TIDMAREC
RNS Number : 1310J
Arecor Therapeutics PLC
25 April 2022
Arecor Therapeutics plc
("Arecor", the "Company" or the "Group")
FINAL RESULTS FOR THE YEARED 31 DECEMBER 2021
Positive Phase I clinical trial for AT278 ultra-concentrated
ultra-rapid acting insulin candidate for diabetes
Five new technology partnership agreements
Expansion of IP portfolio underpinning proprietary Arestat(TM)
platform
Successful GBP20 million AIM IPO
Cambridge, UK, 25 April 2022: Arecor Therapeutics plc (AIM:
AREC), a globally focused biopharmaceutical company advancing
today's therapies to enable healthier lives, today announces its
final results for the year ended 31 December 2021.
Sarah Howell, Chief Executive Officer of Arecor, said: " After a
year of significant progress in 2021, we are well positioned to
continue to execute our strategy in 2022 and beyond as we develop
enhanced therapeutic products that can truly transform patient
care. As we look forward, I am excited about the opportunities
ahead in 2022, especially within our proprietary pipeline with
additional clinical data for AT247 expected later in the year
following the excellent clinical results for the AT278 first-in-man
study. We have a strong pipeline of opportunities ahead within our
Specialty Hospital portfolio and I look forward to us continuing to
build on our strong partnering performance."
Operational Highlights (including post-period events):
-- AT247, an ultra-rapid acting insulin, advancing rapidly through clinical trials
- US Phase I clinical trial initiated in early 2022, following
FDA clearance of IND application
-- Positive Phase I clinical trial for AT278, an ultra-concentrated ultra-rapid acting insulin
- Significantly early accelerated PK/PD profile compared to
market leading comparator, NovoRapid(R)
- Data to be presented at ATTD on 28 April 2022
-- Five new technology partnership agreements
-- Awarded GBP2.8 million Innovate UK grant to support Phase II development of AT247
-- Expansion of global patent portfolio with grant of US,
Canadian and European patents underpinning the Arestat(TM)
platform
Financial Highlights:
-- Successful IPO on AIM, raising GBP20 million
-- Total Income of GBP1.8 million (2020: GBP2.1 million)
-- Investment in R&D of GBP5.4 million (2020: GBP3.9 million)
-- Loss after tax for the period of GBP6.2 million (2020: GBP2.8 million)
-- Cash and cash equivalents of GBP18.3 million at 31 December 2021 (2020: GBP2.9 million)
-- Debt free following the conversion of GBP4.4 million
shareholder loan notes into new ordinary shares
Analyst meeting and webcast today
Dr Sarah Howell, Chief Executive Officer, and Susan Lowther,
Chief Financial Officer, will host a meeting and webcast for
analysts and investors at 11.00 am UK time 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 Consilium Strategic Communications for details on
arecor@consilium-comms.com / +44 203709 5700.
For more information, please contact:
Arecor Therapeutics plc www.arecor.com
Dr Sarah Howell, Chief Executive Tel: +44 (0) 1223 426060
Officer Email: info@arecor.com
Susan Lowther, Chief Financial Officer Tel: +44 (0) 1223 426060
Email: info@arecor.com
Mo Noonan, Communications Tel: +44 (0) 7876 444977
Email: mo.noonan@arecor.com
Panmure Gordon (UK) Limited (NOMAD
and Broker)
Freddy Crossley, Emma Earl (Corporate Tel: +44 (0) 20 7886 2500
Finance)
Rupert Dearden (Corporate Broking)
Consilium Strategic Communications
Chris Gardner, David Daley, Angela Tel: +44 (0) 20 3709 5700
Gray 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 formulation technology
platform, Arestat(TM) , 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 enhanced formulations of their therapeutic products. The
Arestat (TM) 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
Innovation, partnerships and pace
"2021 set the foundations for a strong future for Arecor,
through the advancement of our innovative pipeline, expansion of
our blue-chip partner portfolio, our successful IPO, and the
accelerated growth of the business as a whole."
Arecor has the potential to become a world leading and
self-sustaining biopharmaceutical company, leveraging its
cutting-edge technology to develop enhanced versions of existing
therapeutic products that can transform patient care and lower
burden on healthcare systems. For ambitious, innovative businesses
to flourish in the biopharmaceutical sector, it is important that
they build on outstanding technology, robust IP and have the
scientific and commercial skills both to deliver clinical success
and to access global markets. That mix of assets and capabilities,
when applied strategically by a talented management team offers the
potential for both business success and positive patient impact.
These are the solid foundations upon which Arecor is built and give
us strong confidence in the future potential of the business.
Arecor benefits from its unique and proprietary technology
platform: the Arestat(TM) platform, which has been developed over
many years to make it broadly applicable to a whole range of
biopharmaceutical problems. This leads to multiple opportunities
and the choice of where such platforms are optimally applied is a
key element of success for the business and a source of long-term
value. We have chosen to apply this platform to complex and
difficult to formulate biomolecules, working with partners where
our technology can enable and enhance their molecules. Alongside
this, we also select and invest in our own products that are
enabled by the technology platform and where the resulting
proprietary product is clinically and commercially
differentiated.
By applying Arestat(TM) to known therapeutic biomolecules we are
maximising the impact from our technology, accelerating a valuable
clinical pipeline in a cost-effective manner to deliver products
that will provide patients with more effective treatments to
improve their quality of life. Our own pipeline of diabetes
products and 'ready to use' hospital products arise directly from
this approach. This year, these have received validation through
both exceptional clinical data and partnership progress.
The global pandemic, whilst devastating the way of life as we
had known it, has shone a light on the need for quicker-to-market
medications and has shown that innovation in healthcare can be
applied at pace. British scientists have stepped up to the mark and
delivered vaccines, treatments and diagnostics at a speed that has
not been seen before. This appreciation of the strengths of the UK
biopharmaceutical sector has spread beyond COVID and provides
companies such as Arecor with a platform to demonstrate our
capabilities, our commercial ambitions and importantly, what we are
doing to improve the lives of patients.
At Arecor, we have made great strides during 2021. We started
the year strongly on the back of successful clinical data from our
first clinical trials of our lead product, AT247, an ultra-rapid
insulin. We followed with rapid advancement of our portfolio of
proprietary products and through the expansion of our partner
portfolio with agreements with leading pharmaceutical, medical
technology and biotechnology companies such as Lilly, Hikma and
Intas. With momentum gaining, we successfully floated Arecor on the
AIM market of the London Stock Exchange, raising GBP20 million,
providing a stable funding background to exploit the full potential
of our platform. We closed the year with our second insulin
product, AT278, successfully completing its first clinical trials
with results at the highest end of our expectations along with
commercial progress with additional partner agreements.
None of the progress during 2021 would have been achieved
without the commitment, dedication, and talent of the team at
Arecor, led by Sarah Howell, our CEO and Susan Lowther, our CFO. We
owe thanks to all the team and to our diligent and dedicated Board,
including new members, Christine Soden and Jeremy Morgan. Together
they have guided the Company through a transformative year from a
little known yet shining example of British innovation at its best,
to an AIM listed, clinical development company with a clear mandate
and vision to develop affordable healthcare for all.
We have substantive plans for Arecor based on our strong
foundations. We are at an exciting juncture in the growth of our
business. We know that our Arestat(TM) platform has huge potential
to bring enhanced treatments that improve patient lives to market
at a much quicker pace than traditional methods. We thank you, our
shareholders, for enabling us to maintain this accelerated pace of
growth, by continuing to support us, and believing in us.
Investment is the backbone to growth. We understand that many
investors are looking for ethical, sustainable growth in businesses
with a strong management team and a destiny compatible with their
own ethos for positive impact. Arecor is built on these core
values. We are ambitious. But that ambition is backed by talent,
technology and know-how and we believe that with the right support
in place, we can maintain our trajectory through the advancement
and expansion of new and exciting opportunities across our
proprietary and partnered portfolios. That will allow us to grow
into the great biopharmaceutical company that Arecor can be and to
generate substantial shareholder value.
Andrew Richards
Non-Executive Chair
23 April 2022
Chief Executive Officer's review
Building on strong foundations to deliver a transformational
year
"I would like to thank our Board, our partners and stakeholders,
who collectively help and support us in achieving our vision. Most
importantly, I would like to thank the fantastic team at Arecor for
their skill, hard work, resilience and commitment to Arecor and to
congratulate them on the scientific progress and partnering
progress achieved during this pivotal year."
2021 has been a transformational year for Arecor where we have
taken the opportunities to drive the business forward and overcome
challenges. I am proud of how adaptive and resilient our employees
have been in the face of a global pandemic. It is through their
continued engagement, energy and expertise that we have been able
to continue to make significant progress towards our vision to
leverage the Arestat(TM) technology platform to transform patient
care, and in doing so, build a large self-sustaining
biopharmaceutical company.
