TIDMMTPH
RNS Number : 4825B
Midatech Pharma PLC
04 April 2017
Midatech will host a conference call and live Q&A session
today (Tuesday 4 April 2017) at 1400 BST / 0900 EDT for analysts
and investors to discuss the Annual Results. Dr Jim Phillips, Chief
Executive Officer, and Nick Robbins-Cherry, Chief Financial
Officer, will participate. Dial-in details are: UK: +44 1452 555
566, US: +1 86 69 66 94 39, ID: 95480046.
The presentation will be available on Midatech's website shortly
before the call, and a recording will be available shortly
afterwards.
4 April 2017
Midatech Pharma PLC
("Midatech", "Company" or "Group")
Audited financial results for the year ended 31 December
2016
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 2016.
Financial highlights
-- Total gross revenues(1) for the year up 510% to GBP9.21m
(2015: 844% to GBP1.51m) (2014: GBP0.16m), in line with
expectations
-- Statutory Revenue(2) for the year up 718% to GBP6.38m (2015:
2,500% to GBP0.78m) (2014: GBP0.03m)
-- GBP17.61m cash and deposits at 31 December 2016 (2015:
GBP16.18m, 2014: GBP30.33m), in line with market forecasts
-- Net loss after tax of GBP20.16m (2015: GBP10.10m, 2014:
GBP8.82m) with net cash inflow in the year of GBP0.97m (2015:
GBP14.17m outflow, 2014: GBP27.94m inflow)
-- Tax credit receivable of GBP1.44m (2015: GBP1.20m, 2014: GBP0.84m)
-- Entered into a senior secured GBP6 million loan agreement
with Silicon Valley Bank in Q1 2017
Operational highlights including post period end highlights
-- Successful integration and strong sales performance from
recently acquired US commercial business
-- Midatech's launch of our anti-nausea product Zuplenz(R) in the US
-- Preparation for final development and commercialisation of Q-Octreotide
-- Product candidate testing for hepatocellular carcinoma (HCC) and glioblastoma (GBM)
-- Dosing commenced in first immunotherapy vaccine Phase I study for type 1 diabetes
-- Further positive progress seen in the Company's OpsiSporin and MTX110/111 (DIPG) programmes
(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) Statutory Revenue represents total gross revenue, excluding
grant revenue and after deductions for product returns, discounts,
rebates and other incentives.
Commenting on the Annual Results for 2016, Midatech's Chairman,
Rolf Stahel, said: "Midatech has made significant progress in 2016
and continued to lay down sound foundations for future growth both
across the commercial side of the business and with the exciting
pipeline of drugs in development.
"Our operations in the US have the potential to deliver
double-digit top-line growth in 2017 and our fully integrated
R&D pipeline with two platform technologies continues to
progress well with several clinical milestones expected in
2017.
"With the funds raised in November we have continued to invest
in the pipeline, manufacturing and commercial platforms, all
supporting the development of the Company towards future
profitability. We look forward to another successful year of growth
in 2017"
- Ends -
For more information, please contact:
Midatech Pharma PLC
Jim Phillips, CEO
Tel: +44 (0)1235 841575
www.midatechpharma.com
Panmure Gordon (UK) Limited (Nominated Adviser and Broker)
Corporate Finance
Freddy Crossley / Duncan Monteith
Broking
Tom Salvesen
Tel: +44 (0)20 7886 2500
Consilium Strategic Communications (Financial PR)
Mary Jane Elliott / Ivar Milligan / Cameron Standage
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 oncology and other therapeutic areas with a US
commercial operation marketing four cancer care supportive
products, and co-promoting two others. Midatech's strategy is to
internally develop oncology products and collaborate with partners
in other therapy areas, and to drive growth both organically and
through strategic acquisitions. The Company's R&D activities
are supported by two breakthrough drug delivery technologies:
Q-Sphera for sustained release and our proprietary gold
nanoparticles. The Group, listed on AIM: MTPH and Nasdaq: MTP,
employs c.110 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, including (without
limitation) those regarding the Group's financial position,
business strategy, products, plans and objectives of management for
future operations, and any statement preceded or followed by, or
including, words such as "target", "believe", "expect", "aim",
"intend", "will", "may", "anticipate", "would" or "could", or
negatives of such words. 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
We have made significant progress in 2016 and laid down sound
foundations for future growth both across the commercial side of
the business and with the exciting pipeline of drugs in
development.
Year in review
Midatech has continued to make good progress in 2016 in research
and development of its niche cancer therapies including some
potentially ground-breaking new therapies for brain cancer and
liver cancer using our GNP-enabled technology platforms and
know-how.
This has also been a year of strong revenue growth, with the
successful launch of Zuplenz(R) , alongside growing traction within
our wider product base, and the reorganisation and optimisation of
our US operation. We have brought in new management talent and new
national accounts positions to allow us greater contact with
hospital consortia, giving formulary access capabilities that did
not exist before.
Total gross revenues for 2016 were GBP9.2m, in line with market
expectations, up 510% from GBP1.51m in 2015 and an increase of 88%
from GBP4.9m for the pro-forma combined Midatech and
pre-acquisition DARA BioSciences, Inc. businesses in 2015.
Statutory Revenue was also up, by 718%, to GBP6.4m from GBP0.8m
in 2015. Loss after tax was up significantly to GBP20.2m from
GBP10.1m in 2015. However, 2016 included a full year of Midatech US
costs and a one-off charge of GBP11.4m in respect of our Oravig
product, discussed below. Cash balance at year end was GBP17.6m, an
increase of GBP1.4m (including exchange gains) on 2015, thanks to
the oversubscribed fundraise completed in Q4 2016, discussed
below.
Strategy and path to profitability
Our primary objective is to grow our innovative product related
revenues and launch our new products for rare cancers so that we
can create value for our shareholders through a profitable and
self-sustaining business with the resultant benefit to patients and
clinicians.
Our strategic priorities are to grow revenues from the products
we already have (which alone have the potential to allow the
business to achieve profitability) and to take our three key
R&D investment programmes efficiently through drug development
and into commercialisation.
As part of this strategy, a significant step was completion of
the latest investment in our Bilbao facility, enabling the
manufacture of our sustained release products on a larger scale.
This means we will be able to manufacture in-house most of our own
products to clinical stage, i.e. human studies, and in some cases
to early commercial scale. Following a recent, successful
inspection by the Spanish Medicines Agency, AEMPS, we await the
issuance of a revised licence that will allow us to manufacture
products based on both of our platform technologies for use in
humans.
Commercialised products
The US business, with the addition of Zuplenz(R) , continued to
perform well after its reorganisation in the first quarter of 2016,
and we met our revenue targets for the year. We continue to look
for ways to increase our access to the US market, such as
co-promotional deals of the type we have recently signed with
R-Pharm, where they will be co-promoting our products into places
that we don't currently have the capacity to call on, potentially
doubling our reach into the US market.
Sales of our Oravig product, acquired as part of the DARA deal,
have been disappointing, particularly in the latter part of the
year. We were therefore required to write down the value of that
asset. However, total sales of our other products, in aggregate,
have outperformed our expectations, compensating for any shortfall
in revenue from Oravig, such that the US business overall is doing
well against expectations. Accounting standards do not permit us to
reassess the book value of these other assets upwards where
performance exceeds expectations.
R&D pipeline
Our EU based R&D operation is very much focussed on our
three, lead research and development programmes, each of which
could transform the business, both in terms of saving lives and in
driving revenue growth and future profitability. Each has the
potential to achieve highly significant revenue that would
transform our financial performance.
Our Q-Octreotide programme for the treatment of acromegaly and
carcinoid syndrome is preparing for a short phase of first in-man
bioequivalence clinical trials in 2017 to take the product to
market. Over the last year, we have completed the formulation of
the product (which is a new version of an existing drug, requiring
less clinic time and is easier to use) and completed pre-clinical
testing. Now, we hope to follow an expedited route to get the
product registered and filed over the next two years, requiring a
small number of clinical trials.
The product would be entering a global market for the chronic
treatment of acromegaly and metastatic carcinoid syndrome, worth an
estimated $2 billion per year. The revised manufacturing licence
for our Spanish facility opens the way for our first in-man study
of Q-Octreotide in 2017.
