During the first half of 2014, we made some impressive key
R&D hires, including Dr Paul Whittaker, the previous head of
respiratory biomarker R&D at Novartis, as we continue building
our in-house R&D team under the leadership of Dr Chris Poll,
the previous head of Chronic Obstructive Pulmonary Disease (COPD)
research at Novartis.
We are seeking to develop a range of new human models of
disease, including in airways diseases such as asthma and COPD.
Both of these respiratory diseases represent large, global, high
value markets with considerable unmet needs. Importantly, they are
known to be exacerbated by viral infections and certain challenge
agents, including allergens, providing an ideal opportunity for
Retroscreen to develop human models of these diseases. These can
then be used both to validate investigational new drugs for
clients, providing further revenue opportunities for Retroscreen,
and to discover important new biomarkers that we can then
commercialise ourselves or with partners.
In June 2014, we were pleased to announce the start of our
first-ever asthma study in the development of a safe, reproducible
and clinically-relevant asthma human disease model, using "HRV-16"
viral challenge. I am pleased to update that the study is
progressing well and we have collected our first samples from
subjects during the course of an asthma exacerbation, which will
trigger the start of our hunt for novel biomarkers in asthma. We
also announced that we had achieved the First Subject, First Sample
(FSFS) in an Over 45's study designed to establish safety in an
older population as a precursor to developing a COPD model.
Since the end of the first half, we have announced Retroscreen's
involvement in landmark studies for Gilead Sciences Inc. and Alios
BioPharma Inc. in "RSV" infection, highlighting the power of hVIVO
in product validation. Retroscreen was able to deliver dose ranging
and proof of concept results for both products in only
approximately six months and ten months respectively, demonstrating
the power of our hVIVO human models of disease. This highlights
hVIVO's ability to surpass field-based studies in producing clean
compelling data in an accelerated timeframe, with the ability to
gain product insights not normally available until pivotal
field-based studies, through targeted subject recruitment and
defined timing of infection. The ability to accelerate the
development of new drugs underpins our expansion into new disease
models, including asthma and COPD.
As we embark on our broader growth strategy, a number of
important Board changes were made in the first half of the year. In
June, we appointed Jaime Ellertson as Non-Executive Chairman,
succeeding David Norwood who continues as a Non-Executive Director.
Jaime has an impressive track record in growing high tech
companies, with ground breaking technologies, in a range of
different industries. Other Board changes included the retirement
of Professor John Oxford, Duncan Peyton and Charles Winward,
together with the appointment of Dr Trevor Nicholls and Dr Alison
Fielding as Non-Executive Directors.
I believe that under the leadership of our Board, the Company is
in an excellent position to capitalise fully on its ground breaking
hVIVO platform.
Financial Review
Statement of Comprehensive Income
Revenue for the six months ended 30 June 2014 was GBP15.0
million (H1'13 - GBP12.0 million; 2013 - GBP27.5 million), due to a
busy schedule of client engagements across two quarantine
facilities.
Gross profit was GBP4.8 million and gross margin 32.1% (H1'13 -
GBP3.4 million and 28.3%; 2013 - GBP8.3 million and 30.2%). The
continuing improvement in gross margin is due to the busy period of
client engagements, achieving better utilisation of staff and
facilities, operational efficiencies and economies of scale.
Research and development expense (excluding provision against
virus inventory) was GBP3.1 million (H1'13 - GBP0.5 million; 2013 -
GBP1.2 million), as we continue to build our in-house R&D
capability and preparations are made to implement our R&D
plan.
Administrative expense was GBP7.3m (H1'13 - GBP2.9 million; 2013
- GBP7.3m) with the increase due to investing in an increasing
staff cost base and infrastructure to support Retroscreen's
expanding capability and workload for the hVIVO platform from
client revenue engagements and internal R&D studies.
Loss before taxation was GBP5.4 million (H1'13 - Profit before
taxation of GBP0.03 million; 2013 - Loss before taxation of GBP1.2
million).
