subject to completion
and approval by the shareholders of both Xenova and KSB, which may not occur.
If, for any reason, this acquisition were not to complete the Group would be
unable to continue as a going concern.
The directors are confident that the acquisition will complete, as they believe
it to be in the best interests of the shareholders of Xenova and KSB.
The Directors have prepared working capital forecasts for the Group and reviewed
forecasts for the enlarged Xenova group. These forecasts show that the enlarged
group will have sufficient funding to continue in operational existence for at
least twelve months from today.
On this basis the directors consider it appropriate to prepare the financial
statements on the going concern basis and therefore no adjustments that might
otherwise be required have been made.
Statutory accounts for 2002 have been delivered to the Registrar of Companies
and those for 2003 will be delivered following the company's annual general
meeting. The auditors have reported on those accounts; their reports were
unqualified and did not contain statements under s237(2) or (3) Companies Act
1985.
2. Segment information
Canada /
Manufacturing
UK / R&D Group
2003 2003 2003 2003
# # #
Turnover
United Kingdom 4,138 - 4,138
European Union 713,771 - 713,771
Rest of the World 596,297 - 596,297
__________ __________ __________
1,314,206 - 1,314,206
Cost of sales (41,303) - (41,303)
__________ __________ __________
Gross profit 1,272,903 - 1,272,903
Operating expenses (33,170,857) (2,075,554) (35,246,411)
__________ __________ __________
Operating loss (31,897,954) (2,075,554) (33,973,508)
__________ __________ __________
Share of loss of joint venture (388,787) - (388,787)
Finance income 474,578 (22,335) 452,243
__________ __________ __________
Loss before taxation (31,812,163) (2,097,889) (33,910,052)
__________ __________ __________
Segment net assets 14,008,235 2,117,198 16,125,433
__________ __________ __________
The Group's share of joint venture turnover was #29,175
Canada /
UK / R&D Group
Manufacturing
2002 2002 2002 2002
# # #
Turnover
United Kingdom 2,000 - 2,000
European Union 45,640 - 45,640
Rest of the World 292,543 105,187 397,730
__________ __________ __________
340,183 105,187 445,370
Cost of sales (68,571) (88,474) (157,045)
__________ __________ __________
Gross profit 271,612 16,713 288,325
Operating expenses (14,476,117) (1,771,590) (16,247,707)
__________ __________ __________
Operating loss (14,204,505) (1,754,877) (15,959,382)
__________ __________ __________
Share of loss of joint venture (286,411) - (286,411)
Finance income 1,010,933 (26,937) 983,996
__________ __________ __________
Loss before taxation (13,479,983) (1,781,814) (15,261,797)
__________ __________ __________
Segment net assets 48,445,787 787,063 49,232,850
__________ __________ __________
The Group's share of joint venture turnover was #nil.
3. Movement on equity shareholders' funds
2003 2002
# #
Loss for the financial year (33,158,616) (14,178,372)
Other recognised gains and (losses) (5,241) (17,865)
Proceeds of share issues (net of issue costs) 56,440 45,359,884
__________ __________
Net (decrease)/increase in equity shareholders' funds (33,107,417) 31,163,647
Opening equity shareholders' funds 49,232,850 18,069,203
__________ __________
Closing equity shareholders' funds 16,125,433 49,232,850
__________ __________
4. Reconciliation of operating loss to net cash outflow from operating
activities
2003 2002
# #
Operating loss (33,973,508) (15,959,382)
Depreciation 270,081 227,233
Amortisation of goodwill 3,277,584 2,867,882
Goodwill written off 20,852,237 -
Profit on disposal of fixed assets - (19,734)
Decrease/(increase) in stock 35,920 (40,552)
Decrease/(increase) in debtors 233,165 (202,138)
(Decrease)/increase in creditors (807,430) 462,176
__________ __________
Net cash outflow from operating activities (10,111,951) (12,664,515)
__________ __________
5. Dividend
The Directors are not recommending the payment of a dividend.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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