MTX110 is a treatment for DIPG, a rare childhood brain cancer
for which there is currently no satisfactory treatment. Patients'
average survival time is just 7-9 months. Following unsolicited
requests from treating physicians, the treatment has been made
available on a compassionate use basis. We look forward this year
to taking that programme into pivotal clinical trials which we hope
will lead to successful regulatory filing and approval.
The third key programme is a new treatment for liver cancer.
After having tested a large number of drug and targeting agent
constructs, built around our gold nanoparticle platform, in 2016 we
were able to identify a combination that appears to have a
significant impact on liver cancer cells, while sparing the healthy
tissues in the body. Levels of chemotherapy that, without our
technology can be lethal to animals, have been exceptionally well
tolerated when targeted using our nanoparticle system, while
clearly showing strong anti-tumour activity. We are now taking that
product forward to prepare it for clinical trials by 2018.
We have now exited the legacy insulin programme following the
clinical trial readout in Q2 2016. The negative result has no
impact on our cancer focus, however, and the learnings of the
insulin programme have been applied - our current nanotechnology
formulations are suitable for injection/infusion, but we do intend
to develop alternative, novel forms for oral administration.
Fund raise
In Q4 2016 we concluded the first round of fundraising since the
Group's IPO in 2014, culminating in a significantly oversubscribed
offer which allowed the Company to raise GBP16.7m before costs. The
additional capital will be used to fund the ongoing development of
our R&D pipeline products and growth of the commercial business
with a view to achieving sustainable profitability.
Summary and outlook
Midatech delivered against its business plan in 2016.
We are aware of increased scrutiny on pricing in the US but we
do not expect it to have a significant impact on our product
portfolio. As a business, we are not overly exposed to the
potential implications of the UK leaving the EU. We earn revenues
mainly in US dollars and our expenses are largely in Sterling or
Euros, so the net effect of Brexit-related currency movements has
had a generally positive impact on reported revenue and net assets.
US and other non-EU pharmaceutical businesses operate successfully
in Europe and we expect to continue to do so, however, through our
operation in Bilbao, Spain, we are well established within the
ongoing European Union.
We are well placed to deliver attractive further growth: our
existing products give us the future opportunity to become
profitable (even without further products coming to market), we
have a strong management team and an exciting pipeline with the
capability to increase our revenues substantially over the next
five to ten years as those products come to market.
Thanks to the motivation, talent and hard work of our
colleagues, we are optimistic that the business can continue to
deliver strong revenue growth in preparation for the launch of our
new products, currently in development, as they come to market over
the coming years.
On behalf of the Board, we would like to thank all of Midatech
staff, investors, clinicians and patients for their support in
2016.
Rolf Stahel Dr Jim Phillips
Chairman Chief Executive Officer
Date 4 April 2017
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"). 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").
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.
The Company was admitted to the London Stock Exchange's
Alternative Investment Market ("AIM") on 8 December 2014, raising
GBP32.0m before costs in new capital. 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").
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 substantially oversubscribed 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.
Key performance indicators
2016 2015 Change
Total gross revenues(1) GBP9.21m GBP1.51m +510%
Statutory Revenue GBP6.38m GBP0.78m +718%
US revenue GBP5.60m GBP0.56m +900%
US revenue as % of Statutory
Revenue 88% 72% n/a
R&D costs GBP6.68m GBP5.92m +13%
R&D as % of operating costs(2) 35% 60% n/a
Loss from operations before
intangible asset impairment
charges and acquisition and
listing costs and acquisition
expenses(2) (GBP19.17m) (GBP9.93m) +93%
Net cash inflow/(outflow) (GBP14.17m) n/a
for the year GBP0.97m
Average headcount 84 74 +13%
============ ============ ============
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 Oravig impairment charge of
GBP11.41m (2015: stated before listing and
acquisition expenses of GBP2.99m).
Financial analysis
Midatech's KPIs have historically been focused on the key areas
of cash management, operating results and R&D spend. These
areas continue to be critical to the business, however, Midatech's
US commercial operation is increasingly important and KPIs in this
area are now included. Additional financial and non-financial KPIs,
including further KPIs in respect of the research and development
programmes and commercial operation, will be formalised in due
course.
For the year ended 31 December 2016, Midatech generated
consolidated total gross revenues(1) of GBP9.21m (2015: GBP1.51m),
an increase of 510% on the prior year and in-line with the upper
end of market expectation. Statutory Revenue for the year also
increased, by 718%, to GBP6.38m (2015: GBP0.78m).
As part of the DARA deal, Midatech acquired the sales and
marketing rights to five products, including Oravig(R) , for the
treatment of oral thrush, a common side effect of chemotherapy.
Whilst overall performance of the MPUS business has been good,
sales of Oravig has been disappointing and, as a result, the value
of this element of the acquired intangible assets has become
impaired, resulting in a charge of GBP11.41m to the Income
Statement. It is unfortunate that accounting standards do not
permit an impairment to be offset by any increase in the value of
other intangibles, however, the performance of the other products,
including Zuplenz(R) , has enabled us to support the carrying value
of goodwill in the MPUS business.
Net cash inflows for the year were GBP0.97m (2015: outflow of
GBP14.17m) reflecting the share issue in October 2016 where
GBP15.57m was raised after costs. Stripping out the share issue
proceeds, the adjusted outflow of GBP14.14m 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
GBP0.67m (2015: GBP0.07m) reflecting both a full year of commercial
operations and continued growth in sales.
Research and development expenditure
Research and development costs increased on the previous year to
GBP6.68m (2015: GBP5.92m) reflecting significant, ongoing
investment in Midatech's R&D programmes. Activities in the year
included:
-- Final pre-clinical studies of Midatech's Q-Octreotide
sustained release treatment of acromegaly and carcinoid syndrome.
This project is moving into its first in-man, bio-equivalence study
in 2017.
-- Ongoing development work on MTX110 for the treatment of the
rare children's cancer, DIPG. This programme is moving towards a
pivotal human study, expected during 2017.
-- Investigational New Drug ("IND") enabling studies and final
candidate selection for our liver cancer and glioblastoma (brain
cancer) programmes. Further IND enabling programmes planned for
2017 and first human study in late 2017/early 2018.
-- Final pre-clinical formulation development and toxicological
studies of OpsiSporin sustained release treatment for uveitis in
readiness for clinical development phase.
-- Preparatory work leading to the Phase I study for our first
immunotherapy vaccine for type 1 diabetes.
Distribution costs, sales and marketing
Prior to the acquisition of DARA/MPUS in December 2015, Midatech
did not classify any of its costs as specifically relating to
distribution, sales or marketing. With a full year of commercial
operations in the US, distribution costs, sales and marketing has
increased significantly to GBP9.52m (2015: GBP0.37m). This includes
amortisation of intangible assets acquired as part of the
acquisition of DARA/MPUS resulting in a charge of GBP3.38m (2015:
GBP0.23m).
Administrative costs
Midatech's administrative costs also increased on the prior year
to GBP9.22m (2015: GBP7.93m), largely due to the inclusion of a
full year of US commercial operations (2015: included listing and
acquisition expenses of GBP2.99m). The increase in 2016
administrative costs was driven by consolidation of the US
commercial business for a full year added GBP4.38m to
administrative costs (2015: GBP0.33m) including GBP1.10m associated
with the departure of three former senior executives.
Impairment Charge
As noted above, write down by GBP11.41m of the product sales and
marketing rights of our Oravig product following disappointing
sales performance, particularly during the latter part of 2016.
Staff costs
During the year, the average number of staff employed grew by
13% to 84 (2015: 74) and the payroll cost increased by 66% to
GBP7.49m (2015: GBP4.52m)., including GBP1.1m relating to former,
senior DARA management who left during 2016.
Capital expenditure
The total cash expenditure on property plant and equipment in
2016 was GBP1.35m (2015: GBP0.92m), principally reflecting
investment in Midatech's sustained release ("SR") platform
technology in advance of the Q-Octreotide first in-man clinical
trial scheduled for early 2017. Midatech's manufacturing facility
in Bilbao, Spain was expanded to enable the in-house production of
Q-Octreotide and additional equipment was purchased for our SR
development facility in Cardiff, UK.
Movement in total assets
Total assets saw a reduction from GBP64.0m at 31 December 2015
to GBP56.7m at 31 December 2016. This was principally the result of
the net effect of impairment and amortisation charges on product
right intangible assets of GBP15.0m, and a GBP4.8m foreign exchange
gain arising on US denominated intangible assets as set out in note
10. Property plant and equipment increased by GBP0.8m mainly as a
result of the manufacturing facility in Bilbao, noted above. Cash
and cash equivalents, increased by GBP1.4m as a result of the cash
from the fundraise that completed in October 2016 being greater
than net cash used in operating and investing activities during the
year.
