Epistem Holdings Plc
Annual Report and Accounts 2010
Controlling life-long tissue renewal
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Epistem Plc
48 Grafton Street
Manchester M13 9XX
United Kingdom
T +44 (0)161 606 7258
F +44 (0)161 606 7348
www.epistem.co.uk
Divisional development
and core company strength
Business Overview
Introductory Highlights
What We Do
Epistem: Contract Research Services
Epistem: Personalised Medicine
Epistem: Novel Therapies
Our Business and Strategy
Review of the Year
Strength in Depth
Chairman’s Statement
Chief Executive’s Review
IFC
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Governance
Board of Directors
Directors’ Report
Directors’ Remuneration Report
Corporate Governance Report
Independent Auditors’ Report
Accounts
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Company Statement of Cash Flows
Notes to the Company Financial Statements
Directors, Secretary and Advisers
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IBC
Year of profit
2nd
45%
5.4m
Revenue growth year-on-year
Cash balance (£million)
Directors, Secretary and Advisers
Directors
David Evans
Matthew Walls
Chris Potten
Catherine Booth
Gerard Brady
Roger Lloyd
Jeffrey Moore
Robert Nolan
John Rylands
Company Secretary
John Rylands
Registered Office
48 Grafton Street
Manchester M13 9XX
United Kingdom
Registrars
Neville Registrars Limited
18 Laurel Lane
Halesowen B63 3DA
Nominated Adviser and Broker
KBC Peel Hunt Limited
111 Old Broad Street
London EC2N 1PH
Legal Advisers
McGrigors LLP
Princes Exchange
1 Earl Grey Street
Edinburgh EH3 9AQ
Auditors
HW Chartered Accountants
Bridge House
157 Ashley Road
Hale
Altrincham
Cheshire WA14 2UT
Principal Banker
Natwest Commercial Banking
1 Spinningfields Square
Deansgate
Manchester M3 3AP
Printed on Revive 50:50 Gloss.
Revive 50:50 Gloss is an FSC-recognised paper, produced from
well-managed forests, and recycled wood or fibre. This publication
was printed with vegetable oil-based inks by an FSC-recognised
printer that holds an ISO 14001 certification.
Cover and IFC photography by Hubert Sieverding
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Welcome
Epistem is a biotechnology and
personalised medicine company
commercialising its expertise in
epithelial stem cells in the areas of
oncology, gastrointestinal disease,
dermatology and ageing
Every person develops from one cell – the fertilised egg. In the early stages of development,
stem cells differentiate and become committed to generating a specific tissue or organ.
Adult stem cells remain capable of regenerating tissue in our organs throughout our lives.
As we get older, the ability of stem cells to regenerate new cellular tissue diminishes, leading
to tissue ageing and disease.
Epistem is focused on understanding how cells function and are controlled, so that we can
identify new drug therapies to address the major diseases of oncology, gastrointestinal disease,
dermatology and ageing.
Epistem also identifies patient specific gene biomarkers, gene mutations and disease pathogens
as part of its Personalised Medicine development.
2010 marks the 10 year anniversary of the formation of the Company.
Highlights
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Year-on-year revenue growth up 45%
All divisional revenues increased over the year
Formation of a new Personalised Medicine division
Development of Genedrive
molecular diagnostic device
TM ‘Point of Care’ mobile
Growth in profit and increased Earnings Per Share
Strengthened cash balance with continuing strong
trading outlook
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10 year anniversary of company formation
Epistem Holdings Plc Annual Report 2010
1
What We Do
Scientific research services,
personalised medicine and
innovative therapeutics
Life-long
Tissue Renewal
Explained
Epithelial stem cells
Epithelial stem cells are rare cells which represent the ‘building
blocks’ of tissue growth and renewal. Stem cells are essential for
tissue repair, since they are responsible for replacement of all cells.
Expertise
Epistem is applying its know-how and expertise to identify genes
and proteins responsible for controlling cell production to develop
drugs to treat cancer and other epithelial diseases.
Vision
Epistem’s vision is to exploit its leading stem cell technology
to identify Novel Therapeutics and advance its next generation
developments in personalised medicine.
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Epistem Holdings Plc Annual Report 2010
Contract Research Services (page 4)
Contract Research Services provide specialised preclinical efficacy
services primarily for drug development companies on a ‘fee for
service’ basis. The division is growing strongly, is cash generative
and profitable. Our Contract Research Services division has a well
established record of providing a specialist range of testing services
to major pharmaceutical and biotechnology companies globally.
We assist client companies with preclinical development of their drug
therapies to treat epithelial diseases including:
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Cancer
Cancer supportive care (Mucositis)
Inflammatory bowel disease
UV-induced skin damage
Wound healing
Skin and hair disorders
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Personalised Medicine (page 6)
Novel Therapies (page 8)
Biomarkers
Epistem has developed a range of innovative technologies allowing
highly sensitive analysis of small numbers of cells. These technologies
are used by pharmaceutical companies to measure drug-induced
gene expression changes, primarily in the area of oncology. Our
biomarker libraries assist in identifying changes in gene expression
that result from treatment with an oncology drug. We work closely
with top-tier pharmaceutical groups to better understand drug-
induced gene expression changes in a subject during treatment.
Diagnostics
We have expanded our technology reach into diagnostics with the
development of GenedriveTM, a ‘point of care’ molecular diagnostic
device. GenedriveTM is targeted at providing a ‘near patient’ diagnosis
in less than 30 minutes. Rapid, sensitive and accurate testing offers
to revolutionise the field of medical diagnosis by enabling viral,
pathogen and gene mutation diagnosis to be made readily available
at minimal cost.
Epistem is discovering key regulators (proteins and peptides) of
epithelial cells and developing therapeutics to control cell production,
initially targeting the areas of oncology and inflammatory bowel
disease. With over 80% of adult cancers arising from epithelial tissue,
we believe that applying our understanding of epithelial stem cells
and cell production will identify new targets and pathways for
drug development.
