Allergy Therapeutics: Preliminary Results
Allergy Therapeutics plc
("Allergy Therapeutics" or the "Group")
Preliminary Results
28 September 2017 Allergy Therapeutics plc (AIM:AGY), the fully integrated specialty pharmaceutical group specialising in allergy vaccines, today announces preliminary results for the year ended 30 June 2017.
Financial highlights
- 72% increase in operating profit (pre-R&D) to £7.4m (2016: £4.3m)
- 32% revenue growth increase in actual terms to £64.1m (2016: £48.5m)
- 15%* revenue growth at constant currency to £55.5m (2016: £48.5m)
- 10% compound annual growth in net sales over 18 years
- Market share in the Group's main European markets increased to 13% (2016: 12%)
-
Cash at 30 June £22.1m (2016: £23.4m)
Operational highlights
- Commencement of recruitment for pivotal Phase III Pollinex Quattro Birch trial
- US Grass MATA programme proceeding well; safety study successfully completed
- First patient recruited for Acarovac MPL Phase I trial in Spain
- Positive pre-clinical proof of concept trial data announced for Polyvac Peanut
Manuel Llobet, Chief Executive Officer of Allergy Therapeutics, commented: "This has been another strong year of growth with constant currency growth of 15%* increasing our market share and, together with a favourable sterling/euro exchange rate, boosting operating profit pre R&D by £3.1m. Our continuing growth and progress on our pipeline reflects the quality of the products and the committed team that works at Allergy Therapeutics. We expect further good progress in the coming year."
This announcement contains insider information for the purposes of Article 7 of Regulatory (EU) No596/2014.
* percentage based on figures in thousands (2017: £55.545m, 2016: £48.509m)
- ENDS -
For further information, please contact:
Allergy Therapeutics
+44 (0) 1903 845 820
Manuel Llobet, Chief Executive Officer
Nick Wykeman, Finance Director
Panmure Gordon
+44 (0) 20 7886 2500
Freddy Crossley / Duncan Monteith, Corporate Finance
Tom Salvesen, Corporate Broking
Consilium Strategic Communications
+44 20 3709 5700
Mary-Jane Elliott / Ivar Milligan / Philippa Gardner
allergytherapeutics@consilium-comms.com
Notes for editors:
About Allergy Therapeutics
Allergy Therapeutics is an international specialty pharmaceutical group focussed on the treatment and diagnosis of allergic disorders, including immunotherapy vaccines, that have the potential to cure disease. The Group sells proprietary and third party products from its subsidiaries in nine major European countries and via distribution agreements in an additional ten countries. Its broad pipeline of products in clinical development include vaccines for grass, tree and house dust mite, and peanut allergy vaccine in pre-clinical development. Adjuvant systems to boost performance of vaccines outside allergy are also in development.
Formed in 1999 out of Smith Kline Beecham, Allergy Therapeutics is headquartered in Worthing, UK with more than 11,000m 2 of state-of-the-art MHRA-approved manufacturing facilities and laboratories. The Group, which has achieved double digit compound annual growth since formation, employs c.500 employees and is listed on the London Stock Exchange (AIM:AGY). For more information, please see www.allergytherapeutics.com .
CHAIRMAN'S STATEMENT
Overview
I am pleased to introduce the Group's Annual Report & Accounts for the year ended 30 June 2017. It has been another year of strong and consistent performance across all areas of the Group. The key areas for value creation remain profitable growth in European markets, pipeline advancements and paving the way to the significant US market.
Performance
In our European business, sales grew by 15%* in constant currency and we continued to achieve market share gains, with our market share in markets where we operate up to 13 % (2016: 12%). This shows an increasing adoption in the market for our convenient and patient-friendly treatments compared to other products.
In addition, there has been good progress in the R&D pipeline this year, facilitated by investment from our growing revenue stream. In March, we announced that we had recruited the first patient in our pivotal Phase III PQ Birch trial and, in May, the first patient was recruited for our Acarovac MPL (house dust mite) study. We announced exciting pre-clinical data from the Polyvac Peanut project in February and we are pleased that all of the products that the Group has submitted for the German Therapieallergen-Verordung (TAV) process are continuing to progress well.
We are also making progress with our US commercial strategy. The Grass MATA MPL product completed the safety study relating to its higher dose and the Phase II Grass trial is due to commence before the end of 2017.