Movement in total liabilities
Total liabilities saw a reduction from GBP17.2m at 31 December
2015 to GBP11.0m at 31 December 2016. This was principally the
result of the reduction of the GBP6.5m deferred tax liability as at
31 December 2015 to GBPnil at 31 December 2016. This reduction has
been driven by the impairment and amortisation charges on product
right intangible assets and the recognition of a deferred tax asset
in respect of losses set against any remaining deferred tax
liability. Furthermore, the derivative financial liability reduced
by GBP1.2m as a result of the share options and warrants acquired
with Midatech Pharma US lapsing during 2016 and the reduction in
the share price as described in more detail in the notes to the
financial statements.
Other comprehensive income
Other comprehensive income comprises GBP3.23m (2015: GBP0.40m)
foreign exchange gain arising on retranslation of Midatech Pharma
US operations.
Cash flow
Net cash outflow from operating activities for the year was
GBP13.09m (2015: GBP12.42m). There was, however, a net cash inflow
from financing activities of GBP15.26m (2015: outflow of GBP0.22m)
which, along with the capital expenditure in the year, resulted in
a net cash inflow for the year of GBP0.97m (2015: outflow of
GBP14.17m). This saw the year end cash balance increase to
GBP17.61m (2015: GBP16.18m).
Capital structure
As noted above, 15,157,044 new ordinary shares were issued on 28
October 2016 to subscribers in a Placing and additional Open Offer.
This raised proceeds of GBP16.67m before expenses and the new
shares were admitted to AIM on 31 October 2016. In addition, on 1
July 2016, 74,908 new ordinary shares were issued to former
shareholders of Q Chip as the second and final tranche of deferred
consideration shares for that acquisition. No other new shares were
issued during the year.
As at 31 December 2016 Midatech Pharma plc had in issue
48,699,456 Ordinary Shares of 0.005 pence each.
Note 2016 2015 2014
GBP'000 GBP'000 GBP'000
Gross sales 3 8,659 914 25
Grant revenue 547 600 132
_________ _________ _________
Total gross revenues 9,206 1,514 157
---------------------------------------- ----- ---------- ---------- ----------
Revenue 3 6,376 775 25
Grant revenue 547 600 132
_________ _________ _________
Total revenue 6,923 1,375 157
Cost of sales (667) (70) -
_________ _________ _________
Gross profit 6,256 1,305 157
Research and development
costs (6,684) (5,920) (3,639)
Distribution costs, sales
and marketing 4 (9,523) (374) -
Administrative costs 4 (9,222) (7,929) (4,405)
Impairment of intangible
assets 10 (11,413) - (1,800)
_________ _________ _______
Loss from operations before
intangible asset impairment
charges, listing costs and
acquisition expenses (19,173) (9,927) (6,952)
Impairment of intangible
assets (11,413) - (1,800)
Listing and acquisition
expenses - included in administrative
costs - (2,991) (935)
Loss from operations 4 (30,586) (12,918) (9,687)
Finance income 6 1,337 1,691 8
Finance expense 6 (73) (5) (161)
_________ _________ _______
Loss before tax (29,322) (11,232) (9,840)
Taxation 7 9,160 1,133 1,018
________ ________ _______
Loss for the year attributable
to the owners of the parent (20,162) (10,099) (8,822)
________ ________ _______
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 3,228 399 (151)
________ ________ _______
Total other comprehensive
income/(loss), net of tax 3,228 399 (151)
________ ________ _______
Total comprehensive loss
attributable to the owners
of the parent (16,934) (9,700) (8,973)
________ ________ _______
Loss per share
Basic and diluted loss per
ordinary share - pence 8 (56p) (36p) (98p)
________ ________ _______
Company Number 09216368 Note 2016 2015 2014
Assets GBP'000 GBP'000 GBP'000
Non-current assets
Property, plant and equipment 9 2,766 1,984 1,516
Intangible assets 10 31,172 41,339 13,094
Other receivables due in
greater than one year 17 448 387 425
_______ _______ _______
34,386 43,710 15,035
_______ _______ _______
Current assets
Inventories 19 817 459 -
Trade and other receivables 17 2,439 2,496 462
Taxation 1,439 1,201 841
Cash and cash equivalents 18 17,608 16,175 30,325
_______ _______ _______
22,303 20,331 31,628
_______ _______ _______
Total assets 56,689 64,041 46,663
_______ _______ _______
Liabilities
Non-current liabilities
Borrowings 21 1,620 1,508 1,488
Deferred tax liability 24 - 6,547 354
_______ _______ _______
1,620 8,055 1,842
_______ _______ _______
Current liabilities
Trade and other payables 20 8,407 7,084 2,341
Borrowings 21 538 442 491
Derivative financial liability
- equity settled 22 400 1,573 -
_______ _______ _______
9,345 9,099 2,832
_______ _______ _______
Total liabilities 10,965 17,154 4,674
_______ _______ _______
Issued capital and reserves
attributable to owners of
the parent
Share capital 25 1,002 1,002 1,001
Share premium 26 47,211 31,643 31,643
Merger reserve 26 53,003 52,803 37,776
Shares to be issued 26 - 200 800
Foreign exchange reserve 26 3,618 390 (9)
Accumulated deficit 26 (59,110) (39,151) (29,222)
_______ _______ _______
Total equity 45,724 46,887 41,989
_______ _______ _______
Total equity and liabilities 56,689 64,041 46,663
_______ _______ _______
The financial statements were approved and authorised for issue
by the Board of Directors on 3r April 2017 and were signed on its
behalf by:
Nick Robbins-Cherry
Chief Financial Officer
The notes form an integral part of these consolidated financial
statements
Note 2016 2015 2014
GBP'000 GBP'000 GBP'000
Cash flows from operating
activities
Loss for the year (20,162) (10,099) (8,822)
Adjustments for:
Depreciation of property,
plant and equipment 9 772 501 321
Amortisation of intangible
fixed assets 10 3,583 236 1
Loss on disposal of fixed
assets - - 89
Net interest (income)/expense 6 (1,264) (1,686) 153
Impairment of product and
marketing rights 14 11,413 - -
Impairment of IPRD 14 - - 1,800
Gain on bargain purchase 13 (165) -
Share based payment expense 5 203 170 -
Taxation 7 (9,160) (1,133) (1,018)
_______ _______ _______
Cash flows from operating
activities before changes
in working capital (14,615) (12,176) (7,476)
Increase in inventories (237) (62) -
(Increase)/Decrease in
trade and other receivables (242) (1,540) 761
Increase in trade and other
payables 358 711 466
_______ _______ _______
Cash used in operations (14,736) (13,067) (6,249)
Taxes received 1,650 646 794
_______ _______ _______
Net cash used in operating
activities (13,086) (12,421) (5,455)
_______ _______ _______
Investing activities
Purchases of property,
plant and equipment (1,347) (922) (1,030)
Purchase of intangibles (19) (3) -
Acquisition of subsidiary,
net of cash acquired 12 - 1,867 115
Acquisition of business,
net of cash acquired 13 - (2,528) -
Interest received 164 53 8
_______ _______ _______
Net cash used in investing
activities (1,202) (1,533) (907)
Financing activities
Interest paid (74) (5) (48)
Payments to finance lease
creditors (69) (49) (48)
Repayment of borrowings (235) (165) (346)
New bank loan 65 - -
Loan finance raised - - 890
Share issues net of costs 18 15,568 - 33,852
_______ _______ _______
Net cash generated from/(used
in) financing activities 15,255 (219) 34,300
Net increase/(decrease)
in cash and cash equivalents 967 (14,173) 27,938
Cash and cash equivalents
at beginning of year 16,175 30,325 2,387
Exchange gains on cash
and cash equivalents 466 23 -
_______ _______ _______
Cash and cash equivalents
at end of year 18 17,608 16,175 30,325
_______ _______ _______
The notes form an integral part of these consolidated financial
statements.