Balance Sheet and Cash Flow
As at 30 June 2014 net assets amounted to GBP43.4m (H1'13
GBP16.9 million; 2013 GBP42.9 million), including cash and cash
equivalents of GBP31.6 million (H1'13 - GBP13.2 million; 2013 -
GBP35.8 million).
Retroscreen raised GBP33.6 million (before expenses) by way of a
placing, which completed after the period end on 1 September
2014.
Net cash used in operating activities over the six months was
GBP3.6 million (H1'13 - GBP1.1 million; 2013 - GBP2.2 million).
Outlook
Retroscreen is embarking on the next leg of its exciting
journey. The recent GBP33.6 million (before expenses) fundraise,
completed on 1 September 2014, will allow the Company to accelerate
its biomarker discovery programme in 'flu and asthma, refine the
asthma model for product validation use, initiate COPD model
development as the second airways disease opportunity and broaden
the Company's challenge agent repertoire.
Retroscreen has reached an inflection point where it now needs
to achieve a balance of external client revenue engagements with
internal R&D studies. In order to accelerate the R&D
programme, we announced as part of the fundraise that we are
targeting a 70:30 balance of external client revenue engagements to
internal R&D studies, which in time is expected to become an
equal 50:50 balance as overall workload increases. This will be a
significant transition for Retroscreen, such that in the next
twelve months there may be lumpiness in balancing the
prioritisation and timing of client revenue engagements and
internal R&D studies. Accordingly, in the short term this is
expected to lead to lower revenue for the second half of 2014 than
in the first half of the year. However, longer term, as the Company
diversifies its workload and expands its capacity, including the
introduction of Chesterford Research Park in summer 2015, we
believe that the balancing of client revenue engagements and
internal R&D studies should increase Retroscreen's overall
utilisation of staff and facilities. This can be expected to drive
cost efficiencies and gross profit margin improvement, which will
in part contribute to the Company's increasing investment in
R&D expense and requirement for cash.
We anticipate strong progress with the new model development
programme and in-house R&D programmes over the next 24 months.
Our goal is to calibrate hVIVO in both asthma and COPD models,
while elucidating a circuit plan for at least one target disease
with the subsequent discovery of a first candidate biomarker. Once
identified, the Company intends to meet with the regulators
including the FDA to determine the most appropriate development
pathway. This will allow us to start the clinical validation of our
first biomarker while seeking a collaboration or partnership for
product development and commercialisation. In parallel, we continue
to perform well with our product validation services to clients and
we are excited to be expanding our offering into new disease areas,
with our asthma model progressing well in development. Our pipeline
for product validation services to clients continues to show good
growth, with the overall value increasing by 83% over this time
last year. A number of the opportunities in our 2015 pipeline are
for products in the 'flu and RSV space which experienced drug
development delays in 2014. We may still be able to land these
engagements with quarantines in 2014, alternatively they may push
out into 2015. In addition to commencing conversations with clients
for our new asthma model, we have also developed new ways in which
our clients can harvest the benefits of our hVIVO platform - for
example, we recently launched a new hVIVO OTC (Over the Counter)
model, which aims at securing higher value performance claims for
OTC cold and flu products. As we diversify into new disease areas
and continue to evolve exciting and beneficial ways for our clients
to leverage our platform - including our biomarker capabilities -
we expect to work more closely, and more broadly, with our clients
than ever before.
The Company also announced that, in line with its expanded
vision for the business, it will be changing its name to hVIVO plc
which is currently the Company's proprietary name for its
technology platform. The name change is expected to be implemented
in Q4 2014.
I am delighted that the recent fundraise and the broader vision
for the Company, including the proposed name change, was extremely
well supported by our existing and new investors. I would like to
thank them all for their continuing support and we look forward to
delivering further updates on our progress as we expand our hVIVO
platform.
Kym Denny
Chief Executive Officer
24 September 2014
Retroscreen Virology Group plc
Condensed Consolidated Statement of Comprehensive Income
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