Announcement PDF RNS Number : 2455U Genedrive PLC 28 March 2019 The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain. genedrive plc ("genedrive" or the "Company") Interim Results for the six-month period to 31 December 2018 genedrive plc (LSE: GDR), the near patient molecular diagnostics company, announces unaudited interim results for the six months to 31 December 2018. The Company develops and commercialises a range of tests which can be used on its portable point-ofneed molecular diagnostic reader, Genedrive®. The Company's has four areas of focus: Hepatitis C (on market via distributors - Sysmex and Arkray), Bio-threats (on market, being sold directly to the US Department of Defense ("DoD")), Antibiotic Induced Hearing Loss (in development with support of grant funding and expected to be on market in financial year 20/21) and Tuberculosis (in development with support of grant funding and expected to be on market in financial year 20/21). Financial Highlights · Total revenue and other income of £1.5m (2017: £1.3m) reflecting a shift to commercial revenues from development grant revenue · Continued R&D spend giving rise to a pre-tax loss of £1.7m (2017: £2.3m) · Successful fundraise of £6.0m (gross), a combination of £3.5m equity and £2.5m convertible loan · Cash of £5.8m at 31 December 2018 (30 June 2018: £3.5m) Operating Highlights · First commercial orders from the DoD post development phase for $0.9m · Genedrive HCV ID Kit® now under review by World Health Organisation for Pre-Qualified status · Registration of HCV ID Kit® targeted for ~30 countries by end of current financial year with four already concluded including two classed as 'priority countries' Post-Period end Highlights · Additional $0.5m order received from second end-user group within the DoD, with more expected · HCV ID Kit® registered in a further 7 countries (11 in total) with 2 (4 in total) classed as 'priority'; most territories requiring in-country studies prior to sales commencing · Unaudited cash of £4.7m as at 27 March 2019, with the R&D tax credit (£1.0m) and $0.9m DoD payment of their first commercial order expected to be received in the coming weeks David Budd, CEO of genedrive plc, commented: "We continue to execute our strategy of market entry for our Hepatitis C point of need molecular test and development of both our tuberculosis and Antibiotic Induced hearing Loss assays. "Data from in-country HCV clinical studies remains very positive and corresponding to our expectation. While the speed of registration and evaluation processes for HCV was slower in the period than we expected and has had an impact on the timing of revenues, we are engaged and focussed on several country level opportunities regarding HCV testing programmes which are significant. Our biohazard identification programme with the US DoD transitioned to the commercial phase, and the uptake of orders is a positive sign, given the volumes and value attached to these complex assays." genedrive plc David Budd: CEO / Matthew Fowler: CFO +44 (0)161 989 0245 Peel Hunt LLP James Steel / Oliver Jackson +44 (0)20 7418 8900 Stanford Capital Partners Limited Patrick Claridge / John Howes +44 (0)20 3815 8880 Walbrook PR Ltd (Media Relations & Investor Relations) Paul McManus / Anna Dunphy +44 (0)20 7933 8780 or genedrive@walbrookpr.com +44 (0)7980 541 893 / +44 (0)7876 741 001 Notes to Editors About genedrive plc genedrive plc is a molecular diagnostics company developing and commercialising a low cost, rapid, versatile, simple to use and robust point of need molecular diagnostics platform for the diagnosis of infectious diseases and for use in patient stratification (genotyping), pathogen detection and other indications. The Genedrive® HCV-ID kit has received CE-IVD Certification and has been launched in Africa and Asia Pacific. genedrive has distribution agreements with subsidiaries of Sysmex Corporation for the distribution of the Genedrive® platform in the EMEA and SE Asia (ex-India), and with ARKRAY Healthcare pvt Ltd for the distribution of the Genedrive® HCV-ID Kit and Genedrive® platform in India. Further details can be found at: www.genedriveplc.com and www.genedrive.com. The Company has assays on market for the detection of certain biological targets and has tests in development for tuberculosis (mTB) and Antibiotic Induced Hearing Loss (AIHL). INTERIM MANAGEMENT REPORT The six months to 31 December 2018 is the first reporting period of the Company solely as a molecular diagnostics business following disposal of our contract research and pharmacogenomics divisions in June 2018. During this period we have continued to progress the HCV assay as well as recognising our first commercial sales of units and assays to the US DoD with a further order being received post the period end. We progressed our grant funded development programmes on our two development assays, Antibiotic-Induced Hearing Loss and Tuberculosis and during December 2018 successfully raised £6.0m (gross), to support our longer term objective of earning material revenues from three assays by the year ending June 2022. BUSINESS REVIEW Hepatitis C (HCV) The Genedrive® HCV-ID Kit is CE marked and is the first to market decentralised qualitative molecular test for HCV at the point of need. The test was validated in 2018 in independent studies in South Africa and showed 100% specificity and sensitivity in independent use, confirming that performance can be translated into real-world settings. The Group has contracted