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 - - - - -
18 - 16,673 - - - - 16,673
Costs associated
with share
issue - note
18 (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
______ ______ ______ ______ ______ ______ ______
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 2014 - 21,018 - - 142 (20,400) 760
Loss for the year - - - - - (8,822) (8,822)
Foreign exchange translation - - - - (151) - (151)
______ ______ ______ ______ ______ ______ ______
Total comprehensive loss - - - - (151) (8,822) (8,973)
______ ______ ______ ______ ______ ______ ______
Issue of Midatech Limited
shares - pre-share for
share exchange - 3,202 - - - - 3,202
Transfer to merger reserve
on the merger of Midatech
Pharma plc and Midatech
Limited - 31 October 2014 - (24,220) 24,220 - - - -
Transfer of A Preference
shares from liability to
equity (28 October 2014)
and subsequent conversion
to Deferred shares - 8
December 2014 1,000 - - - - - 1,000
Issue of shares to settle
A Preference share accrued
dividend - 8 December 2014 - 994 - - - - 994
Shares issued as consideration
for a business combination
- 8 December 2014 - - 13,556 - - - 13,556
Shares to be issued as
consideration for a business
combination - 8 December
2014 - - - 800 - - 800
Issue of shares on placing
- 8 December 2014 1 32,000 - - - - 32,001
Costs associated with share
placing - (1,351) - - - - (1,351)
______ ______ ______ ______ ______ ______ ______
Total contribution by and
distributions to owners 1,001 10,625 37,776 800 - - 50,202
______ ______ ______ ______ ______ ______ ______
At 31 December 2014 1,001 31,643 37,776 800 (9) (29,222) 41,989
______ ______ ______ ______ ______ ______ ______
The notes form an integral part of these consolidated financial
statements.
1 Accounting policies
General information
Midatech Pharma plc (the "Company") is a company 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 NASDAQ.
Basis of preparation
The financial information set out above does not constitute the
company's statutory accounts for 2016, 2015 or 2014. Statutory
accounts for the years ended 31 December 2016, 31 December 2015 and
31 December 2014 have been reported on by the Independent Auditors.
The Independent Auditors' Report on the Annual Report and Financial
Statements for the years ended 31 December 2016, 31 December 2015
and 31 December 2014 was unqualified, did not draw attention to any
matters by way of emphasis, and did not contain a statement under
498(2) or 498(3) of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2015 and 31
December 2014 have been filed with the Registrar of Companies. The
statutory accounts for the year ended 31 December 2016 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.
The acquisition of the Midatech subsidiaries on 13 November 2014
was outside the scope of IFRS 3 "Business combinations" and was
treated under the principles of merger accounting as set out under
United Kingdom Generally Accepted Accounting Practice.
Accordingly, although the units which comprise the Group did not
form a legal group for the entire comparative period ended 31
December 2014, and the 2014 results comprise the results of the
subsidiary companies as if the Group had been in existence
throughout the entire period.
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.
Adoption of new and revised standards
A number of new standards, amendments to standards, and
interpretations are not effective for 2016, and therefore have not
been applied in preparing these accounts.
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 Company to record expected credit losses on
all of its debt securities, loans and trade receivables, either on
a 12-month or lifetime basis. The Company expects to apply the
simplified approach and record lifetime expected losses on all
trade receivables.
The Company plans to adopt the new standard on the required
effective date. The Company expects no significant impact on its
balance sheet and equity.
The Company does not expect a significant impact on its balance
sheet or equity on applying the classification and measurement
requirements of IFRS 9.
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.
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 Company
plans to adopt the new standard on the required effective date. The
Company has not yet performed a preliminary assessment of IFRS 15,
but plans to do so by the end of Q3 which will then be subject to
changes arising from a more detailed ongoing analysis. Once the
analysis is performed the transition method will be chosen. Based
on the current sales contracts, both methods are feasible from
implementation perspective. Furthermore, the Company is considering
the clarifications issued by the IASB in April 2016 and will
monitor any further developments.
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 remeasurement 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, subject to endorsement by the European Union. 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 Company plans to assess the potential effect of
IFRS 16 on its consolidated financial statements. To see the volume
of operating leases please refer to note 27.
The directors are currently reviewing the impact of the
above-mentioned Standards and Interpretations and are yet to
conclude on whether any such standards will have a significant
impact on the financial statements of the Group in the year of
initial application.
The other standards, interpretations and amendments issued by
the IASB (of which some still subject to endorsement by the
European Union), but not yet effective are not expected to have a
material impact on the Group's future consolidated financial
statements.
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 the 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 is 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 2016 the Group had
total equity of GBP45.72m which includes an accumulated deficit of
GBP59.11m, it incurred a net loss after tax for the year to 31
December 2016 of GBP20.16m and used cash in operating activities of
GBP13.09m for the same period. As at 31 December 2016, the Group
had cash and cash equivalents of GBP17.61m.
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 or 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 a period including
twelve months from the date of approval of this interim financial
information. These forecasts show that the Group has sufficient
cash resources for at least the next 12 months. The Directors
therefore consider it appropriate to continue to adopt the going
concern basis in preparing the financial information.
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. It 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. These criteria are considered to be met when the goods are
delivered to the buyer.
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 programs. 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
administrative cost 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 GBP11.4m was recognised in 2016
against the product rights of Oravig, a product of Midatech Pharma
US and GBP1.8m was recognised in 2014 against the IPRD of the
Midatech Pharma (Wales) Limited cash generating unit.
Impairment of non-financial assets (continued)
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 2016 had
two cash generating units (2015: Two, 2014: One), see note 14.
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 a profit and loss impact of GBPNil during 2016
(2015: Nil, 2014: GBP12k).
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 functional currency of the Company 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.
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% 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.
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 our goodwill was GBP14.5 million and
intangibles not yet ready for use was GBP10.8 million as at 31
December 2016.
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 in the year ended 31 December
2016 or in 2015 for goodwill, however there was an impairment
charge of GBP11.4m against the Midatech Pharma US product rights in
2016. An impairment charge of GBP1.8m was also recognised against
the IPRD of the Midatech Pharma (Wales) Limited cash generating
unit in the year ended 31 December 2014. See note 14.
Share-based payments
The Group accounts for share-based payment transactions for
employees in accordance with IFRS 2 Share-based Payment, which
requires us to measure 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 29 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 2016, there were GBP26.96 million (2015: - GBP23.29 million,
2014 - GBP16.02 million)) of gross unutilised tax losses carried
forward. 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 GBP8.66m in the year ended 31 December 2016
(2015: GBP0.91m; 2014: GBP0.03m) 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
2016 2015 2014
GBP'000 GBP'000 GBP'000
United Kingdom 491 - 25
Turkey - 73 -
Europe 35 25 -
United States 5,850 677 -
_______ _______ _______
6,376 775 25
_______ _______ _______
In 2016, the Group had three customers, all in the Commercial
segment, that each accounted for at least 10% of total revenue
(2015: one customer in Pipeline R&D, 2014: none):
2016 2015 2014
Customer A (Pipeline R&D) - 11% -
Customer B (Commercial) 20% - -
Customer C (Commercial) 15% - -
Customer D (Commercial) 10% - -
Following the acquisition of Midatech Pharma US, Inc., 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 result represents 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 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 (8) (659) (667)
Research and development
costs (6,684) - (6,684)
Distribution costs,
sales and marketing (248) (5,692) (5,940)
Administrative
costs (4,071) (4,379) (8,450)
Depreciation (762) (10) (772)
Amortisation (193) (3,390) (3,583)
Impairment - (11,413) (11,413)
_______ _______ _______
Segmental operating
loss (10,643) (19,943) (30,586)
_______ _______ _______
Finance income 1,337
Finance expense (73)
Loss before tax (29,322)
_______
Taxation 9,160
_______
Loss after tax (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 (5,811) (109) - (5,920)
Distribution costs,
sales and marketing - (374) (374)
Administrative costs (3,983) (218) (2,991) (7,192)
Depreciation (500) (1) - (501)
Amortisation (5) (231) - (236)
_______ _______ _______ _______
Segmental result/operating
loss (9,426) (501) (2,991) (12,918)
_______ _______ _______ _______
Finance income 1,691
Finance expense (5)
Loss before tax (11,232)
_______
Taxation 1,133
_______
Loss after tax (10,099)
_______
(1) There were no unallocated costs in 2016. Unallocated costs
in 2015 represent fees associated with the acquisitions of Midatech
Pharma US, Inc. and Zuplenz(R) in 2015.