Our Novel Therapies division continues to develop the regenerative
medicine collaboration with Novartis and is identifying the key regulators
of stem cells and epithelial cell production. The collaboration is now
beginning to yield initial hits/leads. The division’s primary focus is to
discover new drug leads across major epithelial diseases and expand
its technology and intellectual property portfolio alongside other
collaborative opportunities.
Epistem Holdings Plc Annual Report 2010
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Turnover£2.5m
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Contract Research Services
Divisional
development and
strengthened
operating margin
The Contract Research Services division provides preclinical
efficacy testing services in the areas of oncology, oncology
supportive care (mucositis), inflammatory bowel disease and
dermatology. The division saw continued growth and a broadening
of its customer base over the year.
The raised profile of the division and growing awareness of our
technical expertise continued to build demand for our specialised
drug efficacy and ‘mechanism of action’ models. Whilst revenue
growth over the year was modest at 10%, the overall quality of
business was significantly better with operating margin up
28% year on year, based on an improved mix of high margin
service business.
Strengthening partnerships
Over the year the division grew its average contract value, increased
the size of its customer base and enhanced its service offering. The
division is focused on developing key client relationships with large
pharmaceutical groups to generate a solid foundation for growth in
the current economic climate.
Biodefence
Our collaboration with the US National Institutes of Health (NIH)
continues to expand around the testing and efficacy of agents
under the MCART (Medical Counter measures Against Radiological
Threats) programme designed to address exposure to radiation or
nuclear attack. Through the expanding scope of the collaboration
we anticipate that our relationship with the US NIH and NIAID
(National Institute of Allergy and Infectious Diseases) will develop
further over the coming year.
Case Study: US National Institutes of Health
Epistem’s Contract Research Services division
provides scientific expertise and preclinical research
models to the NIH’s research programme on Medical
Countermeasures Against Radiological and Nuclear
Threats (MCART).
Immunohistochemistry
During the year the division launched a new hair immunohistochemistry
(IHC) model. Our contract research services group has seen a
significant growth in interest in this area. Immunohistochemistry
is widely used to understand the distribution and localisation of
differentially expressed proteins in biological tissue.
Outlook
A strengthened service offering, coupled with increased expertise
across each disease area, has ensured that the division is well
positioned for the year ahead. We will continue to nurture our key
customer relationships, together with extending into selected territories
through new business development and distributor opportunities.
Through increasing recognition of our core cell biology expertise and
the planned expansion of our service offerings, we anticipate that the
division will continue to deliver sustainable growth over the coming year.
Highlights
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Increased demand for oncology, mucositis and IHC
service offerings
Growth in US National Institutes of Health bio-defence
programme
Strengthening recognition of science base
Operating profit increased 28% year on year
Contract Research Services turnover
2010
£2.5m
2009
£2.3m
Epistem Holdings Plc Annual Report 2010
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+19%Year-on-year sales growth
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Personalised Medicine
Globally leading
biomarker and
diagnostic technology
Biomarkers
Biomarkers provide measures of biological processes that can
improve the precision with which we can guide drug development
and disease treatment. Epistem’s GenetRxTM technology measures
drug-induced changes in gene expression for drug development.
Following the creation of the division last year, the newly formed
group has continued to advance its technology with top tier
pharmaceutical partners and has extended its proprietary offering
to both tissue and blood biomarkers alongside its hair biomarker
position. The biomarker division is currently collaborating with
a number of major pharmaceutical groups including Novartis,
Astrazeneca and Johnson and Johnson.
Year-on-year revenues improved 19%, but this masked the
significant development underway to prepare the division for growth
in the coming year. With GCLP accreditation status now approved,
we have extended our business presence in the US through the set
up of our US office to provide a closer relationship with our key
pharmaceutical and biotechnology partners.
The biomarker division has developed a library of oncology pathway
markers through its bioinformatic dataset Pathway DirectTM. This
dataset and our novel application technologies will be used to
provide partner access to specific drug biomarkers in oncology
signal pathways.
Outlook
We anticipate a further strengthening in the growth of our biomarker
business division over the coming year underpinned by the extension
of our key collaborative relationships now unfolding in broader clinical
phase studies. We continue to search for a suitable partner to help
bolster our international coverage and growth ambition.
GenedriveTM (Point-of-Care molecular diagnostic device)
Molecular diagnostic testing is making headway into decentralised
settings such as hospitals, clinics and smaller labs. Molecular
diagnostic tests are being developed to provide rapid test results with
decentralised labs and ‘near patient’ settings viewed as the emerging
and growing market. The Point-of-Care (POC) market for tests in
infectious disease is particularly broad and captures: hospital
emergency rooms, GP/physician offices, community health centres
and health outreach programmes, such as sexually transmitted
disease (STD) and HIV clinics.
Trends show that hospital testing is expected to decrease as POC
tests becomes the preferred choice of diagnostic testing ‘near patient’
and in the community. The main objective is to keep patients out of
hospitals and to reduce the need to go to hospitals and to diagnose
patients in shorter timeframes to improve the quality of care. In addition,
rapid result generation is sought so that appropriate treatment can be
implemented without delay, leading to an improved clinical and
economic outcome.
Outlook
Epistem is unveiling GenedriveTM, a ‘first to market’ proprietary
and disruptive technology positioned to provide a new paradigm in
Personalised Medicine and point-of-care diagnostics. It builds on our
biomarker technology and existing assay expertise to provide a novel
simple to use and cost effective platform that will diagnose a range of
bacterial infections, pathogens and SNP gene mutations in less than
30 minutes. We anticipate formally launching GenedriveTM in 2011.
