TIDMMTPH
RNS Number : 7039L
Midatech Pharma PLC
23 April 2018
Midatech will host a conference call and live Q&A session
today (Monday 23 April 2018) at 1400 BST / 0900 EDT for analysts
and investors to discuss the Full Year 2017 Results. Dr Craig Cook,
Chief Executive Officer-designate, and Nick Robbins-Cherry, Chief
Financial Officer, will lead the presentation.
The conference call dial-in details are: UK: +44 (0) 1452 580570
US: +1 866-223-0481 ID: 8963358
The presentation will be available on Midatech's website shortly
before the call, and a recording will be available shortly
afterwards.
23 April 2018
Midatech Pharma PLC
("Midatech", "Company" or "Group")
Audited financial results for the year ended 31 December
2017
Midatech Pharma (AIM: MTPH; NASDAQ: MTP), the international
specialty pharmaceutical company focused on commercialising and
developing products in oncology, immunology and other therapeutic
areas, today announces its audited financial results for the
twelve-month period ended 31 December 2017.
Financial highlights
-- Total gross revenues(1) for the year up 31% to GBP12.08m
(2016: GBP9.21m), in line with expectations
-- Total revenue(2) for the year up 10% to GBP7.60m (2016: GBP6.92m)
-- Statutory revenue(3) for the year up 6% to GBP6.76m (2016: GBP6.38m)
-- US product net sales for the year up 28% to GBP6.65m (2016: GBP5.19m)
-- GBP13.20m cash and deposits at 31 December 2017 (2016:
GBP17.61m), in line with market forecasts
-- Net loss after tax of GBP16.06m (2016: GBP20.16m) with net
cash outflow in the year of GBP4.15m (2016: GBP0.97m inflow)
-- Tax credit receivable of GBP1.19m (2016: GBP1.44m)
-- Entered into a senior secured $15m loan agreement with MidCap
Financial Trust in Q4 2017. $7m has been received, the remaining
$8m is dependent on clinical development milestones
Operational highlights including post period end highlights
-- MTD201 Q-Octreotide for carcinoid cancer: regulatory
submission in EU for first in-human clinical trial; approval
received shortly after year-end, with data read-out expected H2
2018
-- MTX110 for DIPG childhood brain cancer: regulatory submission
to the US Food and Drug Administration for first in-human clinical
trial at University of California San Francisco and Memorial Sloane
Kettering (New York); approval received shortly after year-end
-- MTD119 for HCC liver cancer: commenced IND enabling
toxicology programme with data readout expected H2 2018; MTD119 was
granted Orphan Drug Designation by the European Medicines Agency in
February 2018
-- Manufacturing: licence granted to the Group's Bilbao
manufacturing operation by the Spanish Medicines Agency (AEMPS),
enabling the production of our sustained release formulations for
clinical and commercial use - a pivotal step on the road to
commercialising MTD201 Q-Octreotide
-- US commercial business as a standalone operation achieved
breakeven on an EBITDA basis for the second half of 2017
1) Total gross revenues represents the full list
price of products shipped to wholesalers and
other customers before product returns, discounts,
rebates and other incentives based on the sales
price and grant revenue.
2) Total revenue represents Statutory Revenue (defined
below) plus grant income
3) Statutory Revenue represents total gross revenue,
excluding grant revenue and after deductions
for product returns, discounts, rebates and
other incentives.
Commenting on the Full Year 2017 Results, Midatech's Chief
Executive Officer-designate, Dr Craig Cook, said: "2017 was a year
of significant change and progress for Midatech. We have continued
the development of our three lead oncology drug candidates and we
now have exciting value inflection points coming up in 2018.
Additionally we made good progress with our immunotherapy assets,
which are now advancing toward potential clinical development. Our
US commercial business recorded solid growth, achieving a breakeven
EBITDA in the second half of the year.
"As we announced earlier in the year, Midatech has an updated
leadership team and we are fully focused on advancing our R&D
pipeline into clinical development and beyond. With additional
funding secured, we are well-resourced to drive towards our
clinical objectives. We are enthused by the prospect of delivering
transformative therapies to improve patients' lives and progressing
our R&D pipeline forward to address unmet needs in significant
markets, driving future profitability and creating value for
stakeholders."
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) 596/2014 (MAR).
- Ends -
For more information, please contact:
Midatech Pharma PLC
Dr Craig Cook, CEO-designate
Tel: +44 (0)1235 841575
www.midatechpharma.com
Panmure Gordon (UK) Limited (Nominated Adviser and Broker)
Corporate Finance
Freddy Crossley / Ryan McCarthy
Tel: +44 (0)20 7886 2500
Consilium Strategic Communications (Financial PR)
Mary Jane Elliott / Ivar Milligan / Nicholas Brown
Tel: +44 (0)20 3709 5700
Email: midatech@consilium-comms.com
Westwicke Partners (US Investor Relations)
Chris Brinzey
Tel: +1 339 970 2843
Email: chris.brinzey@westwicke.com
Notes for Editors
About Midatech Pharma PLC
Midatech is an international specialty pharmaceutical company
focused on the research and development of a pipeline of medicines
for oncology and immunotherapy, and marketing these through its
established US commercial operation which includes four cancer care
supportive products and two further co-promoted products.
Midatech's strategy is to internally develop oncology products, and
to drive growth both organically and through strategic
acquisitions. The Company's R&D activities are focused on three
innovative platform technologies to deliver drugs at the "right
time, right place": gold nanoparticles ("GNPs") to enable targeted
delivery; Q-Sphera polymer microspheres to enable sustained release
("SR") delivery; and Nano Inclusion ("NI") to provide local
delivery of therapeutics, initially to the brain. The Group, listed
on AIM: MTPH and Nasdaq: MTP, employs c.100 staff in four
countries. For further company information see:
www.midatechpharma.com
Forward-Looking Statements
Certain statements in this press release may constitute
"forward-looking statements" within the meaning of legislation in
the United Kingdom and/or United States. Such forward-looking
statements include, but are not limited to, statements regarding
the ability of Midatech to successfully test, manufacture, produce
or commercialize products for conditions using the nanoparticle and
sustained release drug delivery platforms, and the ability for
products in development to achieve positive clinical results, and
the ability to meet or achieve timelines associated with
pre-clinical studies, clinical trials or regulatory submissions.
Any forward-looking statements are based on currently available
competitive, financial and economic data together with management's
views and assumptions regarding future events and business
performance as of the time the statements are made and are subject
to risks and uncertainties. We wish to caution you that there are
some known and unknown factors that could cause actual results to
differ materially from any future results, performance or
achievements expressed or implied by such forward-looking
statements.
Reference should be made to those documents that Midatech shall
file from time to time or announcements that may be made by
Midatech in accordance with the London Stock Exchange AIM Rules for
Companies ("AIM Rules"), the Disclosure and Transparency Rules
("DTRs") and the rules and regulations promulgated by the US
Securities and Exchange Commission, which contains and identifies
other important factors that could cause actual results to differ
materially from those contained in any projections or
forward-looking statements. These forward-looking statements speak
only as of the date of this announcement. All subsequent written
and oral forward-looking statements by or concerning Midatech are
expressly qualified in their entirety by the cautionary statements
above. Except as may be required under the AIM Rules or the DTRs or
by relevant law in the United Kingdom or the United States,
Midatech does not undertake any obligation to publicly update or
revise any forward-looking statements because of new information,
future events or otherwise arising.
CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT
The Group's hard work in 2017, dealing successfully with some
significant challenges, means Midatech is well-positioned to reach
key value inflection points in our lead development projects during
2018 and beyond, and for the first time, we forecast that our US
marketing operation will be profitable on an EBITDA basis for a
full year in 2018.
Introduction
2017 saw Midatech make important progress towards achieving our
objective of creating significant shareholder value through
advancing our three key R&D projects for rare cancers and by
profitably commercialising our cancer supportive care products.
As a fully integrated business, we have made great strides with
our development programmes, scale-up of our manufacturing
capabilities, and also with our commercial organisation as we start
to prepare our in-house products for launch.
Progress against strategy
In-house oncology products
Q-Octreotide
During the past year, Midatech has completed the formulation of
Q-Octreotide, its pre-clinical testing phase as well as manufacture
for the forthcoming clinical trial. This followed a lengthy but
valuable and comprehensive liaison with the US Food and Drug
Administration ("FDA") regarding the clinical trial design, in
order to optimise the conduct of the clinical trial. We also
satisfactorily addressed manufacturing challenges which was
necessary prior to commencement of the study. The initial clinical
trial application was submitted in October 2017. The study received
Polish regulatory approval in January 2018, and is expected to
commence in April 2018. The trial programme has two components, an
initial exploratory phase, which should complete during the first
half of the year, and a second confirmatory phase expected to be
completed by the end of 2018.
Whilst our existing manufacturing capability is sufficient to
meet anticipated early demand, the next stage of development would
require further investment in full commercial scale manufacturing
capacity ahead of filing for marketing authorisation. If the
product shows interchangeability with Sandostatin LAR, the Company
expects to file for marketing authorisation with the FDA in
2020.
MTX110
Our licence deal with Novartis, signed in 2017, gave us access
to a highly potent drug, panobinostat, to use in our children's
brain tumour product, MTX110. Midatech's nano-inclusion technology
platform enables local delivery of panobinostat directly to the
tumour via a catheter system called Convection Enhanced Delivery,
diffusing the drug into and around the tumour. This technique
allows for elevated drug concentrations to be delivered to the
tumour, while at the same time minimizing systemic toxicity and
peripheral side effects.
Following comprehensive and constructive discussion with the FDA
regarding the clinical trial design, the Investigative New Drug
("IND") application was submitted to the FDA in Q4 2017 and
approval was granted in January 2018. We were then required to
obtain ethics approval for the trial, which is expected to be
granted in April 2018. The study is expected to formally commence
Q2 2018.
The study, a combined Phase I/II in up to 43 patients, will be
conducted at the University of California San Francisco and at
Memorial Sloan Kettering Cancer Centre in New York. It is expected
to take up to two years to complete but, as it is open label, if
encouraging results are seen as the study progresses, then
discussions with the FDA can be accelerated to enable greater
patient access through compassionate use and/or accelerated
approval.
MTD119
The pre-clinical programme for MTD119, comprising the
anti-cancer compound maytansine bound to GNP, was completed in July
2017, with studies demonstrating potent anti-tumour activity. Peak
reduction in tumour growth due to MTD119 suggests that it has the
potential to be more effective than the standard of care,
Sorafenib. Improved tolerability may reflect specific targeting of
maytansine to tumour cells by MTD119.
Midatech has now entered formal IND enabling studies, with
completion of the first pilot animal studies in the first half of
2018, and completion of the remainder of the studies expected in
the fourth quarter of 2018 or early 2019. These studies will allow
Midatech to review the data for efficacious dose levels versus
toxic dose levels and optimise the dosing regime for a potential
future first in-human study. Assuming favourable data, Midatech
hopes to complete an IND submission to the FDA H1 2019, for
first-in-human studies in H2 2019. On February 22, 2018, Midatech
announced that the European Medicines Agency granted orphan drug
designation for MTD119.
Manufacturing Operations
A highlight of 2017 was the upscaling of our manufacturing
capability in Bilbao, Spain, enabling us to produce our sustained
release microcapsule formulations for clinical and commercial use.
This includes the required clinical grade batches of Q-Octreotide
(MTD201) allowing that key programme to commence. The upgrade
involved a EUR1.6 million investment during 2016 and 2017, and
considerable effort in process development from our teams in Bilbao
and Cardiff. Some significant upscaling challenges were overcome
and the upgraded facility was signed off by the Spanish Medicines
Agency to GMP (Good Manufacturing Practice) standard in the second
half of the year.
US Commercial Organisation
The US commercial arm of the organisation has reached a
significant point in its development. During the first half of
2017, increased discounting pressure in the market had some impact
on margins. However, we had a strong second half of the year, and
for H2 2017, despite the above challenges, the US commercial
business on a standalone basis has broken even, on an EBITDA basis,
for the first time.
We recently initiated a market expansion study - a Phase 4
clinical trial - for one of our marketed products in the US,
Gelclair. This study received approval in December, and we will be
testing the product for use in patients undergoing bone marrow
transplants over the next 12 months. If that study shows the
product to be as effective for treating oral mucositis as it is in
current users undergoing chemo- or radiotherapy, we would expect to
see a significant expansion of use.
Partnerships
The Emergex collaboration, signed during 2016, had a positive
first year with the successful application of Midatech know-how to
rapidly deliver multiple, novel, peptide-bearing gold nanoparticles
for application as vaccines against a variety of infectious
diseases. As communicated previously, our collaboration with
Ophthotech in the US came to an end during the year due to
Ophthotech's internal issues.
Financing
In October, we undertook a GBP6 million fund raise and placing
of shares to existing and new investors, the proceeds of which are
being used to drive forward the clinical development programmes. In
conjunction with the fund raise, the Group went through a cost
reduction exercise, including decreasing the costs of the Board and
senior management team.
This equity fundraise was followed, in December, by the Company
entering into a four-year senior secured loan agreement with MidCap
Financial of up to $15 million. $7 million was drawn on closing and
provides the necessary working capital to reach the value-driving
inflection points in our product development programmes in 2018.
Drawdown of the remaining $8 million is dependent on clinical
development milestones. This agreement was also a strong,
independent validation of the progress the business has made.
Risk management
Our development programmes, targeted at new delivery mechanisms
for approved therapies, are complemented by our balanced portfolio
of commercialised products which serves to mitigate risk. The Board
monitors risks on an ongoing basis, and during 2017 put in place a
formal Compliance Committee, which reports to the Board.
People
Across the business, the entire Midatech team has worked
continuously to meet difficult deadlines and challenging targets.
On behalf of ourselves and the rest of the Board, we would like to
thank colleagues for their dedication and contributions during 2017
that has enabled the Group to achieve a strong platform on which to
build for the future.
In recognition of our employees' commitment to the business, the
Board introduced a share save scheme, the Midatech Pharma Share
Incentive Plan, allowing employees to invest in Midatech through
the acquisition of shares and to participate in the future success
of the Group.
Outlook
Looking forward, we expect important advances in all areas of
the business during 2018. Positive clinical trial readouts for
Q-Octreotide would accelerate the path to product registration.
Early data from the MTX110 children's brain tumour study will be an
important indicator of the product's efficacy and may also lead to
early registration for this ultra-rare indication in children. The
Gelclair study readouts later in the year could widen the product's
application and as a result have a significant impact on sales and
growth potential. Beyond our internal priorities, we continue to
look for prospective partnerships to take on commercial rights for
our own development projects. We will be pursuing multiple
opportunities in the coming months, and look forward with cautious
optimism to a pivotal year ahead.
On 15 March 2018, the Company announced that Dr Jim Phillips
would step down as CEO at the end of May 2018 after having served
the Company for five years. On behalf of the Board, we thank Jim
for his contribution to the Group since IPO. The Board has
appointed Dr Craig Cook (currently Chief Operating Officer and Head
of Research & Development) to succeed Dr Phillips as CEO and
proposed Board member from 1 June 2018, following a transition
period of approximately three months in order to ensure a smooth
handover.
Dr Cook, who joined Midatech in April 2014, has more than 20
years of international experience in the pharmaceutical, biomedical
and high technology sectors including roles across a range of
therapeutic areas covering both drug development and medical
affairs. The Company is fortunate that, in Dr Cook we have an
internal candidate who can take over responsibility as CEO,
ensuring continuity and a controlled handover. He will provide
strong leadership, demonstrated expertise, a deep understanding of
the business, and a relentless focus on delivery of key
value-driving programmes to take Midatech into its next phase of
value creation. The Board is also evaluating options for obtaining
non-dilutive funding, that would enable the Group to deliver on its
key value-driving programmes and to take Midatech into its next
phase of value creation without a reliance in the short-term on
equity finance. We have every confidence that Dr Cook, together
with his senior management team, will drive Midatech to a
successful future.
On behalf of the Board, we would like to thank all of Midatech
staff, investors, clinicians and patients for their continued
support during 2017.
Rolf Stahel Dr Jim Phillips
Chairman Chief Executive Officer
OUR DEVELOPMENT PIPELINE
We are advancing the development of multiple, high value,
therapies, and 2018 is expected to see the first in-human studies
for two of our lead programmes: MTD201 for carcinoid cancer using
our sustained release technology, and MTX110 for childhood brain
cancer based on our nano-inclusion technology. We also expect to
progress towards the clinic for our gold nanoparticle based
programmes, MTD119 for liver cancer and our brain cancer
immunotherapy programmes MTR111 and MTR116.
Focus Programme: Q Octreotide
Long-acting formulation of octreotide, using Midatech's
sustained release Q-Sphera(TM) technology for the treatment of
carcinoid cancer and acromegaly.
-- Estimated global market in excess of $2 billion, dominated by
Sandostatin(R) and Somatuline(R)
-- The targeted profile of Q Octreotide is as follows:
- Interchangeable with the market leading Sandostatin LAR(R) ,
the current Standard of Care (SoC)
- Faster to reconstitute than SoC, which will reduce nurse time and patient waiting times
- Simpler to reconstitute than SoC, reducing the need for nurse
training and the risk of error
- Improved reconstituted product stability and simpler process
will reduce the risk of wastage of doses, the need to repeat part
of the reconstitution process, or the occurrence of injection
blockages and partial doses, all of which can be significant
problems with current competitor products
- Reduced need to perform 2-week test period, as is required for competitor products
-- Streamlined manufacturing process in Midatech's Bilbao facility
- Terminal sterilisation aseptic manufacture
- High-throughput process producing 'printed' microspheres
- Transferable to future Q-Sphera(TM) projects
-- Next steps
- Human studies to commence in H1 2018
- 505(b)(2) submission in the US anticipated H1 2020
- US marketing authorisation anticipated in 2020
- Launch anticipated in 2020-21
Focus Programme: MTX110 for DIPG
Treatment for ultra-rare childhood brain tumour (DIPG), with
delivery of therapeutic constructs directly into tumour using
Midatech's nano-inclusion technology.