For the year ended 31 December 2014 there was only one
reportable segment being Pipeline R&D. The unallocated costs in
respect of 2014 were GBP1.216m.
Non-current assets by location of assets
2016 2015 2014
GBP'000 GBP'000 GBP'000
Spain 2,125 1,433 1,578
United Kingdom 16,489 14,019 13,457
United States 15,772 28,258 -
_______ _______ _______
34,386 43,710 15,035
_______ _______ _______
All material additions to non-current assets in 2016, 2015 and
2014 were in the Pipeline R&D segment.
4 Loss from operations
2016 2015 2014
Loss from operations is GBP0'00 GBP'000 GBP'000
stated after charging/(crediting):
Changes in inventories of
finished goods and work
in progress 256 62 -
Write down of inventory 287 - -
to net realisable value
Depreciation of property,
plant and equipment 772 501 321
Amortisation of intangible
assets - product and marketing
rights 3,583 236 1
Impairment of intangible
assets 11,413 - 1,800
Fees payable to the Company's
auditor for the audit of
the parent Company 100 100 21
Fees payable to the Company's
subsidiary auditors for
the audits of the subsidiary
accounts 139 115 31
Fees payable to the Company's
auditor for:
* Corporate finance services - 438 281
* Tax compliance - - 14
* Tax advisory - 7 14
* Other services 72 36 6
Operating lease expense:
* Property 385 246 97
* Plant and machinery 194 86 57
Foreign exchange loss/(gain) 31 (23) (37)
Acquisition costs (in addition
to fees payable to the Company's
auditor) - 2,553 172
Loss on disposal of property,
plant and equipment - - 89
Gain on bargain purchase - (165) -
Share based payment 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, sales and marketing expenses.
5 Staff costs
2016 2015 2014
GBP'000 GBP'000 GBP'000
Staff costs (including directors)
comprise:
Wages and salaries 6,314 3,731 2,322
Defined contribution pension
cost (note 28) 206 183 169
Social security contributions
and similar taxes 769 431 322
Share based payment 203 170 -
_______ _______ _______
7,492 4,515 2,813
_______ _______ _______
Employee numbers
The average number of staff employed by the Group during the
financial year amounted to:
2016 2015 2014
GBP'000 GBP'000 GBP'000
Research and development 57 45 28
General and administration 19 22 10
Sales and marketing 8 7 -
_______ _______ _______
84 74 38
_______ _______ _______
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,
and the Chief Operating Officer.
2016 2015 2014
GBP'000 GBP'000 GBP'000
Wages and salaries 1,054 850 546
Defined contribution pension
cost 59 59 36
Payments made to third parties 142 223 184
Social security contributions
and similar taxes 152 88 78
Benefits in kind 2 7 36
Share based payment 184 170 -
_______ _______ _______
1,593 1,397 880
_______ _______ _______
Emoluments disclosed above include the following amounts in
respect of the highest paid Director.
2016 2015 2014
GBP'000 GBP'000 GBP'000
Salary 448 347 323
Total pension and other
post-employment benefit
costs 28 24 22
Benefits in kind 1 6 -
_______ _______ _______
477 377 345
_______ _______ _______
None of the Directors has exercised share options during the
year (2015: Nil, 2014: Nil).
During the year 2 Directors (2015: 2) participated in a defined
contribution pension scheme.
6 Finance income and expense
2016 2015 2014
Finance income GBP'000 GBP'000 GBP'000
Interest received on bank
deposits 164 53 8
Gain on equity settled derivative
financial liability 1,173 1,638 -
______ ______ _______
Total finance income 1,337 1,691 8
______ ______ _______
The gain on the equity settled derivative financial liability in
2016 has arisen due to the reduction in the share price and the
lapsing of warrants and options. The gain in 2015 arose due to the
reduction in share price between the date of acquisition of
Midatech Pharma US, Inc. and 31 December 2015.
2016 2015 2014
Finance expense GBP'000 GBP'000 GBP'000
Bank loans 16 2 126
Other loans 57 3 -
Interest on convertible
loans - - 35
______ _______ _______
Total finance expense 73 5 161
______ ______ _______
7 Taxation
2016 2015 2014
GBP'000 GBP'000 GBP'000
Current tax credit
Current tax credited to
the income statement 1,936 1,002 663
Taxation payable in respect
of foreign subsidiary (25) - (5)
______ _______ _______
1,911 1,002 658
Deferred tax credit
Reversal of temporary differences 7,249 131 360
______ _______ _______
Total tax credit 9,160 1,133 1,018
______ _______ _______
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:
2016 2015 2014
GBP'000 GBP'000 GBP'000
Loss before tax (29,322) (11,232) (9,840)
Expected tax credit based
on the standard rate of
United Kingdom corporation
tax at the domestic rate
of 20.25% (2014: 21.49%,
2013:20%) (5,864) (2,274) (2,115)
Fixed asset differences - - 12
Expenses not deductible
for tax purposes 1,022 185 385
Adjustments to brought forward
values - (8) 33
Additional deduction for
R&D expenditure 4 (789) (566)
Surrender of tax losses
for R&D tax refund (1,503) 406 419
Adjust deferred tax opening/closing
rate - - 59
Income not taxable - - (44)
Effects of other tax rates (3,421) - -
Unrelieved tax losses and
other deductions arising
in the period (166) (78) (35)
Foreign exchange differences 712 - -
Deferred tax not recognised 491 1,425 834
Adjustment in respect of (435) - -
prior years
_______ _______ _______
Total tax credited to the
income statement (9,160) (1,133) (1,018)
_______ _______ _______
The taxation credit arises on the enhanced research and
development tax credits accrued for the respective periods.
The Finance Act 2013 includes provision for the main rate of
corporation tax to reduce from 23% to 21% from 1 April 2014 and to
20% from 1 April 2015.
8 Loss per share
2016 2015 2014
Numerator GBP'000 GBP'000 GBP'000
_______ ________ _______
Loss used in basic EPS and
diluted EPS (20,162) (10,099) (8,822)
_______ ________ _______
Denominator
Weighted average number
of ordinary shares used
in basic EPS 36,072,752 28,229,814 9,026,347
_______ ________ _______
Basic and diluted loss per
share - pence (56p) (36p) (98p)
_______ ________ _______
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 not
provided for any 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 2014 748 767 165 162 1,842
Additions 524 259 18 229 1,030
Acquired through
acquisition of
subsidiary 3 19 15 207 244
Exchange differences (42) (41) (3) - (86)
Disposals (31) (124) - (15) (170)
_______ _______ _______ _______ _______
At 31 December
2014 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
_______ _______ _______ _______ _______
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 2014 430 495 118 115 1,158
Charge for the
year 102 67 24 128 321
Exchange differences (22) (33) (2) 3 (54)
Disposals (31) (50) - - (81)
_______ _______ _______ _______ _______
At 31 December
2014 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
_______ _______ _______ _______ _______
Net book value
At 31 December
2016 79 1,127 159 1,401 2,766
At 31 December
2015 861 379 174 570 1,984
At 31 December
2014 723 401 55 337 1,516
_______ _______ _______ _______ _______
The transfers between asset classes have arisen as a result of
reallocation of acquired assets in 2015 to more appropriately
recognise their classification. Included within the total net book
value of tangible fixed assets is GBP33k (2015: GBP266k and 2014:
GBP224k) in respect of assets held under finance leases and similar
hire purchase contracts. The depreciation charge for the year on
these assets was GBP22k (2015: GBP26k and 2014: GBP79k). 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 development Goodwill costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2014 - - - 12 12
Acquired in business
combinations 12,600 - 2,291 - 14,891
_______ _______ _______ _______ _______
At 31 December
2014 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
Acquired in business
combinations
Foreign exchange - 3,160 2,032 - 5,192
Disposals (8) (8)
_______ _______ _______ _______ _______
At 31 December
2016 12,600 21,481 14,488 26 48,595
_______ _______ _______ _______ _______
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
2014 - - - 8 8
Amortisation
charge for the
year - - - 1 1
Impairment charge
for year 1,800 - - - 1,800
_______ _______ _______ _______ _______
At 31 December
2014 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
_______ _______ _______ _______ _______
Net book value
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 31 December
2014 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
2016 2015 2014 2016 2015 2014
GBP'000 GBP'000 GBP'000 (years) (years) (years)
Midatech Pharma
(Wales) Limited n/a n/a n/a
acquired IPRD 10,800 10,800 10,800 in process in process in process
Midatech Pharma Between Between
US, Inc., product 1 and 2 and
and marketing rights 3,557 15,570 - 4 5 -
Zuplenz(R) product
and marketing rights 2,316 2,508 - 12 13 -
_______ _______ _______
16,673 28,878 10,800
_______ _______ _______
11 Acquisition of Q Chip Limited
On 8 December 2014, the group acquired 100% of the voting equity
of Q Chip Limited and its subsidiaries, a UK company principally
involved in design and development of the Q-Sphera(TM) drug
encapsulation and delivery system and underpinning microsphere
manufacturing technology. On 20 January 2015 Q Chip Limited changed
its name to Midatech Pharma (Wales) Limited. The principal reason
for this acquisition was to strengthen the Group's technology and
product portfolios, and thereby diversify risk through the
following:
a) Add controlled-release technology to Midatech gold nano-particle and portfolio
b) Expand the number of development projects
c) Q-Chip's product portfolio offered Midatech a lower risk
profile than Midatech's own technology thereby mitigating against
potential future failure
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill are:
Final fair value
GBP'000
Identifiable intangible assets:
In-process research and development 12,600
Property, plant and equipment 244
Receivables and other debtors 314
Payables and other liabilities (494)
Deferred tax (714)
Cash 115
______
Total net assets 12,065
______
Equity instruments (5,077,122 ordinary
shares) 13,556
Deferred Equity instruments (299,624
deferred consideration shares held
as shares to be issued) 800
______
Total consideration - non-cash movement 14,356
______
Goodwill on acquisition 2,291
_______
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 and the expected synergies of the
enlarged Group which do not qualify for separate recognition.