Underpinning our vision is our strategy to advance our pipeline
of internal proprietary products and partnered programmes. Enabled
by Arestat(TM) , we develop novel formulations of existing
therapeutic medicines with enhanced properties that would otherwise
be unachievable; these can range from better shelf-life through
greater patient convenience to superior therapeutic profiles. The
technology itself is very versatile and can be applied to a wide
range of therapeutic products, notably antibodies, biologics,
peptides and vaccines.
This approach enables Arecor and its partners to develop
differentiated patent-protected medicines achieving a desired
therapeutic profile which bring benefits to patients as well as
generating commercial competitive advantage.
In combination, by licensing across our proprietary portfolio
and technology partnerships, we can fulfil our purpose of bringing
life-changing treatments to patients, while driving further
shareholder value.
2021 saw further development of our proprietary products
pipeline within the diabetes and specialty hospital space. Our
focus is to develop our proprietary pipeline products to optimal
value inflexion points prior to partnering with healthcare
companies for late phase development and/or commercialisation.
Within our diabetes franchise, we have made significant clinical
progress across our lead best-in-class insulin products. These have
been designed to help people with diabetes better manage their
blood glucose and improve outcomes, reduce the burden of existing
regimens and improve quality of life. With 537 million people
living with diabetes worldwide and 56 million requiring insulin
daily, improving insulins has never been more critical. Our
best-in-class insulins also represent a significant commercial
opportunity for Arecor within an existing $7.3 billion prandial
insulin market.
In addition, we are building a pipeline of valuable product
opportunities within our specialty hospital care portfolio, which
have the potential to enable fast-acting, safe and effective
treatment of patients, particularly during the treatment of serious
infections, cancer and emergency care. We have previously partnered
two of our specialty hospital products with Hikma under
co-development and licensing agreements and these programmes have
continued to progress well throughout the year.
We continue to execute our partnering strategy, with
advancements across our four existing licensed programmes and
adding an additional five pre-license technology partnerships
during the year with leading pharmaceutical companies including Eli
Lilly, Par Pharmaceuticals and Intas Pharmaceuticals. These
partnerships validate the strength of, and the need for our
Arestat(TM) technology and bring near term revenue and significant
upside potential from existing and future licensing.
Building the right team has been critical to the success we have
seen in 2021. We continue to bring new skills and capabilities to
our already diverse Board. In May, we welcomed Christine Soden and
Jeremy Morgan as Non-Executive Directors, who bring extensive
financial and industry expertise having held key leadership and
board roles within the sector. Together, their understanding of the
global healthcare industry will be invaluable as we continue to
grow Arecor. We would also like to take this opportunity to say
thank you to Andrew Lane, Jeremy Curnock-Cook and Alexander
Crawford, who stepped down from the Board, for their excellent
guidance and leadership during their tenure. During the year, we
have also continued to build out the Arecor team enabling continued
momentum and growth and we were delighted to welcome Dr Lindsey
Foulkes as Chief Operating Officer.
Finally, the GBP20 million proceeds from our oversubscribed AIM
IPO June 2021 has significantly strengthened our balance sheet,
with a cash balance at year end of GBP18.3m. On the back of this
funding, we have been able to further advance our proprietary
pipeline, in particular our clinical stage diabetes products. We
have continued to see real momentum in shareholder value since the
successful IPO as our scientific and commercial partnering progress
has been recognised and we would like to thank our investors for
their continued support.
Operational review
Diabetes: Clinical Progress with faster acting and more
concentrated insulins, AT247 and AT278
Our lead product, AT247, is an Arestat(TM) enabled novel
formulation of insulin designed to accelerate the absorption of
insulin post injection, to enable more effective management of
blood glucose levels for people living with diabetes, particularly
around difficult to manage meal-times. In a first-in-man European
Phase I clinical trial in Type I diabetic patients, AT247
demonstrated favourable results with a faster acting and superior
glucose lowering pharmacokinetic/pharmacodynamic (PK/PD) profile
when compared to currently marketed best-in-class insulin products,
Novo Nordisk's NovoRapid(R) and Fiasp(R). This early clinical
evidence suggests that AT247 may also facilitate a fully closed
loop artificial pancreas, a potentially life changing treatment
option for people living with diabetes. AT247 exhibited an earlier
insulin appearance, exposure, and offset, with corresponding
enhanced early glucose-lowering effect compared with currently
marketed best-in-class insulins. Following on from this positive
first-in-man study, in 2021 Arecor initiated a US based Phase I
clinical trial in patients with Type I diabetes to further explore
the clinical benefits of AT247. The trial is comparing AT247 with
NovoRapid(R) and Fiasp(R), when delivered by continuous
subcutaneous infusion via an insulin pump over a period of 3 days,
with results expected during H2 2022.
Within the year we also announced positive headline results from
the first Phase I clinical trial of our second diabetes franchise
product, AT278, an ultra-concentrated ultra-rapid acting insulin.
AT278 has the potential to disrupt the market for insulin treatment
in people with diabetes, as the first concentrated, yet rapid
acting, insulin. The study had been designed to achieve PK/PD
equivalence with a comparable dose of lower concentration
NovoRapid(R), however, also achieved a superior PK/PD profile which
was at the highest end of our expectations. With this best-in-class
profile, AT278, not only has the potential to provide more
convenient and effective disease management for those patients
requiring high daily doses of insulin, generally Type 2 diabetics,
but can also be a key enabler in the miniaturisation of next
generation insulin delivery devices, which would be applicable to
all insulin taking diabetics, thus broadening the market
potential.
Advancing Specialty Hospital Proprietary Portfolio
Arecor is focused on developing convenient, safe,
ready-to-administer and ready-to-use medicines, which are becoming
increasingly important to enable fast, safe and effective treatment
of patients. The portfolio consists of medicines that are
administered within the hospital setting by health care
professionals, particularly during the treatment of serious
infections, cancer and emergency care. Arecor carefully selects
products that have both limitations for their use and delivery,
such as powders that need to undergo a complex mixing procedure
(reconstitution) prior to use as well as products that can be
developed under an abbreviated development pathway, such as the US
FDA 505(b)(2) regulatory pathway. The 505(b)(2) route relies, in
part, on published literature and other non-Company studies to
support a marketing application and hence presents a relatively
fast, low cost and low risk route to market for Arecor and its
partners. Two of Arecor's specialty hospital products have been
partnered to Hikma Pharmaceuticals under co-development and
licensing agreements. Co-development of the first of these
products,
AT282, is progressing well and we continue to believe in the
commercial value of the product, which has the potential to provide
a safer, more convenient and immediate treatment option for
patients. We remain confident in reaching the next license
milestone in this programme within 2022. In addition, to the
programmes partnered with Hikma, we are continuing to develop an
in-house portfolio of additional specialty pharmaceutical products,
to generate the data required to enter into further
partnerships.
Expansion of revenue generating partnership deals
We have proven expertise in reformulating existing products to
develop proprietary differentiated medicines with enhanced
properties. The approach and platform are validated by four
licensed programmes with attractive success-based economics
including development and commercial milestones plus royalties or
equivalent once on the market: two specialty hospital products with
Hikma and two technology partnerships (a late stage biosimilar with
an undisclosed global player and an early-stage clinical programme
with Inhibrx).
During the year, we further expanded our partnered portfolio and
were delighted to announce five new technology partnerships. In
each case, we are applying our Arestat(TM) technology platform to
generate novel formulations of our partner's proprietary medicines
with enhanced properties. These partnerships further validate the
scientific need and commercial upside potential from the
application of the Arestat(TM) technology platform. These deals
provide near-term revenues and, if successful, significant upside
potential from future licensing.
May 2021 - We were delighted to announce that we are
collaborating with Lilly again. In this case under an exclusive
formulation study collaboration to develop a differentiated,
thermostable formulation of one of Lilly's proprietary products
intended for self-administration. The thermostable formulation
would allow greater convenience of use of the product by patients,
whilst maintaining its stability and integrity.
June 2021 - On the back of our proven expertise and track record
developing Ready-to-Administer ("RTA") and Ready-to-Use ("RTU")
products within our specialty hospital portfolio, we entered an
exclusive formulation collaboration with Par Pharmaceuticals to
develop a differentiated, stable, single dose, RTU formulation of
one of Par's products for intravenous administration. The new
product formulation supports safe medication practices and
operational efficiency by eliminating the need for
reconstitution.
Sept 2021 - We announced a formulation collaboration with a new
partner, Intas Pharmaceuticals, to develop a differentiated stable
liquid product formulation that supports improved usability for the
patient compared to current marketed products, and in particular,
facilitates home use outside of a healthcare environment.