-- Estimated addressable global market around $100 million
-- Less than 1,000 cases per year worldwide
-- Universally fatal, with median survival time of 9 months
-- No effective current treatment; surgical resection is not possible
-- The chosen delivery technique allows elevated drug
concentrations of solubilised MTX110 to be infused directly into
the tumour, while minimising systemic toxicity and peripheral
side-effects
-- Compassionate use/named patient programme in UK and US:
- Six patients treated to date - treatments have thus far been well tolerated
-- Utilises Panobinostat API, licensed from Novartis in June
2017, and demonstrated very high potency against DIPG tumour cell
lines in the laboratory and in animal studies
-- Next steps
- Build on the high level of regulatory support received in 2017
- US and/or EU studies estimated to commence in H1 2018
- Potential for orphan drug designation and paediatric extensions
- Product could receive fast track approval and be commercially available as early as 2020/21
Focus Programme: MTD119 for liver cancer
Targeted therapy treatment for liver cancer using Midatech's
gold nanoparticle technology
-- Estimated addressable global market $1 billion by 2024
-- Second leading cause of cancer deaths worldwide; around 800,000 affected
- 95% non-curable, non-operable and median survival less than one year
- Successful outcomes with chemotherapy are rare and generally short lived
-- MTD119 focus is to increase tolerability to an otherwise
lethal dose of the active drug, mertansine, and to generate higher
anti-tumour efficacy through improved bio-distribution of the
active
-- Initial animal data, to be confirmed in IND enabling studies,
suggests peak reduction in tumour growth is better than the current
standard of care (Sorafenib), and improved survival, with clear
dose response
-- MTD119 drug candidate granted Orphan Drug Designation by the
European Medicines Agency in February 2018
-- Next steps
- Data readout from further pre-clinical and IND enabling
toxicology studies, which may lead to an informed decision to
proceed to formal clinical development.
- First in-human study planned for 2019, pending supportive data
- Potential for orphan designation in other territories
Testimonials
"Combining Midatech's impressive Q-Sphera sustained release
technology with the pharmacologically active agent octreotide
promises a much-needed product for treating acromegaly and
endocrine tumours. MTD201's interchangeability with Octreotide LAR,
as well as the opportunity for simpler reconstitution, fewer errors
and wastage, and improved patient experience, would be a welcome
addition to the limited choice of therapies currently available.
Achieving such a unique product equivalent to Octreotide LAR would
be advantageous for patients, physicians, and payors."
Professor Shlomo Melmed, Dean of Medical Faculty, Cedars-Sinai
Medical Centre, Los Angeles
"DIPG is a devastating childhood brain cancer with virtually no
long-term survivors, and for which there are no current therapies
other than palliative treatments. Midatech's MTX110 has shown
promise as one of the most potent compound against DIPG brain
tumour cells in laboratory experiments, and has also been well
tolerated in compassionate use treatments to date. It is exciting
to be working with the Midatech team on taking MTX110 into formal
clinical trials in patients that are about to start, and developing
a potentially breakthrough treatment for DIPG."
Professor Sabine Mueller, Paediatric Neuro-Oncologist, Benioff
Children's Hospital, University of California San Francisco
FINANCIAL REVIEW
Introduction
Midatech Pharma plc (the "Company") was incorporated as a
company on 12 September 2014 and is domiciled in England. The
Midatech Group was formed on 31 October 2014 when Midatech Pharma
plc acquired the entire issued share capital of Midatech Limited
and its wholly owned subsidiaries. The Group was expanded when, on
8 December 2014, the Company acquired the entire issued share
capital of UK based Q Chip Limited ("Q Chip"), a pharmaceutical
development company. Q Chip was subsequently renamed Midatech
Pharma (Wales) Limited ("MPW"). The Company was admitted to AIM on
8 December 2014, raising GBP32.0m before costs in new capital.
On 4 December 2015, the Company acquired the entire issued share
capital of U.S. based, DARA BioSciences, Inc. ("DARA"), an oncology
supportive care pharmaceutical company. DARA was subsequently
renamed Midatech Pharma US, Inc. ("MPUS"). On 4 December 2015,
following the DARA acquisition, American Depositary Receipts
("ADRs") with each ADR representing the right to receive two
ordinary shares, were admitted to trading on the NASDAQ Stock
Market LLC trading platform ("NASDAQ").
The MPUS business brought with it a portfolio of five cancer
supportive care products and an established commercial platform in
the U.S. market with a field sales organisation. To supplement this
acquisition, on 24 December 2015, the Company acquired Zuplenz(R)
(ondansetron), a marketed anti-emetic oral soluble film from Galena
Biopharma, Inc. (Nasdaq: GALE) for the prevention of
chemotherapy-induced nausea and vomiting, radiotherapy-induced
nausea and vomiting, and post-operative nausea and vomiting.
On 28 October 2016, the Company announced that at a General
Meeting, shareholders had approved the issuance of 15,157,044 new
ordinary shares following a Placing to new and existing
institutional shareholders and additional Open Offer. This raised
proceeds of GBP16.67m before expenses and the new shares were
admitted to AIM on 31 October 2016. On 16 October 2017, the Company
announced that at a General Meeting, shareholders had approved the
issuance of a further 12,314,679 new ordinary shares following a
Placing to new and existing institutional shareholders and
additional Open Offer. This raised proceeds of GBP6.16m before
expenses and the new shares were admitted to AIM on 17 October
2017.
On 2 January 2018, the Company announced that it had entered
into a four-year senior secured loan agreement with MidCap
Financial ("MidCap") of up to $15m. As at 31 December 2017, an
initial tranche of $7m had been received. Drawdown of the remaining
$8m is dependent on achieving certain clinical development
milestones.
Reclassification of 2015 and 2016 comparative operating
costs
Management has reviewed how costs are presented on the income
statement, allocated between:
-- Research and development costs;
-- Distribution costs, sales and marketing; and
-- Administrative costs.
In order to give a clearer and more meaningful picture of
activity within the business, certain costs, previously shown
within administrative costs have been reclassified to either
research and development costs, or distribution costs, sales and
marketing. Comparative figures for 2016 and 2015 have been
reclassified using the same allocation basis as the 2017
results.
2016 2016 2015 2015
reclassified original reclassified original
GBP'000 GBP'000 GBP'000 GBP'000
Research and development
costs 7,796 6,684 8,710 5,920
Distribution costs,
sales and marketing 12,510 9,523 605 374
Administrative costs 5,123 9,222 4,908 7,929
_______ _______ _______ _______
25,429 25,429 14,223 14,223
_______ _______ _______ _______
Financial analysis
Key performance indicators
2017 2016 Change
Total gross revenues(1) GBP12.08m GBP9.21m +31%
Statutory Revenue GBP6.76m GBP6.38m +6%
US commercial revenue GBP6.65m GBP5.60m +18%
US commercial revenue as
% of Statutory Revenue 98% 88% n/a
R&D costs (2016 reclassified) GBP10.19m GBP7.80m +31%
R&D as % of operating costs(2)
(2016 reclassified) 45% 31% n/a
Loss from operations before
intangible asset impairment
charges(2) (GBP16.08m) (GBP19.17m) -16%
Net cash inflow/(outflow) n/a
for the year (GBP4.15m) GBP0.97m
Average headcount 85 84 +1%
============ ============ ============
1) Total gross revenues represents the full
list price of products shipped to wholesalers
and other customers before product returns,
discounts, rebates and other incentives
based on the sales price plus grant revenue.
2) Total operating costs used to calculate
R&D as a percentage of operating costs is
stated before intangible asset impairment
charge of GBP1.50m (2016: GBP11.41m).
Midatech's KPIs focus on the key areas of sales revenue, R&D
spend, operating results and cash management. These measures
provide information on the both the commercial operation and also
the key R&D development programmes. Additional financial and
non-financial KPIs, including further KPIs in respect of the
research and development programmes, are being considered and may
be adopted in due course.
For the year ended 31 December 2017, Midatech generated
consolidated total gross revenues(1) of GBP12.08m (2016: GBP9.21m),
an increase of 31% on the prior year and in-line with market
expectation. Included in this figure are gross product sales
generated by the US commercial business of GBP11.13m (2016:
GBP7.47), an increase of 49%. Statutory Revenue for the year also
increased, by 6%, to GBP6.76m (2016: GBP6.38m).
As part of the MPW acquisition, Midatech acquired the in-process
research and development relating to various product development
programmes including Q Octreotide, one of Midatech's lead
programmes, and Opsisporin. Opsisporin is a sustained release
treatment for uveitis, an inflammatory condition of the eye. Whilst
pre-clinical proof of concept studies have been completed for the
product, Opsiporin is outside of Midatech's strategic focus and as
a result the decision was made not to continue with the programme
at this point. The product still has merit and when the Group has
the available resources, development may be continued. The absence,
however, of an immediate opportunity to commercialise the asset has
lead management to conclude that it has become impaired, resulting
in a charge to the Income Statement of GBP1.50m.
In 2016, management concluded that, whilst overall performance
of the MPUS business had been good, sales of Oravig(R) has been
disappointing and, as a result, the value of this element of the
intangible assets acquired with the DARA business has become
impaired, resulting in a charge of GBP11.41m to the Income
Statement. The performance of the other MPUS products, including
Zuplenz(R) , enabled us to support the carrying value of goodwill
in the MPUS business.
Net cash outflows for the year were GBP4.15m (2016: inflow of
GBP0.97m). This reflected the share issue in October 2017 where
GBP5.73m was raised after costs and receipt of the first tranche of
debt finance from MidCap of GBP5.24m. Stripping out the share issue
and debt proceeds, the adjusted outflow of GBP15.11m (2016:
GBP14.67m) was in line with the forecast for the year. Cash
management continues to be a major focus for the Board and senior
management.
Cost of sales
Cost of sales has increased commensurately with product sales to
GBP0.93m (2016: GBP0.67m), an increase of 39% and broadly in line
with the increase in gross product sales.
Research and development expenditure
Research and development costs increased on the previous year to
GBP10.19m (reclassified 2016: GBP7.80m) reflecting ongoing
investment in Midatech's R&D programmes. Activities in the year
included:
-- Oncology: progress oncology assets toward the clinic, with
submission of regulatory filings for MTD201 Q-Octreotide and MTX110
for DIPG, for first-in-human studies to commence 2018; as well as
IND enabling programme progress for MTD119 liver cancer;
-- Immunotherapy: established and progressed R&D
immunotherapy projects for oncology from experimental proof of
concept into formal pre-clinical programme for MTR103 and MTR111/6
brain cancer in adults and children respectively; and
-- Development of in house capacity, capability, processes and
systems to support manufacture of portfolio products and
technologies at clinical scale.
Distribution costs, sales and marketing
Distribution costs, sales and marketing decreased slightly to
GBP9.42m (reclassified 2016: GBP12.51m). This includes amortisation
of intangible assets acquired as part of the acquisition of
DARA/MPUS resulting in a charge of GBP1.38m (2016: 3.39m). The
reduction in amortisation arose as a result of the impairment of
Oravig in 2016.
Administrative costs
Midatech's administrative costs decreased significantly on the
prior year to GBP3.15m (reclassified 2016: GBP5.12m). The decrease
is, in part, reflective of one-off costs incurred in 2016,
including GBP1.10m associated with the departure of three former
senior executives in the US, as well as reduced Directors'
remuneration in 2017.
Impairment Charge
As noted above, this relates to the write down by GBP1.50m of
the Opsisporin in-process research and development. In 2016, a
charge of GBP11.41m resulted from the write down of the product
sales and marketing rights of Oravig.
Staff costs
During the year, the average number of staff employed grew by 1%
to 85 (2016: 84), however, the payroll cost fell by 12% to GBP6.60m
(2016: GBP7.49m). Share based payment charges increased to GBP520k
(2016: GBP203k) and included in the 2016 figures was GBP1.1m of
settlement costs relating to former, senior DARA management who
left during 2016.
Capital expenditure
During the year, cash expenditure on intangible fixed assets was
GBP0.78m (2016: 0.02m).
The total cash expenditure on property plant and equipment in
2017 was GBP0.71m (2016: GBP1.35m), principally reflecting
continued investment in Spain in the manufacturing capability of
Midatech's sustained release ("SR") platform technology in advance
of the Q-Octreotide first-in-human clinical trial programme.
Movement in total assets
Total assets saw a reduction to GBP49.22m at 31 December 2017
(2016: GBP56.69m). This reduction includes the GBP1.50m impairment
of the Opsisporin IPRD discussed above. Amortisation of intangible
assets (GBP1.58m) was further increased by a foreign exchange loss
in USD denominated assets (GBP1.44m), as set out in note 10.
Property plant and equipment decreased by GBP0.24m, with
additions of GBP0.71m, largely in respect of the manufacturing
facility in Bilbao, noted above, and depreciation of GBP0.98m, as
set out in note 9.
Cash and cash equivalents, decreased by GBP4.40m as a result of
trading losses, offset by cash raised from the fundraise that
completed in October 2017, and the first tranche of the MidCap
loan.
Movement in total liabilities
Total liabilities increased to GBP14.55m (2016: GBP10.97m). The
largest movement was in borrowings which increased from GBP2.16m in
2016 to GBP6.55m as at 31 December 2017. This reflected the
addition of the MidCap debt of GBP5.24m, discussed above. The
balance owed relates to soft loans in Midatech Pharma España, which
decreased as a result of repayments made during the year.
Other comprehensive income
Other comprehensive income comprises GBP1.23m foreign exchange
loss (2016: gain - GBP3.23m) arising on retranslation of Midatech
Pharma US operations.
Cash flow
Net cash outflow from operating activities for the year was
GBP12.96m (2016: GBP13.09m). There was, however, a net cash inflow
from financing activities of GBP10.23m (2016: inflow of GBP15.26m)
which, along with the capital expenditure in the year, resulted in
a net cash outflow for the year of GBP4.15m (2016: inflow of
GBP0.97m). This resulted in the year end cash balance decreasing to
GBP13.20m (2016: GBP17.61m).
Capital structure
As noted above, 12,314,679 new ordinary shares were issued on 16
October 2017 to subscribers in a Placing and additional Open Offer.
This raised proceeds of GBP6.16m before expenses and the new shares
were admitted to AIM on 17 October 2017. In addition, two share
issues were made to the Midatech Pharma Share Incentive Plan, an
employee share incentive trust; 20,000 on 19 May 2017 and a further
50,000 on 7 November 2017. No other new shares were issued during
the year.
As at 31 December 2017 Midatech Pharma plc had in issue
61,084,135 Ordinary Shares of 0.005 pence each and 1,000,001
deferred shared of GBP1.