Highlights
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Good Clinical Laboratory Practice (GCLP) accreditation
status
Launch of proprietary GenetRx
TM brand
Unfolding biomarker technology across top-tier
pharmaceutical groups
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Development of Genedrive
TM
Case Study: GCLP Accreditation
The Biomarker division conducts gene expression
analysis to support clinical drug development programs
within pharmaceutical and biotechnology organisations,
with an increasing focus on providing valuable biomarker
information that can be used in drug development.
Personalised Medicine turnover
2010
£0.8m
2009
£0.7m
Epistem Holdings Plc Annual Report 2010
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£2.4m
Turnover
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Novel Therapies
Continued progress
towards new drug
targets
The Novel Therapies division is discovering the body’s own key
regulators of epithelial stem cells and tissues. The body’s own key
(protein) regulators are largely unknown because of the difficulties in
accessing and evaluating their effect in epithelial tissue. These key
regulators are responsible for restoring damaged tissue and for
maintaining ‘life-long tissue renewal’ throughout our lives.
The division is primarily focused on identifying the key regulators
of cells in the disease areas of cancer (based on 80% of cancer
originating from epithelial tissue), gastrointestinal disease, wound
healing and ageing.
Novartis collaboration
The discovery and development collaboration with Swiss based
Novartis AG continued to progress over the year with the Novel
Therapies division reporting its first full year revenue of £2.4m.
This collaboration revenue includes £1.4m ammortisation of
upfront income. New drug targets are continuing to emerge,
with the division positioning itself to create a pipeline of early
stage development targets. The discovery programme has
been constructed to identify and map regulators which control
the activity of cells and stem cells. Once regulators are identified,
our development ‘route map’ enables each hit to be characterised
for activity with a view to prioritising leads for further development.
This carefully constructed process is driving a comprehensive
understanding of cell inhibition, proliferation and self renewal,
which alongside signalling pathways and identified regulators will
allow us to better understand tissue control. The accounts for the
year do not include any license income and the timings of license
opportunities for targets and future development funding with
Novartis remain difficult to accurately predict.
Case Study: Novartis
At the first anniversary of the collaboration, we are
pleased with progress towards advancing our first
therapeutic hits/leads.
Partnerships
Based on our programme of discovery and early stage development,
interest continues to build around our core biology and molecular
pathway understanding. We have extended our in-house expertise
in signalling pathway bioinformatics and protein production to firmly
establish our internal discovery position. We continue to evaluate
other drug discovery opportunities with major industry players and
have recently commenced an internal small molecule programme
to identify our own proprietary leads for cell receptor regulation.
Outlook
We continue to build our understanding of the body’s key regulators
and we remain focused on identifying novel drug agents. We look
forward to continued progress under our Novartis collaboration and
to advancing other partnerships from our emerging hits/lead pipeline.
Highlights
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Progress towards new drug targets
Discovering and developing leads targeting cancer
(oncology) and gastrointestinal disease
Building intellectual property in identified regulators
of epithelial cells
Novel Therapies turnover
2010
2009
£1.0m
£2.4m
Epistem Holdings Plc Annual Report 2010
9
Our Business and Strategy
A strengthening business model
based on sustaining future growth
Epistem has an unrivalled knowledge of epithelial tissue
behaviour and an extensive array of stem cell assays,
which is increasingly a key consideration in the
development of new epithelial drugs.
Epistem has also developed an innovative library of
oncology biomarkers which coupled with our advance
into disease diagnostics will build a leading position in
personalised medicine.
Future Strategy
Discovery
Preclinical
Phase 1
Phase 2
Phase 3
Market
Contract
Research Services
Specialised efficacy testing in
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Oncology
Mucositis
Inflammatory bowel disease
Dermatology
Fee for service
Novel Therapies
Discovery hits/leads and
early stage development
Partnering and
licensing programmes
Biomarkers
Diagnostics
Personalised Medicine
Preclinical, clinical and
market programmes
Fee for service, partnering,
licensing and product sales
10 Epistem Holdings Plc Annual Report 2010
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Combined business model
Epistem’s combined business model has now yielded a profitable
and growing business across each of our three business divisions.
The Contract Research Services business has established robust
relationships with pharmaceutical and biotechnology leaders
worldwide and these relationships and our wide-ranging stem cell
services have provided the basis for partnering strategies for our
emerging Novel Therapies and Personalised Medicine businesses.
Partnering programme
We continue to work closely with our partners and customers
to build strong business relationships based on leading scientific
discovery and development. In addition to our first major collaboration
with Novartis, we are now nurturing other relationships to advance
our emerging hits/leads.
Licensing opportunities
The strength of our discovery platform underpinning the Company’s
Novel Therapies division continues to grow and this is partly reflected
in the number of potential drug candidates which the Company has
now identified. These candidates are undergoing development to
drive Epistem’s emerging drug development pipeline.
Epistem’s new Personalised Medicine division expands on last
year’s newly formed Biomarker division to advance a new ‘Point
of Care’ diagnostic device. We will continue to maintain our strong
intellectual property position in this area and develop our deepening
understanding of drug effect biomarkers and disease diagnosis.
Strategic Goals:
Growth:
We expect to deliver sustained revenue growth and increased
visibility and awareness of the Company and its achievements
over the forthcoming year.
Technical:
We will continue to exploit our core stem cell expertise and
build industry recognition around our stem cell science and gene
expression technology. We will advance new product developments,
Personalised Medicine partnerships and therapeutic leads
to underpin our continued commercial success.
Financial:
Continued revenue growth over the coming year is anticipated
with accelerated commercial delivery across all of our divisions.
Our combined business model will continue to strengthen and our
portfolio will enable us to accelerate investment across the Group
and consider acquisition opportunities where appropriate.
Investor:
Continued development across each of our business divisions
offers an increasingly attractive investment opportunity for both our
existing and new investors. The impressive revenue growth across
each of our divisions alongside increasing forecast revenues and
growing profitability demarks Epistem as an exciting growth stock
with significant potential upside.