Nov 2021 - We signed an exclusive formulation study
collaboration with a leading global medical products company to
develop a differentiated, stable, liquid drug product, for
intravenous administration in two concentrations, that is
Ready-to-Administer. This collaboration further demonstrates the
strength of our proprietary technology platform, Arestat(TM) in RTA
medicines, which are becoming increasingly important to enable
fast, safe and effective treatment of patients.
Dec 2021 - We signed an exclusive formulation study
collaboration with a global technology leader to develop an
improved, stable, liquid formulation for use within their molecular
testing platform. This collaboration demonstrates the breadth of
applicability of our proprietary technology platform, Arestat(TM)
and expands our reach into new markets.
In these partnerships the partner is funding the development
work and has the option to acquire the rights to the new
proprietary formulation and associated Intellectual Property under
a technology licensing model, allowing our partners to further
develop and commercialise the product.
Operating responsibly
As a biopharmaceutical company operating in the healthcare
industry, it comes with important responsibilities. For us this
means ensuring that we integrate Environmental, Social and
Governance (ESG) factors into our operating methods, third party
partner choices and indeed, the very culture of Arecor. We already
have a diverse, inclusive and open culture within Arecor, and
believe that incorporating awareness of ESG into our daily
activities will enable ethical decision making which in turn will
make us a stronger, better company. As a forward-looking business,
we are committed to becoming an ethical, sustainable business.
Outlook
After a year of significant progress in 2021, we are well
positioned to continue to execute our strategy in 2022 and beyond
as we develop enhanced therapeutic products that can truly
transform patient care. As we look forward, I am excited about the
opportunities ahead in 2022, especially within our proprietary
pipeline with additional clinical data for AT247 expected later in
the year following the excellent clinical results for the AT278
first-in-man study. We have a strong pipeline of opportunities
ahead within our Specialty Hospital portfolio and I look forward to
us continuing to build on our strong partnering performance.
Through our innovative and proprietary technology platform,
Arestat(TM) , we have the prospect of improving the lives of people
living with chronic disease and reducing the burden on health care
systems. I am looking forward to continuing to lead and guide
Arecor through its next period of growth and ultimately towards
building a self-sustaining biopharmaceutical business bringing
innovative therapeutic products to market that can truly improve
care for patients.
Sarah Howell
Chief Executive Officer
23 April 2022
Financial Review
IPO facilitates the advancement of our development portfolio
with existing and near-term revenue potential
"GBP20 million of new investment to advance our proprietary
products, together with five technology partnership agreements
signed in the year, has provided a strong foundation for growth.
2021 was a year of further progress and change including our
successful Admission to AIM on 3 June. We are proud to present our
first Annual Report and Accounts as a public company and thank our
shareholders for their continued support."
During the year ended 31 December 2021, the support of existing
and new shareholders enabled the Group to raise new investment of
GBP20.0 million (before expenses), via a placing of 8,849,558
ordinary shares at 226 pence per ordinary share. Furthermore and
prior to the admission to AIM, GBP4.4 million of shareholder loan
notes were converted into ordinary shares at 203 pence per ordinary
share.
At the end of the financial year, the Group was debt free and
had a closing cash balance of GBP18.3 million (2020: GBP2.9
million). Cash and costs are carefully managed and focused on
progressing our proprietary products.
Cashflow forecasts and going concern
The directors regularly review rolling 12 monthly cash flow
forecasts. These forecasts indicate that the Group expects to
remain cash positive to complete the planned clinical development
studies for AT247 and AT278. This includes a period of at least 12
months from the date of approval of these financial statements.
Due to the uncertainty created by Covid-19, the cash flow
forecast has been stress tested. As a worst-case scenario, if all
payments continued as forecast and there were nil receipts, the
Group would remain cash positive for the full twelve months from
the date of approval of these financial statements.
The accounts have therefore been prepared on a going concern
basis.
Key financials
A summary of the financial KPIs is set out below:
2021 2020
GBP'000s GBP'000s
--------- ---------
Total Income 1,798 2,150
--------- ---------
Revenue recognised from formulation development
projects 1,158 778
--------- ---------
License or milestone revenue - 920
--------- ---------
Other operating income 640 452
--------- ---------
Loss after tax (6,169) (2,752)
--------- ---------
Net Assets 18,549 774
--------- ---------
Revenue recognised from formulation development projects
increased to GBP1.2m in the financial year (2020: GBP0.8 million)
and included revenue from five new agreements signed in the
year.
License or milestone revenue was nil in the year ended 31
December 2021 with revenue in the prior year of GBP0.9m including
the recognition of contractual milestone and license fees. This
reflects the periodic nature of such revenue which is recognised in
the financial year within which a license is granted or a milestone
achieved.
Total Income of GBP1.8 million (2020: GBP2.1 million) was
derived from revenue generating and grant funded projects.
Other operating income of GBP0.6 million (2020: GBP0.5 million)
was derived from the GBP2.8 million Innovate BioMedical Catalyst
grant which was awarded in March 2021, to support the Phase II
development of AT247. The prior year grant income reflected two
Innovate grant funded projects which ended during that year.
The loss after tax of GBP6.2 million (2020: GBP2.8 million)
included R&D expenditure which increased to GBP5.4 million
(2020: GBP3.9 million) and was focused on progressing our
proprietary products. R&D expenditure in the year included the
Phase I clinical trial for AT278, with positive results announced
in September, together with expenditure related to the US Phase I
clinical trial of AT247, which commenced in January 2022.
Selling, General and Administrative expenses increased to GBP2.4
million (2020: GBP1.6 million) together with non-recurring placing
and admission costs of GBP0.5m (2020: nil).
Net assets of GBP18.5 million (2020: GBP0.8 million) included a
closing cash balance of GBP18.3 million (2020: GBP2.9 million).
Trade and other receivables increased to GBP1.4 million (2020:
GBP0.2 million) principally due to amounts receivable under
formulation development and grant project debtors. Current
liabilities increased to GBP2.3 million (2020: GBP1.4 million) and
included payables relating to the initiation of the US Phase I
clinical trial of AT247.
Non-current liabilities of GBP0.1 million (2020: GBP2.1 million)
were in respect of a building lease. The prior year liability
included shareholder loan notes which converted into ordinary
shares prior to Admission to AIM on 3 June 2021.
Susan Lowther
Chief Financial Officer
23 April 2022
Consolidated income statement
for the year ended 31 December 2021
31 December 31 December
2021 2020
Notes GBP000 GBP000
Revenue 5 1,158 1,698
Other operating income 6 640 452
Research and development costs 7 (5,386) (3,936)
Administrative costs 7 (2,851) (1,642)
Operating loss (6,439) (3,428)
Finance income 10 1 3
Finance expense 11 (507) (87)
------------ ------------
Loss before tax (6,945) (3,512)
Taxation 12 776 760
------------ ------------
Loss for the financial year (6,169) (2,752)
============ ============
Basic and diluted loss per share
(GBP) 13 (0.27) (0.17)
Included in Administrative costs for the current year are
GBP462,000 of non-recurring expenses relating to the listing of
Arecor Therapeutics plc on the London AIM Market on 3 June 2021
(also see note 8).
All results presented above are derived from continuing
operations and are attributable to owners of the company.
Consolidated statement of financial position
At 31 December 2021
31 December 31 December
2021 2020
Notes GBP000 GBP000
Assets
Non-current assets
Intangible assets 14 30 38
Property, plant and equipment 15 328 376
Other receivables 16 48 48
------------ ------------
Total non-current assets 406 462
Current assets
Trade and other receivables 16 1,423 166
Current tax receivable 776 758
Cash and cash equivalents 17 18,316 2,898
------------ ------------
Total current assets 20,515 3,822
Current liabilities
Trade and other payables 18 (2,141) (1,303)
Lease liabilities 19 (126) (105)
------------ ------------
Total current liabilities (2,267) (1,408)
Non-current liabilities
Lease liabilities 19 (105) (192)
Borrowings 20 - (1,698)
Derivative financial liability 20 - (212)
------------ ------------
Total non-current liabilities (105) (2,102)
Net Assets 18,549 774
============ ============
Equity attributable to equity holders
of the company
Share capital 22 278 27
Share premium account 22 23,348 11,594
Share-based payments reserve 519 1,045
Other reserves 22 11,455 -
Retained loss (17,051) (11,892)
Total equity attributable to equity
holders of the company 18,549 774
============ ============
The financial statements of Arecor Therapeutics plc, registered
number 13331147, were approved by the Board of Directors and
authorised for issue on 23 April 2022.