Consolidated statement of comprehensive income
for the year ended 31 December 2017
Note 2017 2016 2015
GBP'000 GBP'000 GBP'000
Gross sales 3 11,239 8,659 914
Grant revenue 840 547 600
_________ _________ _________
Total gross revenues 12,079 9,206 1,514
---------------------------------------- ----- ---------- ---------- ----------
Revenue 3 6,758 6,376 775
Grant revenue 840 547 600
_________ _________ _________
Total revenue 7,598 6,923 1,375
Cost of sales (926) (667) (70)
_________ _________ _________
Gross profit 6,672 6,256 1,305
Research and development
costs (reclassified) (10,185) (7,796) (8,710)
Distribution costs, sales
and marketing (reclassified) (9,417) (12,510) (605)
Administrative costs (reclassified) (3,148) (5,123) (4,908)
Impairment of intangible
assets 13 (1,500) (11,413) -
_________ _________ _________
Loss from operations before
intangible asset impairment
charges, listing costs and
acquisition expenses (16,078) (19,173) (9,927)
Impairment of intangible
assets (1,500) (11,413) -
Listing and acquisition
expenses - included in administrative
costs - - (2,991)
Loss from operations 4 (17,578) (30,586) (12,918)
Finance income 6 415 1,337 1,691
Finance expense 6 (166) (73) (5)
_________ _________ _________
Loss before tax (17,329) (29,322) (11,232)
Taxation 7 1,265 9,160 1,133
_________ _________ _________
Loss for the year attributable
to the owners of the parent (16,064) (20,162) (10,099)
_________ _________ _________
Other comprehensive income:
Items that will or may be
reclassified subsequently
to profit or loss when specific
conditions are met:
Exchange gains/(losses)
arising on translation of
foreign operations (1,233) 3,228 399
_________ _________ _________
Total other comprehensive
(loss)/income, net of tax (1,233) 3,228 399
_________ _________ _________
Total comprehensive loss
attributable to the owners
of the parent (17,297) (16,934) (9,700)
_________ _________ _________
Loss per share
Basic and diluted loss per
ordinary share - pence 8 (31p) (56p) (36p)
_________ _________ _________
The notes form an integral part of these consolidated financial
statements
Consolidated statement of financial position
at 31 December 2017
Company Number 09216368 Note 2017 2016 2015
Assets GBP'000 GBP'000 GBP'000
Non-current assets
Property, plant and equipment 9 2,529 2,766 1,984
Intangible assets 10 27,647 31,172 41,339
Other receivables due in
greater than one year 16 465 448 387
_______ _______ _______
30,641 34,386 43,710
_______ _______ _______
Current assets
Inventories 18 941 817 459
Trade and other receivables 16 3,242 2,439 2,496
Taxation 1,196 1,439 1,201
Cash and cash equivalents 17 13,204 17,608 16,175
_______ _______ _______
18,583 22,303 20,331
_______ _______ _______
Total assets 49,224 56,689 64,041
_______ _______ _______
Liabilities
Non-current liabilities
Borrowings 20 6,185 1,620 1,508
Deferred tax liability 23 - - 6,547
_______ _______ _______
6,185 1,620 8,055
_______ _______ _______
Current liabilities
Trade and other payables 19 8,002 8,407 7,084
Borrowings 20 361 538 442
Derivative financial liability
- equity settled 21 - 400 1,573
_______ _______ _______
8,363 9,345 9,099
_______ _______ _______
Total liabilities 14,548 10,965 17,154
_______ _______ _______
Issued capital and reserves
attributable to owners of
the parent
Share capital 24 1,003 1,002 1,002
Share premium 25 52,939 47,211 31,643
Merger reserve 25 53,003 53,003 52,803
Shares to be issued 25 - - 200
Foreign exchange reserve 25 2,385 3,618 390
Accumulated deficit 25 (74,654) (59,110) (39,151)
_______ _______ _______
Total equity 34,676 45,724 46,887
_______ _______ _______
Total equity and liabilities 49,224 56,689 64,041
_______ _______ _______
The notes form an integral part of these consolidated financial
statements
Consolidated statement of cash flows
for the year ended 31 December 2017
Note 2017 2016 2015
GBP'000 GBP'000 GBP'000
Cash flows from operating
activities
Loss for the year (16,064) (20,162) (10,099)
Adjustments for:
Depreciation of property,
plant and equipment 9 983 772 501
Amortisation of intangible
fixed assets 10 1,577 3,583 236
Loss on disposal of fixed 27 - -
assets
Net interest (income)/expense 6 (249) (1,264) (1,686)
Impairment of intangible
assets 13 1,500 11,413 -
Gain on bargain purchase 12 - - (165)
Share based payment expense 5 520 203 170
Taxation 7 (1,265) (9,160) (1,133)
_______ _______ _______
Cash flows from operating
activities before changes
in working capital (12,971) (14,615) (12,176)
Increase in inventories (202) (237) (62)
Increase in trade and other
receivables (968) (242) (1,540)
(Decrease)/Increase in
trade and other payables (267) 358 711
_______ _______ _______
Cash used in operations (14,408) (14,736) (13,067)
Taxes received 1,455 1,650 646
_______ _______ _______
Net cash used in operating
activities (12,953) (13,086) (12,421)
_______ _______ _______
Investing activities
Purchases of property,
plant and equipment 9 (707) (1,347) (922)
Purchase of intangibles 10 (778) (19) (3)
Acquisition of subsidiary,
net of cash acquired 11 - - 1,867
Acquisition of business,
net of cash acquired 12 - - (2,528)
Interest received 15 164 53
_______ _______ _______
Net cash used in investing
activities (1,470) (1,202) (1,533)
Financing activities
Interest paid (111) (74) (5)
Payments to finance lease
creditors (25) (69) (49)
Repayment of borrowings (552) (235) (165)
New bank loan 5,237 65 -
Share issues net of costs 17 5,728 15,568 -
_______ _______ _______
Net cash generated from/(used
in) financing activities 10,277 15,255 (219)
Net (decrease)/increase
in cash and cash equivalents (4,146) 967 (14,173)
Cash and cash equivalents
at beginning of year 17,608 16,175 30,325
Exchange (losses)/gains
on cash and cash equivalents (258) 466 23
_______ _______ _______
Cash and cash equivalents
at end of year 17 13,204 17,608 16,175
_______ _______ _______
The notes form an integral part of these consolidated financial
statements
Consolidated statement of changes in equity
for the year ended 31 December 2017
Share Share Merger Foreign Accumulated Total
capital premium reserve exchange deficit Equity
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2017 1,002 47,211 53,003 3,618 (59,110) 45,724
Loss for the year - - - - (16,064) (16,064)
Foreign exchange translation - - - (1,233) - (1,233)
______ ______ ______ ______ ______ ______
Total comprehensive loss - - - (1,233) (16,064) (17,297)
______ ______ ______ ______ ______ ______
Shares issued on 16 October
2017 - note 17 1 6,157 - - - 6,158
Costs associated with share
issue - note 17 - (429) - - - (429)
Share option charge - - - 520 520
______ ______ ______ ______ ______ ______
Total contribution by and
distributions to owners 1 5,728 - - 520 6,249
______ ______ ______ ______ ______ ______
At 31 December 2017 1,003 52,939 53,003 2,385 (74,654) 34,676
______ ______ ______ ______ ______ ______
Share Share Merger Shares Foreign Accumulated Total
capital premium reserve to be exchange deficit equity
issued reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2016 1,002 31,643 52,803 200 390 (39,151) 46,887
______ ______ ______ ______ ______ ______ ______
Loss for the year - - - - - (20,162) (20,162)
Foreign exchange
translation - - - - 3,228 - 3,228
______ ______ ______ ______ ______ ______ ______
Total comprehensive
loss - - - - 3,228 (20,162) (16,934)
______ ______ ______ ______ ______ ______ ______
Transactions with
owners
Shares issued
on 31 October - - - - -
2016 - note 17 - 16,673 - - - - 16,673
Costs associated
with share issue
- note 17 (1,105) (1,105)
Share option charge - - - - - 203 203
Shares issued
as deferred consideration
for business combination - 200 (200) - - -
______ ______ ______ ______ ______ ______ ______
Total contribution
by and distributions
to owners - 15,568 200 (200) - 203 15,771
______ ______ ______ ______ ______ ______ ______
At 31 December
2016 1,002 47,211 53,003 - 3,618 (59,110) 45,724
______ ______ ______ ______ ______ ______ ______
Share Share Merger Shares Foreign Accumulated Total
capital premium reserve to be exchange deficit equity
issued reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2015 1,001 31,643 37,776 800 (9) (29,222) 41,989
______ ______ ______ ______ ______ ______ ______
Loss for the year - - - - - (10,099) (10,099)
Foreign exchange
translation - - - - 399 - 399
______ ______ ______ ______ ______ ______ ______
Total comprehensive
loss - - - - 399 (10,099) (9,700)
______ ______ ______ ______ ______ ______ ______
Transactions with
owners
Shares issued
on exercise of
share options 1 - - - - - 1
Shares, warrants
and share options
issued as consideration
for a business
combination -
4 December 2015 - - 14,427 - - - 14,427
Share option charge - - - - - 170 170
Shares issued
as deferred consideration
for business combination - - 600 (600) - - -
______ ______ ______ ______ ______ ______ ______
Total contribution
by and distributions
to owners 1 - 15,027 (600) - 170 14,598
______ ______ ______ ______ ______ ______ ______
At 31 December
2015 1,002 31,643 52,803 200 390 (39,151) 46,887
______ ______ ______ ______ ______ ______ ______
The notes form an integral part of these consolidated financial
statements.
Notes forming part of the financial statements
for the year ended 31 December 2017
1 Accounting policies
General information
Midatech Pharma plc (the "Company") is a company registered and
domiciled in England. The Company was incorporated on 12 September
2014.
The Company is a public limited company, which has been listed
on the Alternative Investment Market ("AIM"), which is a submarket
of the London Stock Exchange, since 8 December 2014.
In addition, since 4 December 2015 the Company has American
Depository Receipts ("ADRs") registered with the US Securities and
Exchange Commission ("SEC") and is listed on The NASDAQ Capital
Market.
Basis of preparation
The financial information set out above does not constitute the
company's statutory accounts for 2017, 2016 or 2015. Statutory
accounts for the years ended 31 December 2017, 31 December 2016 and
31 December 2015 have been reported on by the Independent
Auditors.
The Independent Auditors' Report on the Annual Report and
Financial Statements for the year ended 31 December 2017, 31
December 2016 and 31 December 2015 was unqualified and did not
contain a statement under 498(2) or 498(3) of the Companies Act
2006. The Independent Auditors' Report on the Annual Report and
Financial Statements for the year ended 31 December 2017 drew
attention to a material uncertainty in respect of going concern and
included the following wording in that respect:
Material uncertainty related to going concern
We draw attention to Note 1 to the financial statements
concerning the group and parent company's ability to continue as a
going concern. The matters explained in Note 1 relating to the
uncertainty of additional future funding being made available to
the group and parent company, indicates the existence of a material
uncertainty which may cause significant doubt over the group and
parent company's ability to continue as a going concern. These
financial statements do not include the adjustments that would
result if the group and parent company were unable to continue as a
going concern. Our opinion is not modified in respect of this
matter.
The Independent Auditors' Report on the Annual Report and
Financial Statements for the years ended 31 December 2016 and 31
December 2015 did not draw attention to any matters by way of
emphasis.
Statutory accounts for the year ended 31 December 2016 and 31
December 2015 have been filed with the Registrar of Companies. The
statutory accounts for the year ended 31 December 2017 will be
delivered to the Registrar in due course.
The Group was formed on 31 October 2014 when Midatech Pharma plc
entered into an agreement to acquire the entire share capital of
Midatech Limited and its wholly owned subsidiaries through the
issue equivalent of shares in the Company which took place on 13
November 2014.
These financial statements have been prepared in accordance with
International Financial Reporting Standards, International
Accounting Standards and Interpretations (collectively IFRS) issued
by the International Accounting Standards Board (IASB) and as
adopted by the European Union ("adopted IFRSs") and are presented
in GBP'000's Sterling.
The principal accounting policies adopted in the preparation of
the financial statements are set out below. The policies have been
consistently applied to all the periods presented.
Reclassification of 2016 and 2015 comparative operating
costs
As the nature of the operations of the group have changed over
the last two years management has reviewed how costs are presented
on the income statement, allocated between:
-- Research and development costs;
-- Distribution costs, sales and marketing; and
-- Administrative costs.
In order to give a clearer and more meaningful picture of
activity within the business, certain costs, previously shown
within administrative costs have been reclassified as either
research and development costs, or distribution costs, sales and
marketing. Comparative figures for 2016 and 2015 have been
reclassified using the same allocation basis as the 2017 results to
provide consistency.
2016 2016 2015 2015
reclassified original reclassified original
GBP'000 GBP'000 GBP'000 GBP'000
Research and development
costs 7,796 6,684 8,710 5,920
Distribution costs,
sales and marketing 12,510 9,523 605 374
Administrative costs 5,123 9,222 4,908 7,929
_______ _______ _______ _______
25,429 25,429 14,223 14,223
_______ _______ _______ _______
Adoption of new and revised standards
A number of new standards, amendments to standards, and
interpretations are not effective for 2017, and therefore have not
been applied in preparing these financial statements.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9
Financial Instruments that replaces IAS 39 Financial Instruments:
Recognition and Measurement and all previous versions of IFRS 9.
IFRS 9 brings together all three aspects of the accounting for
financial instruments project: classification and measurement,
impairment and hedge accounting. IFRS 9 is effective for annual
periods beginning on or after 1 January 2018, with early
application permitted.
IFRS 9 requires the Group to record expected credit losses on
all of its debt securities, loans and trade receivables, either on
a 12-month or lifetime basis. The Group expects to apply the
simplified approach and record lifetime expected losses on all
trade receivables.
The Group plans to adopt the new standard on the required
effective date. The Company expects no significant impact on its
operating results or financial position.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model
to account for revenue arising from contracts with customers. Under
IFRS 15, revenue is recognized at an amount that reflects the
consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer.
IFRS 15 Revenue from contracts with customers amends revenue
recognition requirements and establishes principles for reporting
information regarding the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with customer. The
standard replaces IAS 18 Revenue and IAS 11 Construction contracts
and related interpretations.
The new revenue standard will supersede all current revenue
recognition requirements under IFRS. Either a full retrospective
application or a modified retrospective application is required for
annual periods beginning on or after 1 January 2018. The Group
plans to adopt the new standard on the required effective date.
The Company has performed an assessment of the impact of IFRS 15
and has concluded that:
-- The Group's "Revenue" is largely derived from the sale of
pharmaceutical products and services, where control transfers to
customers and performance obligations are satisfied at the time of
shipment to receipt of the products by the customer or when the
services are performed. There is no expectation for IFRS 15 to
significantly change the timing or amount of revenue recognised
under these arrangements.
-- Grant Revenue is outside the scope of IFRS 15.
The Group will implement the new standard from January 1, 2018
and will apply the modified retrospective method, which requires
the recognition of the cumulative effect of initially applying IFRS
15 as at January 1, 2018, to retained earnings and not restate
prior years. However, since the results of the Group's impact
assessment indicates that IFRS 15 is not expected to significantly
change the amount or timing of revenue recognition in 2017 or prior
periods, an insignificant cumulative adjustment to increase
retained earnings will be made.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17
Leases, IFRIC 4 Determining whether an Arrangement contains a
Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the
Substance of Transactions Involving the Legal Form of a Lease. IFRS
16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under IAS 17. The
standard includes two recognition exemptions for lessees - leases
of 'low-value' assets (e.g., personal computers) and short-term
leases (i.e., leases with a lease term of 12 months or less). At
the commencement date of a lease, a lessee will recognize a
liability to make lease payments (i.e., the lease liability) and an
asset representing the right to use the underlying asset during the
lease term (i.e., the right-of-use asset). Lessees will be required
to separately recognize the interest expense on the lease liability
and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability
upon the occurrence of certain events (e.g., a change in the lease
term, a change in future lease payments resulting from a change in
an index or rate used to determine those payments). The lessee will
generally recognize the amount of the re-measurement of the lease
liability as an adjustment to the right-of-use asset.
IFRS 16 is effective for annual periods beginning on or after 1
January 2019. Early application is permitted, but not before an
entity applies IFRS 15. A lessee can choose to apply the standard
using either a full retrospective or a modified retrospective
approach. The standard's transition provisions permit certain
reliefs.
During 2017 the Group assessed the potential effect of IFRS 16
on its consolidated financial statements. Refer to note 26 for
further information on the Group's operating leases.
The current undiscounted operating lease commitments of GBP848k
as of 31 December 2017 and disclosed in Note 26 provide, subject to
the provision of the standard, an indicator of the impact of the
implementation of IFRS 16 on the Group's consolidated balance
sheet.
Upon adoption of the new standard, a portion of the annual
operating lease costs, which is currently fully recognised as a
functional expense, will be recorded as interest expense. In
addition, the portion of the annual lease payments recognised in
the cash flow statement as a reduction of the lease liability will
be recognised as an outflow from financing activities. Given the
leases involved and assuming the current low interest rate
environment continues, the Group does not currently expect these
effects to be significant.
There are no other IFRS standards or interpretations not
currently effective that would be expected to have a material
impact on the Group.
Basis for consolidation
The Group financial statements consolidate those of the parent
company and all of its subsidiaries. The parent controls a
subsidiary if it has power over the investee to significantly
direct the activities, exposure, or rights, to variable returns
from its involvement with the investee, and the ability to use its
power over the investee to affect the amount of the investor's
returns. All subsidiaries have a reporting date of 31 December.
All transactions and balances between Group companies are
eliminated on consolidation, including unrealised gains and losses
on transactions between Group companies. Where unrealised losses on
intra-Group asset sales are reversed on consolidation, the
underlying asset is also tested for impairment from a Group
perspective. Amounts reported in the financial statements of
subsidiaries have been adjusted where necessary to ensure
consistency with the accounting policies adopted by the Group.
The loss and other comprehensive income of Midatech Pharma US,
Inc. (formerly DARA Biosciences, Inc) acquired in December 2015 is
recognised from the effective date of acquisition i.e. 4 December
2015. Similarly, the loss and other comprehensive income of
Zuplenz(R) , acquired as a business by Midatech Pharma plc., is
recognised from 24 December 2015.
The consolidated financial statements consist of the results of
the following entities:
Entity Summary description
Midatech Pharma plc Ultimate holding
company
Midatech Limited Trading company
Midatech Pharma (Espana) SL (formerly Trading company
Midatech Biogune SL)
Midatech Andalucia SL Dormant
PharMida AG Dormant
Midatech Pharma (Wales) Limited Trading company
(formerly Q Chip Limited)
Midatech Pharma US, Inc. (formerly Trading company
DARA Biosciences, Inc.) Dormant
Dara Therapeutics, Inc. Trading company
Midatech Pharma Pty
Going concern
The Group and parent company are subject to a number of risks
similar to those of other development and early-commercial stage
pharmaceutical companies. These risks include, amongst others,
generation of revenues from the existing product portfolio and in
due course the development portfolio and risks associated with
research, development, testing and obtaining related regulatory
approvals of its pipeline products. Ultimately, the attainment of
profitable operations is dependent on future uncertain events which
include obtaining adequate financing to fulfil the Group's
commercial and development activities and generating a level of
revenue adequate to support the Group's cost structure.
The Group has experienced net losses and significant cash
outflows from cash used in operating activities over the past years
as it develops its portfolio. As at 31 December 2017 the Group had
total equity of GBP34.7m which includes an accumulated deficit of
GBP74.7m, it incurred a net loss for the year to 31 December 2017
of GBP16.1m and used cash in operating activities of GBP13.0m for
the same period. As at 31 December 2017, the Group had cash and
cash equivalents of GBP13.2m.
The future viability of the Group is dependent on its ability to
generate cash from operating activities, to raise additional
capital to finance its operations and to successfully obtain
regulatory approval to allow marketing of the Group's development
products. The Group's failure to raise capital as and when needed
could have a negative impact on its financial condition and ability
to pursue its business strategies.
The Directors have prepared cash flow forecasts and considered
the cash flow requirement for the Group for the next five years.
These forecasts show that further financing is likely to be
required during the course of the next 12 months, assuming, inter
alia, that all development programmes continue as currently
planned. This requirement for additional financing represents a
material uncertainty that may cast significant doubt upon the
Group's and parent company's ability to continue as a going
concern, however, the Board is examining a range of non-dilutive,
financing options to meet this near-term cash need that, if
successful, would enable the Group to deliver on these key
value-driving programmes without requiring equity finance in the
short-term.
If the Directors conclude that such funding is unlikely to be
available within the required timeframe, expenditure, particularly
in respect of the development programmes, could be delayed, thereby
extending the cash runway beyond the period of twelve months from
the date of approval of these financial statements. Therefore,
after considering the uncertainties the Directors consider it is
appropriate to continue to adopt the going concern basis in
preparing these financial statements.
Revenue
The Group's income streams include milestone income from
research and development contracts and the sale of goods. Milestone
income is recognised as revenue in the accounting period in which
the milestones are achieved. Milestones are agreed on a project by
project basis and will be evidenced by set deliverables.
Revenue from the sales of goods by Midatech Pharma US, Inc. is
recognised when the significant risks and rewards of ownership are
transferred to the buyer and it is probable the previously agreed
upon payment will be received. These criteria are considered to be
met when the goods are delivered to the buyer. Revenue represents
the full list price of products shipped to wholesalers and other
customers less product returns, discounts, rebates and other
incentives based on the sales price.
Sales to wholesalers provide for selling prices that are fixed
on the date of sale, although Midatech Pharma US, Inc offers
certain discounts to group purchasing organisations and
governmental programmes. The wholesalers take title to the product,
bear the risk and rewards and have ownership of the inventory. The
Group has sufficient experience with their material wholesaler
distribution channel to reasonably estimate product returns from
its wholesalers while the wholesalers are still holding
inventory.