with world class distributors in Sysmex EMEA, Sysmex APAC and Arkray, giving broad reach and skilled resource to market and sell the product, and we continue to look for opportunities to expand our distributor reach beyond the current territories of EMEA and APAC. The Company is targeting approximately 30 country registrations for the Genedrive® HCV-ID Kit by the end of the financial year. We were very pleased to confirm that during November and December 2018 the product was registered for commercial sale in four countries, two of which are classed by the Company as priority markets for this product. Whilst this registration process has been slower than expected, we are now making good progress towards our goal. In-country performance studies are being required in most territories as part of the final registration process which combined with the delays we encountered earlier in the year means we do not expect to see any significant sales to private laboratories from the Genedrive® HCV ID kit until summer 2019 We have been encouraged by our interactions at national levels where the Genedrive® HCV ID kit is being considered for several national programmes and although no outcomes have been secured yet, we are positive about the probability of some near-term success although the precise timing is to be determined. Availability of funding for HCV treatment and diagnostics is key to the adoption and uptake of our product. To facilitate funding, we began the process to gain World Health Organisation (WHO) pre-qualified status in the period on an accelerated basis. Progress against this fast-track is broadly on plan, with the site audit of our facilities completed and trial studies now commencing. Given our previous in market performance studies both published and unpublished, the feedback from the site audit, and our knowledge of the WHOPQ process as a whole, we believe a positive outcome on WHO approval is achievable by the end of the calendar year. US Department of Defense (DoD) The development phase of the DoD funded collaboration project to develop a handheld biohazard identifier successfully completed during the year to June 2018. In September 2018 we received our first post-development commercial order from customers in the DoD, and this was invoiced during December, contributing $0.9m to revenue in the period. Post period-end we received a further order of $0.5m from an additional DoD customer which we expect to ship in the next couple of months. We continue to work closely with the DoD to gauge their anticipated level of adoption going forwards and as a result we expect further orders in the medium term including annual re-ordering of assays owing to shelf life. We therefore have growing levels of confidence in product adoption going forwards with signs that the visibility of future orders is also improving. DEVELOPMENT REVIEW Tuberculosis (mTB) The mTB market is large and well defined and remains an important target for the Company. Using the £1.1m Innovate UK grant secured in January 2018 we have been refining and developing a new mTB assay in order to enter the market. The funding is being used to develop a new sample preparation process, while concurrently we are designing the assay to minimise cost and maximise performance. Revenue of £0.5m (2018: £nil) was recorded in the period against the overall grant of £1.1m. Progress in the period is slightly behind our original plan owing to minor technical hurdles, but we remain focussed on earning commercial revenues from this assay in the year ending 30 June 2021. Antibiotic Induced Hearing Loss (AIHL) The Group is developing an assay to detect the genetic mutation in children that causes profound hearing loss when exposed to antibiotics. With up to 90,000 neonate admissions in the UK alone, this assay has the potential to provide a sizeable commercial opportunity as well as showcasing the benefits of Genedrive® in an NHS setting. In June 2018 the Group secured £0.5m as part of a £1.0m award from the NHS to develop the test and trial its use in emergency healthcare settings. The project is progressing well and initial proof of principle assays are performing at test times less than 30 minutes. The phasing of the project steps has been altered by an unexpected MHRA requirement to CE mark the analytical performance of the test prior to commencing clinical work and therefore these crucial hospital trials, to be undertaken in Manchester and Liverpool, are now expected to commence in the early autumn, rather than June as originally forecast; overall timelines are not expected to be impacted and we are targeting commercial revenues from this assay in the year ending 30 June 2021. Grant qualifying costs incurred to progress the project have been recorded as revenue in the period. The ability to test for the genetic mutation at the point of care, at speed and without compromising accuracy fits entirely with the core characteristics of the Genedrive®. We remain very excited about the commercial and healthcare prospects for this assay. FINANCIAL RESULTS There was a distinct change in the mix of revenue compared to previous periods, with the current period being predominantly commercial orders of assays and Genedrive® units and the prior year being development income linked to product progress. This revenue increase is primarily apportioned to pathogen detection projects with the DoD and the $0.9m order that was shipped in mid-December 2018. Research and development costs were £2.5m (2017: £2.2m) up modestly on the prior year and reflecting the activity in grant funded programmes. Administration costs were down at £1.0m (2017: £1.2m), giving a trading loss for the period of £2.0m (2017: £2.2m). The amendment to the Sale and Purchase Agreement for Visible Genomics created a fair value gain of £0.6m (2017: £nil), making the operating loss for the period £1.4m (2017: £2.2m). Financing costs of £354k (2017: £71k) relate to interest accruals on the convertible loans issued to BGF and GHIF, net of a small amount of interest earned on deposited cash. The amendment to the GHIF loan in December 2018 created a £0.3m (2018: nil) fair value gain that offset some of the interest charges for the period. The BGF loan was issued towards the end of the accounting period as part of the £6.0m fundraising and attracted a small amount of interest in the period. After financing costs, the loss before taxation was £1.7m (2017: £2.3m). This reduces to £1.4m (2017: £1.8m) after estimating the six month taxation credit. The basic loss per share was 7.0p (2017: 10.9p) Cash Resources Net cash out-flows from operations were £3.0m (2017: £1.8m outflow). The operating loss was £1.4m (2017: £2.2m) and working capital consumption £1.0m (2017: £0.4m). Working capital was affected by the invoicing of the DoD just before the period end which explains the majority of debtor out-flow. The R&D tax claim for the year ending 30 June 2018 was not submitted to HMRC until after the December fundraise and as such there was no receipt in the period (2017: £1.2m). The net proceeds from the December 2018 fund raising were £5.7m, after fees of £0.3m. Linked to the fund raise, the Group paid out £0.3m in cash to the former owner of Visible Genomics as part of an amendment to the historic Sale and Purchase Agreement; the amendment also created a £0.6m non-cash credit to the income statement as noted above. Fund raise proceeds net of fees and the Visible Genomics payment were therefore £5.4m. The net cash movement in the period was £2.3m (2017: £0.6m decrease) resulting in a year end cash positon of £5.8m. The unaudited cash position at 27th March 2019 was £4.7m, with the R&D tax credit £1.0m and the DoD $0.9m receivable expected to be paid in the coming weeks. Balance Sheet Balance sheet net liabilities at 31 December 2018 totalled £284k (30 June 2018: £2.4m net liabilities). We continue to monitor the net liabilities in accordance with s656 of the Companies Act. The movement in the period is owing to the consolidated loss for the period £1.4m (2017: £1.7m), offset by £3.6m of transactions settled directly in equity that mainly related to the December 2018 fund raise. PRINCIPAL RISKS AND UNCERTAINTIES There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The Directors do not consider that these principal risks and uncertainties have changed materially since publication of the annual report for the year ended 30 June 2018; a more detailed explanation of the risks for the Group can be found on page 17 of that annual report . The UK's exit from the European Union (Brexit) has been considered by the Board and is not considered a material risk to the short and medium term plans of the Group. OUTLOOK We traded in line with management's expectations in the first half of the current financial year owing to the first commercial order received from the DoD. A second large DoD order is due to ship in the next couple of months and we have confidence that we will receive further orders from this customer in the medium term. Whilst we continue to make progress in gaining country registrations for our Genedrive® HCV-ID Kit, as previously communicated this process has taken longer than originally expected. This delay will have a short-term impact on revenues for the year ended 30 June 2019, with new sales for this assay expected to contribute more significantly from the next financial year onwards. Nevertheless we still expect to deliver around 25% growth in full year revenue and other income compared to those recorded for the year ended 30 June 2018 - excluding any further sales that may be generated from additional uptake of our HCV assay and further DoD orders beyond those already announced. The Board remains confident in the Genedrive® platform particularly as we move into commercialisation for both our HCV and bio-threats tests, and continue to be committed to the business strategy of exploiting the attractive near patient molecular diagnostics market. David Budd Chief Executive Dr I Gilham Chairman 28 March 2019 UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 31 December 2018 Six months Six months ended ended 31 December 31 December 2017 2018 Year Ended 30 June 2018 Audited Note Unaudited Unaudited £000 £000 £000 Revenue & other income (4) 1,488 1,287 1,938 Research and development costs (2,496) (2,223) (5,180) Administrative costs (1,009) (1,237) (2,022) Trading loss (2,017) (2,183) (5,264) 635 - - - - (2,111) Exceptional gain on settlement of deferred consideration Impairment of intangible assets Operating loss (4) (1,382) (2,183) (7,375) Finance costs (5) (354) (71) (413) (1,736) (2,254) (7,788) 303 434 758 (1,433) (1,820) (7,030) - 145 1,063 (1,675) (5,967) Loss on ordinary activities before taxation Taxation on ordinary activities Loss for the financial year from continuing Operations Discontinued operations Profit for the period from discontinued operations (1,433) Loss/ Total Comprehensive Expense for the period Loss per share (pence) from continuing