Signed on behalf of the Board of Directors by:
Sarah Howell
Director
Consolidated statement of changes in equity
for the year ended 31 December 2021
Share Share Other Share-based Retained Total
capital premium reserves payments losses equity
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2020 27 11,594 - 727 (9,140) 3,208
Comprehensive income for
the year
Loss for the year - - - - (2,752) (2,752)
Transactions with owners
Issue of shares - - - - -
Share-based compensation - - - 318 - 318
--------- --------- ---------- ------------ --------- --------
Total transactions with owners - - - 318 - 318
Equity as at 31 December
2020 27 11,594 - 1,045 (11,892) 774
========= ========= ========== ============ ========= ========
Loss for the year - - - - (6,169) (6,169)
Transactions with owners
Shares issued by Arecor Limited 1 - - - - 1
Reserve transfer - - - (1,010) 1,010 -
Share bonus issue 139 (139) - - - -
Incorporation of Arecor Therapeutics
Limited - (11,455) 11,455 - - -
Shares issued by Arecor Therapeutics
plc 110 24,785 - - - 24,895
Share issue expense - (1,437) - - - (1,437)
Share based compensation - - - 484 - 484
Issue of shares on exercise
of options 1 - - - - 1
--------- --------- ---------- ------------ --------- --------
Total transactions with owners 251 11,754 11,455 (526) 1,010 23,944
--------- --------- ---------- ------------ --------- --------
Equity as at 31 December
2021 278 23,348 11,455 519 (17,051) 18,549
========= ========= ========== ============ ========= ========
Consolidated statement of cash flows
for the year ended 31 December 2021
31 December 31 December
2021 2020
Notes GBP000 GBP000
Cash flow from operating activities
Loss for the financial year before tax (6,945) (3,512)
Finance income 10 (1) (3)
Finance costs 11 507 87
Share-based payment expense 23 484 318
Depreciation 15 163 160
Amortisation 14 8 8
Foreign exchange movements (5) 43
------------
(5,789) (2,899)
Changes in working capital
Decrease / (increase) in trade and other
receivables (1,257) 384
Increase / (decrease) in trade and other
payables 838 363
Tax received 758 295
------------ ------------
Net cash from operating activities (5,450) (1,857)
------------ ------------
Cash flow from investing activities
Purchase of property, plant and equipment 15 (69) (52)
Interest received 1 3
------------ ------------
Net cash used in investing activities (68) (49)
------------ ------------
Cash flow from financing activities
Issue of ordinary shares 22 20,002 -
Share issue costs (1,437) -
New loans received 20 2,500 1,905
Transaction costs on loan received - (65)
Capital payments on lease liabilities 19 (112) (49)
Interest paid on lease liabilities 19 (22) (18)
Other interest paid - -
------------ ------------
Net cash generated from financing activities 20,931 1,773
------------ ------------
Net increase / (decrease) in cash and
cash equivalents 15,413 (133)
Exchange losses on cash and cash equivalents 5 (43)
Cash and cash equivalents at beginning
of financial year 2,898 3,074
Cash and cash equivalents at end of financial
year 18,316 2,898
============ ============
Notes to the consolidated financial statements
1. General information
Arecor Therapeutics plc ("Arecor" or the "Company") is a public
limited company incorporated on 13 April 2021 and 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 Group's activities and operations are carried out by
Arecor Limited, the Company's wholly owned subsidiary whose
principal activities are research and experimental development of
biotechnology.
On 24 May 2021 Arecor Limited undertook a bonus issue of shares
and share options on the basis of five shares for every one share
or share option held.
On 24 May 2021 all shareholders and convertible loan note
holders in Arecor Limited and the Company entered into a Share and
CLN Exchange Agreement, pursuant to which the Company acquired the
entire issued share capital and convertible loan notes in Arecor
Limited.
On 24 May 2021 the Company was re-registered under section 92 of
the Companies Act as a public limited company.
On 2 June 2021, pursuant to a Shareholders' resolution passed on
26 May 2021 and class consents: a) the A ordinary shares, A1
ordinary shares and B ordinary shares were converted into ordinary
shares; b) the ordinary shares were converted into C ordinary
shares; and c) the Company renamed the C ordinary shares into
ordinary shares.
On 3 June 2021 the Company's shares were admitted to trading on
AIM, a market operated by The London Stock Exchange.
2. Adoption of new and revised standards
New and amended accounting standards that are mandatorily
effective for the current year.
The following amended standards and interpretations were also
effective during the year, however, they have not had a significant
impact on our consolidated financial statements:
-- Amendments to IFRS 7, IFRS 9, IAS 39, IFRS 4 and IFRS 16
Interest Rate Benchmark Reform Phase 2
-- Amendment to IFRS 16, 'Leases' - Covid-19 related rent concessions
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.
-- Amendments to IAS 16: Property, Plant and Equipment - Proceeds before Intended Use
-- Amendments to IFRS 3: Business Combinations - Reference to the Conceptual Framework
-- Amendments to IAS 37: Provisions, Contingent Assets - Onerous
Contracts Cost of Fulfilling a Contract
-- Annual Improvements 2018 / 2020
3. 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 2021. 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 2021 was (i)
unqualified, and (ii) did not include a reference of any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 498(2) or (3) of the Companies Act 2006. Those financial
statements are for the first accounting period of Arecor
Therapeutics plc. Statutory accounts for Arecor Limited for the
year ended 31 December 2020, which incorporated an unqualified
auditor's report, have been filed with the Registrar of
Companies.
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.
Predecessor accounting
Arecor Therapeutics was incorporated on 13(th) April 2021. On
24(th) May 2021, the company acquired the entire share holding of
Arecor Limited by means of a share for share exchange and therefore
becoming the parent member of the Group.
As the two companies are considered under common control, they
fall outside the scope of IFRS 3 as a business combination. Under
such circumstances, in the absence to an IFRS that specifically
applies to a transaction, IAS 8 states that "management shall use
its judgement in developing and applying an accounting policy that
results in information that is relevant to the economic decision
making needs of users and is reliable". In making this judgement,
management shall refer to, and consider the applicability of the
requirements of IFRSs dealing with similar and related issues, and
definitions, recognition criteria and measurement concepts for
assets, liabilities, income and expenses in the Conceptual
Framework for Financial Reporting. Management may also consider the
most relevant pronouncements of other standard-setting bodies that
use a similar conceptual framework to develop accounting standards,
other accounting literature and accepted industry practices.
Under these circumstances and conditions, management has opted
to apply the predecessor accounting methodology. The general
features of this approach are that:
-- the assets and liabilities of the acquired business are
accounted for at their existing carrying values rather than fair
value
-- no goodwill is recorded
-- the difference between the acquirer's cost of investment and
the acquiree's equity is presented as a separate reserve within
equity on consolidation
Management has used merger accounting to consolidate the two
entities within the Group. Under merger accounting principles, the
assets and liabilities of the subsidiaries are consolidated at book
value in the Group financial statements. The consolidated reserves
of the Group have been adjusted to reflect the statutory share
capital of Arecor Therapeutics plc, with the difference presented
in equity as other reserves.
These consolidated financial statements are the first set of
audited financial statements for the Group. The prior period has
been presented as the continuation of Arecor Limited on a
consistent basis as if the Group reorganisation had taken place at
the start of the earliest period presented.
Prior period comparatives are that of Arecor Limited as no
substantive economic or financial changes have occurred.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and the entities controlled by the
Company (subsidiaries) at 31 December 2021. The Parent Company was
incorporated on 13 April 2021. Arecor Therapeutics acquired the
entire share capital of Arecor Limited on 1 June 2021 by means of a
share for share exchange with all shareholders. At this point it
was deemed to have control of the subsidiary.
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.
Going Concern
The Directors have considered the Company's cashflow forecasts
to the period ending 12 months from the date of authorisation of
the financial statements. They have no grounds for concern
regarding the Company's ability to meet its obligations as they
fall due and continue to operate within the existing cash balance
and working capital facilities, thus requiring no additional
funding to maintain liquidity. At the end of the period analysed,
the Group will still hold a portion of the funds raised during the
year.
In reaching their decision to prepare financial statements on a
going concern basis, the Directors have a reasonable expectation
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future. In addition,
the cash flow forecast has been stress tested whereby in a
worst-case scenario, if all payments continued as forecast and
there were nil receipts, the Group would remain cash positive for
the full twelve months from the date of approval of these financial
statements. Accordingly, they continue to adopt the going concern
basis in preparing the annual report and accounts.
The current COVID-19 pandemic has the potential to materially
impact the ability of the Group to execute its strategy and to
negatively impact the Group's cashflow forecast. At the date of
approval of these financial statements, the Group's operations have
not been significantly impacted by the crisis. The Directors are
confident that at this time of economic uncertainty, the Group has
a stable cash position and all necessary actions have been taken to
protect the business from the impact of the COVID-19 pandemic.
Revenue
Revenue is measured based on the consideration that the Group
expects to be entitled to in exchange for transferring promised
goods and services. There are two main revenue types: the first
arises from the performance of formulation development studies and
the second from granting of licences. The Group applies IFRS 15
Revenue from contracts with customers. Revenue is recognised to the
extent that the Group obtains the right to consideration in
exchange for its performance and applies the five-step method
to:
-- identify contracts with its 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 nature of this type of work is that it takes places evenly
within each phase of each contract. During main contract phases,
the progress of the work is dictated by physical constraints e.g.,
required periods of observation which dictate the pace of work,
hence time passed best indicates the stage of completion of a
service performed over time, which is even 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 the
contracts, each of which is negotiated individually with the
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.