Grant revenue
Where grant income is received, which is not a direct
re-imbursement of related costs and at the point at which the
conditions have been met for recognition as income, this has been
shown within grant revenue.
Government grants and government loans
Where government grants are received as a re-imbursement of
directly related costs they are credited to research and
development expense in the same period as the expenditure towards
which they are intended to contribute.
The Group receives government loans that have a below-market
rate of interest. These loans are recognised and measured in
accordance with IAS 39. The benefit of the below-market rate of
interest is measured as the difference between the initial carrying
value of the loan discounted at a market rate of interest and the
proceeds received.
The difference is held within deferred revenue as a government
grant and is released as a credit to research and development
expense in line with the expenditure to which it relates. In a
situation where the proceeds were invested in plant and equipment,
the deferred revenue is credited to research and development within
the income statement in line with the depreciation of the acquired
asset.
Business combinations and externally acquired intangible
assets
Business combinations are accounted for using the acquisition
method at the acquisition date, which is the date at which the
Group obtains control over the entity. The cost of an acquisition
is measured as the amount of the consideration transferred to the
seller, measured at the acquisition date fair value, and the amount
of any non-controlling interest in the acquiree. The Group measures
goodwill initially at cost at the acquisition date, being:
- the fair value of the consideration transferred to the seller, plus
- the amount of any non-controlling interest in the acquiree, plus
- if the business combination is achieved in stages, the fair
value of the existing equity interest in the acquiree re-measured
at the acquisition date, less
- the fair value of the net identifiable assets acquired and assumed liabilities
Acquisition costs incurred are expensed and included in
administrative costs. Any contingent consideration to be
transferred by the acquirer is recognised at fair value at the
acquisition date. Subsequent changes to the fair value of the
contingent consideration, whether it is an asset or liability, will
be recognised either as a profit or loss or as a change to other
comprehensive income. If the contingent consideration is classified
as equity, it is not re-measured.
An intangible asset, which is an identifiable non-monetary asset
without physical substance, is recognised to the extent that it is
probable that the expected future economic benefits attributable to
the asset will flow to the Group and that its cost can be measured
reliably. The asset is deemed to be identifiable when it is
separable or when it arises from contractual or other legal
rights.
Externally acquired intangible assets other than goodwill are
initially recognised at cost and subsequently amortised on a
straight-line basis over their useful economic lives where they are
in use. The amortisation expense is included within the
distribution costs, sales and marketing in the consolidated
statement of comprehensive income. Goodwill is stated at cost less
any accumulated impairment losses.
The amounts ascribed to intangibles recognised on business
combinations are arrived at by using appropriate valuation
techniques (see section related to critical estimates and
judgements below).
In-process research and development (IPRD) programmes acquired
in business combinations are recognised as assets even if
subsequent expenditure is written off because the criteria
specified in the policy for development costs below are not met.
IPRD is subject to annual impairment testing until the completion
or abandonment of the related project. No further costs are
capitalised in respect of this IPRD unless they meet the criteria
for research and development capitalisation as set out below.
As per IFRS 3, once the research and development of each defined
project is completed, the carrying value of the acquired IPRD is
reclassified as a finite-lived asset and amortised over its useful
life.
Product and marketing rights acquired in business combinations
are recognised as assets and are amortised over their useful life.
Under the terms of various licenses, the Group holds the US rights
to sell four products approved by the Food and Drug Administration:
Zuplenz(R) , Gelclair(R) , Oravig(R) and Soltamox(R) .
The significant intangibles recognised by the Group and their
useful economic lives are as follows:
Goodwill - Indefinite life
IPRD - In process, not yet amortising
IT and website costs - 4 years
Product and marketing - Between 2 and 13 years
rights
The useful economic life of IPRD will be determined when the
in-process research projects are completed.
Internally generated intangible assets (development costs)
Expenditure on the research phase of an internal project is
recognised as an expense in the period in which it is incurred.
Development costs incurred on specific projects are capitalised
when all the following conditions are satisfied:
-- Completion of the asset is technically feasible so that it
will be available for use or sale
-- The Group intends to complete the asset and use or sell it
-- The Group has the ability to use or sell the asset and the
asset will generate probable future economic benefits (over and
above cost)
-- There are adequate technical, financial and other resources
to complete the development and to use or sell the asset, and
-- The expenditure attributable to the asset during its development can be measured reliably.
Judgement is applied when deciding whether the recognition
criteria are met. Judgements are based on the information
available. In addition, all internal activities related to the
research and development of new projects are continuously monitored
by the Directors. The Directors consider that the criteria to
capitalise development expenditure are not met for a product prior
to that product receiving regulatory approval in at least one
country.
Development expenditure not satisfying the above criteria, and
expenditure on the research phase of internal projects are included
in research and development costs recognised in the Consolidated
Statement of Comprehensive Income as incurred. No projects have yet
reached the point of capitalisation.
Impairment of non-financial assets
Assets that have an indefinite useful life, for example
goodwill, or intangible assets not ready for use, such as IPRD, are
not subject to amortisation and are tested annually for impairment.
Assets that are subject to amortisation are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset's fair value less costs to sell and value in
use. An impairment charge of GBP1.5m was recognised in 2017 against
the IPRD of the Midatech Pharma (Wales) Ltd cash generating unit.
An impairment charge of GBP11.4m was recognised in 2016 against the
product rights of Oravig, a product of Midatech Pharma US
For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash
flows (cash-generating units). The Group at 31 December 2017 had
two cash generating units (2016: Two, 2015: Two), see note 13.
Non-financial assets other than goodwill that suffered impairment
are reviewed for possible reversal of impairment at each reporting
date.
Impairment charges are included in profit or loss, except, where
applicable, to the extent they reverse gains previously recognised
in other comprehensive income. An impairment loss recognised for
goodwill is not reversed.
Patents and trademarks
The costs incurred in establishing patents and trademarks are
either expensed in accordance with the corresponding treatment of
the development expenditure for the product to which they relate or
capitalised if the development expenditure to which they relate has
reached the point of capitalisation as an intangible asset.
Joint arrangements
The Group is a party to a joint arrangement when there is a
contractual arrangement that confers joint control over the
relevant activities of the arrangement to the Group and at least
one other party. Joint control is assessed under the same
principles as control over subsidiaries.
The Group classifies its interests in joint arrangements as
either:
-- Joint ventures: where the Group has rights to only the net assets of the joint arrangement.
-- Joint operations: where the Group has both the rights to
assets and obligations for the liabilities of the joint
arrangement.
In assessing the classification of interests in joint
arrangements, the Group considers:
-- The structure of the joint arrangement
-- The legal form of joint arrangements structured through a separate vehicle
-- The contractual terms of the joint arrangement agreement
-- Any other facts and circumstances (including any other contractual arrangements).
The Group accounts for its interests in joint ventures using the
equity method. The equity accounted joint venture is highly
immaterial with no profit and loss impact during 2017 (2016: Nil,
2015: Nil).
Any premium paid for an investment in a joint venture above the
fair value of the Group's share of the identifiable assets,
liabilities and contingent liabilities acquired is capitalised and
included in the carrying amount of the investment in joint venture.
Where there is objective evidence that the investment in a joint
venture has been impaired the carrying amount of the investment is
tested for impairment in the same way as other non-financial
assets.
Amounts received under collaborative joint agreements,
representing contributions to the Group's research and development
programmes, are recognised as a credit against research and
development expense in the period over which the related costs are
incurred. All costs related to these collaborative agreements are
recorded as research and development expenditure.
The Group accounts for its interests in joint operations by
recognising its share of assets, liabilities, revenues and expenses
in accordance with its contractually conferred rights and
obligations.
Foreign currency
Transactions entered into by subsidiaries entities in a currency
other than the currency of the primary economic environment, in
which they operate, are recorded at the rates ruling when the
transactions occur. Foreign currency monetary assets and
liabilities are translated at the rates ruling at the reporting
date. Exchange differences arising on the retranslation of
unsettled monetary assets and liabilities are recognised
immediately in profit or loss.
The presentational currency of the Group is Pounds Sterling, and
the reporting currency is also Pounds Sterling. Foreign
subsidiaries use the local currencies of the country where they
operate. On consolidation, the results of overseas operations are
translated into Pounds Sterling at rates approximating to those
ruling when the transactions took place. All assets and liabilities
of overseas operations, including goodwill arising on the
acquisition of those operations, are translated at the rate ruling
at the reporting date. Exchange differences arising on translating
the opening net assets at opening rate and the results of overseas
operations at actual rate are recognised in other comprehensive
income and accumulated in the foreign exchange reserve.
Exchange differences recognised in the profit or loss of Group
entities on the translation of long-term monetary items forming
part of the Group's net investment in the overseas operation
concerned are reclassified to other comprehensive income and
accumulated in the foreign exchange reserve on consolidation.
On disposal of a foreign operation, the cumulative exchange
differences recognised in the foreign exchange reserve relating to
that operation up to the date of disposal are transferred to the
consolidated statement of comprehensive income as part of the
profit or loss on disposal.
Financial assets
The Group does not have any financial assets which it would
classify as fair value through profit or loss, available for sale
or held to maturity. Therefore, all financial assets are classed as
loans and receivables as defined below.
Loans and receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They
arise principally through the provision of goods and services to
customers (e.g. trade receivables), but also incorporate other
types of contractual monetary asset. They are initially recognised
at fair value plus transaction costs that are directly attributable
to their acquisition or issue, and are subsequently carried at
amortised cost using the effective interest rate method, less
provision for impairment.
Impairment provisions are recognised when there is objective
evidence (such as significant financial difficulties on the part of
the counterparty or default or significant delay in payment) that
the Group will be unable to collect all of the amounts due under
the terms, the amount of such a provision being the difference
between the net carrying amount and the present value of the future
expected cash flows associated with the impaired receivable.
For trade receivables, which are reported net; such provisions
are recorded in a separate allowance account with the loss being
recognised within administrative expenses in the consolidated
statement of comprehensive income. On confirmation that the trade
receivable will not be collectable, the gross carrying value of the
asset is written off against the associated provision.
The Group's loans and receivables comprise trade and other
receivables and cash and cash equivalents in the consolidated
statement of financial position.
Cash and cash equivalents include cash in hand, deposits held at
call with original maturities of three months or less.
Financial liabilities
The Group classifies its financial liabilities into one of two
categories, depending on the purpose for which the liability was
acquired.
Fair value through profit and loss ("FVTPL")
The Group assumed fully vested warrants and share options on the
acquisition of DARA Biosciences, Inc. The number of ordinary shares
to be issued when exercised is fixed, however the exercise prices
are denominated in US Dollars being different to the functional
currency of the parent company. Therefore, the warrants and share
options are classified as equity settled derivative financial
liabilities through the profit and loss account. The financial
liabilities were valued using the Black-Scholes option pricing
model. Financial liabilities at FVTPL are stated at fair value,
with any gains or losses arising on re-measurement recognised in
profit or loss. The net gain or loss recognised in profit or loss
incorporated any interest paid on the financial liability and is
included in the 'other gains and losses' line item in the income
statement. Fair value is determined in the manner described in note
22.
Other financial liabilities include the following items:
-- Borrowings are initially recognised at fair value net of any
transaction costs directly attributable to the issue of the
instrument. Such interest-bearing liabilities are subsequently
measured at amortised cost using the effective interest rate
method, which ensures that any interest expense over the period to
repayment is at a constant rate on the balance of the liability
carried in the consolidated statement of financial position.
Interest expense in this context includes initial transaction costs
and premium payable on redemption, as well as any interest or
coupon payable while the liability is outstanding.
-- Government loans received on favourable terms below market
rate are discounted at a market rate of interest. The difference
between the present value of the loan and the proceeds is held as a
government grant within deferred revenue and is released to
research and development expenditure in line with when the asset or
expenditure is recognised in the income statement.
-- Trade payables and other short-term monetary liabilities are
initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method.
Share capital
Financial instruments issued by the Group are classified as
equity only to the extent that they do not meet the definition of a
financial liability or financial asset. The Group has two classes
of share in existence:
-- Ordinary shares of GBP0.00005 each are classified as equity instruments;
-- Deferred shares of GBP1 each are classified as equity instruments.
Retirement benefits: defined contribution schemes
Contributions to defined contribution pension schemes are
charged to the consolidated statement of comprehensive income in
the year to which they relate.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event; it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation.
Share-based payments
The Group operates a number of equity-settled, share-based
compensation plans, under which the entity receives services from
employees as consideration for equity instruments (options) of the
Group. The fair value of the employee services received in exchange
for the grant of the options is recognised as an expense. The total
amount to be expensed is determined by reference to the fair value
of the options granted:
-- including any market performance conditions (including the share price);
-- excluding the impact of any service and non-market
performance vesting conditions (for example, remaining an employee
of the entity over a specified time period); and
-- including the impact of any non-vesting conditions (for
example, the requirement for employees to save).
Non-market performance and service conditions are included in
assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is
the period over which all of the specified vesting conditions are
to be satisfied. Where vesting conditions are accelerated on the
occurrence of a specified event, such as a change in control or
initial public offering, such remaining unvested charge is
accelerated to the income statement.
In addition, in some circumstances employees may provide
services in advance of the grant date and therefore the grant date
fair value is estimated for the purposes of recognising the expense
during the period between service commencement period and grant
date.
At the end of each reporting period, the Group revises its
estimates of the number of options that are expected to vest based
on the non-market vesting conditions. It recognises the impact of
the revision to original estimates, if any, in the income
statement, with a corresponding adjustment to equity. When the
options are exercised, the Company issues new shares. The proceeds
received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium.
Leased assets
Where substantially all of the risks and rewards incidental to
ownership of a leased asset have been transferred to the Group (a
"finance lease"), the asset is treated as if it had been purchased
outright. The amount initially recognised as an asset is the lower
of the fair value of the leased property and the present value of
the minimum lease payments payable over the term of the lease. The
corresponding lease commitment is shown as a liability. Lease
payments are analysed between capital and interest. The interest
element is charged to the consolidated statement of comprehensive
income over the period of the lease and is calculated so that it
represents a constant proportion of the lease liability. The
capital element reduces the balance owed to the lessor.
1 Accounting policies (continued)
Leased assets (continued)
Where substantially all of the risks and rewards incidental to
ownership are not transferred to the Group (an "operating lease"),
the total rentals payable under the lease are charged to the
consolidated statement of comprehensive income on a straight-line
basis over the lease term. The aggregate benefit of lease
incentives is recognised as a reduction of the rental expense over
the lease term on a straight-line basis.
Deferred taxation
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the consolidated
statement of financial position differs from its tax base, except
for differences arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting or taxable profit;
and
-- investments in subsidiaries and jointly controlled entities
where the Group is able to control the timing of the reversal of
the difference and it is probable that the difference will not
reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the
reporting date and are expected to apply when the deferred tax
assets or liabilities are recovered or settled.
Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. As well as the purchase price, cost includes directly
attributable costs.
Depreciation is provided on all items of property, plant and
equipment so as to write off their carrying value over their
expected useful economic lives. It is provided at the following
rates:
Fixtures and - 25% per annum straight line
fittings - 10% per annum straight line
Leasehold improvements
Computer equipment - 25% per annum straight line
Laboratory equipment - 15% - 25% per annum straight line
Inventories
Inventories are stated at the lower of cost or net realisable
value. Net realisable value is the market value. In evaluating
whether inventories are stated at the lower of cost or net
realisable value, management considers such factors as the amount
of inventory on hand and in the distribution channel, estimated
time required to sell such inventory, remaining shelf life, and
current and expected market conditions, including levels of
competition.
If net realisable value is lower than the carrying amount a
write down provision is recognised for the amount by which the
carrying value exceeds its net realisable value.
Inventory is valued at the lower of cost or market value using
the FIFO method. Inventory is charged to the income statement as
cost of sales as it is sold.
2 Critical accounting estimates and judgements
The preparation of these consolidated financial statements
requires the Group to make estimates, assumptions and judgments
that can have a significant impact on the reported amounts of
assets and liabilities, revenue and expenses and related disclosure
of contingent assets and liabilities, at the respective dates of
our financial statements. The Group bases its estimates,
assumptions and judgments on historical experience and various
other factors that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates under
different assumptions or conditions. Management evaluates
estimates, assumptions and judgments on a regular basis and makes
changes accordingly, and discusses critical accounting estimates
with the board of Directors.
The following are considered to be critical accounting policies
because they are important to the portrayal of the financial
condition or results of operations of the Group and they require
critical management estimates and judgments about matters that are
uncertain.
Business combinations
The Directors determine and allocate the purchase price of an
acquired business to the assets acquired and liabilities assumed as
of the business combination date. The purchase price allocation
process requires the use of significant estimates and assumptions,
including the estimated fair value of the acquired intangible
assets.
While the Directors use their best estimates and assumptions as
part of the purchase price allocation process to accurately value
assets acquired and liabilities assumed at the date of acquisition,
our estimates and assumptions are inherently uncertain and subject
to refinement. Examples of critical estimates in valuing the
intangible assets we have acquired or may acquire in the future
include but are not limited to:
-- future expected cash flows from in-process research and development;
-- the fair value of the property, plant and equipment; and
-- discount rates.
Judgement has also been applied in the distinction of an asset
purchase and business combination with regard to the Zuplenz(R)
acquisition. Judgement was applied in assessing the inputs,
processes and outputs relevant to the acquisition to arrive at the
conclusion that the treatment should be a business combination.
The carrying value of acquired product and marketing rights as
at 31 December 2017 was GBP4.1m (note 10).
Impairment of goodwill and intangible assets not yet ready for
use
Goodwill and intangibles not yet ready for use are tested for
impairment at the cash generating unit level on an annual basis at
the year end and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a cash generating unit below its carrying value.
These events or circumstances could include a significant change in
the business climate, legal factors, operating performance
indicators, competition, or sale or disposition of a significant
portion of a reporting unit.
Application of the goodwill impairment test requires judgment,
including the identification of cash generating units, assignment
of assets and liabilities to such units, assignment of goodwill to
such units and determination of the fair value of a unit and for
intangible assets not yet ready for use, the fair value of the
asset. The fair value of each cash generating unit or asset is
estimated using the income approach, on a discounted cash flow
methodology. This analysis requires significant judgments,
including estimation of future cash flows, which is dependent on
internal forecasts, estimation of the long-term rate of growth for
the business, estimation of the useful life over which cash flows
will occur and determination of our weighted-average cost of
capital.
