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