In general, revenue is billed in advance of performance of work
for each phase of a contract, meaning most arrangements give rise
to contract liabilities as each invoice is raised, and these
liabilities are normally fully released before the next billing
point. Dependent on the nature of work involved in the different
phases of a contract, it can, on occasion be the case that phases
overlap.
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 and the distinct
obligations included in the research element, as described
above.
Where licences include variable consideration, typically in the
form of milestone payments, revenue is recognised when a milestone
is achieved.
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 rather than licences.
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.
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 are met for a
product:
-- T he technical feasibility of completing the project (so that
an intangible asset thereby generated will be available for use or
sale) can be demonstrated
-- An intention to complete the project can be demonstrated
-- An ability to use or sell an intangible asset generated by the project can be demonstrated
-- It is possible to demonstrate how an intangible asset
generated by the project will generate probable future economic
benefits for the Company
-- It is possible to demonstrate 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
-- An ability to measure reliably the expenditure attributable
to the project can be demonstrated
Until all of 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 Company 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 into 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
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.
Patents are amortised over their estimated useful life of 18
years.
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.
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,
except for impairment losses on goodwill, which are not
reversed.
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 Straight line over term of asset
lease
Other equipment 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.
Inventories
Inventories are 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 to 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 Company 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.
The Group's financial assets comprise trade receivables, other
receivables (excluding prepayments) and cash and cash
equivalents
Trade payables
Trade payables are recognised initially at their fair value, net
of transaction costs and subsequently measured at amortised costs
less settlement payments.
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
requires an expected credit loss model to be applied. The expected
credit loss model requires the Company 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.
IFRS 9 requires the Company to recognise a loss allowance for
ECL on trade receivables. In particular, IFRS 9 requires the
Company 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 Company 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 buckets
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 only by age in establishing whether or how
much 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 Company
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 company at the end of the lease
term and when all payments have been made.
Under the current leasing agreement for the premises, there are
no specified renewal options. The lease was last renewed in August
2020 until December 2023.
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 Company takes advantage of Research and Development tax
incentives offered by the UK Government. The value of these
incentives reclaimable 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.
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.
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
-- "Retained earnings / losses" represents the accumulated
profits and losses attributable to equity shareholders
4. 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 Company that have the most significant effect on the historical
financial information:
Impairment of property, plant and equipment
Judgement is applied to determine whether there are indicators
of impairment of the Company's property, plant and equipment.
Factors taken into consideration in reaching such a decision
include the economic viability and expected future financial
performance of the asset and where it is a component of a larger
cash-generating unit, the viability and expected future performance
of that unit.
Revenue recognition
Management have used the five-step principle laid out under IFRS
15 when assessing 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.
As each stage of a project is invoiced in advance, as per the
agreed schedule included in the project agreement, this also gives
rise to deferred income. By following the principles for revenue
recognition, the Group is simultaneously calculating the remaining
contract liability. These balances are reviewed and reconciled
monthly to ensure they are aligned to the value of revenue
recognised for that phase of the contract.
Treatment of R&D expenditure
When considering whether Research and Development expenditure is
eligible to be capitalised, Management consider the criteria for
capitalisation identified under IAS38 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 that will enable them to be available for sale,
the product must have successfully completed phase III clinical
trials and the appropriate submission must be filed to the
regulatory authority for final scientific regulatory approval. As
the Group's furthest progressed clinical candidates (AT247 and
AT278) are still 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. This is reviewed to ensure the spend
it within the parameters of the grant the value of the grant award
is unchanged. All grant income received in the year relates to an
Innovate UK grant of GBP2.8m which was awarded in March 2021. Under
the terms of the grant, payments are made quarterly in arrears
following the successful completion of an independent audit of the
expenditure claimed. At 31 December 2021, a balance of GBP395,596
was included within trade debtors to reflect an audited and
approved claim for the quarter ended 30 November 2021 that was
still outstanding. At the reporting date a balance of GBP15,988 was
posted as accrued income to reflect the income due in relation to
the unaudited costs incurred in December 2021. Based on the
successful claims for the first three quarters of the grant, the
Directors are satisfied that this balance is recoverable.
Key sources of estimation uncertainty
Share based payments.
During the year, the Group has granted EMI approved 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. In the same period the Group also granted non-EMI approved
Long-Term Incentive Plan (LTIP) options to the Leadership Team. As
well as the continued employment of the individuals, specific
performance criteria are also required for the options to vest. Due
to the inclusion of these performance conditions, the fair value of
the options was calculated using a Monte Carlo simulation
model.
To calculate the fair value of the options at the date of grant,
a number of estimates and judgements to establish the necessary
inputs are required to be entered into the model. These include the
future volatility of the share price, the use of an appropriate
interest rate and behavioural considerations. In addition to
internal expertise, the Group has also taken external consultation
in preparing these calculations. The estimates and judgements,
along with supporting calculations have been reviewed by the Groups
Audit and risk committee.
The option price at date of grant is considered to be the share
price at the close of the previous day of trading. IFRS 2 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. For this to be possible, the share price of the
previous trading day is used so that the value is independently
verifiable by both parties.
On 3 June 2021, the company issued share options to a number of
employees which was the first day of trading of shares in Arecor
Therapeutics plc. The opening price of GBP2.26 was used to
calculate the fair value at the date of grant, in the absence of a
prior day closing share price.
R&D tax credits
The company calculates the expected R&D tax credit claimable
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 local tax authority. The company uses an
approach to calculate the balance that is consistent with prior
periods where claims have been successfully received. External
experts are also used to verify the calculations and assist with
the submission process to ensure it is in accordance with tax
authority guidance. At 31 December 2021 the expected R&D tax
credits claimable for the period was GBP775,683 (2020:
758,257).
5. Revenue and operating segments
The geographic analysis of the Group's revenue is as
follows:
31 December 31 December
2021 2020
GBP000 GBP000
UK 71 7
Europe 76 729
USA 940 962
Rest of world 71 -
------------ ------------
1,158 1,698
============ ============
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision makers.
Information reported includes revenue by project, 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.
Due to the size of the Group, there is only one revenue
generating activity and all activities are performed at a single
location. Accordingly, the Directors consider there to be a single
operating segment.
31 December 31 December
2021 2020
GBP000 GBP000
Formulation development projects 1,014 666
License agreements - 920
Non-Government grants 144 112
------------ ------------
Total revenue 1,158 1,698
============ ============
For the year ended 31 December 2021, revenue includes GBP80,000
(2020: GBP240,000) included in the contract liability balance at
the beginning of the period. These balances arise because most
customers pay at the beginning of each work phase so the revenue
arising from each payment is recognised as the work is performed.
These advance payments are reported as a current liability in the
statement of financial position
During the year, three customers each contributed more than 10%
of the company's revenues, respectively GBP328,000 (28%),
GBP260,000 (22%) and GBP144,000 (12%) (2020: three customers,
GBP538,000 (31%), GBP566,000 (33%) and GBP347,000 (20%)).
6. Other operating income
Other operating income comprises of grant income received from
Government grants. In March 2021, Arecor was awarded a GBP2.8m
grant over three years by Innovate UK for a project entitled
"Transforming Diabetes Care" to enable the development of a fully
closed loop artificial pancreas system for use in conjunction with
the proprietary ultra-rapid acting insulin formulation, AT247.
Grant income is accrued monthly based on eligible costs incurred.
Funds are then received quarterly in arrears following completion
of an independent audit of the costs and submission to the grant
authority. At 31 December 2021, GBP16k of other operating income
related to income that had been accrued and not received (2020:
GBPnil).
7. Operating loss
31 December 31 December
2021 2020
GBP000 GBP000
Operating loss is stated after charging:
Audit fees 60 8
Other audit services 8 -
Non-audit fees - other assurance services 40 -
Depreciation of property, plant and
equipment:
- Owned assets 68 79
- Right of use assets under leases 95 80
Amortisation of intangible assets 8 8
Research and Development (excl. employee
costs) 3,570 2,635
Sales, General and Admin (excl. employee
costs) 395 262
Non-recurring expenses 462 -
Foreign exchange losses/(gains) (5) 43
Directors and employee costs (Note 9) 3,536 2,463
Auditors' remuneration
31 December 31 December
2021 2020
GBP000 GBP000
Audit of the Group and parent company 30 -
accounts
Audit of the accounts of the Company's
subsidiaries by the Group auditors 30 8
------------ ------------
Total audit fees 60 8
Audit related services 15 -
Tax compliance services 8 -
Tax advisory services 11 -
Corporate finance services 175 -
------------ ------------
Total non-audit fees 209 -
Non audit fees incurred in the year are allocated between other
audit services and non-recurring expenses in the income statement,
and share premium for costs associated with the listing on the
London AIM market
8. Non-recurring expenses
Non-recurring expenses refers to costs incurred as part of the
listing on AIM in June 2021 that were not eligible for
capitalisation to the share premium reserve. These costs have
therefore been expensed to the income statement. Due to the nature
of the costs incurred in becoming a company listed on AIM, they are
considered to be non-recurring.