Financially, the Group remains in a robust position with a strong cash balance due to strong sales growth, aided additionally by the weakening of sterling against the euro.
Board Changes
There were a number of changes to the Board during the year. In February, we welcomed US-based Jeff Barton who succeeded Jean-Yves Pavee as Abbott Laboratories' nominated director and, in June, Thomas Lander our Board member with extensive R&D experience, retired from the Board and Tunde Otulana was appointed as a new independent Non-Executive Director. I thank Jean-Yves and Thomas for their significant contributions to the Board during their tenures.
Jeff Barton, who is based at Abbott headquarters in Chicago and is VP Licensing and Acquisitions, brings extensive commercial experience, especially in the US, which will prove vital as the Group continues to execute its global strategy. Tunde is also based in the US and brings a wealth of global experience in clinical and regulatory work, particularly with the US Food and Drug Administration (FDA), with whom he worked for six years earlier in his career. I am delighted to welcome Jeff and Tunde to the Board.
Governance
The Group endeavours to adopt best practice, above normal levels for a company of its size and sector across the business and it is overseen by an effective and knowledgeable Board. We are pleased that a regular and transparent dialogue is maintained with our key stakeholders throughout the year.
* Percentage based on figures in thousands (2017: £55.545m, 2016: £48.509m)
Looking ahead
Allergy Therapeutics' strategy remains clear and focused and it is expected that the business will continue to grow and its portfolio of products expand in 2018 and beyond. The Group benefits from a committed, experienced and enthusiastic management team and the Board and I are confident that we shall continue our successful record of growth and deliver long-term value creation for shareholders.
On behalf of the Board, I would like to thank all Allergy Therapeutics' employees for their commitment and hard work during the year.
Peter Jensen
Chairman
27 September 2017
CHIEF EXECUTIVE OFFICER'S REVIEW
Delivering on our strategy - three areas for growth
Strong advances have been made this year across all three major strategic objectives. These are focused around three key pillars of growth: profitably expanding the existing European business; developing a strong product pipeline, and; preparing for product entry into the US market.
European business - milestone CAGR of 10% reached over past 18 years
The Group reached a significant milestone this year with compound annual growth over the past 18 years of 10%. This reflects continued delivery of our focused growth strategy, innovative products and a robust business model that is resilient to major economic downturns and significant regulatory changes. The business achieved net sales of £64.1m, up 15%* at constant currency on the 2016 performance and up 32% in actual terms.
Following on from the 16% underlying constant rate growth last year, this illustrates the strength of the Group's portfolio of convenient, patient-friendly, technically advanced products and the skilled sales and marketing teams in the business. Whilst operating in a highly fragmented European allergy market, Allergy Therapeutics continues to benefit from its innovative approach within this marketplace and will look to build value for shareholders via suitable corporate development opportunities. The Group has also continued to invest in its infrastructure, further strengthening its supply chain and regulatory functions in anticipation of an increasingly regulated framework for allergy treatment across the EU and the US. The changes in the regulatory environment and a drive towards evidence-based products will be to the Group's advantage.
Increasing market share
During the period, the Group continued to increase its market share in the markets in which we operate, driving this to 13% (2016: 12%) against a broadly flat market backdrop. In the product portfolio, Pollinex Quattro continues to grow well as patients and allergists increasingly seek the benefits of our ultra-short course treatment programs. Venomil, driven by raw material supply issues in the market also grew strongly. Acarovac Plus and Probiotics continued to gain market share with the former being the fastest growing component of the Spanish portfolio.
Scaling up the business
A key aim of the management team is to leverage its current infrastructure and this is demonstrated by the strong increases in revenue and pre-R&D operating profit this year in comparison with the prior year.
Pipeline - Phase III trial underway with broad programmes running
During the year, the scientific team has been actively managing and preparing for a number of significant clinical trials. The Pollinex Quattro Birch Phase III trial received clinical trial application (CTA) approval and recruitment is now well under way, with treatment of patients ongoing and read out expected in H2 2018. The Grass MATA MPL development is discussed in more detail below. If the Grass trials are successful, they will form part of both the German and US regulatory submissions.