operations -Basic and Diluted (7.0) (10.9) (37.6) Loss per share (pence) from continuing and discontinued operations -Basic and Diluted (7.0 (9.0) (31.9) UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 31 December 2018 Share Capital £000 Other Reserves £000 Retained Earnings £000 Total £000 At 30 June 2017 281 24,657 (21,497) 3,441 Transfer of shares to SIP members Equity -settled share based payments - - (2) - - - - 38 Transactions settled directly in equity - - (2) 38 Total comprehensive expense for the financial period - - (1,675) (1,675) 281 24,697 (23,174) 1,804 Share Issue Transfer of shares to SIP members Equity -settled share based payments 1 - 31 17 - 1 31 - 17 Transactions settled directly in equity 1 38 - 49 282 24,745 (4,290) (27,464) (4,290) (2,437) Issue of shares Deferred consideration- equity component Equity -settled share based payments 228 - 3,015 315 - 3,243 315 - 46 (18) 28 Transactions settled directly in equity 228 3,376 (18) 3,586 Total comprehensive expense for the financial period At 31 December 2018 - - (1,433) (1,433) 510 28,121 (28,915) (284) At 31 December 2017 - Total comprehensive expense for the financial period At 30 June 2018 UNAUDITED CONSOLIDATED BALANCE SHEET As at 31 December 2018 Note Non-current assets Intangible assets Plant and equipment Contingent consideration receivable Current assets Inventories Trade and other receivables Current tax asset Contingent consideration receivable Cash and cash equivalents Liabilities Current liabilities 31 December 31 December 30 June 2018 2017 2018 (unaudited) £000 (unaudited) £000 (audited) £000 181 340 2,613 483 - 165 340 521 3,096 505 333 1,290 1,307 172 5,840 479 1,285 600 4,551 171 551 980 172 3,529 8,942 6,915 5,403 Deferred income Trade and other payables Deferred consideration (1,397) - (129) (1,551) - (1,470) (1,250) (1,397 (1,680) (2,720) Net current assets 7,545 5,235 2,683 Total assets less current liabilities 8,066 8,331 3,188 (8,350) (1,250) (5,277) (5,625) (8,350) (6,527) (5,625) (284) 1,804 (2,437) 510 28,121 (28,915) 281 24,647 (23,174) 282 24,745 (27,464) (284) 1,804 (2,437) Non-current liabilities Deferred consideration Convertible bonds (7) (7) (8) Net assets Capital and reserves Called-up equity share capital Other reserves Retained earnings (9) (10) Total shareholders' equity UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended 31 December 2018 31 December 31 December 2018 2017 (unaudited) (unaudited) 30 June 2018 (audited) £'000 £'000 £'000 Cash flows from operating activities Operating loss for the year Depreciation, amortisation and impairment (1,382) 54 (2,183) 480 (7,375) 3,117 Exceptional gain on settlement of deferred consideration ATL Research credits Share - based payment (credit)/ expense Operating loss before changes in working capital and provisions (Increase)/ Decrease in inventories (Increase)/ Decrease in trade and other receivables Increase in deferred revenue Decrease in trade and other payables Cash flow from discontinued operations Net cash outflow from operations Tax received Net cash outflow from operating activities (635) (24) 9 (1,978) (162) (739) (120) (2,999) (2,999) 38 (1,665) (35) 14 (355) 256 (1,785) 1,220 (565) (59) (12) (4,329) 241 119 (115) (547) 864 (3,767) 1,220 (2,547) 5 6 13 Cash flows from investing activities Finance income Cash paid to settled deferred consideration (300) Acquisition of plant and equipment and intangible assets Proceeds from disposal of discontinued operations (70) - (12) - (24) 957 Net cash (outflow)/ inflow from investing activities (365) (6) 946 Proceeds from share issue Proceeds from bond issue 3,318 2,366 - - Net inflow from financing activities Net increase/ (decrease) in cash equivalents Effects of exchange rate changes on cash and cash equivalents 5,684 2,320 (9) (571) (7) (1,601) 1 Cash and cash equivalents at beginning of period/ year Cash and cash equivalents at end of period/ year 3,529 5,840 5,129 4,551 5,129 3,529 Analysis of net funds Cash at bank and in hand 5,840 4,551 3,529 Cash flows from financing activities NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS 1. General information Genedrive plc ('the Company') and its subsidiaries (together 'the Group') is a molecular diagnostics business developing and commercialising a low cost, rapid, versatile, simple to use and robust point of need diagnostics platform for the diagnosis of infectious diseases and for use in patient stratification (genotyping), pathogen detection and other indications. The Company is a limited liability company incorporated and domiciled in the UK. The address of its registered office is 48 Grafton Street, Manchester, M13 9XX. The Company has its listing on the Alternative Investment Market. The financial information for the period ended 31 December 2018 and similarly the period ended 31 December 2017 has been neither audited nor reviewed by the auditor. The financial information for the year ended 30 June 2018 has been based on information in the audited financial statements for that period. The interim condensed financial statements for the period ended 31 December 2018 do not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 30 June 2018 has been delivered to the Registrar of Companies. These interim financial statements were approved by the Board of Directors on 27 March 2019. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods represented in these consolidated financial statements. 