The goodwill and intangible assets recognised will not attract
tax deductions.
The revenue and net loss included in the Consolidated Statement
of Comprehensive Income since 8 December 2014 contributed by
Midatech Pharma (Wales) Limited were nil and GBP0.3m
respectively.
If the acquisition had occurred on 1 January 2014, group revenue
would have been GBP0.73m and group loss for the period would have
been GBP11.01m.
The net cash inflow in the year in respect of acquisition
comprised net cash acquired of GBP0.1m.
12 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 become payable (up to a maximum of
GBP3.85m/$5.7m) if specified sales milestones are achieved for the
years ended 31 December 2016 and 2017. At 31 December 2016, these
milestones are not expected to be achieved and therefore the fair
value is nil. However, should they be achieved then any further
payments are expected to be self-financed by incremental
milestone-generated cash flow.
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 the year 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 2016 there were DARA options outstanding over
300,728 Midatech ordinary shares (2015: 721,000) with a weighted
average exercise price of $7.19 per share (2015: $7.62), within a
range of $2.54 to $770.59 (2015: $2.54 to $770.59), and a weighted
average remaining contractual life of 7.7 years (2015: 8.5 years).
The risk-free rate ranged from 0.00% to 1.14% (2015: 0.63% to
1.81%), volatility from 60% to 77% (2015: 59% to 79%) and the
expected life from 0.8 to 8.8 years (2015: 1.9 - 8.6 years). The
exercise of all options would raise additional cash of $2.16m
(2015: $5.50m).
Also at 31 December 2016 there were DARA warrants outstanding
over 3,017,773 Midatech ordinary shares (2015: 3,034,437) with a
weighted average exercise price of $9.44 per share (2015: $9.67),
within a range of $3.06 to $27.58 (2015: $3.06 to $164.71), and a
weighted average remaining contractual life of 2.1 years (2015: 3.1
years). The risk-free rate ranged from 0.00% to 0.71% (2015: 0.44%
to 1.63%), volatility from60% to 66% (2015: 59% to 79%) and the
expected life from 0.1 - 5.9 years (2015: 0.1 - 7.0 years). The
exercise of all warrants would raise additional cash of $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 22.
13 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 is
$26.0m however management does not consider it likely that the
associated, very high sales targets will be achieved.
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
______
14 Impairment testing
Midatech Pharma (Wales) Ltd
Details of goodwill and IPRD allocated to the acquired cash
generating unit and the valuation basis is as follows:
Indefinite lived
IPRD carrying Goodwill carrying Valuation
amount amount Basis
Name 2016 2015 2014 2016 2015 2014
----------------- -------- -------- ------- -------- -------- ------- ----------
GBP'000 GBP'000 GBP000 GBP'000 GBP'000 GBP000
CGU - Midatech
Pharma (Wales) Value
Ltd 10,800 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 2016 and 31 December 2015 and were found
to support the IPRD and goodwill carrying amounts set out above.
The IPRD was valued using 14-15 year (2015: 15-16 year), 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 2014, an impairment charge of GBP1.8m and a related GBP0.36m
deferred tax credit was recorded in the MPW CGU as a result of the
curtailment of an agreement with a commercial partner post
acquisition. At the same time, the carrying value of a component of
IPRD, was reduced from GBP1.8m to nil. The resulting impairment
charge was recorded in research and development expenditure within
the consolidated statement of comprehensive income in 2014.
As at 31 December 2014, the remaining assets of the cash
generating unit were not identified as being materially different
to the fair values determined at the acquisition date on 8 December
2014.
The key assumptions used in the model include the following:
2016 2014
CGU - MPW 2015 CGU -
Limited CGU - MPW MPW
and Limited Limited
subsidiaries and and
Assumptions subsidiaries subsidiaries
------------------------ ------------- ------------- ---------------
Pre-tax discount rate 18.1% 17.7-19.5% 17.7-19.5%
Cumulative probability 23% to
of success of projects 46% to 81% 46% to 69% 57%
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.
2016
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.
2016
CGU -
MPW
Limited
and
subsidiaries
Pre-tax discount rate for increase
all projects to 26.4%
Cumulative probability
of success of all projects 53%
2015
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.
2015
CGU -
MPW
Limited
and
subsidiaries
Pre-tax discount rate for increase
all projects to 23.9%
Cumulative probability
of success of all projects 44%
2014
The value in use calculations used to value the acquired
intangibles and appraise the remaining carrying value of the
intangibles at 31 December 2014 were materially the same. This is
because of the impairment test date and acquisition date being only
23 days apart. Any increase in the discount rate or decrease in the
probability of success of projects stated above would result in an
impairment.
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 2016 2015 2016 2015
---------------- ----------- ----------- --------- --------- ----------
GBP'000 GBP'000 GBP'000 GBP'000
CGU - Midatech
Pharma US, Value
Inc 3,557 15,477 12,197 10,165 in use
The change in the goodwill carrying value as at 31 December 2016
is due to the movement in the Sterling and US Dollar exchange rate
used to translate the underlying US Dollar value of goodwill, 2016:
$1.2334 (at 31 December 2015: $1.4802).
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 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 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 include the following:
2016
CGU - Midatech Pharma
Assumptions US, Inc
Pre-tax discount rate 24.7%
Overall CGU 10-year growth
rate 10.6%
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 5% long-term growth rate,
2015
CGU - Midatech
Pharma US,
Assumptions Inc
Pre-tax discount rate 23.2%
2016
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.
2016
CGU - Midatech
Pharma US,
Inc
Pre-tax discount rate for increase to
all projects 25.2%
Overall CGU 10-year growth
rate 10.5%
2015
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.
15 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.
16 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% (2015: 50%; 2014: 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.
2016 2015 2014
GBP'000 GBP'000 GBP'000
Research and development
spend on MidaSol Therapeutics - 776 248
Year-end receivable due - 219 -
from joint operation partner
17 Trade and other receivables
2016 2015 2014
GBP'000 GBP'000 GBP'000
Trade receivables 1,428 985 189
Prepayments 586 685 49
Other receivables 873 1,213 649
_______ _______ _______
Total trade and other receivables 2,887 2,883 887
Less: non-current portion
(rental deposit and on bond) (448) (387) (425)
_______ _______ _______
Current portion 2,439 2,496 462
_______ _______ _______
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 2016, 2015
and 2014.