*Percentage based on figures in thousands (2017: £55.545m, 2016: £48.509m)
The products in the German TAV process continue to progress well with plans for the start of trials on the oral products and the injectable house dust mite product in a staggered process starting during the 2018 financial year. The German TAV process has the potential to boost sales of these products through additional clinical data as well as reducing the number of competing products in the market.
The Acarovac MPL product for house dust mite allergy has started Phase I trials in Spain using the Pollinex Quattro platform technology. This product, if successful through the trial programme, could become a global best-in-class product with the first short course subcutaneous treatment in a global market worth an estimated $3-4bn [Datamonitor Epidemiology 2011].
The Polyvac Peanut product completed a positive pre-clinical trial showing impressive protective immunity with a single vaccination and no anaphylaxis. This product uses the virus like particle (VLP) technology that the business acquired to create a subcutaneous product that could offer long lasting protective immunity for subjects with peanut allergy, rather than just increasing tolerability in the case of accidental exposure.
Team - expanding the scientific excellence
In order to facilitate continued success in the clinical development programme, the Group is strengthening the organisation with expansion of the clinical team led by Murray Skinner, Chief Scientific Officer at the Group's UK headquarters in Worthing. The Group has underlined its commitment to clinical excellence by appointing Pieter-Jan de Kam as Clinical Director in mid-September. Pieter-Jan de Kam joined the Group from HAL Allergy in the Netherlands where he was responsible for clinical development with recent successes including European and US studies for pollen and house dust mites.
In addition to the appointment of Pieter-Jan, the Group has recruited Simon Piggott as Head of Clinical Science. Simon will be responsible for the delivery of a robust clinical strategy bridging the gap between the Groups' existing product development teams and clinical departments. Simon has significant experience in successful development programs from time spent at Novartis, GSK and most recently at Quintiles. Tim Higenbottam has been appointed to the role of Senior Pharmaceutical Physician and will focus on the US regulatory process.
The Group is continuing to invest in the R&D function to drive the key pipeline trials. The overall headcount in the research and development function within the Group has doubled in the last two years.
Publication of data - validating the Bencard Adjuvant Systems division
During the year, two papers were published in peer-reviewed journals reporting on new pre-clinical studies from the Group's Bencard Adjuvant Systems (BAS) division. The two papers report that the novel depot adjuvant behind the Pollinex platform, micro-crystalline tyrosine (MCT), both alone and in an adjuvant system, have broad applications and elicit high, sustained antibody levels demonstrating enhanced protective efficacy compared to conventional adjuvants including aluminium. MCT has now been granted manufacturing patents in the US, Europe and Japan.
US market - changing environment will drive market share towards Allergy Therapeutics
The US market for allergic rhinitis, which is estimated to be worth $2bn [internal estimate], continues to evolve. The regulatory pressures in the US that the Group acknowledged last year are becoming stronger as the FDA and the US Pharmacopeial Convention (USP) set strict guidelines for compounding and dispensing of allergy products. These guidelines, if fully implemented, will drive the market towards pharmaceutical grade, centrally manufactured products that should benefit businesses like Allergy Therapeutics with GMP, MHRA-approved facilities. Given the widespread adoption of subcutaneous immunotherapy (SCIT) treatments in the US, the oral products that are currently in the US market have so far not achieved a significant share leaving the market open for new entrants, such as Allergy Therapeutics, with the right products, manufacturing capability and commercial approach. The Group continues to prepare its portfolio of products for capturing the significant US market opportunity.
The Grass MATA MPL product, which is in development, has completed a safety study relating to a new higher dose and the Phase II trial is expected to start in the autumn. Following completion of this trial, meetings with the regulatory authorities in the US and Germany will be necessary before it progresses to a Phase III trial.
Outlook - confidence across the business
Allergy Therapeutics' management team expects 2018 to be a pivotal year with significant results due across a number of key programs. Revenue for 2018 is again set to show continued growth at constant currency, driven by further penetration of the market by the Group's convenient ultra-short course treatment. Gross margins are likely to improve slightly as volumes grow. Overheads will rise less in 2018 than they did in 2017 as investment slows, based on constant currency rates. However, as previously disclosed, we anticipate research and development expenditure is likely to almost double as the Group commences the PQ Birch Phase III and Grass MATA MPL Phase II studies and continues to invest in new product development.
The Group expects the results of both the PQ Birch Phase III trial, the first pivotal Phase III trial for a Pollinex Quattro product in Europe, and the results of the Grass Mata MPL Phase II trial in H2 2018.