The carrying value of goodwill was GBP13.4 million and
intangibles not yet ready for use was GBP10.1 million as at 31
December 2017 (note 10).
The estimates used to calculate the fair value of a cash
generating unit change from year to year based on operating results
and market conditions. Changes in these estimates and assumptions
could materially affect the determination of fair value and
goodwill impairment for each such unit. Based on the analysis
performed, there was no impairment of goodwill in the year ended 31
December 2017 or in 2016, however there was an impairment charge of
GBP1.5m against the IPRD of Midatech Pharma (Wales) Ltd cash
generating unit. (2016: GBP11.4m against the Midatech Pharma US
product rights). See note 13.
Share-based payments
The Group accounts for share-based payment transactions for
employees in accordance with IFRS 2 Share-based Payment, which
requires the measurement of the cost of employee services received
in exchange for the options on our ordinary shares, based on the
fair value of the award on the grant date.
The Directors selected the Black-Scholes-Merton option pricing
model as the most appropriate method for determining the estimated
fair value of our share-based awards without market conditions. For
performance-based options that include vesting conditions relating
to the market performance of our ordinary shares, a Monte Carlo
pricing model was used in order to reflect the valuation impact of
price hurdles that have to be met as conditions to vesting.
The resulting cost of an equity incentive award is recognised as
expense over the requisite service period of the award, which is
usually the vesting period. Compensation expense is recognised over
the vesting period using the straight-line method and classified in
the consolidated statements of comprehensive income.
The assumptions used for estimating fair value for share-based
payment transactions are disclosed in note 28 to our consolidated
financial statements and are estimated as follows:
-- Volatility is estimated based on the average annualized
volatility of a number of publicly traded peer companies in the
biotech sector;
-- The estimated life of the option is estimated to be until the
first exercise period, which is typically the month after the
option vests; and
-- The dividend return is estimated by reference to our
historical dividend payments. Currently, this is estimated to be
zero as no dividend has been paid in the prior periods.
Income Taxes
Deferred tax assets are recognised for unused tax losses to the
extent that it is probable that taxable profit will be available
against which the losses can be utilised. Significant management
judgment is required to determine the amount of deferred tax assets
that can be recognised based upon the likely timing and the level
of future taxable profits together with future tax planning
strategies.
In 2017, there were approximately GBP38.4m of gross unutilised
tax losses carried forward (2016: GBP27.0m 2015: GBP23.3m) No
deferred tax asset has been provided in respect of these losses as
there was insufficient evidence to support their recoverability in
future periods.
Intangible asset recognition
Research and development costs are charged to expense as
incurred and are typically made up of salaries and benefits,
clinical and preclinical activities, drug development and
manufacturing costs, and third-party service fees, including for
clinical research organizations and investigative sites. Costs for
certain development activities, such as clinical trials, are
periodically recognised based on an evaluation of the progress to
completion of specific tasks using data such as patient enrolment,
clinical site activations, or information provided by vendors on
their actual costs incurred. Payments for these activities are
based on the terms of the individual arrangements, which may differ
from the pattern of costs incurred, and are reflected in the
financial statements as prepaid or accrued expenses.
3 Segment Information
Gross sales
Gross sales of GBP11.24m in the year ended 31 December 2017
(2016: GBP8.66m, 2015: GBP0.91m) represents the full list price of
products shipped to wholesalers and other customers before product
returns, discounts, rebates and other incentives based on the sales
price.
Revenue
Geographical analysis of revenue by destination of customer
2017 2016 2015
GBP'000 GBP'000 GBP'000
United Kingdom 79 491 -
Turkey - - 73
Rest of Europe 70 35 25
United States 6,609 5,850 677
_______ _______ _______
6,758 6,376 775
_______ _______ _______
In 2017, the Group had three customers, all in the Commercial
segment, that each accounted for at least 10% of total revenue
(2016: three customers, 2015: one customer in Pipeline
R&D):
2017 2016 2015
Customer A (Pipeline R&D) - - 11%
Customer B (Commercial) 20% 20% -
Customer C (Commercial) 17% 15% -
Customer D (Commercial) 13% 10% -
The Group contains two reportable operating segments as
follows:
-- Pipeline Research and Development: The Pipeline Research and
Development ("Pipeline R&D") segment seeks to develop products
using the Group's nanomedicine and sustained release technology
platforms.
-- Commercial: The Commercial segment distributes and sells the
Group's commercial products. Midatech Pharma US promotes the
Group's commercial, cancer supportive care products in the US
market, in which the Group has exclusive licenses to Soltamox,
Oravig and Zuplenz(R) , an exclusive license to distribute, promote
and market Gelclair, and a marketing agreement to co-promote two
other products: Ferralet 90 and Aquoral. As and when new products
are introduced the Commercial segment will include revenues from
the marketing of these commercial products.
The accounting policies of the reportable segments are
consistent with the Group's accounting policies described in note
1. Segment results represent the result of each segment without the
allocation of head office expenses, interest expense, interest
income and tax.
No measures of segment assets and segment liabilities are
reported to the Group's Board of Directors in order to assess
performance and allocate resources. There is no intersegment
activity and all revenue is generated from external customers.
Both the UK and Spanish entities meet the aggregation criteria
and have therefore been presented as a single reportable segment
under Pipeline R&D. The research and development activities
involve the discovery and development of pharmaceutical products in
the field of nanomedicine and sustained release technology. The US
operating company is engaged in the sale and marketing of cancer
supportive care products and is reported under the Commercial
segment.
Segmented results for the year ended 31 December 2017
Pipeline Commercial Consolidated
R&D
GBP'000 GBP'000 GBP'000
Gross sales 108 11,131 11,239
Grant revenue 840 - 840
_______ _______ _______
Total gross revenues 948 11,131 12,079
-------------------------- --------- ----------- -------------
Revenue 108 6,650 6,758
Grant revenue 840 - 840
_______ _______ _______
Total revenue 948 6,650 7,598
Cost of sales - (926) (926)
Research and development
costs (9,830) (355) (10,185)
Distribution costs,
sales and marketing (744) (7,096) (7,840)
Administrative
costs (1,685) (480) (2,165)
Depreciation (974) (9) (983)
Amortisation (193) (1,384) (1,577)
Impairment (1,500) - (1,500)
_______ _______ _______
Loss from operations (13,978) (3,600) (17,578)
_______ _______
Finance income 415
Finance expense (166)
_______
Loss before tax (17,329)
Taxation 1,265
_______
Loss for the year (16,064)
_______
Segmented results for the year ended 31 December 2016
Pipeline Commercial Consolidated
R&D
GBP'000 GBP'000 GBP'000
Gross sales 776 7,883 8,659
Grant revenue 547 - 547
_______ _______ _______
Total gross revenues 1,323 7,883 9,206
-------------------------- --------- ----------- -------------
Revenue 776 5,600 6,376
Grant revenue 547 - 547
_______ _______ _______
Total revenue 1,323 5,600 6,923
Cost of sales (9) (658) (667)
Research and development
costs (reclassified) (7,786) (10) (7,796)
Distribution costs,
sales and marketing
(reclassified) (396) (8,531) (8,927)
Administrative
costs (reclassified) (2,279) (2,072) (4,351)
Depreciation (762) (10) (772)
Amortisation (193) (3,390) (3,583)
Impairment - (11,413) (11,413)
_______ _______ _______
Loss from operations (10,102) (20,484) (30,586)
_______ _______
Finance income 1,337
Finance expense (73)
_______
Loss before tax (29,322)
Taxation 9,160
_______
Loss for the year (20,162)
_______
Segmented results for the year ended 31 December 2015
Pipeline Commercial Unallocated Consolidated
R&D Costs(1)
GBP'000 GBP'000 GBP'000 GBP'000
Gross sales 273 641 - 914
Grant revenue 600 - - 600
_______ _______ _______ _______
Total gross revenues 873 641 - 1,514
-------------------------- --------- ----------- ------------ -------------
Revenue 273 502 - 775
Grant revenue 600 - - 600
_______ _______ _______ _______
Total revenue 873 502 - 1,375
Cost of sales - (70) - (70)
Research and development
costs (reclassified) (8,601) (109) - (8,710)
Distribution costs,
sales and marketing
(reclassified) - (369) (369)
Administrative costs
(reclassified) (1,151) (265) (2,991) (4,407)
Depreciation (500) (1) - (501)
Amortisation (5) (231) - (236)
_______ _______ _______ _______
Loss from operations (9,384) (543) (2,991) (12,918)
_______ _______ _______
Finance income 1,691
Finance expense (5)
_______
Loss before tax (11,232)
Taxation 1,133
_______
Loss for the year (10,099)
_______
(1) There were no unallocated costs in 2017 or 2016. Unallocated
costs in 2015 represent fees associated with the acquisitions of
Midatech Pharma US, Inc. and Zuplenz(R) in 2015.
Non-current assets by location of assets
2017 2016 2015
GBP'000 GBP'000 GBP'000
Spain 2,154 2,125 1,433
United Kingdom 15,331 16,489 14,019
United States 13,156 15,772 28,258
_______ _______ _______
30,641 34,386 43,710
_______ _______ _______
All material additions to non-current assets in 2017, 2016 and
2015 were in the Pipeline R&D segment.
4 Loss from operations
2017 2016 2015
Loss from operations is GBP'000 GBP'000 GBP'000
stated after charging/(crediting):
Changes in inventories of
finished goods and work
in progress 202 256 62
Write down of inventory - 287 -
to net realisable value
Depreciation of property,
plant and equipment 983 772 501
Amortisation of intangible
assets - product and marketing
rights 1,577 3,583 236
Impairment of intangible
assets 1,500 11,413 -
Fees payable to the Company's
auditor for the audit of
the parent Company 110 100 100
Fees payable to the Company's
subsidiary auditors for
the audits of the subsidiary
accounts 140 139 115
Fees payable to the Company's
auditor for:
* Corporate finance services - 438
* Tax advisory - 7
* Other services 100 72 36
Operating lease expense:
* Property 277 385 246
* Plant and machinery - 194 86
Foreign exchange(gain)/
loss (39) 31 (23)
Acquisition costs (in addition
to fees payable to the Company's
auditor) - - 2,553
Loss on disposal of property, 27 - -
plant and equipment
Gain on bargain purchase - - (165)
Share based payment 520 203 170
_______ _______ _______
Acquisition costs relate to professional fees incurred on the
acquisition of Midatech Pharma US, Inc. and Zuplenz(R) in 2015 and
Midatech Pharma (Wales) Limited in 2014.
Amortisation of product and marketing rights are included with
distribution costs, sales and marketing expenses.
5 Staff costs
2017 2016 2015
GBP'000 GBP'000 GBP'000
Staff costs (including directors)
comprise:
Wages and salaries 5,278 6,314 3,731
Defined contribution pension
cost (note 27) 158 206 183
Social security contributions
and similar taxes 643 769 431
Share based payment 520 203 170
_______ _______ _______
6,599 7,492 4,515
_______ _______ _______
Employee numbers
The average number of staff employed by the Group during the
financial year amounted to:
2017 2016 2015
reclassified reclassified
Research and development 62 57 45
General and administration 17 19 22
Sales and marketing 6 8 7
_______ _______ _______
85 84 74
_______ _______ _______
Key management personnel compensation
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Group, including the directors of the Company
listed on page 33, and the Chief Operating Officer.
2017 2016 2015
GBP'000 GBP'000 GBP'000
Wages and salaries 811 1,054 850
Defined contribution pension
cost 68 59 59
Payments made to third parties 142 142 223
Social security contributions
and similar taxes 97 152 88
Benefits in kind 3 2 7
Share based payment 388 184 170
_______ _______ _______
1,509 1,593 1,397
_______ _______ _______
Emoluments disclosed above include the following amounts in
respect of the highest paid Director. Directors' emoluments are
disclosed on page 27.
2017 2016 2015
GBP'000 GBP'000 GBP'000
Salary 299 448 347
Total pension and other
post-employment benefit
costs 10 28 24
Benefits in kind 1 1 6
_______ _______ _______
310 477 377
_______ _______ _______
None of the Directors have exercised share options during the
year (2016: Nil, 2015: Nil).
During the year 2 Directors (2016: 2) participated in a defined
contribution pension scheme.
6 Finance income and expense
2017 2016 2015
Finance income GBP'000 GBP'000 GBP'000
Interest received on bank
deposits 15 164 53
Gain on equity settled derivative
financial liability 400 1,173 1,638
______ ______ ______
Total finance income 415 1,337 1,691
______ ______ ______
The gain on the equity settled derivative financial liability in
2017 has arisen due to the reduction in the share price and the
lapsing of warrants and options as it did in 2016.
2017 2016 2015
Finance expense GBP'000 GBP'000 GBP'000
Bank loans 18 16 2
Other loans 91 57 3
Arrangement Fees 57 - -
______ ______ ______
Total finance expense 166 73 5
______ ______ ______
7 Taxation
2017 2016 2015
GBP'000 GBP'000 GBP'000
Current tax credit
Current tax credited to
the income statement 1,253 1,936 1,002
Taxation payable in respect - (25) -
of foreign subsidiary
______ ______ _______
1,253 1,911 1,002
Deferred tax credit
Reversal of temporary differences
(Note 23) 12 7,249 131
______ ______ _______
Total tax credit 1,265 9,160 1,133
______ ______ ______
The reasons for the difference between the actual tax charge for
the year and the standard rate of corporation tax in the United
Kingdom applied to losses for the year are as follows:
2017 2016 2015
GBP'000 GBP'000 GBP'000
Loss before tax (17,329) (29,322) (11,232)
Expected tax credit based
on the standard rate of
United Kingdom corporation
tax at the domestic rate
of 19.25% (2016: 20.25%,
2015:20.25%) (3,336) (5,864) (2,274)
Expenses not deductible
for tax purposes 412 1,022 185
Adjustments to brought forward
values - - (8)
Additional deduction for
R&D expenditure - 4 (789)
Surrender of tax losses
for R&D tax refund (1,196) (1,503) 406
Reversal of deferred tax - (3,421) -
on impairment
Unrelieved tax losses and
other deductions arising
in the period (156) (166) (78)
Foreign exchange differences (84) 712 -
Deferred tax not recognised 3,095 491 1,425
Adjustment in respect of - (435) -
prior years
______ ______ ______
Total tax credited to the
income statement (1,265) (9,160) (1,133)
______ ______ ______
The taxation credit arises on the enhanced research and
development tax credits accrued for the respective periods.
8 Loss per share
2017 2016 2015
Numerator GBP'000 GBP'000 GBP'000
______ ______ ______
Loss used in basic EPS and
diluted EPS (16,064) (20,162) (10,099)
_______ _______ ________
Denominator
Weighted average number
of ordinary shares used
in basic EPS 51,317,320 36,072,752 28,229,814
______ ______ ______
Basic and diluted loss per
share - pence (31p) (56p) (36p)
______ ______ ______
The Group has made a loss in the current and previous years
presented, and therefore the options and warrants are
anti-dilutive. As a result, diluted earnings per share is the same
for all of the periods presented.
9 Property, plant and equipment
Fixtures Leasehold Computer Laboratory
and fittings improve-ments equipment equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2015 1,202 880 195 583 2,860
Additions 183 283 173 385 1,024
Acquired through
acquisition of
subsidiary - - - 16 16
Exchange differences (66) (51) (14) (1) (132)
_______ _______ _______ _______ _______
At 31 December
2015 1,319 1,112 354 983 3,768
_______ _______ _______ _______ _______
Additions 2 715 43 609 1,369
Disposal - - (1) - (1)
Transfer (1,125) - (122) 1,247 -
Exchange differences 32 172 7 211 422
_______ _______ _______ _______ _______
At 31 December
2016 228 1,999 281 3,050 5,558
_______ _______ _______ _______ _______
Additions 18 41 57 591 707
Disposal - - - (41) (41)
Exchange differences 6 72 4 69 151
_______ _______ _______ _______ _______
At 31 December
2017 252 2,112 342 3,669 6,375
_______ _______ _______ _______ _______
Fixtures Leasehold Computer Laboratory
and fittings improve-ments equipment equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Accumulated depreciation
At 1 January 2015 479 479 140 246 1,344
Charge for the
year 3 282 48 168 501
Exchange differences (24) (28) (8) (1) (61)
_______ _______ _______ _______ _______
At 31 December
2015 458 733 180 413 1,784
_______ _______ _______ _______ _______
Charge for the
year 41 134 54 543 772
Transfer (369) (96) (118) 583 -
Exchange differences 19 101 6 110 236
_______ _______ _______ _______ _______
At 31 December
2016 149 872 122 1,649 2,792
_______ _______ _______ _______ _______
Charge for the
year 43 330 68 542 983
Disposals - - - (14) (14)
Exchange differences 4 36 2 43 85
_______ _______ _______ _______ _______
At 31 December
2017 196 1,238 192 2,220 3,846
_______ _______ _______ _______ _______
Net book value
At 31 December
2017 56 874 150 1,449 2,529
At 31 December
2016 79 1,127 159 1,401 2,766
At 31 December
2015 861 379 174 570 1,984
At 1 January 2015 723 401 55 337 1,516
_______ _______ _______ _______ _______
Included within the total net book value of tangible fixed
assets is GBP63k (2016: GBP33k, 2015: GBP266k) in respect of assets
held under finance leases and similar hire purchase contracts. The
depreciation charge for the year on these assets was GBP62k (2016:
GBP22k, 2015: GBP26k). These assets were held as security in
respect of their finance lease obligations.
No other assets were held as security other than those on
finance lease.