Epistem Holdings Plc Annual Report 2010
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Strength in Depth
Epistem continues to expand its
technology offering, to maintain a
high rate of growth and profitability
The 2009/10 financial year saw Epistem continue its rapid
growth with year-on-year sales up 45%.
Highlights
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Year-on-year sales up 45% to £5.7m
All divisional revenues increased over the year
Contract Research Services operating profit up 28%
Expansion of Biomarker division to form new
Personalised Medicine division
Group operating profit up at £0.3m from a loss of £(0.7)m
Strengthened cash balance with improved
trading outlook
12 Epistem Holdings Plc Annual Report 2010
Market dynamics
International market conditions remained challenging during the
year with the healthcare sector continuing to pursue merger and
ongoing rationalisation. The Company has continued its strategy
of focusing on bringing new globally leading technology to market
whilst driving organic growth and cash generation.
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Group revenues
Contract Research Services revenues
Personalised Medicine and
Novel Therapies revenue
2010
2009
£5.7m
2010
2009
£4.0m
£2.5m
£2.3m
2010
2009
£1.7m
£3.2m
Against a challenging economic
background, Epistem’s year-on-year
consolidated revenues increased 45% to
£5.7m. Each division recorded increased
revenues over the previous year. Territory
revenues were split US 79%, EU 14%
and UK 7%.
The CRS division reports sales of £2.5m,
a 10% increase over the previous year.
The division saw increased demand for its
oncology and mucositis service offerings
along with expansion in the US NIH
biodefence contract.
Strong growth driven primarily by the
Novartis collaboration together with
Biomarker revenues helped sales rise
significantly over the year.
2010
£5.7m
Discovery, development
and admin cost
2010
£2.5m
2010
£3.2m
Profit before tax
Cash reserves
2010
2009
£2.7m
2010
£0.4m
£2.2m
2009
£(0.7)m
2010
2009
£5.4m
£3.7m
Investment in our Novel Therapies drug
discovery and development programme
accounted for £1.4m of the 2010 reported
figure with the remaining £1.3m cost
relating to central business overheads
and administrative operating costs.
Profit before tax for the period was
underpinned by a £1.1m profit improvement
from a loss of £(0.7)m to £0.4m.
Cash reserves were strengthened over the
year by the successful placing of shares in
November 2009.
2010
£2.7m
2010
£0.4m
2010
£5.4m
Epistem Holdings Plc Annual Report 2010
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Chairman’s Statement
David Evans
Non-executive
Chairman
Dear Shareholder,
I am delighted to report significant growth and ongoing improvement
in Epistem’s results for the year ended 30 June 2010.
Whilst market and trading conditions have remained volatile, the
Company continues to invest in and strengthen its foundations
and enjoyed a further exceptional year in difficult times.
Results
Further details of the results for the period are covered in the Chief
Executive Officer’s review, but operationally and financially the year
to 30 June 2010 saw the Company increase revenues by 45% to
£5.7m (2009: £4.0m) with a Group profit on ordinary activities before
taxation of £0.4m (2009: Loss £0.7m). Based on this improved trading
performance the Company generated an after tax profit of £0.3m
(2009: £0.1m). Cash reserves at the end of the period were £5.4m
(2009: £3.7m).
14 Epistem Holdings Plc Annual Report 2010
‘ Strengthening
foundations in
preparation for
continued growth’
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During the year the Company continued to make significant progress
across each of its divisions:
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Contract Research Services revenues grew by 10% to £2.5m
(2009: £2.3m). The extension of our service offerings and
continued expansion of our US government bio-defence contract
enabled the division to deliver a solid performance over the year.
With market uncertainties still persisting, the division continues
to build on its core scientific strengths to provide a firm platform
for future growth.
Biomarker revenue growth was marginally increased over the year
at £0.8m (2009: £0.7m), though this masked the significant effort
underway to position the division for future growth. As part of our
growth strategy to continue to develop this arm of the business
whether through the addition of new technologies or through
M&A, we are today announcing the creation of our Personalised
Medicine division which expands on our Biomarker technology to
provide a newly created ‘Point Of Care’ offering and the unveiling
of our ‘on the spot’ molecular diagnostic platform GenedriveTM.
The Novel Therapies division research and development
collaboration with Swiss based Novartis AG continued to develop
over the year with the division reporting its first full year revenue of
£2.4m (2009: £1.0m). New drug targets are continuing to emerge,
with the Novel Therapies division positioning itself to create a
pipeline of early stage development targets. The timings of license
opportunities and future development funding though remains
difficult to accurately predict.
Strengthened investor relations continue to advance the visibility
of the Company, with the £2.9m placing in November 2009
bringing several new institutional investors to the share register.
The Company now reports its second year of profits and a growth
in its earnings per share to 3.8p (2009: 1.1p).
Outlook
Epistem continues to build on its scientific and technical strengths
as it transforms into a diverse, technology leading, and profitable
biotechnology and personalised medicine group underpinned by
strong revenue growth. Against a backdrop of market uncertainty,
Epistem remains vigilant, with the outlook for the expanding group
increasingly positive.
Despite the tough market conditions, each divisional business is
establishing itself for growth in its chosen segment. The Contract
Research Services division buoyed by the expansion and anticipated
extension of the US biodefence contract is expected to perform well
over the coming year, with the newly formed Personalised Medicine
division and its disruptive biomarker and diagnostic technologies
providing further support for Epistem’s future growth. The Novel
Therapies drug discovery collaboration with Novartis is nearing
completion of its first phase, with the emergence of a newly formed
group of identified hits/leads. Whilst the timing of license and
development opportunities remains difficult to judge, we remain
optimistic about the growing strength of our hit/lead programme.
Epistem continues to refine its discovery and development technology
to position itself as a world leader in therapeutic discovery in the field
of epithelial stem cell regulation. With the profile and visibility of each
of our business divisions increasing, we expect to see the Company
advance quickly over the coming year.