18 Cash and cash equivalents and cash
flow supporting notes
2016 2015 2014
GBP'000 GBP'000 GBP'000
Cash at bank available on
demand 17,608 16,175 30,325
_______ _______ _______
Share issues net of costs
- cash transactions
2016 2015 2014
GBP'000 GBP'000 GBP'000
Funds raised on Public Offering 16,673 - 32,000
Costs of raising funds on
Public Offering (1,105) - (1,350)
Issue of shares in Midatech
Limited pre-flotation - - 3,202
_______ _______ _______
15,568 - 33,852
_______ _______ _______
19 Inventories
2016 2015 2014
GBP'000 GBP'000 GBP'000
Work in progress - 230 -
Finished goods 817 229 -
_______ _______ _______
Total inventories 817 459 -
_______ _______ _______
A reserve was established in December 2016 against Inventory
that is not expected to be sold before its sell by date, resulting
in a charge to the comprehensive statement of income of GBP287k
(2015: Nil).
20 Trade and other payables
2016 2015 2014
Current GBP'000 GBP'000 GBP'000
Trade payables 3,268 2,285 981
Other payables 1,166 35 177
Accruals 2,003 3,101 732
_______ ________ _______
Total financial liabilities,
excluding loans and borrowings,
classified as financial
liabilities measured at
amortised cost 6,437 5,421 1,890
Tax and social security 670 183 274
Deferred revenue 1,300 1,480 177
_______ _______ _______
Total trade and other payables 8,407 7,084 2,341
_______ _______ _______
Book values approximate to fair value at 31 December 2016, 2015
and 2014.
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 on 1st February 2015 and is scheduled to complete
on 31st January 2019. GBP547k (2015: GBP541k) of revenue has been
recognised during the year in relation to this project and GBP1.24m
(2015: GBP1.3m) 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 21 as borrowings, the gross contractual repayment of the loans
is disclosed in note 23.
21 Loan and Borrowings
2016 2015 2014
GBP'000 GBP'000 GBP'000
Current
Bank loans 23 9 9
Finance lease 31 70 37
Government and research
loans 484 363 445
______ ______ _______
Total 538 442 491
_______ _______ _______
Non-current
Bank loans - 20 31
Finance lease 52 68 -
Government and research
loans 1,568 1,420 1,457
______ ______ _______
Total 1,620 1,508 1,488
_______ _______ _______
Book values approximate to fair value at 31 December 2016, 2015
and 2014.
Obligations under finance leases are secured by a fixed charge
over the fixed assets to which they relate.
The Group had no undrawn committed borrowing facilities at any
year end.
22 Derivative financial liability - current
2016 2015 2014
GBP'000 GBP'000 GBP'000
Equity settled derivative
financial liability 400 1,573 -
_______ _______ _______
At 1 January/on acquisition
- 5 December 2015 1,573 3,211
-
Gain recognised in finance
income within the consolidated
statement of comprehensive
income (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 23. 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 12. 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.
23 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
2016 2015 2014
GBP'000 GBP'000 GBP'000
Cash and cash equivalents 17,608 16,175 30,325
Trade receivables 1,428 985 189
Other receivables 873 1,213 649
_______ _______ _______
Total financial
assets 19,909 18,373 31,163
_______ _______ _______
Financial liabilities - amortised cost
2016 2015 2014
GBP'000 GBP'000 GBP'000
Trade payables 3,268 2,285 981
Other payables 1,166 35 177
Accruals 2,003 3,101 732
Loans and borrowings 2,158 1,950 1,979
_______ ______ _______
Total financial liabilities
- amortised cost 8,595 7,371 3,869
_______ _______ _______
Financial liabilities - fair value through profit and loss -
current
2016 2015 2014
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 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 12:
Financial Fair Fair Valuation Significant Relationship
liabilities value value technique unobservable of unobservable
as at hierarchy (s) and input(s) inputs to
31/12/2016 key input(s) fair value
Equity GBP400k Level Black Volatility rates The higher
settled 3 Scholes between a range the volatility
financial option of 60% and 76% the higher
derivative pricing determined using the fair
liability model historical volatility value.
of comparable
companies.
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.
If the above unobservable volatility input to the valuation
model were 10% higher while all other variables were held constant,
the carrying amount of shares would increase by GBP94k (2015:
GBP273k).
If the above unobservable expected life input to the valuation
model were 1 year shorter while all other variables were held
constant, the carrying amount of shares would decrease by GBP133k
(2015: GBP70k).
If the above unobservable risk free rate input to the valuation
model were 10% higher while all other variables were held constant,
the carrying amount of shares would increase by GBP2k (2015:
GBP5k).
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 17. 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:
2016 2015 2014
GBP'000 GBP'000 GBP'000
Cash and cash equivalents:
Pounds Sterling 10,229 14,494 30,026
US Dollar 2,186 819 -
Euro 5,143 862 270
Other 50 - 29
_______ _______ _______
Total 17,608 16,175 30,325
_______ _______ _______
The table below shows the foreign currency exposure that give
rise to net currency gains and losses recognised in the
consolidated income statement. 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 2016, these exposures were as
follows:
2016 2015 2014
GBP'000 GBP'000 GBP'000
Net Foreign Currency Assets/(Liabilities):
US Dollar (206) (1,691) -
Euro 2,655 77 (460)
Other 58 (8) 19
_______ _______ _______
Total 2,507 (1,622) (441)
_______ _______ _______
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 2016 US Dollar Euro Other
GBP'000 GBP'000 GBP'000
Loss before tax 521 (73) (55)
Total equity 521 (73) (55)
In the years ended 31 December 2015 and 2014, 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 Q1 2017, Midatech entered into a senior secured loan
agreement for GBP6m with Silicon Valley Bank, thereby helping to
reduce its short to medium term funding risk.
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
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
______ _______ _______ ______ _______
Between Between Between
3 and 1 and 2 and
Up to 3 12 2 5 Over
2014 months months years years 5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other
payables 1,890 - -- - -
Bank loans 2 7 9 24 -
Finance leases 11 27 - - -
Government research
loans - 485 207 891 351
______ _______ _______ ______ _______
Total 1,903 519 216 915 351
_______ _______ _______ _______ _______
More details which regard to the line items above are included
in the respective notes:
-- Trade and payables - note 20
-- Loans and borrowings - note 21
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.
24 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:
2016 2015 2014
GBP'000 GBP'000 GBP'000
Liability at 1 January 6,547 354 -
Arising on business combination - 6,191 714
Credited to income on impairment
and amortisation of intangibles (5,509) - (360)
Credited to income statement (1,740) (131) -
Foreign exchange gain 702 133 -
_______ _______ _______
Liability at 31 December - 6,547 354
_______ _______ _______
A deferred tax liability has arisen due to deferred tax on
intangible assets acquired in 2015. The liability recognised on the
2014 acquisition has tax losses in the acquired entity which
qualifies for offset.
An intangible asset was impaired in the financial statements for
the year ended 31 December 2014 by GBP1.8m and consequently a
GBP0.36m credit was recognised in the income statement.
Furthermore, another intangible asset was impaired by GBP11.4m in
2016 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 2014 16,017 3,203
31 December 2015 23,286 4,191
31 December 2016 26,956 5,049
With the exception of the GBP3.67m (2015: GBP1.63m: 2014:
GBP1.81m) 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 (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:
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)
_______ _______ _______
2014 Asset Liability Net
GBP'000 GBP'000 GBP'000
Business Combinations 1,806 (2,160) (354)
_______ _______ _______
25 Share capital
2016 2016 2015 2015 2014 2014
Authorised, allotted and Number GBP Number GBP Number GBP
fully paid - classified as
equity
At 1 January
Ordinary shares of 0.005p
each 48,699,456 2,435 33,467,504 1,673 27,794,258 1,390
Deferred shares of GBP1 each 1,000,001 1,000,001 1,000,001 1,000,001 1,000,001 1,000,001
__________ __________ __________
Total 1,002,436 1,001,674 1,001,391
__________ __________ __________
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.