9. Remuneration of Directors and employees
The aggregate remuneration of persons (including management
Directors) employed by the Group during the period was:
31 December 31 December
2021 2020
GBP000 GBP000
Wages and salaries 2,663 1,977
Share based payments 484 277
Social security 297 152
Pension costs 92 57
3,536 2,463
============ ============
The average monthly number of persons (including Directors)
employed by the Group during the period was:
31 December 31 December
2021 2020
Number Number
Research, Development and Operations 26 21
Sales, General Admin staff 4 3
Executive and Non-Executive Directors 7 7
------------ ------------
37 31
============ ============
Directors remuneration for Companies Act purposes amounts
to:
31 December 31 December
2021 2020
GBP000 GBP000
Remuneration of Directors
Emoluments and fees for qualifying
services 778 456
Company contributions to money purchase
pension schemes 26 14
Gains on exercise of share options 614 136
------------ ------------
1,418 606
============ ============
Remuneration of the highest paid Director
31 December 31 December
2021 2020
GBP000 GBP000
Emoluments and fees for qualifying
services 329 174
Company contributions to money purchase
pension schemes 14 7
Gains on exercising share options 402 136
------------ ------------
745 317
============ ============
Remuneration data for the Directors in the reporting period
reflects total amounts paid for services relating to Arecor
Therapeutics plc and to its subsidiary Arecor Limited.
Remuneration of Key Management Personnel including directors
which is included in staff costs:
31 December 31 December
2021 2020
GBP000 GBP000
Short term employment benefits 1,531 925
Post-employment benefits 56 31
Share based payments 434 244
------------ ------------
2,021 1,200
============ ============
Key Management Personnel consists of the directors and the
Leadership Team (the Chief Scientific Officer, Chief Operating
Officer, VP Business Development, VP Development, VP Clinical
Development, Regulatory Affairs & Quality).
Prior period figures were services relating to Arecor Limited.
Arecor Therapeutics plc was incorporated on 13 April 2021.
10. Finance income
31 December 31 December
2021 2020
GBP000 GBP000
Interest received on bank balances 1 3
------------ ------------
1 3
============ ============
11. Finance expense
31 December 31 December
2021 2020
GBP000 GBP000
Interest on convertible loan notes - 64
Fair value movement on derivative - -
Transactions costs on embedded derivative - 5
Accelerated Finance costs upon conversion 485 -
of loan notes to equity
Interest expense on lease liabilities 22 18
507 87
============ ==============
Included in Finance expense is a charge of GBP485,000 relating
to the conversion of the convertible loan note instruments into
ordinary shares at a subscription price which was at a discount of
10% to the placing price at Admission.
12. Taxation
31 December 31 December
2021 2020
GBP000 GBP000
Current tax (credit):
Research & development tax credit
receivable (776) (760)
------------ ------------
Total tax (776) (760)
============ ============
31 December 31 December
2021 2020
GBP000 GBP000
Loss before tax (6,945) (3,512)
Loss on ordinary activities multiplied
by standard rate of corporation tax
in the UK of 19% (2020: 19%) (1,320) (667)
============ ============
Tax effects of:
Expenses not deductible for tax purposes 180 54
Enhanced R&D relief (523) (521)
Unrecognised deferred tax 887 368
Origination and reversal of timing
differences - 6
------------ ------------
Total tax (credit) (776) (760)
============ ============
At 31 December 2021, the Group has accumulated tax losses of
GBP11,361,635 (2020: GBP6,647,063). No deferred tax asset was
recognised in respect of these accumulated tax losses due to
uncertainty regarding the timing of recoverability in future years.
Under UK tax law currently enacted, the accumulated tax losses are
not limited by an expiry date.
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 / period.
Due to the losses incurred during all periods presented, a
diluted loss per share has not been calculated as this would serve
to reduce the basic loss per share.
31 December 31 December
2021 2020
GBP GBP
Loss per share from continuing operations (0.27) (0.17)
------------ ------------
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
2021 2020
GBP000 GBP000
Loss used in the calculation of total basic
and diluted loss per share (6,169) (2,752)
------------ ------------
31 December 31 December
2021 2020
Number of shares Number Number
Weighted average number of ordinary shares
for the purposes of basic and diluted loss
per share 23,033,420 16,247,322
------------ ------------
14. Intangible assets
GROUP Patents
GBP000
Cost
At 1 January 2020 150
Additions -
--------
At 31 December 2020 150
--------
Additions -
At 31 December 2021 150
--------
Amortisation
At 31 December 20219 104
Charge for the year 8
--------
At 31 December 2020 112
--------
Charge for the year 8
--------
At 31 December 2021 120
--------
Net book value
At 31 December 2020 38
========
At 31 December 2021 30
========
Amortisation is recognised within administrative expenses.
15. Property, plant and equipment
GROUP Leasehold Right of Other Total
improvements use assets equipment
- office
lease
GBP000 GBP000 GBP000 GBP000
Cost
At 31 December 2019 75 277 831 1,183
Additions - 141 100 241
Disposals - - (20) (20)
At 31 December 2020 75 418 911 1,404
-------------- ------------ ----------- -------
Additions 4 - 111 115
Disposals - - (8) (8)
-------------- ------------ ----------- -------
At 31 December 2021 79 418 1,014 1,511
-------------- ------------ ----------- -------
Depreciation
At 31 December 2019 51 169 669 889
Charge for the year 15 63 81 159
Disposals - - (20) (20)
-------------- ------------ ----------- -------
At 31 December 2020 66 232 730 1,028
-------------- ------------ ----------- -------
Charge for the year 6 62 95 163
Disposals - - (8) (8)
-------------- ------------ ----------- -------
At 31 December 2021 72 294 817 1,183
-------------- ------------ ----------- -------
Net book value
At 31 December 2020 9 186 181 376
============== ============ =========== =======
At 31 December 2021 7 124 197 328
============== ============ =========== =======
16. Trade and other receivables
31 December 31 December
2021 2020
GBP000 GBP000
Non-current receivables
Other receivables 48 48
------------ ------------
48 48
============ ============
31 December 31 December
2021 2020
GBP000 GBP000
Trade and other receivables
Trade receivables 712 78
Other receivables 67 24
Accrued income (other operating 16 -
income)
Prepayments 628 64
------------ ------------
1,423 166
============ ============
Included in prepayments at the reporting date was a balance of
GBP479,000 relating to advance payments for a clinical study that
started in early 2022.
An expected credit loss assessment has been performed and
management have concluded that no expected credit losses exist in
relation to the Group's receivables as at any of the reporting
dates presented. This is because the nature of the arrangements is
that billings are usually before work is performed, meaning that
customers have a strong incentive to make payment in order to
ensure that the work proceeds on a timely basis.
17. Cash and cash equivalents
31 December 31 December
2021 2020
GBP000 GBP000
Cash at bank (GBP) 18,299 2,111
Cash at bank (USD) 17 787
------------ ------------
18,316 2,898
============ ============
At the reporting dates presented all significant cash and cash
equivalents were deposited in the UK with large international
banks.
18. Trade and other payables
31 December 31 December
2021 2020
GBP000 GBP000
Current
Trade payables 518 465
Other tax and social security 85 51
Other creditors 23 16
Contract liabilities 349 80
Accruals 1,166 691
------------ ------------
2,141 1,303
============ ============
During the year the company entered into five new formulation
development agreements. Under the terms of the agreements Arecor
Limited receives payments in advance for the work to be undertaken.
At 31 December 2021 advance payments of GBP0.3 million were
reported as contract liabilities.
Included within accruals at the reporting date was a balance of
GBP0.442 million relating to costs incurred for a first clinical
study in the U.S. There was no prior year comparative.
19. Leases
Right of use assets
The Group used leasing arrangements with a maximum term of 5
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.
Where an interest rate implicit in the lease is not readily
available, the Group's incremental borrowing rate is used instead.
This is determined by reference to the interest application on the
Group's borrowings.