I would like to thank the Chief Executive Officer for his leadership
and navigation of the Company during these difficult times. I would
also like to thank the Board and our employees for their effort and
commitment in driving Epistem’s progress over the past year, as well
as our investors whose valued support has provided a stable platform
for our continued growth.
David Evans
Non-executive Chairman
5 October 2010
Epistem Holdings Plc Annual Report 2010
15
Chief Executive’s Review
Matthew Walls
Chief Executive
Officer
16 Epistem Holdings Plc Annual Report 2010
Dear Shareholder,
Against the backdrop of changing times and economic uncertainty,
Epistem continues to make excellent progress in building itself
into a globally recognised Drug Discovery and Personalised
Medicine company.
The financial results for the Group presented in this announcement
reflect the results for the Group’s sole trading subsidiary for the year
to 30 June 2010 and for the comparative period to 30 June 2009.
Headline progress over the year included:
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Year-on-year net sales up 45%.
The Company reports its second year of profit growth
and an increase in earnings per share.
Novel Therapies sales increased to £2.4m, £1.4m increase
over the previous year.
Biomarker sales increased 19% year-on-year and now forms
part of the newly created Personalised Medicine division.
Development of our new Genedrive
molecular diagnostic device.
TM ‘Point of Care’ mobile
Contract Research sales increased by 10% over the previous year.
A strengthened cash balance of £5.4m and improved trading outlook.
‘ Divisional growth
and globally
leading technology’
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Integrated business model
The Company continues to progress its integrated business
model, with each division targeting revenue growth and profitability.
The establishment of independent divisions has created a strong
portfolio of growing and profitable business units rarely seen in a
biotechnology business model. Epistem provides a financially robust
business, whilst offering the potential of significant financial upside
from our Novel Therapies, Personalised Medicine and Contract
Research Services divisions. We continue to enhance and exploit our
integrated core competence in epithelial cell biology, whilst retaining
commercial independence across each of our divisions.
Financial review
The Company reports a turnover of £5.7m (2009: £4.0m) for the
year ended 30 June 2010. Revenues were underpinned by the
Contract Research Services division, which delivered sales of £2.5m
(2009: £2.3m) a 10% year-on-year growth. The Biomarker division
(now forming part of the Personalised Medicine division) saw sales
marginally increased to £0.8m (2009: £0.7m), with the Novel Therapies
division reporting increased sales of £2.4m (2009: £1.0m).
Consolidated territory revenues were split US 79% (63%), EU 14%
(19%) and UK 7% (18%), the US territory figures continue to be
strengthened by our US government and Novartis collaborations
and represents a major growth market for the Company.
Sales growth in Contract Research Services delivered a 28% increase
in operating profit of that division, with operating profit up to £0.7m
(2009: £0.6m). Increased Biomarker sales were partly offset by
growing investment in our Biomarker and Diagnostics developments
and the set up of our new US Biomarker operations to record a small
loss for the year. Novel Therapies reported a significant increase in
operating profit of £1.0m (2009: Loss £0.2m) driven by a full year’s
funding of £1.0m from the Novartis collaboration and £1.4m revenue
recognition from the up-front payment which is being spread over
the length of the contract. Central administration costs increased by
£0.2m to £1.3m (2009: £1.1m) primarily due to increased staff costs
and professional fees.
The Groups reported profit for the year was £0.3m (2009: £0.1m)
with headcount in the company now at 51 (2008: 45).
Cash reserves at the end of the year were £5.4m (2008: £3.7m)
benefiting from improved trading and funding from the November
2009 £2.9m placing.
Earnings per share increased to 3.8p per share (2009: 1.1p).
Clear investor communication of the Company’s strategy and
performance remains a key element of our success and we will
continue to strengthen communications as we embark upon
our next phase of growth.
The Company’s annual audit was completed in October 2010 by
HW Chartered Accountants, and their audit report is included
in the annual accounts.
2000
2002
2004
2005
2007
Company formation
Company sets up
Contract Research
Services group.
Drug discovery
Commencement of
research into epithelial
stem cell regulators.
New disease models
Company announces new
models in inflammatory
bowel disease.
Fundraising
Epistem closes
£2.0m fundraising.
LSE: AIM Admission
Successful IPO and AIM
Admission April 2007.
Epistem Holdings Plc Annual Report 2010
17
Chief Executive’s Review (continued)
‘Building shareholder value by providing a high
margin, diverse and rapidly growing portfolio
of world class technologies’
Operating review
Contract Research Services
Over the financial year, Contract Research Services delivered a 10%
year-on-year growth in revenue. Whilst market conditions remained
challenging, our specialist preclinical services continued to expand
and develop its business mainly with the larger pharmaceutical/
Biotechnology groups.
Revenue increases were seen in our major US and EU markets, with
the UK territory now representing the smallest territory in terms of
revenue generation. Interestingly, only 4 years ago, the UK had been
our major market. Our mucositis and inflammatory bowel disease
models showed the greatest gain over the year supported by our new
assays and technical developments. Our new client relationships and
aggregate contract values also continued their trend of year-on-year
increase over the year.
The US National Institutes of Health’s biodefence programme continues
to make good progress and continues to expand marking a significant
milestone in our tests for agents which may treat radiation sickness
following a nuclear incident. We enjoy a business relationship with the
US biodefence group which is based on many years of close working
and we expect this to continue over the forthcoming years.
A solid start to the new financial year and our focus on specialist testing
of preclinical drug compounds in our core disease areas continues to
provide an attractive business model from which we anticipate further
growth over the coming year.
Personalised Medicine
Following last year’s formation of the Biomarker division, we have
now expanded our Diagnostic assay developments alongside our
Biomarker technology to create a new ‘Personalised Medicine’
division. The oncology Biomarker business saw continued revenue
growth over the year and the set up of the new US Biomarker office.