The Board and the executive team remains confident about the Group's future growth potential and remains focused on generating significant value for shareholders given its continued sales momentum, the robust research pipeline progress driven by the strengthened research and development team and the potential of the US product portfolio as we prepare the ground for the future.
Manuel Llobet
CEO
27 September 2017
Financial Review
The following section should be read in conjunction with the financial statements and related notes below.
Overview
The results for the twelve months to 30 June 2017 demonstrate continuing growing profitability of the core business before R&D expense, with an operating profit excluding R&D of £7.4 million (2016: £4.3 million). Including R&D expense of £9.3 million (2016: £16.2 million), the Group reported an operating loss of £1.9 million (2016: loss £12.0 million). The operating loss includes a non-cash credit of £0.8 million (2016: charge of £2.0 million) in relation to the fair valuation of forward exchange contracts. The reduction in research and development activity was due to the timing of trials related to the US programme and the European Birch Dosing Study. The net loss after tax for the period was £2.5 million (2016: loss of £13.1 million).
Revenue
Helped by a stronger weighted average euro exchange rate against sterling during the year compared to the prior year, revenue increased by 32% to £64.1 million (2016: £48.5 million). The weighted average euro exchange rate in the year was €1.16 to £1 compared to €1.36 in the previous year; the impact of the stronger euro on revenue was £8.6 million. Although the vaccine markets in Europe did not grow significantly, revenue at constant currency* was 14.5% higher at £55.545 million (2016: £48.509 million) as shown in the table below:
2017 | 2017 | 2017 | 2016 | 2016 | 2016 | |
Germany | Other | Total | Germany | Other | Total | |
£m | £m | £m | £m | £m | £m | |
Revenue | 37.8 | 26.3 | 64.1 | 28.5 | 20.0 | 48.5 |
Add rebates | 5.8 | - | 5.8 | 3.9 | - | 3.9 |
Gross revenue | 43.6 | 26.3 | 69.9 | 32.4 | 20.0 | 52.4 |
Adjustment to retranslate at prior year foreign exchange rate |
(6.3) |
(3.1) |
(9.4) |
| ||
Gross revenue at constant currency* | 37.3 | 23.2 | 60.5 | 32.4 | 20.0 |
52.4
|
Revenue | 37.8 | 26.3 | 64.1 | 28.5 | 20.0 | 48.5 |
Adjustment to retranslate at prior year foreign exchange rate |
(5.5) |
(3.1) |
(8.6) | |||
Revenue at constant currency* | 32.3 | 23.2 | 55.5 | 28.5 | 20.0 |
48.5
|
* Constant currency uses prior year weighted average exchange rates to translate current year foreign currency denominated revenue to give a year on year comparison excluding the effects of foreign exchange movements. |
Revenue from Germany was 59% (2016: 59%) of total reported revenue although the Group continues to develop new and existing markets to reduce reliance on the German market. The key flagship product Pollinex Quattro, which accounts for 44% of total sales (2016: 45%), grew strongly in the year at a double digit constant currency growth rate. In addition to the sale of allergy vaccines, the Group has continued to look to increase its revenue from other products, including Synbiotics. Total sales from other products contributed £4.4 million for the year ended 30 June 2017 (2016: £3.6 million).
Revenue in Germany grew well in the year with revenue at constant currency increasing to £32.3 million (2016: £28.5 million); an increase of 13%.
All the main European markets (except for Italy) exhibited double digit sales growth at constant currency with Spain showing 13%; The Netherlands 29%; Austria 27% and Germany 13%.
Gross Profit
With the increased sales, cost of sales rose to £16.8 million (2016: £14.1 million). The gross margin was 74% (2016: 71%), leading to a gross profit of £47.4 million (2016: £34.4 million).
Operating Expenses
Total overheads are £3.5 million higher against the prior year at £50.0 million (2016: £46.5 million). Within this total is a reduction in R&D expenditure which fell by £6.9 million to £9.3 million (2016: £16.2 million) due to the reduced clinical study activity during the year.