31 December 31 December
2021 2020
GBP000 GBP000
Additions to right of use assets 46 189
Depreciation charge - right of use assets (95) (80)
Carrying amount at the beginning of the
year - right of use assets: 247 138
Carrying among at the end of the year
- right of use assets: 198 247
31 December 31 December
2021 2020
GBP000 GBP000
Interest expense on lease liabilities 22 18
Total cash outflow for leases (134) (67)
31 December 31 December
Lease liabilities 2021 2020
GBP000 GBP000
Current 126 105
Non-current 105 192
------------ ------------
231 297
============ ============
20. Borrowings
31 December 31 December
2021 2020
GBP000 GBP000
Non-current
Convertible loan notes - 1,698
Total borrowings - 1,698
============= ============
31 December 31 December
2021 2020
GBP000 GBP000
Non-current
Embedded derivative - 212
============= ============
Convertible loan note instruments
On 28 October 2020, Arecor Limited executed a convertible loan
note instrument which constituted GBP1,905,474 unsecured
convertible loan notes. The notes had a five-year life, accruing
interest at 8 per cent., and earlier conversion possible if one of
a number of triggering financing events has occurred. Based on the
Company's expectations of its short-term future, the fair value of
the embedded derivative at issue representing the possible
variation was estimated based on the expected settlement which
would result in noteholders receiving an effective discount on the
market price as of the conversion. On this basis it had an
estimated opening value of GBP211,508 and will be remeasured to
fair value each reporting date until the loan is redeemed or
converted. The host contract is measured at amortised cost. Costs
on the issue of the notes were apportioned between the host debt
and derivative elements; those relating to the host debt are
included in the amortised cost calculation and those relating to
the derivative were written off to the income statement immediately
and included in interest expense.
On 31 March 2021, Arecor Limited executed a supplemental loan
note instrument for GBP2,500,000 unsecured convertible loan
notes.
The terms of these instruments included interest payable at the
rate of eight per cent. Per annum. The loan notes plus accrued,
unpaid interest could be:
a) converted into shares on the admission to a recognised
investment exchange including AIM;
b) converted into shares upon raising equity capital of at least
GBP8,000,000; or
c) redeemed on the first business day after the fifth
anniversary of the date of issue.
Following the adoption by the Company of the convertible loan
notes and completion of the Share and CLN Exchange on 24 May 2021,
the convertible loan notes in Arecor Limited were released. The
convertible loan stock of GBP4,405,474 in the Company was converted
into ordinary shares, immediately prior to Admission, at a 10%
discount to the placing price. This has been treated as a finance
expense in the Consolidated Statement of Comprehensive Income.
Interest accrued was disregarded on conversion in accordance
with the terms of the instruments
Reconciliation of liabilities arising from financing
activities
At 1 Cash Legal New Interest Repaid Converted At 31
January received fee paid leases accrued / in cash to Equity December
2021 fair value 2021
movement
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Lease liabilities 297 - - 46 22 (134) - 231
Embedded
derivative 212 - - - - - (212) -
Convertible
loan notes 1,698 2,500 60 - (64) - (4,194) -
--------- ---------- ---------- -------- ------------ --------- ----------- ----------
2,207 2,500 60 46 (42) (134) (4,406) 231
========= ========== ========== ======== ============ ========= =========== ==========
At 1 Cash Legal New Interest Repaid At 31
January received fee paid leases accrued / in cash December
2020 fair value 2020
movement
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Lease liabilities 158 - - 188 18 (67) 297
Embedded
derivative - 212 - - - - 212
Convertible
loan notes - 1,694 (60) - 64 - 1,698
--------- ---------- ---------- -------- ------------ --------- ----------
158 1,906 (60) 188 82 (67) 2,207
========= ========== ========== ======== ============ ========= ==========
21. 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 only financial instrument measured at fair value in the
balance sheet is the embedded derivative which is classified as
Level 3 according to the above definitions. There were no transfers
in or out of Level 3 in the year.
There are no financial instruments classified at Level 1 or
Level 2 in the years presented.
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 2021 2020
GBP000 GBP000
Trade receivables 712 78
Other receivables 115 72
Accrued income 16 -
Cash and cash equivalents 18,316 2,898
------------ ------------
19,159 3,048
============ ============
All of the above financial assets' carrying values are
approximate to their fair values, as at all reporting dates
presented.
31 December 31 December
Financial liabilities at amortised 2021 2020
cost
GBP000 GBP000
Trade payables 518 465
Other payables 23 16
Lease liabilities 231 297
Borrowings - 1,698
Accruals 623 691
------------ ------------
1,395 3,167
============ ============
In the view of management, all of the above financial
liabilities' carrying values approximate to their fair values as at
all reporting dates presented.
31 December 31 December
Financial liabilities measured at fair
value 2021 2020
GBP000 GBP000
Embedded derivative - 212
------------- ------------
- 212
====================================================== ============
Convertible loan note instruments
On 28 October 2020, Arecor Limited executed a convertible loan
note instrument which constituted GBP1,905,474 unsecured
convertible loan notes.
On 31 March 2021, Arecor Limited executed a supplemental loan
note instrument for GBP2,500,000 unsecured convertible loan notes.
The terms of these instruments included interest payable at the
rate of eight per cent. Per annum. The loan notes plus accrued,
unpaid interest could be:
a) converted into shares on the admission to a recognised
investment exchange including AIM;
b) converted into shares upon raising equity capital of at least
GBP8,000,000; or
c) redeemed on the first business day after the fifth
anniversary of the date of issue.
Following the adoption by the Company of the convertible loan
notes and completion of the Share and CLN Exchange on 24 May 2021,
the convertible loan notes in Arecor Limited were released. The
convertible loan stock of GBP4,405,474 in the Company was converted
into ordinary shares, immediately prior to Admission, at a 10%
discount to the placing price. This has been treated as a finance
expense in the Consolidated Statement of Comprehensive Income.
Interest accrued was disregarded on conversion in accordance with
the terms of the instruments.
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.
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 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.
Interest rate risk
The Group's only exposure to interest rate risk is the interest
received on the cash held on deposit, which is immaterial, and the
interest on borrowings. Borrowings are at a fixed interest rate, so
the interest rate risk is considered to be immaterial.
Foreign exchange risk
The Group's transactions are carried out substantially in Great
British pound sterling. The Group holds non-domestic cash balances
but currently does not consider it necessary to take action to
mitigate foreign exchange risk due to management's view of the
immateriality of that risk. The level of risk from foreign exchange
exposure is under constant review and the Directors will take steps
to mitigate any significant risks as needs arise.
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 2021 and 2020 on the basis
of their earliest possible contractual maturity.
Within Within Within Within Within
2
2 to 1 to
months 6 6 - 12 2 2 to 5
Total months months years years
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 31 December
2021
Trade payables 518 518 - - - -
Other payables 108 108 - - - -
Lease liabilities 252 8 63 71 102 8
Borrowings - - - - - -
Accruals 623 475 148 - - -
------- ------- ------- ------- ------- -------
1,501 1,109 211 71 102 8
======= ======= ======= ======= ======= =======
Within Within Within Within
Within 2 2 -6 6 - 12 1-2 2-5
Total months months months years years
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 31 December 2020
Trade payables 465 465 - - - -
Other payables 16 - 16 - - -
Lease liabilities 333 5 57 63 124 84
Borrowings 2,287 - - - - 2,287
Accruals 691 - 691 - - -
------- --------- -------- -------- ------- -------
3,792 470 764 63 124 2,371
======= ========= ======== ======== ======= =======
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
2021 2020
GBP000 GBP000
Equity 18,573 774
Cash and cash equivalents (18,316) (2,898)
Borrowings - 1,698
Net borrowings 257 (426)
============ ============
The Board of Directors monitors the level of capital as compared
to the Group's commitments and adjusts the level of capital as 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 year. The Directors
believe that they have been able to meet their objectives in
managing the capital of the Group.
22. Share capital
31 December 31 December
2021 2021
Number Nominal value
GBP000
Ordinary shares - par value GBP0.01
Allotted, called up and fully paid
Ordinary shares of GBP0.01 27,835,024 278
------------ --------------
At 31 December 2021 27,835,024 278
============ ==============
31 December 31 December
2020 2020
Number Nominal value
GBP000
Ordinary shares - par value GBP0.01
Allotted, called up and fully paid
Ordinary shares of GBP0.01 135,245 1
A Ordinary shares of GBP0.01 1,397,715 14
A1 Ordinary shares of GBP0.01 24,600 -
B Ordinary shares of GBP0.01 244,776 2
C Ordinary shares of GBP0.01 913,182 9
------------ --------------
At 31 December 2020 2,715,518 27
============ ==============
The following shares were issued in the periods presented:
Share Share
Number Capital Premium
GBP000 GBP000
At 1 January 2021 - Arecor Limited 2,715,518 27 11,594
Issue of Ordinary shares of GBP0.01 62,493 1 -
Five to one bonus issue on all shares 13,890,055 139 (139)
----------- -------- --------
Total Ordinary shares allotted, called
up and fully paid in Arecor Limited
at 24 May 2021 16,668,066 167 11,455
----------- -------- --------
One to one share swap with Arecor
Therapeutics ordinary shares at par 16,668,066 167 -
Conversion of loan notes 2,165,908 21 4,873
Issue of ordinary shares of GBP0.01
during listing 8,849,558 88 19,912
Costs associated with issue of ordinary
shares of GBP0.01 (1,437)
Issue of Ordinary shares of GBP0.01 151,492 2 -
At 31 December 2021 27,835,024 278 23,348
=========== ======== ========
Share Share
Number Capital Premium
GBP000 GBP000
At 1 January 2020 2,673,219 27 11,594
Allotments
Ordinary shares of GBP0.01 32,299 - -
B Ordinary shares of GBP0.01 10,000 - -
At 31 December 2020 2,715,518 27 11,594
========== ======== ========
The Ordinary Shares, A Ordinary Shares, A1 Ordinary Shares, B
Ordinary Shares and C Ordinary Shares constitute separate classes
of shares but rank pari passu, except on a return of capital
whereby detailed terms apply to the order of priority of the share
classes as set out in the Company's Memorandum & Articles of
Association.