We anticipate that US business expansion will continue to underpin
our business development with the division poised to accelerate
its revenue generation over the coming year. Our hair biomarker
continues to engage with a growing customer base and provides
a powerful measure of drug-induced gene expression for use in
pre-clinical and clinical studies. Use of our technology to identify drug
induced oncology genes (oncogenes) in molecular pathways is driven
by the regulatory authority requirements to show that developmental
drugs are effectively targeting these oncogenes. Our highly sensitive
amplification technology, RNA-AmpTM which underpins our Biomarker
technology has also recently been launched in a simple
to use kit form.
We are also unveiling our new GenedriveTM ‘Point Of Care’ (POC)
molecular diagnostic device for ‘on the spot’ patient diagnosis.
GenedriveTM is a unique, mobile and proprietary electronic device
which targets a rapid molecular diagnostic assessment (sub 30 mins)
for use in clinics, hospitals, surgeries as well as lending itself to
OTC opportunities. The device is expected to have other marketing
opportunities in veterinary, food and industrial use. We expect the
device to bring a new ‘standard of care’ to the rapid diagnosis of
pathogens and other molecular diseases.
Whilst technical and development risks may still arise around each
of our platforms, over time these continue to reduce. Validation of
the new GenedriveTM system is now underway, with beta site clinical
testing expected to start towards the end of this year with the launch
of the device anticipated in the first half of next year.
The Personalised Medicine market is forecast to grow considerably
over the next few years driven by effective patient treatment,
increasing regulatory requirements and patient specific drug
development and our platform technologies are well positioned
to capitalise on this market growth.
2008
2009
2010
Biomarker
Epistem creates new
Biomarker division.
Discovery collaboration
Epistem enters research
and development
collaboration with
Novartis AG.
Placing
Epistem completes
£2.9m share placing.
March
10 year anniversary.
July
Epistem reports
2nd year of
profitable growth.
18 Epistem Holdings Plc Annual Report 2010
i
R
e
v
e
w
o
f
t
h
e
Y
e
a
r
Novel Therapies
The Novel Therapies collaboration with Novartis is now in its second
year and we are seeing the emergence of the first hits/leads from
the Regenerative Medicine programme. Whilst these hits/leads
are still at the discovery stage, the core cell biology and signalling
pathways which regulate the cell/stem cell are becoming clearer and
better understood as we identify which genes and pathways regulate
specific characteristics of the cell. Our relationship with Novartis
remains strong and we will be advancing each of our hit/leads under
the collaboration over the coming year as we move into the next
phase of development. Despite our confidence in the collaboration
programme, the timing of potential licenses and future funding
remains difficult to judge with accuracy. With the first phase of the
discovery collaboration now nearing completion, discussions around
the second phase of hit/lead development and future licensing/
funding will continue into next year.
Aside from the Novartis collaboration, we have also commenced
a focused small molecule programme to establish our own proprietary
agents which regulate the signalling pathways and biology of the
cell. This will allow us to develop our own drug leads and reinforce
our lead position in the regulation of epithelial cells and stem cells,
focused in the disease areas of regenerative medicine and oncology.
We will continue to evaluate our other drug discovery and development
opportunities with the major industry players over the forthcoming
year to identify new lead developments and to expand our discovery
and early stage development platform.
Current trading and outlook
Epistem continues to diversify its portfolio of business opportunities
and strengthen its technology whilst maintaining profitable and
sustainable growth. The past year has seen further strong operational
and financial development across each of our divisions with each
division developing its own independent strategy for growth.
Trading in the first three months of the new financial year continues
strong with revenues 15% ahead of the comparative period last year.
The next phase of Epistem growth will continue to strengthen and
build on each of our divisional operations. We continue to supplement
our management team with world class, innovative individuals who
fit with the culture and dynamism of the Company. We will also build
on our corporate and board strength and supplement our scientific
advisory board and advisory committees as appropriate.
Our shareholder interest and support remains strong and we will
ensure that our ongoing investor communications continue to grow
this relationship.
A strengthening operational and financial position confirms our
belief that the year ahead will continue to generate substantial
increases in our forecast revenues and growth ambitions. We remain
selective in considering complementary technology, acquisitions
and in-licensing, with few opportunities thus far meeting our high
expectations. We continue to remain vigilant in our outlook in these
uncertain times.
Our ambition remains firmly fixed on building shareholder value
by providing a high margin, diverse and rapidly growing portfolio
of world class technologies.
I would like to thank the Board, management and employees for their
outstanding performance over the past year. I would also like to thank
our investors for their continued close support and interest in our
exciting and rapidly growing Company.
Matthew H Walls
Chief Executive Officer
5 October 2010
Epistem Holdings Plc Annual Report 2010
19
Board of Directors
20 Epistem Holdings Plc Annual Report 2010
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1. David Evans (50)
Non-executive Chairman
David joined Epistem as a Non-executive Director in June 2005
and became Executive Chairman in March 2006 until the flotation
in April 2007, when he reverted to a non-executive position. David,
a qualified accountant, has many years’ experience both as an
executive and as a non-executive of publicly listed diagnostic and
life science companies. In addition to his chairmanship of Epistem,
he is currently Non-executive Chairman of the following AIM listed
companies: Immunodiagnostic System Holdings plc, Omega
Diagnostics Group plc and Scancell Holdings Plc.
2. Matthew Walls (46)
Chief Executive Officer
Matthew joined Epistem in February 2007 as Chief Executive Officer.
He is an experienced CEO, most recently with Oxford Biosignals
Limited, where he led the strategic collaboration with Rolls-Royce Plc
and Covance Inc. Matthew spent the early part of his career with ICI
Plc, progressing through to AstraZeneca Plc prior to its plant crop
biotechnology group merger with Novartis to form Syngenta Plc.
Matthew has led the growth of several technology and biotechnology
companies as CEO, including Internexus Limited and Zylepsis Limited.
He holds a non-executive post at Continum Limited and Riyada
Oxford Investments Limited and is a chartered accountant and a
member of CIMA.