Sales, marketing and distribution costs which were mainly continental European increased by £6.7 million to £26.9 million (2016: £20.2 million). About half of the increase was due to the strong euro against sterling while the Group also continued to invest in improving its marketing and sales infrastructure. Administration expenses increased by £3.7 million to £13.8 million (2016: £10.1 million) with the major driver behind this increase being foreign exchange. In the previous year the Group booked a non-cash gain of £2.4m on its US dollar cash deposits due to the weakening pound. In the current year, the Group held minimal US currency holdings. The remainder of the increase was mostly due to the weakening of sterling against the euro.
Other income in the year of £0.7 million (2016: £0.1 million) was all due to R&D tax credits in the UK.
Tax
The current year tax charge is predominately made up of provisions for tax in the Italian and German subsidiaries (as in the previous year).
Balance Sheet
Property, plant and equipment were in line with last year at £9.7 million with the depreciation charge for the period equalling new investment in new manufacturing plant and office refurbishment. Goodwill increased to £3.4 million due solely to the stronger euro exchange rate at the balance sheet date (2016: £3.3 million), whilst other intangible assets have not changed, with an increase due to foreign exchange changes offsetting the amortisation charge for the year.
Total current assets, excluding cash, have increased by £1.1 million to £15.3 million (2016: £14.2 million). Inventory deceased by £0.2 million as the Group carefully managed its production planning. Trade debtors have decreased (mainly in UK and Italy) reflecting the Group's management of debtors despite increased sales. Cash and cash at hand decreased to £22.1 million from £23.4 million in 2016.
The fair value of derivative financial instruments was a liability of £0.4m in 2017 (2016: £1.2 million).
Retirement benefit obligations, which relate solely to the German pension scheme, decreased to £9.6 million (2016: £10.2 million). The decrease in the liability was mainly driven by an increase in the discount rate.
The Group achieved a net cash surplus of £0.2 million in the year (2016: £11.8 million cash used) primarily due to the increased sales and reduction in spend in the year on the R&D programme.
Currency
The Group uses forward exchange contracts to mitigate exposure to the effects of exchange rates. The current policy of the Group is to cover, on average, about 70% of the net euro exposure for a year on a declining basis.
Financing
The Group's debt on its balance sheet relates to activities in Spain and consists of the loans acquired as a result of the Alerpharma acquisition (£1.7 million) and further loans (£1.7 million) arranged to fund development of products in the Spanish market. The overdraft facility was unused at 30 June 2017 but has been renewed for a further 12 months to cover seasonal funding requirements.
The Directors believe that the Group will have adequate facilities for the foreseeable future and accordingly they continue to adopt the going concern basis in preparing the full year results.
Legal
On 23 February 2015, the Company received notification that The Federal Office for Economics and Export ("BAFA") had made a decision to reverse their preliminary exemption to the increased manufacturers rebate in Germany for the period July to December 2012. The Company was granted a preliminary exemption to the increased rebate for this period by BAFA in 2013. The Company recognised revenue of €1.4 million (£1.1 million at that time) against this exemption in the year ended 30 June 2013. All other preliminary exemptions (granted for periods up to 30 June 2012) have previously been ratified as final by BAFA. After taking legal advice, the Company has lodged an appeal against this decision and is confident that the exemption will be re-instated. Therefore, as at 30 June 2017, no provision has been recognised for the repayment of the rebate refund of €1.4 million (£1.2 million). This position will be kept under review.
The Group is in discussion with one of its suppliers and their lawyers over potential cost overruns on one of its clinical trials which may lead to additional expense for the Group.
Nicolas Wykeman
Finance Director
27 September 2017
Consolidated Income Statement
for the year ended 30 June 2017 | |||||||||||
Year to
30 June |
Year to
30 June |
Year to
30 June |
Year to
30 June | ||||||||
2017 | 2017 | 2016 | 2016 | ||||||||
£'000 | £'000 | £'000 | £'000 | ||||||||
Note | |||||||||||
Revenue | 3 | 64,138 | 48,509 | ||||||||
Cost of sales | (16,771) | (14,070) | |||||||||
Gross profit | 47,367 | 34,439 | |||||||||
Sales, marketing and distribution costs | (26,888) | (20,223) | |||||||||
Administration expenses - other | (13,778) | (10,094) | |||||||||
Research and development costs | (9,296) | (16,223) | |||||||||
Administration expenses | (23,074) | (26,317) | |||||||||
Other income | 5 |
By: Nasdaq / GlobeNewswire
- 28 Sep 2017
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