10 Intangible
assets
Product
In-process and marketing
research rights IT/Website
and Goodwill costs Total
development
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2015 12,600 - 2,291 12 14,903
Additions - - - 3 3
Acquired in business
combinations - 17,989 9,952 - 27,941
Foreign exchange - 332 213 - 545
_______ _______ _______ _______ _______
At 31 December
2015 12,600 18,321 12,456 15 43,392
_______ _______ _______ _______ _______
Additions - - - 19 19
Foreign exchange - 3,160 2,032 - 5,192
Disposals - - - (8) (8)
_______ _______ _______ _______ _______
At 31 December
2016 12,600 21,481 14,488 26 48,595
_______ _______ _______ _______ _______
Additions 778 - - - 778
Foreign exchange - (1,625) (1,044) 1 (2,668)
_______ _______ _______ _______ _______
At 31 December
2017 13,378 19,856 13,444 27 46,705
_______ _______ _______ _______ _______
In-process Product
and
research marketing IT/Website
and
development rights Goodwill Costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Accumulated
amortisation
At 1 January
2015 1,800 - - 9 1,809
Amortisation
charge for the
year - 235 - 1 236
Foreign exchange - 8 - - 8
_______ _______ _______ _______ _______
At 31 December
2015 1,800 243 - 10 2,053
_______ _______ _______ _______ _______
Amortisation
charge for the
year - 3,578 - 5 3,583
Impairment - 11,413 - - 11,413
Foreign exchange - 374 - - 374
_______ _______ _______ _______ _______
At 31 December
2016 1,800 15,608 - 15 17,423
_______ _______ _______ _______ _______
Amortisation
charge for the
year - 1,574 - 3 1,577
Impairment 1,500 - - - 1,500
Foreign exchange - (1,443) - 1 (1,442)
_______ _______ _______ _______ _______
At 31 December
2017 3,300 15,739 - 19 19,058
_______ _______ _______ _______ _______
Net book value
At 31 December
2017 10,078 4,117 13,444 8 27,647
At 31 December
2016 10,800 5,873 14,488 11 31,172
At 31 December
2015 10,800 18,078 12,456 5 41,339
At 1 January
2015 10,800 - 2,291 3 13,094
_______ _______ _______ _______ _______
The individual intangible assets, excluding goodwill, which are
material to the financial statements are:
Carrying amount Remaining amortisation
period
2017 2016 2015 2017 2016 2015
GBP'000 GBP'000 GBP'000 (years) (years) (years)
Midatech Pharma
(Wales) Limited n/a in n/a n/a
acquired IPRD 9,300 10,800 10,800 process in process in process
Midatech Pharma
US, Inc., product Between Between Between
and marketing 1 and 1 and 2 and
rights 1,995 3,557 15,570 3 4 5
Zuplenz(R)
product and
marketing rights 2,122 2,316 2,508 11 12 13
MTX110 acquired 778 - - n/a in - -
IPRD process
_______ _______ _______
14,195 16,673 28,878
_______ _______ _______
11 Acquisition of Midatech Pharma US, Inc.
On 4 December 2015, the Group acquired 100% of the voting equity
of DARA BioSciences, Inc. whose principal activity is the sale and
marketing of a portfolio of cancer supportive care pharmaceutical
products. At completion of that transaction DARA BioSciences, Inc.
was merged into a wholly owned subsidiary of Midatech Pharma PLC
and the name of the merged entity was changed to Midatech Pharma
US, Inc. The principal reason for this acquisition was to acquire
commercial infrastructure and capability in the US market.
The revenue included in the consolidated statement of
comprehensive income between 4 December 2015 and 31 December 2015
contributed by Midatech Pharma US, Inc was GBP502k. Midatech Pharma
US, Inc contributed a net loss of GBP238k over the same period. If
the acquisition had occurred at 1 January 2015 group revenue would
have been GBP3.67m and the group loss for the period would have
been GBP19.34m.
Acquisition related costs of GBP2.77m were incurred in relation
to this acquisition and are included within (administrative
expenses) within the consolidated statement of comprehensive income
for the period.
The main factors leading to the recognition of goodwill are the
presence of certain intangible assets, such as the assembled
workforce of the acquired entity, its established commercial
infrastructure and the expected synergies of the enlarged Group
which do not qualify for separate recognition.
In addition to the consideration outlined below, additional cash
consideration may have become payable (up to a maximum of
GBP3.85m/$5.7m) if specified sales milestones had been achieved for
the years ended 31 December 2016 and 2017, however, these
milestones were not met.
The goodwill and intangible assets recognised will not attract
tax deductions.
Fair value
GBP'000
Identifiable intangible assets:
Product and marketing rights 15,477
Property, plant and equipment 16
Receivables and other debtors 515
Stock 152
Payables and other liabilities (4,150)
Deferred tax (6,191)
Cash 2,289
_______
Total net assets 8,108
_______
Equity instruments (5,422,028 ordinary
shares) 14,427
Deferred Equity instruments
* Share options* 1,056
2,155
422
* Warrants*
* Preference share redemption**
_______
Total consideration 18,060
_______
Goodwill on acquisition 9,952
_______
*The share options and the warrants were valued using the Black
Scholes model.
** The preference share redemption was valued on a cash
basis
The net cash inflow in 2015 in respect of the acquisition of the
subsidiary comprised:
GBP'000
Cash paid on completion - preferred share
redemption (422)
Net cash acquired 2,289
______
1,867
______
Assumption of DARA BioSciences, Inc. share options and
warrants
At the time of completion of the merger with DARA BioSciences,
Inc. there were a number of outstanding and unexercised options and
warrants over common stock in DARA. Under the terms of the merger
these options and warrants became exercisable for a number of
Midatech ordinary shares equal to the product of (A) the number of
shares of DARA common stock that were issuable upon exercise of the
stock option or warrant immediately prior to the merger, multiplied
by (B) a factor of 0.272, that being the Exchange Ratio defined in
the merger agreement, rounded down to the nearest whole number of
Midatech ordinary shares.
The per share exercise price for each Midatech ordinary share
issuable upon exercise of each stock option or warrant will be
equal to (C) the exercise price per share of DARA common stock at
which the DARA stock option or warrant was exercisable divided by
(D) the Exchange Ratio of 0.272, rounded up to the nearest whole
cent. All other terms, notably including expiration dates, remained
materially the same.
As at 31 December 2017 there were DARA options outstanding over
134,670 Midatech ordinary shares (2016: 300,728, 2015: 721,000)
with a weighted average exercise price of $6.69 per share (2016:
$7.19, 2015: $7.62), within a range of $2.54 to $644.12 (2016:
$2.54 to $770.59, 2015: $2.54 to $770.59), and a weighted average
remaining contractual life of 6.7 years (2016: 7.7 years, 2015: 8.5
years). The risk-free rate ranged from 0.00% to 1.08% (2016: 0.00%
to 1.14%, 2015: 0.63% to 1.81%), volatility of 42.5% (2016: 60% to
77%, 2015: 59% to 79%) and the expected life from 0.3 to 7.8 years
(2016: 0.8 to 8.8 years, 2015: 1.9 to 8.6 years). The exercise of
all options would raise additional cash of $0.90m (2016: $2.16m,
2015: $5.50m).
Also at 31 December 2017 there were DARA warrants outstanding
over 2,528,455 Midatech ordinary shares (2016: 3,017,773, 2015:
3,034,437) with a weighted average exercise price of $7.45 per
share (2016: $9.44, 2015: $9.67), within a range of $3.05 to $24.08
(2016: $3.06 to $27.58, 2015: $3.06 to $164.71), and a weighted
average remaining contractual life of 1.4 years (2016: 2.1 years,
2015: 3.1 years). The risk-free rate ranged from 0.00% to 0.71%
(2016: 0.00% to 0.71%, 2015: 0.44% to 1.63%), volatility of 42.5%
(2016: 60% to 66%, 2015: 59% to 79%) and the expected life from 0.1
to 4.9 years (2016: 0.1 to 5.9 years, 2015: 0.1 to 7.0 years). The
exercise of all warrants would raise additional cash of $18.84m
(2016: $28.48m, 2015: $29.33m).
The share options and warrants were valued using the Black
Scholes model for the purpose of calculating the consideration
payable for the DARA business. These options and warrants are
treated as an equity settled derivative, held as a fair value
through profit and loss instrument, see note 21.
12 Acquisition of Zuplenz(R)
On 24 December 2015, the Group acquired US sales and marketing
rights to the product Zuplenz(R), an FDA-approved, marketed
anti-emetic oral soluble film used in adult patients for the
prevention of highly and moderately emetogenic chemotherapy-induced
nausea and vomiting, radiotherapy-induced nausea and vomiting and
post-operative nausea and vomiting. This acquisition was deemed to
be a business combination following a review of the inputs,
processes and potential for a market participant to generate
outputs using the assets and agreements acquired.
The goodwill recognised will not attract a tax deduction.
Fair
value
GBP'000
Identifiable intangible assets:
Product and marketing rights 2,512
Stock 231
______
Total net assets (2,743)
______
Cash consideration 2,528
Contingent consideration* 50
______
Total consideration 2,578
______
Gain from bargain purchase on acquisition (165)
______
* The contingent consideration relates to various milestone
payments which are dependent on the quarterly sales achieved in
calendar years 2016 and 2017 and annual sales from 2018 to 2022
exceeding specified sales targets. The maximum amount payable was
$26.0m however, the 2016 and 2017 sales targets were not achieved
and management does not consider it likely that the 2018 to 2022
sales targets will be achieved either.
No revenue or costs were contributed by Zuplenz(R) in 2015.
Acquisition related costs of GBP218k were incurred in relation to
this acquisition and are included within administrative expenses
within the consolidated statement of comprehensive income for
2015.
The gain from the bargain purchase of GBP165k was included
within administrative costs in 2015 in the consolidated statement
of comprehensive income. It arose due to the seller of Zuplenz(R)
seeking to conclude the transaction as quickly as possible.
We are unable to quantity the impact on the 2015 group revenue
and group loss had the acquisition occurred on 1 January 2015 due
to the seller of the product not providing separable accounting
records.
The net cash outflow in the year in respect
of the business acquisition comprised:
GBP'000
Cash paid on completion 2,528
______
13 Impairment testing
Midatech Pharma (Wales) Ltd
Details of goodwill and IPRD allocated to the acquired cash
generating unit and the valuation basis are as follows:
Indefinite lived
IPRD carrying Goodwill carrying Valuation
amount amount Basis
Name 2017 2016 2015 2017 2016 2015
----------------- -------- -------- ------- -------- -------- ------- ----------
GBP'000 GBP'000 GBP000 GBP'000 GBP'000 GBP000
CGU - Midatech
Pharma (Wales) Value
Ltd 9,300 10,800 10,800 2,291 2,291 2,291 in use
The assets of the Midatech Pharma Wales Ltd ("MPW") CGU were
valued as at 31 December 2017 and 31 December 2016 and were found
to support the IPRD and goodwill carrying amounts set out above.
The IPRD was valued using 13-14 year (2016: 14-15 year, 2015: 15-16
years), risk adjusted cash flow forecasts, in line with patent
life, that have been approved by the Board. A period longer than 5
years is appropriate on the basis that the investment is long term
and the development and commercialisation process is typically in
excess of 5 years. Beyond the period from product launch and
initial market penetration, a long-term growth rate of 5% was
used.
In 2017 an impairment charge of GBP1.5m was recorded in the MPW
CGU as a result of the impairment of the Opsisporin IPRD, primarily
due to a strategic review concluding that the product is outside of
Midatech's strategic focus and as a result the decision was made
not to continue with the programme at this point. At the same time
the carrying value of a component of IPRD was reduced from GBP1.5m
to nil. The resulting charge was recorded in research and
development expenditure within the consolidated statement of
income.
The key assumptions used in the valuation model examining the
MPW Ltd cash generating unit include the following:
Assumptions 2017 2016 2015
------------------------ ------- ------ ----------
Pre-tax discount rate 17.9% 18.1% 17.7-19.5%
Cumulative probability 46% to 46% to
of success of projects 81% 81% 69%
The discount rate is an estimated market-based weighted average
cost of capital for the MPW business, determined at the date of
acquisition. Cumulative probability of success of projects is the
product of the probability of success of each remaining major phase
of development for each individual IPRD component. These phase
probabilities were determined by management with reference to the
risks associated with each remaining development stage.
Sensitivity analysis
If any one of the following changes were made to the above key
assumptions, applied to all projects, the carrying value and
recoverable amount would be equal.
Assumptions 2017 2016 2015
------------------------ ----------- --------- ---------
Pre-tax discount rate increase increase increase
for all projects to 21.0% to 26.4% to 23.9%
Cumulative probability
of success of projects 57% 53% 44%
Midatech Pharma US, Inc.
Details of goodwill and intangibles allocated to the acquired
cash generating unit and the valuation basis are as follows:
Definite lived Indefinite lived
Product and marketing Goodwill carrying Valuation
rights carrying amount Basis
amount
Name 2017 2016 2015 2017 2016 2015
---------------- -------- -------- -------- -------- -------- -------- ----------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
CGU - Midatech
Pharma US, Value
Inc 1,995 3,557 15,477 11,152 12,197 10,165 in use
The change in the goodwill carrying value as at 31 December 2017
is due to the movement in the Sterling and US Dollar exchange rate
used to translate the underlying US Dollar value of goodwill, 2017:
$1.349, (2016: $1.233).
Following the acquisition of Zuplenz(R) on 24 December 2015, the
Group has considered Zuplenz(R) to be an asset of the MPUS cash
generating unit as from 1 January 2016. The Zuplenz(R) product is
wholly integrated within the MPUS portfolio of products and as such
all related cash flows have been included with the value in use
calculations of the CGU.
An impairment charge of GBP11.4m in relation to product and
marketing rights and a related GBP4.6m deferred tax credit was
recorded in MPUS as at 31 December 2016. This arose as a result of
the underperformance of Oravig in comparison to forecast sales at
the time of the acquisition. The carrying value of the product
rights, was reduced from GBP11.4m to nil. The resulting impairment
charge is shown separately within the consolidated statement of
comprehensive income.
The remaining assets of the MPUS CGU, including Zuplenz(R) ,
were valued as at 31 December 2017 and 31 December 2016 and were
found to support the product and marketing rights and goodwill
carrying amounts set out above. The product and marketing rights
were valued using 10-year cash flow forecasts, that have been
approved by the Board. A period longer than 5 years is appropriate
on the basis that the product patents afford a certain amount of
protection from competitors thereby providing assurance that market
share can be preserved throughout the period of patent life. A
long-term growth rate of 3% was used for all assets except Zuplenz
where 5% was used.
As at 31 December 2015, the assets of the CGU were not
identified as being materially different to the fair values
determined at the acquisition date on 4 December 2015.
The key assumptions used in the model examining the Midatech
Pharma US, Inc. cash generating unit include the following:
Assumptions 2017 2016
---------------------- ------- -----
Pre-tax discount rate 19.7% 24.7%
Overall CGU 10-year
growth rate 26.4% 10.6%
The increase in the overall growth rate reflects the addition of
the Group's development products, Q Octreotide and MTX110 into the
MPUS portfolio once they have been approved and launched.
The discount rate is an estimated market-based weighted average
cost of capital for the MPUS business, determined at the date of
acquisition. The overall CGU 10-year growth rate is a composite of
individual product forecasts, each with particular forecast growth
rates over the next 5-years followed by a further 5-year period
utilising a 3% long-term growth rate, or 5% for Zuplenz.
Sensitivity analysis
If any one of the following changes were made to the above key
assumptions, applied to all projects, the carrying value and
recoverable amount would be equal.
Assumptions 2017 2016
---------------------- ----------- ---------
Pre-tax discount rate increase increase
to 53.7% to 25.2%
Overall CGU 10-year
growth rate 5.0% 10.5%
The sensitivity analysis assumes that Q Octreotide and MTX110
are not added into the MPUS portfolio and the resulting 2017 growth
rate of 5%, required for the carrying value and recoverable amount
to be equal, is derived exclusively from the current product
portfolio.
The value in use calculations used to value the acquired
intangibles and appraise the remaining carrying value of the
intangibles at 31 December 2015 were materially the same. This is
because of the impairment test date and acquisition date being only
27 days apart. Any increase in the discount rate or decrease in the
probability of success of projects stated above would result in an
impairment.
14 Subsidiaries
The subsidiaries of Midatech Pharma plc, all of which are 100%
owned, either directly or through subsidiaries where indicated, and
have been included in these financial statements in accordance with
the details set out in the basis of preparation and basis of
consolidation note 1, are as follows:
Registered Nature
of
Name Office Business Notes
Midatech Limited 65 Innovation Drive, Trading
Milton Park, Milton, company
Abingdon, Oxfordshire,
OX14 4RQ
Midatech Pharma Parque Tecnológico Trading (a)
(Espana) SL de Vizcaya, Edificio company
800 Planta 2, Derio,
48160, Vizcaya, Spain
PharMida AG c/o Kellerhals, Hirschgässlein Dormant (a)
11, 4051 Basel, Switzerland (b)
Midatech Pharma Oddfellows House, 19 Trading
(Wales) Limited Newport Road, Cardiff, company
CF24 0AA
Midatech Pharma 8601 Six Forks Road, Trading (c)
US, Inc. Suite 160, Raleigh, company
North Carolina 27615,
USA
Dara Therapeutics, 8601 Six Forks Road, Dormant (d)
Inc. Suite 160, Raleigh,
North Carolina 27615,
USA
Midatech Pharma c/o Griffith Hack Consulting, Trading (e)
PTY 300 Queen Street, Brisbane, company
QLD 4000, Australia
Notes:
(a) Wholly owned subsidiary of Midatech Limited
(b) PharMida AG became dormant in January 2016.
(c) DARA Bio Sciences, Inc. was acquired on 4 December 2015
through a merger with a specially incorporated subsidiary of
Midatech Pharma plc. This merger subsidiary was renamed Midatech
Pharma US, Inc. on 4 December 2015.
(d) Wholly owned subsidiary of Midatech Pharma US, Inc.
(e) Midatech Pharma PTY was incorporated on 16 February 2015.
15 Joint arrangements
Country of
Name incorporation Nature of business Type of arrangement
Syntara USA Dormant Joint venture
LLC
MidaSol Cayman Islands Research and development Joint operation
Therapeutics partner
GP
The Group has a 50% (2016: 50%; 2015: 50%) interest in two joint
arrangements: Syntara LLC and MidaSol Therapeutics. The primary
activity of these joint arrangements was to provide the partners
with collaborative research and development on drug delivery
systems in the market, which is in line with the Group's strategy
to develop a safe and effective drug delivery system.