3. John Rylands (55)
Financial Director
John originally joined Epistem as an investor and Non-executive
Director, and in 2005 took over his current role. John provided
corporate finance advice to private companies before joining Epistem.
Until 1999 he was an investor in and consultant to the SDS group of
companies. John holds a degree in Economics and Accountancy
from Manchester University and is a member of ICAEW.
4. Jeffrey Moore, Ph.D. (51)
Managing Director, Novel Therapies
Jeffrey joined Epistem in 2005 in his current role. Prior to joining
Epistem he had been at Phylogix, a US biotechnology company which
he founded in 1998. Jeffrey has held two postdoctoral fellowships, at
DNAX Research Institute of Molecular and Cellular Biology Inc and the
Walter and Eliza Hall Institute of Medical Research, following which he
joined Imclone Systems Inc. Throughout his career, Jeffrey has kept a
strong interest in stem cell regulation and in identifying the potential
commercial application of these factors. He holds a Ph.D. from
George Washington University.
5. Prof. Chris Potten (69)
Chief Scientific Adviser
Chris is a co-founder of Epistem and the Company capitalises on
the results of the research that was produced by him and his team at
the Paterson Institute over the past three decades. Chris acts as Chief
Scientific Adviser to the Company, although he does not participate in
the day-to-day management of the Company. Chris retains a strong
interest in the progress and success of the Company and prior to
Epistem’s AIM listing was its biggest individual shareholder.
6. Catherine Booth, Ph.D. (45)
Managing Director, Contract Research Services
Catherine is a co-founder of Epistem and prior to starting Epistem,
she worked for ten years with Prof. Chris Potten at the Paterson
Institute. Whilst at the Paterson Institute, she developed many
pre-clinical assays. This knowledge is at the core of the Epistem
Contract Research Service. Catherine received her Ph.D. from
Emmanuel College, University of Cambridge.
7. Gerard Brady, Ph.D. (54)
Research Director
Gerard joined Epistem shortly after its inception from Manchester
University, where he was a lecturer, and was previously a Zeneca
Fellow. He brought with him important technological expertise gained
through working on blood stem cells. Of particular importance to
Epistem, is his expertise in single cell gene analysis, which enables
the examination of rare cells such as stem cells. Gerard previously
held scientific positions in Canada and at EMBL, Heidelberg.
8. Robert Nolan, Ph.D. (67)
Non-executive Director
Robert has been a Non-executive Director of the Company since
2004. He brings with him a wealth of expertise in partnering and
licensing negotiations with both small biotechnology and large
pharmaceutical companies. Prior to his retirement he was Director,
Global Licensing, at AstraZeneca Plc. He is also a Non-executive
Director of Phico Therapeutics Ltd.
9. Roger Lloyd, Ph.D. (62)
Non-executive Director
Trained as a biochemist, Roger has almost 35 years’ experience in
the healthcare and biotechnology sector, particularly in the areas of
strategic planning and business development. International business
management with ICI Plc and AstraZeneca Plc included living and
working in the US and Germany, and having territorial responsibilities
for Europe, Japan, Korea, Mexico and the Middle East. As Executive
Director of Global Licensing at AstraZeneca, he personally completed
24 transactions, including strategic alliances with Abgenix and CAT,
and acquisitions of KuDOS Pharmaceuticals and CAT. He operates
as a Board Adviser in the biotech sector.
Epistem Holdings Plc Annual Report 2010
21
Directors’ Report
For the year ended 30 June 2010
The Directors present their report for Epistem Holdings Plc (the Company) and its subsidiaries (together Epistem or the Group) for the year ended
30 June 2010.
Principal activities and review of the business
The principal activity of the Group during the year was the provision of services to the biotechnology and pharmaceutical industries, covering
pre-clinical testing and gene biomarker services and the development of novel therapeutics for partner companies. The trading activities of the
Group are currently principally undertaken in the subsidiary undertaking, Epistem Limited, and a detailed overview of these activities is outlined
in the Business Overview on the inside front cover to page 11 of this report. During the year, the Group established a US business development
office in Boston, MA, trading through its wholly owned subsidiary Epistem Inc., incorporated during the year.
A review of the business during the year which summarises overall progress, research and development and Key Performance Indicators, as
well as risks and developments is detailed in the Business Overview and Review of the Year on the inside front cover of this report.
Results and dividends
The trading results for the year and the Group’s financial position at the end of the financial year are shown in the Financial Statements on pages
29–51 of this report.
The Directors do not recommend payment of a final dividend.
Going concern
After due consideration, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence
for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.
Directors and their interests in shares
The Directors of the Company who held office throughout the year, unless otherwise stated, and their interests in the share capital of the
Company, including family and pension scheme trust interests, were as follows:
David Evans
Chris Potten
Catherine Booth
Gerard Brady
Roger Lloyd
Jeffrey Moore
Robert Nolan
John Rylands
Matthew Walls
1 July
2009
30 June
2010
80,645
80,645
919,320
519,320
980,419
981,538
419
–
14,919
8,065
1,538
–
16,038
8,065
190,317
191,436
6,064
7,183
Significant shareholdings
In addition to the Directors’ holdings, the Company has been advised of the following interests of over 3% of the issued ordinary shares:
Managed by Calculus Capital Ltd
Helium Special Situations Fund
Gartmore Investments Limited
Generali Finances
Northwest Business Investment Scheme
Ordinary Percentage
shares
holding
947,707
807,500
605,000
400,000
294,780
11.9%
10.2%
7.6%
5.0%
3.7%
Policy on payments to suppliers
It is the policy of the Company in respect of all of its suppliers, where reasonably practicable, to settle the terms of payment with those suppliers
when agreeing the terms of each transaction, to ensure that those suppliers are made aware of the terms of payment, and to abide by those
terms. The Group has complied with this policy during the year. The average number of creditor days for the Group was 83 (2009: 66) based on
the average daily amount invoiced by suppliers during the year.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Financial Statements in accordance
with applicable law and regulations.