25 Share capital (continued)
A B C
Date of Type of Share Ordinary Preference Preference Preference Deferred Share Total
Issue Issue Shares Shares Shares Shares Shares Price considera-tion
Number Number Number Number Number GBP GBP'000
2014
As at 1
January
2014 2,889,229 1,000,000 75,000 565,064 - - 9,093
30 January Equalisation -
2014 round 39,853 - - - - -
19 April Subscription
2014 option 244,881 - - - - 0.15 37
Subscription
13 June 2014 option 8,250 - - - - 0.15 1
4 September
2014 Rights issue 105,314 - - 511,738 - 5.13 3,165
12 September
2014 Share redemption - - (75,000) - - - -
_________ _________ _________ _________ _________ _________
Total pre-share
for
share exchange -
Midatech
Limited 3,287,527 1,000,000 - 1,076,802 - 12,296
_________ _________ _________ _________ _________ _________
Subscriber share
-
12 September Midatech Pharma
2014 plc 1 1.0000 -
13 November Share for share
2014 exchange 3,287,527 1,000,000 - 1,076,802 - - -
Sub-division of
13 November subscriber
2014 share 9,999 - - - - 0.0001 -
Warrant exchange
28 November share
2014 issue 628,356 - - - - 0.0001 -
28 November
2014 Share conversion (10,000) - - - 1 - -
28 November
2014 Share conversion 1,076,802 - - (1,076,802) - - -
_________
Total ordinary
shares
pre-subdivision 4,992,685
_________
28 November Share sub -
2014 division 9,985,370 - - - - -
Share issue on
acquisition
8 December of Q Chip
2014 Limited 5,077,122 - - - - 2.67 -
8 December
2014 Public offering 11,985,019 - - - - 2.67 32,000
8 December
2014 Share conversion 746,747 (1,000,000) - - 1,000,000 - -
_________ _________ _________ _________ _________ _________
27,794,258 - - - 1,000,001 32,000
_________ _________ _________ _________ _________ _________
25 Share capital (continued)
A B C
Ordinary Preference Preference Preference Deferred Share Total
Shares Shares Shares Shares Shares Price considera-tion
Number Number Number Number Number GBP GBP'000
2015
As at 1
January
2015 27,794,258 - - - 1,000,001 32,000
Exercise of
employee
24 April 2015 share options 16,500 - - - - 0.00005 -
Exercise of
25 September employee
2015 share options 10,000 - - - - 0.00005 -
Share issue on
acquisition
of DARA
4 December BioSciences,
2015 Inc. 5,422,028 - - - - 2.63 14,240
Deferred
consideration
re: acquisition
23 December of
2015 Q Chip Limited 224,718 - - - - 2.67 600
_________ _________ _________ _________ _________ _________
As at 31
December
2015 33,467,504 - - - 1,000,001 46,840
_________ _________ _________ _________ _________ _________
Deferred
consideration
re: acquisition
of
1 July 2016 Q Chip Limited 74,908 - - - - 2.67 200
31 October Placing and Open
2016 Offer 15,157,044 - - - - 1.10 16,673
_________ _________ _________ _________ _________ _________
As at 31
December
2016 48,699,456 - - - 1,000,001 63,713
_________ _________ _________ _________ _________ _________
26 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.
27 Leases
The Group had commitments under non-cancellable operating leases
as set out below:
Land and
buildings Other
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
________ ________
Land and
buildings Other
2014 GBP'000 GBP'000
Expiring In one year or less 150 79
Expiring Between one and five years 159 -
________ ________
309 79
________ ________
28 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.
29 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
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 484,694
Weighted average exercise price GBP1.234
of outstanding options at 31
December 2016
Weighted average exercise price n/a
of options exercised in 2016
Weighted average exercise price GBP3.446
of options forfeited in 2016
Weighted average exercise price GBP1.685
of options granted in 2016
Weighted average remaining contractual 8.6
life of outstanding options years
at 31 December 2016
Date of At Granted Exercised Forfeited At Exercise
grant 1 January in in in 31 Price
2015 2015 2015 2015 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 GBP4.19
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 at years
31 December 2015
Date of At Granted Exercised Forfeited At Exercise
grant 1 January in in in 31 Price
2014 2014 2014 2014 December
2014
31 December
2008 44,622 - - (18,500) 26,122 GBP1.425
31 December
2008 15,500 - - - 15,500 GBP3.985
1 September
2009 12,500 - - (12,500) - GBP3.985
13 November
2009 25,000 - - (25,000) - GBP4.00
1 April
2010 25,110 - - - 25,110 GBP4.00
20 August
2010 59,666 - - - 59,666 GBP4.19
13 September
2011 3,000 - - - 3,000 GBP4.19
20 April
2012 47,796 - - (12,000) 35,796 GBP4.19
1 May
2013 100,000 - - (100,000) - GBP6.85
3 April
2014 - 43,000 (16,500) - 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 - - 11,000 GBP0.075
________ ________ ________ ________ ________
333,194 1,134,000 (16,500) (168,000) 1,282,694
_______ _______ _______ _______ _______
Options exercisable at 31 December 2014 125,847
Weighted average exercise price of outstanding GBP0.54
options at 31 December 2014
Weighted average exercise price of options GBP5.43
forfeited in 2014
Weighted average exercise price of options GBP0.08
granted in 2014
Weighted average remaining contractual life 8.5 years
of outstanding options at 31 December 2014
Options granted in 2014 relate to the Midatech Limited 2013
approved Enterprise Incentive scheme.
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 contain the
following conditions:
-- Vesting is conditional on the Midatech Pharma US, Inc.
business achieving a revenue target for the year ended 31 December
2017;
-- Subject to the achievement of the revenue target noted above,
25% (i.e. 22,500 options) vest on the first anniversary of the
relevant date of grant;
-- A further 6.25% (i.e. 5,625 options) vest every 3 months
following the first anniversary of the date of grant such that by
the fourth anniversary, and subject to the achievement of the
revenue target noted above, all 90,000 options shall have
vested.
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 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.
The 200,000 options granted on 9 May 2014 contained the
following conditions:
-- 25,000 vested immediately;
-- 25,000 vest on 1 May 2015, a further 25,000 on 1 May 2016 and
a further 25,000 on 1 May 2017;
-- 50,000 vest when the ordinary price of a share reaches GBP13.70;
-- 50,000 vest when the ordinary price of a share reaches GBP27.40;
-- On the event of an initial public offering all of the
remaining unvested options vest immediately and have therefore
vested due to the IPO in 2014.
The 880,000 and 11,000 share options granted on 9 May 2014 and
11 July 2014 only vest when the Company's share price achieves
certain targets as follows:
-- 50% vest when the share price reaches GBP5.31 per share;
-- A further 25% vests when the share price reaches GBP13.72;
-- The remaining 25% when the share price reaches GBP18.86.
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 2014 under the
equity share based remuneration schemes operated by the Group. No
share options were granted by the Company in 2015, however a number
of share options and warrants were assumed by the Company on the
acquisition of Dara BioSciences, Inc. (see note 12).
2014
Number of options 1,134,000
Option pricing models Black Scholes/
used Monte Carlo
Share price GBP2.67*
Exercise price of
options issued in
year 7.5p
Contractual life 9 -10 years
Volatility 60%**
Expected dividend
yield 0%
Risk free rate 1.51%
* The share price used in the determination of the fair value of
the options granted in 2014 was the price of ordinary shares issued
at initial public offering in December 2014.
** Volatility was calculated with reference to the historic
share price volatility of comparable companies measured over a
four-year period.
All other share options relate to the Midatech Limited 2008
unapproved share option scheme.
30 Capital commitments
The Group had no capital commitments at 31 December 2016, 31
December 2015 and 31 December 2014.
31 Related party transactions
Details of Directors' remuneration are given in note 5.
Transactions with Monosol RX, LLC
The Directors consider Monosol RX, LLC ("Monosol") to be a
related party by virtue of the fact that Monosol is a shareholder
of the company and a collaborative partner in the MidaSol
Therapeutics joint operation.
During the period, due to cessation of activities within the
MidaSol joint operation no monies were receivable from Monsol
(2015: GBP317K, 2014: GBP273k) for research services. Amounts
receivable in prior years were credited to research and development
expenditure. The year-end receivable due from Monsol was nil (2015:
GBP219K, 2014: nil). 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 of GBP187.7k,
payable to Monosol (2015: nil). The year-end payable to Monosol was
GBP48.7k (2015: nil).
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 2016, 2015 or 2014 regarding related party
transactions.
32 Contingent liabilities
The Group had no contingent liabilities at 31 December 2016, 31
December 2015 and 31 December 2014.
33 Ultimate controlling party
The Directors do not consider that there is an ultimate
controlling party.
34 Post balance sheet events
In Q1 2017, the Company entered into a senior secured loan
agreement for GBP6m with Silicon Valley Bank. The loan is available
to be drawn down in three tranches of GBP2m each, the first being
available following signing of the loan agreement and the other two
tranches dependent upon future research milestones.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UGUMCCUPMUAC
(END) Dow Jones Newswires
April 04, 2017 02:02 ET (06:02 GMT)
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