Syntara LLC is a dormant joint venture where the Group has joint
control over the separate legal entity. The Group equity accounts
for its interests in this arrangement; the results are immaterial
to the financial statements.
MidaSol Therapeutics is a separate legal entity however no costs
or revenues pass through it. The Group and its collaborative
partner incur costs in respect of research and development and
periodically agree on a contribution from either side to ensure
that both parties have incurred 50% of the total costs.
Contributions from their research partner are netted against the
costs to which they relate within research and development and the
arrangement is accounted for as a joint operation. MidaSol
operations effectively ceased during 2015.
2017 2016 2015
GBP'000 GBP'000 GBP'000
Research and development
spend on MidaSol Therapeutics - - 776
Year-end receivable due
from joint operation partner - - 219
16 Trade and other receivables
2017 2016 2015
GBP'000 GBP'000 GBP'000
Trade receivables 2,232 1,428 985
Prepayments 627 586 685
Other receivables 848 873 1,213
_______ _______ _______
Total trade and other receivables 3,707 2,887 2,883
Less: non-current portion
(rental deposit and on bond) (465) (448) (387)
_______ _______ _______
Current portion 3,242 2,439 2,496
_______ _______ _______
Trade and other receivables do not contain any impaired assets.
The Group does not hold any collateral as security and the maximum
exposure to credit risk at the Consolidated Statement of Financial
Position date is the fair value of each class of receivable.
Book values approximate to fair value at 31 December 2017, 2016
and 2015.
17 Cash and cash equivalents and cash
flow supporting notes
Cash and cash equivalents for purposes of the consolidated
statement of cash flows comprises:
2017 2016 2015
GBP'000 GBP'000 GBP'000
Cash at bank available on
demand 13,204 17,608 16,175
_______ _______ _______
There were no significant non-cash transactions during the
year.
During the year, cash inflows arose from an equity financing
transaction, included within financing activities on the face of
the cash flow statement.
2017 2016 2015
GBP'000 GBP'000 GBP'000
Funds raised on Public Offering 6,157 16,673 -
Costs of raising funds on
Public Offering (429) (1,105) -
_______ _______ _______
5,728 15,568 -
_______ _______ _______
The following changes in liabilities arose as a result of
financing activities during the year:
Non-current Current Total
liabilities, liabilities,
borrowings borrowings
GBP'000 GBP'000 GBP'000
At 1 January 2017 - 23 23
Cash Flows 5,249 (12) 5,237
Foreign Exchange (42) - (42)
_______ _______ _______
At 31 December 2017 5,207 11 5,218
_______ _______ _______
18 Inventories
2017 2016 2015
GBP'000 GBP'000 GBP'000
Work in progress - - 230
Finished goods 941 817 229
_______ _______ _______
Total inventories 941 817 459
_______ _______ _______
A reserve is maintained against inventory that is not expected
to be sold before its sell by date. The resulting charge to the
comprehensive statement of income for the year was GBP151k (2016:
GBP287k, 2015: Nil).
19 Trade and other payables
2017 2016 2015
Current GBP'000 GBP'000 GBP'000
Trade payables 2,271 3,268 2,285
Other payables 1,141 1,166 35
Accruals 3,090 2,003 3,101
_______ _______ ________
Total financial liabilities,
excluding loans and borrowings,
classified as financial
liabilities measured at
amortised cost 6,502 6,437 5,421
Tax and social security 359 670 183
Deferred revenue 1,141 1,300 1,480
_______ _______ _______
Total trade and other payables 8,002 8,407 7,084
_______ _______ _______
Book values approximate to fair value at 31 December 2017, 2016
and 2015.
All current trade and other payables are payable within 3 months
of the period end date shown above.
Government grants
The Group received development grant funding from the European
Union under the Horizon 2020 "Nanofacturing" project, a European
Union funded programme to develop a scalable manufacturing platform
for the production of nanopharmaceutical products. Midatech is
participating in this programme, along with seven other entities,
through two Group companies, Midatech Pharma España ("MPE"), which
is acting as project coordinator, and Midatech Limited ("MTL"). The
project commenced in February 2015 and is scheduled to complete in
January 2019. GBP840k (2016: GBP547k) of revenue has been
recognised during the year in relation to this project and GBP1.11m
(2016: GBP1.24m) of the deferred revenue balance relates to funds
received but not yet recognised.
Government grants/loans in Spain
Five tranches of government loans have been received by Midatech
Pharma Espana SL (formerly Midatech Biogune SL) for the finance of
research, technical innovation and the construction of their
laboratory. The loans are term loans which carry an interest rate
below the market rate, and are repayable over periods through to
2022. The loans carry default interest rates in the event of
scheduled repayments not being met. On initial recognition, the
loans are discounted at a market rate of interest with the credit
being classified as a grant within deferred revenue. The deferred
grant revenue is released to the consolidated statement of
comprehensive income within research and development costs in the
period to which the expenditure is recognised.
The debt element of the government loans is designated within
note 20 as borrowings, the gross contractual repayment of the loans
is disclosed in note 22.
20 Borrowings
2017 2016 2015
GBP'000 GBP'000 GBP'000
Current
Bank loans 11 23 9
Finance lease 39 31 70
Government and research
loans 311 484 363
______ ______ ______
Total 361 538 442
_______ _______ _______
Non-current
Bank loans 5,207 - 20
Finance lease 29 52 68
Government and research
loans 949 1,568 1,420
______ ______ ______
Total 6,185 1,620 1,508
_______ _______ _______
Book values approximate to fair value at 31 December 2017, 2016
and 2015.
Obligations under finance leases are secured by a fixed charge
over the fixed assets to which they relate.
The Group had $8m of undrawn committed borrowing facilities at
year end.
Midcap Loan Facility
In December 2017, Midatech Pharma entered into a secured loan
agreement with Midcap Financial Trust (MidCap). The total facility
is for $15m to be drawn down in three separate tranches. Interest
is charged on the outstanding balance of the loan at an annual rate
of LIBOR plus 7.5% subject to a LIBOR floor of 1.25%. MidCap was
granted 247,881 warrants to purchase shares which was equal to 2%
of the amount funded divided by the Exercise Price of GBP0.42. The
Exercise Price was calculated as the average closing price for the
30-day period prior to the date of grant. The loan is secured
against the assets of the group.
The first tranche of $7m was drawn down on 28 December 2017 and
is disclosed under bank loans.
21 Derivative financial liability - current
2017 2016 2015
GBP'000 GBP'000 GBP'000
Equity settled derivative
financial liability - 400 1,573
_______ _______ _______
At 1 January/on acquisition
- 5 December 2015 400 1,573 3,211
Gain recognised in finance
income within the consolidated
statement of comprehensive
income (400) (1,173) (1,638)
_______ _______ ______
At 31 December - 400 1,573
_______ _______ _______
Equity settled derivative financial liability is a liability
that is not to be settled for cash. The Group assumed fully vested
warrants and share options on the acquisition of DARA Biosciences,
Inc. The number of ordinary shares to be issued when exercised is
fixed, however the exercise prices are denominated in US Dollars
being different to the functional currency of the parent company.
Therefore, the warrants and share options are classified as equity
settled derivative financial liabilities through the profit and
loss account. The financial liabilities were valued using the
Black-Scholes option pricing model. Financial liabilities at FVTPL
are stated at fair value, with any gains or losses arising on
re-measurement recognised in profit or loss. The net gain or loss
recognised in profit or loss incorporated any interest paid on the
financial liability and is included in the 'other gains and losses'
line item in the income statement. Fair value is determined in the
manner described in note 22. A key input in the valuation of the
instrument is the Company share price. The share price of the
Company reduced from GBP2.65 at the date of acquisition of DARA
Biosciences, Inc. to GBP1.74 at 31 December 2015, resulting in a
gain of GBP1.64m on re-measurement, which was credited to finance
income in 2015.
At 31 December 2016, some 398,315 options and 16,664 warrants
had lapsed, as described in note 11. In addition, the share price
had fallen to GBP1.18, which resulted in a gain of GBP1.17m on
re-measurement, which was credited to finance income in 2016.
At 31 December 2017 a further 166,058 options and 489,318
warrants had lapsed and the share price had fallen to GBP0.36 which
results in a gain of GBP0.40m on re-measurement which was credited
to finance income during 2017.
22 Financial instruments - risk management
The Group is exposed through its operations to the following
financial risks:
-- Credit risk
-- Foreign exchange risk
-- Liquidity risk
In common with all other businesses, the Group is exposed to
risks that arise from its use of financial instruments. This note
describes the Group's objectives, policies and processes for
managing those risks and the methods used to measure them. The
Board does not believe that its risk exposure to financial
instruments, its objectives, policies and processes for managing
those risks or the methods used to measure them from previous
periods unless otherwise stated in this note has changed in the
past year.
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are as follows:
-- Trade and other receivables
-- Cash and cash equivalents
-- Trade and other payables
-- Accruals
-- Loans and borrowings
-- Derivative financial liability
A summary of the financial instruments held by category is
provided below:
Financial assets - loans and receivables
2017 2016 2015
GBP'000 GBP'000 GBP'000
Cash and cash equivalents 13,204 17,608 16,175
Trade receivables 2,232 1,428 985
Other receivables 848 873 1,213
_______ _______ _______
Total financial
assets 16,284 19,909 18,373
_______ _______ _______
Financial liabilities - amortised cost
2017 2016 2015
GBP'000 GBP'000 GBP'000
Trade payables 2,271 3,268 2,285
Other payables 1,141 1,166 35
Accruals 3,090 2,003 3,101
Borrowings 6,546 2,158 1,950
_______ _______ ______
Total financial liabilities
- amortised cost 13,048 8,595 7,371
_______ _______ _______
Financial liabilities - fair value through profit and loss -
current
2017 2016 2015
GBP'000 GBP'000 GBP'000
- 400 1,573
_______ _______ _______
Equity settled derivative financial liability
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies and, whilst
retaining ultimate responsibility for them, it has delegated the
authority for designing and operating processes that ensure the
effective implementation of the objectives and policies to the
Group's Management.
The overall objective of the Board is to set policies that seek
to reduce risk as far as possible without unduly affecting the
Group's competitiveness and flexibility. Further details regarding
these policies are set out below:
Fair value hierarchy
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs that have a significant
effect on the recorded fair value that are not based on observable
market data.
The fair value of the Group's derivative financial liability is
measured at fair value on a recurring basis.
The following table gives information about how the fair value
of this financial liability is determined, additional disclosure is
given in note 11:
1)
1)
Financial Fair Fair Valuation Significant Relationship
liabilities value value technique unobservable of unobservable
as at hierarchy (s) and input(s) inputs to
31/12/2017 key input(s) fair value
Equity - Level Black Volatility rate The higher
settled 3 Scholes of 42.5%determined the volatility
financial option using historical the higher
derivative pricing volatility of the fair
liability model comparable companies. value.
Expected life The shorter
between a range the expected
of 0.1 and 8.6 life the
years determined lower the
using the remaining fair value.
life of the
share options.
Risk-free rate The higher
between a range the risk-free
of 0.0% and rate the
1.14% determined higher the
using the expected fair value.
life assumptions.
Given that the fair value of the equity settled financial
derivative liability is nil, it is not sensitive to changes in
volatility or expected life. In 2016, if the above unobservable
volatility input to the valuation model had been 10% higher while
all other variables were held constant, the carrying amount of
shares would have increased by GBP94k. If the above unobservable
expected life input to the valuation model had been 1 year shorter
while all other variables were held constant, the carrying amount
of shares would have decreased by GBP133k.
Changing the unobservable risk free rate input to the valuation
model by 10% higher while all other variables were held constant,
would not impact the carrying amount of shares (2016: increase by
GBP2k).
There were no transfers between Level 1 and 2 in the period.
The financial liability measured at fair value on Level 3 fair
value measurement represents consideration relating to a business
combination.
Credit risk
Credit risk is the risk of financial loss to the Group if a
development partner or a counterparty to a financial instrument
fails to meet its contractual obligations. The Group is mainly
exposed to credit risk from amounts due from collaborative partners
which is deemed to be low.
Credit risk also arises from cash and cash equivalents and
deposits with banks and financial institutions. For banks and
financial institutions, only independently rated parties with high
credit status are accepted.
The Group does not enter into derivatives to manage credit
risk.
Quantitative disclosures of the credit risk exposure in relation
to financial assets are set out in note 16. This includes details
regarding trade and other receivables, which are neither past due
nor impaired.
The total exposure to credit risk of the Group is equal to the
total value of the financial assets held at each year end as noted
above.
Cash in bank
The Group is continually reviewing the credit risk associated
with holding money on deposit in banks and seeks to mitigate this
risk by holding deposits with banks with high credit status.
Foreign exchange risk
Foreign exchange risk arises because the Group has a material
operation located in Bilbao, Spain, and operations in the US whose
functional currencies are not the same as the functional currency
of the Group. The Group's net assets arising from such overseas
operations are exposed to currency risk resulting in gains or
losses on retranslation into sterling. Given the levels of
materiality, the Group does not hedge its net investments in
overseas operations as the cost of doing so is disproportionate to
the exposure.
Foreign exchange risk also arises when individual Group entities
enter into transactions denominated in a currency other than their
functional currency; the Group's transactions outside the UK to the
US, Europe and Australia drive foreign exchange movements where
suppliers invoice in currency other than sterling. These
transactions are not hedged because the cost of doing so is
disproportionate to the risk.
The table below shows analysis of the Pounds Sterling equivalent
of year-end cash and cash equivalent balances by currency:
2017 2016 2015
GBP'000 GBP'000 GBP'000
Cash and cash equivalents:
Pounds Sterling 6,116 10,229 14,494
US Dollar 5,362 2,186 819
Euro 1,632 5,143 862
Other 94 50 -
_______ _______ _______
Total 13,204 17,608 16,175
_______ _______ _______
The table below shows the foreign currency exposure that give
rise to net currency gains and losses recognised in the
consolidated statement of comprehensive income. Such exposures
comprise the net monetary assets and monetary liabilities of the
Group that are not denominated in the functional currency of the
relevant Group entity. As at 31 December 2017, these exposures were
as follows:
2017 2016 2015
GBP'000 GBP'000 GBP'000
Net Foreign Currency Assets/(Liabilities):
US Dollar 4,459 (206) (1,691)
Euro (362) 2,655 77
Other 95 58 (8)
_______ _______ _______
Total 4,192 2,507 (1,622)
_______ _______ _______
Foreign currency sensitivity analysis
The most significant currencies in which the Group transacts,
other than Pounds Sterling, are the US Dollar and the Euro. The
Group also trades in other currencies in small amounts as
necessary.
The following table details the Group's sensitivity to a 10%
change in year-end exchange rates, which the Group feels is the
maximum likely change in rate based upon recent currency movements,
in the key foreign currency exchange rates against Pounds
Sterling:
Year ended 31 December 2017 US Dollar Euro Other
GBP'000 GBP'000 GBP'000
Loss before tax 307 (89) -
Total equity 307 (89) -
Year ended 31 December 2016 US Dollar Euro Other
GBP'000 GBP'000 GBP'000
Loss before tax 521 (73) (55)
Total equity 521 (73) (55)
In the year ended 31 December 2015, this foreign currency
exposure risk was not considered material. In management's opinion,
the sensitivity analysis is unrepresentative of the inherent
foreign exchange risk as the year-end exposure does not reflect the
exposure during the year.
Liquidity risk
Liquidity risk arises from the Group's management of working
capital. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due. It is the
Group's aim to settle balances as they become due.
In Q4 2017, as disclosed in Note 20, Midatech entered into a
secured loan agreement with MidCap to reduce its short to medium
term funding risk. This loan is secured against all assets of the
Group.
The Group's current financial position is such that the Board
does not consider there to be a short-term liquidity risk however
the Board will continue to monitor long term cash projections in
light of the development plan and will consider raising funds as
required to fund long term development projects. Development
expenditure can be curtailed as necessary to preserve
liquidity.
The following table sets out the contractual maturities
(representing undiscounted contractual cash-flows) of financial
liabilities:
Between Between Between
3 and 1 and 2 and
Up to 3 12 2 5 Over
2017 months months years years 5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other 6,502 - - - -
payables
Bank loans 120 359 2,201 3,926 -
Finance leases 16 25 30 - -
Government research
loans 43 268 467 545 47
______ ______ ______ ______ ______
Total 6,681 649 2,698 4,471 47
______ ______ ______ ______ ______
Between Between Between
3 and 1 and 2 and
Up to 3 12 2 5 Over
2016 months months years years 5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other 6,437 - - - -
payables
Bank loans 3 8 11 4 -
Finance leases 7 26 30 33 -
Government research
loans - 449 269 761 393
______ ______ ______ ______ ______
Total 6,447 483 310 798 393
______ ______ ______ ______ ______
Between Between Between
3 and 1 and 2 and
Up to 3 12 2 5 Over
2015 months months years years 5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other 5,421 - - - -
payables
Bank loans 2 7 9 13 -
Finance leases 7 71 27 56 -
Government research
loans 36 352 195 644 755
______ ______ ______ ______ ______
Total 5,466 430 231 713 755
______ ______ ______ ______ ______
More details with regard to the line items above are included in
the respective notes:
-- Trade and other payables - note 19
-- Loans and borrowings - note 20
Capital risk management
The Group monitors capital which comprises all components of
equity (i.e. share capital, share premium, foreign exchange reserve
and accumulated deficit).
The Group's objectives when maintaining capital are:
-- to safeguard the entity's ability to continue as a going concern; and
-- to have sufficient resource to take development projects forward towards commercialisation.
The Group continues to incur substantial operating expenses.
Until the Group generates positive net cash inflows from the
commercialisation of its products it remains dependent upon
additional funding through the injection of equity capital and
government funding. The Group may not be able to generate positive
net cash inflows in the future or to attract such additional
required funding at all, or on suitable terms. In such
circumstances the development programmes may be delayed or
cancelled and business operations cut back.
The Group seeks to reduce this risk by keeping a tight control
on expenditure, avoiding long-term supplier contracts (other than
clinical trials), prioritising development spend on products
closest to potential revenue generation, obtaining government
grants (where applicable), maintaining a focused portfolio of
products under development and keeping shareholders informed of
progress.