On 2 June 2021, pursuant to a Shareholders' resolution passed on
26 May 2021 and class consents:
a) the A ordinary shares, A1 ordinary shares and B ordinary
shares were converted into ordinary shares;
b) the ordinary shares were converted into C ordinary shares;
and
c) the Company renamed the C ordinary shares as ordinary
shares
This resulted in 16,668,066 existing ordinary shares.
On 2 June 2021, 2,165,908 ordinary shares were issued pursuant
to the share and convertible loan note conversion.
On 3 June 2021 8,849,558 ordinary shares were issued by the
Company pursuant to the placing and admission to AIM, raising GBP20
million before expenses.
Share Premium
Proceeds received in addition to the nominal value of the shares
issued during the period have been included in share premium less
registration and other regulatory fees and net of related tax
benefits. Costs of new shares issued to share premium in the period
amounted to GBP24,784,599. Registration and other regulatory fees
incurred as a result of these transactions amounted to
GBP1,436,778.
Other reserves
Other reserves reflect the balance of the investment by Arecor
Therapeutics plc in it's 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.
23. Share based payments
Share Options
On 2 June, certain employees entered into an EMI option exchange
agreement where they agreed to release an option over shares in
Arecor Limited ('Old Option') for a replacement option over shares
in the Company ('Rollover Option'). The Rollover Options are
treated as having been granted on the date on which the Old Option
was granted, with the earliest grant date being 12 December 2018
and the latest grant date being 3 November 2020.
The Rollover Options are subject to graded vesting: one third
vest on the first anniversary of the date of grant and two thirds
vest in equal instalments over the following 24 months. The
Rollover Options are subject to the same conditions which applied
to the Old Option. The exercise price is GBP0.01 per share.
The Company operates an All-Employee Share Option Plan (AESOP)
and grants EMI share options to eligible employees. A grant of
options under the AESOP was made on 3 June at an exercise price of
GBP2.26 per share. The options are subject to graded vesting with
one third vesting on the first, second and third anniversary of the
date of grant. A second grant was also made on 24 November 2021 to
new employees with an exercise price of GBP4.15 per share. Vesting
conditions for these options were the same as those granted on 3
June. As there are no performance criteria linked to these options,
the fair value of the options was calculated using the Black
Scholes model.
For the EMI option grants in the year the following assumptions
were used.
Grant on 3 June Grant on 24 November
Exercise price GBP2.26 GBP4.15
---------------- -----------------------
Volatility 65% 65%
---------------- -----------------------
Expected dividends nil nil
---------------- -----------------------
Risk free interest
rate 0.163% 0.602%
---------------- -----------------------
Fair value per share GBP0.97 GBP1.79
---------------- ---------------------
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 3 June at an exercise
price of GBP0.01 per share. The LTIP options will vest after three
years subject to meeting a performance criteria of total
shareholder return in relation to the techMARK mediscience index
over the same period. 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 Due to the additional performance
criteria included in the vesting conditions, the fair value of the
options was calculated using a Monte Carlo simulation model.
For the LTIP option grants in the year the following assumptions
were used.
Grant on 3 June Grant on 24 November
Share price at date GBP2.26 GBP4.15
of grant
---------------- ---------------------
Exercise price GBP0.01 GBP0.01
---------------- ---------------------
Volatility 65% 65%
---------------- ---------------------
Expected dividends nil nil
---------------- ---------------------
Risk free interest rate 0.27% pa 0.66% pa
---------------- ---------------------
Fair value per share GBP1.61 GBP3.62
---------------- ---------------------
Number of options
Opening Balance at 1 January 2020 144,100
Options vested and exercised (42,299)
Options lapsed (1,319)
Options granted 21,250
------------------
Balance at 31st December 2020 121,732
Options vested and exercised pre-bonus issue (62,493)
Options lapsed pre-bonus issue (3,000)
------------------
Balance pre-bonus issue (23/5/2021) 56,239
Bonus issue (five to one basis) 281,195
EMI Options granted 492,250
LTIP options granted 775,000
Options vested and exercised post-bonus issue (151,492)
Options lapsed post bonus issue (38,248)
------------------
Balance at 31 December 2021 1,414,944
==================
The rollover options have been treated as a modification of the
original options, adjusted for the bonus issue of five share
options for every one share option held and the corresponding
dilution of the fair value of each option. The vesting period of
the rollover options is unchanged.
The fair values of share-based compensation expenses are
estimated using the Black-Scholes option pricing model for the
AESOP scheme and the Monte Carlo simulation model for the LTIP
scheme. Both schemes rely on a number of estimates, such as the
expected life of the option, the volatility of the underlying share
price, the risk-free rate of return, and the estimated rate of
forfeiture of options granted. Management apply judgement in
determining the most appropriate estimates to use in the option
pricing model.
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 2021 Number of WAEP Number WAEP
of
Options GBP Options GBP
Outstanding at the beginning
of the year 72,333 0.01 49,399 0.01
Exercised pre-bonus issue (45,639) 0.01 (16,854) 0.01
Expired pre-bonus issue - - (3,000) 0.01
Bonus issue (five to one) 133,470 0.01 147,725 0.01
Exercised post-bonus issue (77,498) 0.01 (73,994) 0.01
Issued post-bonus issue 600,000 0.65 667,250 1.81
Expired post-bonus issue - - (38,248) 0.73
Outstanding at the year end 682,666 0.57 732,278 1.61
========== ====== ========= ======
Number vested and exercisable
at 31 December 2021 31,000 0.01 17,025 0.01
Weighted average remaining contractual
life (years) 9.21 - 9.41 -
---------- ------ --------- ------
Directors Staff
31 December 2020 Number of WAEP Number of WAEP
Options GBP Options GBP
Outstanding at the beginning of the year 93,000 0.01 51,100 0.01
Issued - 0.01 21,250 0.01
Exercised (20,667) 0.01 (21,632) 0.01
Expired - 0.01 (1,319) 0.01
Outstanding at the year end 72,333 0.01 49,399 0.01
========== ===== ========== =====
Number vested and exercisable at 31 December 2020 32,723 0.01 12,813 0.01
Weighted average remaining contractual life (years) 8.32 8.78
---------- ----- ---------- -----
The Group recognised total expenses of GBP484,000 (2020:
GBP277,000) in the statement of comprehensive income in relation to
share options accounted for as equity-settled share-based payment
transactions during the year.
24. 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.
In the period and pre-Admission to AIM the Company paid
consultancy fees of GBP62,000 (2020: GBP38,000) to one
Non-Executive Director and one former Non-Executive Director who
are also shareholders.
At the reporting date, balances outstanding to Alan Smith in
lieu of services provided as a Board member were GBP8,750
In October 2020, three Non-Executive Directors subscribed to the
loan notes offered by Arecor Limited. Upon conversion of the loan
notes to ordinary shares in Arecor Therapeutics plc, the
Non-Executive Directors received the following number of
shares:
Director Shares received
----------------- ----------------
Andrew Richards 11,648
Andrew Lane 1,215
Alan Smith 10,345
----------------- ----------------
25. Financial commitments
In December 2021, the Group signed two agreements with
Prosciento Inc, a leading Contract Research Organisation based in
San Diego, CA. to provide specialised clinical research services
relating to the US based clinical study of AT247. At the reporting
date, fees incurred relating to these agreements totalled GBP0.3
million ($0.4 million USD).
26. Dividends
No dividends were paid or approved during the period ended 31
December 2021 (2020: nil)
27. Ultimate controlling party
The Directors do not consider there to be an ultimate
controlling party.
28. Post balance sheet events
The Group initiated a US Phase I clinical trial in early 2022,
following clearance by the US Federal and Drug Administration of an
Investigational New Drug application in 2021.
There were no adjusting or significant non-adjusting events
between 31 December 2021 and the approval of the financial
statements.
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END
FR EANLLASXAEFA
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