2. Significant accounting policies Basis of consolidation The consolidated financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group"). They are presented in pounds sterling and all values are rounded to the nearest one thousand pounds (£k) except where otherwise indicated. Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Transactions between Group companies are eliminated on consolidation. On 8th June 2018 the Group disposed of the Service business. The respective results for the business are disclosed as discontinued operations. Where necessary the results for the period ending 31 December 2017 have been restated to present these as discontinued operations. Basis of preparation The group meets its day-to-day working capital requirements through its bank facilities. Cash at bank was increased following the equity and debt fund raise that took place in December 2018. The group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the group should be able to operate within the level of its current facilities. After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. Having reassessed the principal risks, the directors considered it appropriate to adopt the going concern basis of accounting in preparing its condensed interim financial statements New accounting standards adopted in the period IFRS 9 Financial Instruments and IFRS15 Revenue from Contracts with Customers have been adopted in the period but have had no impact on the results and no adjustments have been made. Estimates The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation were the same as those that applied to the consolidated financial statements for the year ended 30 June 2018, with the exception of changes in estimates that are required in: - determining the provision for taxation and - valuing the amendment to the GHIF convertible loan and the fair valuing of the recently issued BGF convertible bond Revenue recognition a. Contract revenue Contract revenue is recognised by reference to the stage of completion of the transaction at the end of the reporting period. b. Collaboration & licensing revenue Contractually agreed upfront payments and similar non-refundable payments in respect of collaboration or licence agreements which are not directly related to on-going research activity are recorded as deferred income and recognised as revenue over the anticipated duration of the agreement. Where the anticipated duration of the agreement is modified, the period over which revenue is recognised is also modified. Non-refundable milestone and other payments that are linked to the achievement of significant and substantive technological or regulatory hurdles in the research and development process are recognised as revenue upon the achievement of the specified milestone. Income which is related to on-going research activity is recognised as the research activity is undertaken, in accordance with the contract. c. Other Income - development grant funding Income receivable in the form of government grants to fund product development is recognised as development grant funding over the periods in which the Group recognises, as expenses, the related eligible costs which the grants are intended to compensate and when there is reasonable assurance that the Group will comply with the conditions attaching to them and that the income will be received. Government grants whose primary condition is that the Group should purchase or otherwise acquire non-current assets are recognised as deferred revenue in the Consolidated Balance Sheet and transferred to the Consolidated Statement of Comprehensive Income on a systematic and rational basis over the useful lives of the related assets. d. Product sales Revenue from product sales is recognised on shipment to customers in line with contractual agreements. Research and development Research expenditure is written off as it is incurred. Development expenditure is written off as it incurred up to the point of technical and commercial validation. Intangible assets Intangible assets are stated at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated so as to write off the cost of an intangible asset, less its estimated residual value, over the useful economic life of that asset. All intangible assets are subject to impairment review and amortisation in each financial reporting period. In assessing value in use, the estimated future cash flows are discounted to their net present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset. Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. Non-monetary items carried at fair value and denominated in foreign currencies are retranslated at the rates prevailing on the date when fair value is determined. Exchange differences arising on the settlement of monetary items and on the retranslation of monetary items are taken to the Consolidated Statement of Comprehensive Income. Exchange differences arising on non-monetary items, carried at fair value, are included in the income statement, except for such non-monetary items in respect of which gains and losses are recorded in equity. Share-based payments The Group issues equity settled and cash-settled share-based payments to certain employees (including directors). Equity settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity settled share-based payments is expensed on a straight-line basis over the vesting period, together with a corresponding increase in equity, based upon the Group's estimate of the shares that will eventually vest. Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Where the terms