There have been no changes to the Group's objectives, policies
and processes for managing capital and what the Group manages as
capital, unless otherwise stated in this note, since the past
year.
23 Deferred tax
Deferred tax is calculated in full on temporary differences
under the liability method using tax rates applicable in the tax
jurisdictions where the tax asset or liability would arise.
The movement on the deferred tax account is as shown below:
2017 2016 2015
GBP'000 GBP'000 GBP'000
Liability at 1 January - 6,547 354
Arising on business combination - - 6,191
Credited to income on impairment - (5,509) -
and amortisation of intangibles
Credited to income statement - (1,740) (131)
Foreign exchange gain - 702 133
_______ _______ _______
Liability at 31 December - - 6,547
_______ _______ _______
The movement on the deferred tax account in 2017 is Nil as the
net credit arising on the amortisation of intangible assets and
other timing differences has been matched by a reduction in the
deferred tax asset recognised on the losses offsetting the
liability remaining.
A deferred tax liability has arisen due to deferred tax on
intangible assets acquired in 2015.
An intangible asset was impaired in the financial statements for
the year ended 31 December 2016 by GBP11.4m which resulted in a
GBP4.6m tax credit being recognised in the income statement.
Unused tax losses carried forward, subject to agreement with
local tax authorities, were as follows:
Gross Unrecognised
losses deferred
tax asset
GBP'000 GBP'000
31 December 2015 23,286 4,191
31 December 2016 26,956 5,049
31 December 2017 38,377 6,639
With the exception of the GBP2.6m (2016: GBP3.7m: 2015: GBP1.6m)
deferred tax asset which qualifies for offset against the deferred
tax liabilities arising on the acquisitions of Midatech Pharma
(Wales) Limited and Midatech Pharma US, the remaining potential
deferred tax asset of GBP9.5m (2016: GBP8.1m) has not been provided
in these accounts due to uncertainty as to the whether the asset
would be recovered.
Details of the deferred tax liability are as follows:
2017 Asset Liability Net
GBP'000 GBP'000 GBP'000
Business Combinations 2,599 (2,599) -
_______ _______ _______
2016 Asset Liability Net
GBP'000 GBP'000 GBP'000
Business Combinations 3,668 (3,668) -
_______ _______ _______
2015 Asset Liability Net
GBP'000 GBP'000 GBP'000
Business Combinations 1,625 (8,172) (6,547)
_______ _______ _______
24 Share capital
2017 2017 2016 2016 2015 2015
Authorised, allotted and Number GBP Number GBP Number GBP
fully paid - classified as
equity
At 1 January
Ordinary shares of GBP0.00005
each 61,084,135 3,054 48,699,456 2,435 33,467,504 1,673
Deferred shares of GBP1 each 1,000,001 1,000,001 1,000,001 1,000,001 1,000,001 1,000,001
__________ __________ __________
Total 1,003,055 1,002,436 1,001,674
__________ __________ __________
In accordance with the Articles of Association for the Company
adopted on 13 November 2014, the share capital of the Company
consists of an unlimited number of ordinary shares of nominal value
0.005 pence each. Ordinary and Deferred shares were recorded as
equity.
Rights attaching to the shares following the incorporation of
Midatech Pharma plc
Shares classified as equity
The holders of ordinary shares in the capital of the Company
have the following rights:
(a) to receive notice of, to attend and to vote at all general
meetings of the Company, in which case shareholders shall have one
vote for each share of which he is the holder.
(b) to receive such dividend as is declared by the Board on each
share held.
The holders of Deferred Shares in the capital of the
Company:
(a) shall not be entitled to receive notice of or to attend or
speak at any general meeting of the Company or to vote on any
resolution to be proposed at any general meeting of the
Company;
(b) shall not be entitled to receive any dividend or other
distribution of out of the profits of the Company.
In the event of a distribution of assets, the Deferred
shareholders shall receive the nominal amount paid up on such share
after the holder of each ordinary share shall have received (in
cash or specie) the amount paid up or credited as paid up on such
ordinary share together with an additional payment of GBP100 per
share. The Company has the authority to purchase the Deferred
Shares and may require the holder of the Deferred Shares to sell
them for a price not exceeding 1p for all the Deferred Shares.
Ordinary Deferred Share Total
Shares Shares Price consideration
Number Number GBP GBP'000
2015
As at 1 January
2015 27,794,258 1,000,001 32,000
Exercise of employee share
24 April 2015 options 16,500 - 0.00005 -
25 September Exercise of employee share
2015 options 10,000 - 0.00005 -
4 December Share issue on acquisition
2015 of DARA BioSciences, Inc. 5,422,028 - 2.63 14,240
23 December Deferred consideration re:
2015 acquisition of Q Chip Limited 224,718 - 2.67 600
_________ _________ _________
As at 31 December
2015 33,467,504 1,000,001 46,840
_________ _________ _________
2016
Deferred consideration re:
1 July 2016 acquisition of Q Chip Limited 74,908 - 2.67 200
31 October Placing and Open Offer (costs
2016 shown in note 17) 15,157,044 - 1.10 16,673
_________ _________ _________
As at 31 December
2016 48,699,456 1,000,001 63,713
_________ _________ _________
2017
Share issue to SIPP trustee
19 May 2017 (see note 28) 20,000 - 0.00005 1
16 October Placing and Open Offer (shown
2017 in note 17) 12,314,679 - 0.5 6,157
7 November Share issue to SIPP trustee
2017 (see note 28) 50,000 - 0.00005 3
_________ _________ _________
As at 31 December
2017 61,084,135 1,000,001 69,874
_________ _________ _________
25 Reserves
The following describes the nature and purpose of each reserve
within equity:
Reserve Description and purpose
Share premium Amount subscribed for share
capital in excess of nominal
value.
Merger reserve Represents the difference between
the fair value and nominal value
of shares issued on the acquisition
of subsidiary companies where
the Company has elected to take
advantage of merger relief.
Shares to be issued Shares for which consideration
has been received but which
are not yet issued and which
form part of consideration in
a business combination.
Foreign exchange Gains/losses arising on retranslating
reserve the net assets of overseas operations
into sterling.
Accumulated deficit All other net gains and losses
and transactions with owners
(e.g. dividends) not recognised
elsewhere.
26 Leases
The Group had commitments under non-cancellable operating leases
as set out below:
Land and
buildings Other
2017 GBP'000 GBP'000
Expiring In one year or less 449 8
Expiring Between one and five years 359 32
________ ________
808 40
________ ________
2016 GBP'000 GBP'000
Expiring In one year or less 371 7
Expiring Between one and five years 449 28
________ ________
820 35
________ ________
Land and
buildings Other
2015 GBP'000 GBP'000
Expiring In one year or less 313 1
Expiring Between one and five years 410 2
________ ________
723 3
________ ________
27 Retirement benefits
The Group operates a defined contribution pension scheme for the
benefit of its employees. The assets of the scheme are administered
by trustees in funds independent from those of the Group.
28 Share-based Payments
Share Options
The Group has issued options over ordinary shares under the 2014
Midatech Pharma plc Enterprise Management Incentive Scheme, the
Midatech Pharma plc 2016 U.S. Option Plan, which is a sub-plan of
the approved UK plan, and unapproved share options awarded to
non-UK or non-US staff. In addition, certain share options
originally issued over shares in Midatech Ltd under the Midatech
Limited 2008 unapproved share option scheme or Midatech Limited
2013 approved Enterprise Incentive scheme were reissued in 2015
over shares in Midatech Pharma plc under the 2014 Midatech Pharma
plc Enterprise Management Incentive Scheme. Exercise of an option
is subject to continued employment.
Details of all share options granted under the Schemes are set
out below:
Date of grant At 1 January Granted Exercised Forfeited At 31 Exercise
2017 in 2017 in 2017 in 2017 December Price
2017
31 December
2008 26,122 - - - 26,122 GBP1.425
31 December
2008 3,000 - - - 3,000 GBP3.985
1 April 2010 25,110 - - - 25,110 GBP4.00
20 August 2010 41,766 - - 41,766 GBP4.19
13 September
2011 3,000 - - - 3,000 GBP4.19
20 April 2012 35,796 - - - 35,796 GBP4.19
9 May 2014 200,000 - - - 200,000 GBP0.075
30 June 2014 880,000 - - - 880,000 GBP0.075
11 July 2014 3,000 - - 1,000 2,000 GBP0.075
31 October
2016 50,000 - - - 50,000 GBP1.710
31 October
2016 607,600 - - - 607,600 GBP2.680
14 December
2016 8,000 - - - 8,000 GBP1.550
14 December
2016 10,000 - - - 10,000 GBP1.700
14 December
2016 3,000 - - 3,000 - GBP1.710
14 December
2016 3,000 - - 3,000 - GBP1.730
14 December
2016 3,000 - - 3,000 - GBP1.740
14 December
2016 40,000 - - - 40,000 GBP1.870
14 December
2016 40,000 - - - 40,000 GBP1.880
15 December
2016 197,000 - - 95,000 102,000 GBP1.210
19 December
2016 1,110,000 - - 5,750 1,104,250 GBP1.210
15 December
2017 - 1,351,250 - - 1,351,250 GBP0.46
_______ _______ _______ _______ _______
3,289,394 1,351,250 - (110,750) 4,529,894
_______ _______ _______ _______ _______
Options exercisable at 31 December
2017 1,000,469
Weighted average exercise price GBP1.003
of outstanding options at 31
December 2017
Weighted average exercise price n/a
of options exercised in 2017
Weighted average exercise price GBP1.242
of options forfeited in 2017
Weighted average exercise price GBP0.46
of options granted in 2017
Weighted average remaining 8.3 years
contractual life of outstanding
options at 31 December 2017
28 Share-based payment (continued)
Date of grant At 1 January Granted Exercised Forfeited At 31 Exercise
2016 in 2016 in 2016 in 2016 December Price
2016
31 December
2008 26,122 - - - 26,122 GBP1.425
31 December
2008 15,500 - - (12,500) 3,000 GBP3.985
1 April 2010 25,110 - - - 25,110 GBP4.00
20 August 2010 41,766 - - 41,766 GBP4.19
13 September
2011 3,000 - - - 3,000 GBP4.19
20 April 2012 35,796 - - - 35,796 GBP4.19
9 May 2014 200,000 - - - 200,000 GBP0.075
30 June 2014 880,000 - - - 880,000 GBP0.075
11 July 2014 5,000 - - (2,000) 3,000 GBP0.075
31 October
2016 - 50,000 - - 50,000 GBP1.710
31 October
2016 - 607,600 - - 607,600 GBP2.680
14 December
2016 - 8,000 - - 8,000 GBP1.550
14 December
2016 - 10,000 - - 10,000 GBP1.700
14 December
2016 - 3,000 - - 3,000 GBP1.710
14 December
2016 - 3,000 - - 3,000 GBP1.730
14 December
2016 - 3,000 - - 3,000 GBP1.740
14 December
2016 - 40,000 - - 40,000 GBP1.870
14 December
2016 - 40,000 - - 40,000 GBP1.880
15 December
2016 - 197,000 - - 197,000 GBP1.210
19 December
2016 1,110,000 - - 1,110,000 GBP1.210
_______ _______ _______ _______ _______
1,232,294 2,071,600 - (14,500) 3,289,394
_______ _______ _______ _______ _______
Options exercisable at 31 December 2016 468,194
Weighted average exercise price of outstanding GBP1.234
options at 31 December 2016
Weighted average exercise price of options n/a
exercised in 2016
Weighted average exercise price of options GBP3.446
forfeited in 2016
Weighted average exercise price of options GBP1.685
granted in 2016
Weighted average remaining contractual 8.6 years
life of outstanding options at 31 December
2016
Date of At 1 January Granted Exercised Forfeited At Exercise
grant 2015 in 2015 in 2015 in 2015 31 Price
December
2015
31 December
2008 26,122 - - - 26,122 GBP1.425
31 December
2008 15,500 - - - 15,500 GBP3.985
1 April
2010 25,110 - - - 25,110 GBP4.00
20 August
2010 59,666 - - (17,900) 41,766 GBP4.19
13 September
2011 3,000 - - - 3,000 GBP4.19
20 April
2012 35,796 - - - 35,796 GBP4.19
3 April
2014 26,500 - (26,500) - - GBP0.075
9 May 2014 200,000 - - - 200,000 GBP0.075
30 June
2014 880,000 - - - 880,000 GBP0.075
11 July
2014 11,000 - - (6,000) 5,000 GBP0.075
_______ _______ _______ _______ _______
1,282,694 - (26,500) (23,900) 1,232,294
_______ _______ _______ _______ _______
Options exercisable at 31
December 2015 366,044
Weighted average exercise GBP0.502
price of outstanding options
at 31 December 2015
Weighted average exercise GBP0.075
price of options exercised
in 2015
Weighted average exercise GBP4.193
price of options forfeited
in 2015
Weighted average exercise n/a
price of options granted
in 2015
Weighted average remaining contractual 7.8
life of outstanding options years
at 31 December 2015
All of the 1,351,250 options granted during 2017, contain the
following conditions:
-- 25% (i.e. 337,812 options) become eligible to vest on the
first anniversary of the relevant date of grant; and
-- A further 6.25% (i.e. 84,453 options) vest every 3 months
following the first anniversary of the date of grant such that by
the fourth anniversary all 1,351,250 options shall have be eligible
for vesting.
-- All vesting is subject to the 20-VWAP share price reaching
GBP1 at any time during the life of the option.
Of the 2,071,600 options granted during 2016, 1,981,600 options
contain the following conditions:
-- 25% (i.e. 495,400 options) vest on the first anniversary of
the relevant date of grant; and
-- A further 6.25% (i.e. 123,850 options) vest every 3 months
following the first anniversary of the date of grant such that by
the fourth anniversary all 1,981,600 options shall have vested.
-- 607,600 of these options related to 2015 but the acquisition
of DARA BioSciences and other activities during that year meant
that there was insufficient time during Open periods to make the
awards until 2016. However, the effective date of grant and hence
basis for vesting was in 2015. As a result, 151,900 of these
options had vested by 31 December 2016.
The remaining 90,000 options granted during 2016 contained the
following conditions:
-- Vesting was conditional on the same time-based vesting
criteria noted above and also on the Midatech Pharma US, Inc.
business achieving a revenue target for the year ended 31 December
2017. This target was not met and the options have therefore
lapsed.
Otherwise the main vesting condition of all share options is
that the Director or employee remain employed with the Group as at
the date of exercise or continues to provide consultancy services
as at the date of exercise.
The following information is relevant in the determination of
the fair value of options granted during the year 2017 under the
equity share based remuneration schemes operated by the Group.
2017
Number of options 1,351,250
Option pricing models
used Monte-Carlo
Share price GBP0.41*
Exercise price of
options issued in
year GBP0.46
Contractual life 10 years
Expected life 5 years
Volatility 42.5%**
Expected dividend
yield 0%
Risk free rate 0.73%
* The share price used in the determination of the fair value of
the options granted in 2017 was the share price on the date of
grant.
** Volatility was calculated with reference to the historic
share price volatility of comparable companies measured over a
five-year period.
The following information is relevant in the determination of
the fair value of options granted during the year 2016 under the
equity share based remuneration schemes operated by the Group.
2016
Number of options 2,071,600
Option pricing models
used Black Scholes
Share price GBP1.143-GBP1.19*
Exercise price of
options issued in
year GBP1.21-GBP2.68
Contractual life 10 years
Expected life 5 years
Volatility 40%**
Expected dividend
yield 0%
Risk free rate 0.63%-0.74%
* The share price used in the determination of the fair value of
the options granted in 2016 was the average of the opening and
closing share prices on the date of grant.
** Volatility was calculated with reference to the historic
share price volatility of comparable companies measured over a
five-year period.
All other share options relate to the Midatech Limited 2008
unapproved share option scheme.
Share Incentive Plan
In April 2017 the Group set up the Midatech Pharma Share
Incentive Plan (MPSIP). Under the MPSIP, Group employees and
directors can acquire ordinary shares in the Company via a salary
sacrifice arrangement. Midatech grants matching shares for every
share bought. In order to retain these shares, scheme participants
must remain employed by the Group for three years from the date of
acquisition. All shares purchased by the MPSIP are held by an
Employee Benefit Trust that is not under the control of Midatech.
Shares must be left in the plan for 5 years to qualify for full
income tax and NIC relief.
29 Capital commitments
The Group had no capital commitments at 31 December 2017, 31
December 2016 and 31 December 2015.
30 Related party transactions
Details of Directors' remuneration are given on page 27 and in
note 5.
Transactions with Monosol RX, LLC
The Directors considered Monosol RX, LLC ("Monosol") to be a
related party by virtue of the fact that Monosol was a shareholder
of the Company and a collaborative partner in the MidaSol
Therapeutics joint operation.
During the prior period, due to cessation of activities within
the MidaSol joint operation no monies were receivable from Monosol
(2016: nil, 2015: GBP317K) for research services. Amounts
receivable in prior years were credited to research and development
expenditure. The year-end receivable due from Monosol was nil
(2016: nil, 2015: GBP219K). As a result of the cessation of
activities, Monosol ceased to be a related party on 2 May
2016.Monosol is also the licensor of the Company's Zuplenz(R)
product. In this capacity, the Group incurred royalty costs up to
the date at which it ceased to be a related party in 2016 of
GBP187.7k, payable to Monosol (2015: nil). The 2016 year-end
payable to Monosol was GBP48.7k (2015: nil).
Transactions with Preci-Health
The Directors consider Preci-Health SA ("Preci-Health) to be a
related party by virtue of the fact that there is a common director
with the Company.
During the year, GBP44.4k was invoiced to Preci-Health for
research services, and credited to revenue. This was paid by
Preci-Health during the year. There were no transactions with
Preci-Health in earlier periods.
The Group has not made any allowances for bad or doubtful debts
in respect of related party debtors nor has any guarantee been
given or received during 2017, 2016 or 2015 regarding related party
transactions.
31 Contingent liabilities
The Group had no contingent liabilities at 31 December 2017, 31
December 2016 and 31 December 2015.
32 Ultimate controlling party
The Directors do not consider that there is an ultimate
controlling party.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUQGCUPRPPP
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