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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Midatech Pharma Plc | LSE:MTPH | London | Ordinary Share | GB00BNGF1L75 | ORD GBP0.02 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 18.00 | 17.00 | 19.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
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
Hot Features
Premium
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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