22 Epistem Holdings Plc Annual Report 2010
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Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared
the Financial Statements in accordance with International Reporting Standards (IFRSs) as adopted by the European Union.
In preparing those Financial Statements, the Directors are required to:
•
•
•
•
select suitable accounting policies and then apply them consistently;
make suitable judgements and estimates that are reasonable and prudent;
state that the Financial Statements comply with IFRSs as adopted by the European Union, subject to any material departures being
adequately disclosed and explained; and
prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the Financial Statements.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Financial Statements
comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other
jurisdictions.
Principal risks
The Board meets regularly to review operations and to discuss risk areas. The Review of the Year on pages 12–19 reports on the factors
which are key to the ongoing development of the Company. The Corporate Governance Report contains details of the Group’s system of
internal control. Details of the financial risks are disclosed in Note 19 to the Financial Statements.
Provision of information to auditors
The Directors who were members of the Board at the time of approving the Directors’ Report are listed on pages 20 and 21. Having made
enquiries of fellow Directors and of the Group’s auditors, each of these Directors confirms that:
•
•
to the best of each Director’s knowledge and belief, there is no information (that is information needed by the Group’s auditors in connection
with preparing their report) of which the Group’s auditors are unaware; and
each Director has taken all the steps that a Director might reasonably be expected to be taken to be aware of relevant audit information and
to establish that the Group’s auditors are aware of that information.
Approved by the Board
H J J Rylands
Company Secretary
5 October 2010
Epistem Holdings Plc Annual Report 2010 23
Directors’ Remuneration Report
For the year ended 30 June 2010
Introduction
This report has been prepared in accordance with the requirements of Schedule 2 Pt1 to the Companies Act 2006 (the Schedule) and also
meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the Principles
of Good Governance relating to Directors’ Remuneration. In accordance with Section 439 of the Companies Act 2006 (the Act), a resolution to
approve the report will be proposed at the Annual General Meeting of the Company at which the Financial Statements are to be approved.
Section 495 of the Act requires the auditors to report to the Company’s members on the ‘auditable part’ of the Directors’ Remuneration Report
and to state whether, in their opinion, that part of the report has been properly prepared in accordance with Part 3 of the Schedule. This report
has therefore been divided into separate sections for unaudited and audited information.
Unaudited information
Remuneration policy
Executive remuneration packages are prudently designed to attract, motivate and retain Directors of the necessary calibre and to reward them
for enhancing value to shareholders. The performance measurement of the Executive Directors and key members of senior management and
the determination of their annual remuneration package is undertaken by the Remuneration Committee. The remuneration of the Non-executive
Directors is determined by the Board within limits set out in the Articles of Association.
Executive Directors are entitled to accept appointments outside the Company providing the Board’s permission is sought.
Non-executive Directors’ terms of engagement
The Non-executive Directors have specific terms of engagement. Their remuneration is determined by the Board. In the event that a
Non-executive undertakes additional assignments for the Company, the Non-executive’s fee will be agreed by the Company in respect
of each assignment.
Audited information
Aggregate Directors’ remuneration
Salary
& fees
£
Bonus
£
Pension
£
2010
Total
£
2009
Total
£
15,000
7,169
118,644
115,000
125,000
115,000
–
15,000
15,000
200,000
100,000
34,992
43,943
24,000
24,000
–
–
–
–
800,579
145,000
7,169
–
–
–
–
–
–
–
–
140,813
115,000
140,000
130.000
300,000
133,667
121,667
147,667
121,667
300,000
34,992
43,943
24,000
24,000
952,748
25,000
64,029
24,000
24,000
961,697
Executive
Catherine Booth
Gerard Brady
Jeffrey Moore
John Rylands
Matthew Walls
Non-executive
David Evans
Chris Potten
Roger Lloyd
Robert Nolan
24 Epistem Holdings Plc Annual Report 2010
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Directors’ share options
Details of the options for Directors who served during the year are as follows:
Executive
Catherine Booth (2)
Gerard Brady (2)
Gerard Brady (2)
Gerard Brady (2)
Gerard Brady (2)
Gerard Brady (2)
Gerard Brady (2)
Gerard Brady (4)
Jeffrey Moore (3)
Jeffrey Moore (1)
Jeffrey Moore (1)
Jeffrey Moore (1)
John Rylands (3)
John Rylands (1)
Matthew Walls (5)
Matthew Walls (6)
Non-executive
David Evans (1)
Robert Nolan (1)
Robert Nolan (1)
Chris Potten (2)
As at
1 July
2009
Options
granted
As at
30 June
2010
Exercise
price
Earliest
exercise
date
Expiry
date
15,528
88,800
3,200
2,200
1,800
24,224
12,653
57,727
83,333
100,000
83,333
83,333
83,333
127,847
177,653
80,644
62,112
78,000
15,528
15,528
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,528
88,800
3,200
2,200
1,800
24,224
12,653
57,727
83,333
100,000
83,333
83,333
83,333
127,847
177,653
80,644
62,112
78,000
15,528
15,528
£1.20
£0.50
£0.75
£0.75
£0.75
£1.20
£1.67
£1.60
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.24
£1.24
£1.20
£1.29
£1.20
£1.20
Exit
Exit
Exit
Exit
Exit
Exit
Exit
15/10/2010
04/04/2007
04/04/2007
01/09/2007
01/09/2008
04/04/2007
04/04/2007
31/10/2010
31/10/2010
04/04/2007
31/05/2005
10/01/2006
Exit
09/01/2016
06/01/2012
30/03/2013
06/04/2013
20/07/2014
24/11/2015
27/07/2017
15/10/2017
09/01/2016
09/01/2016
09/01/2016
09/01/2016
09/01/2016
09/01/2016
27/03/2017
27/03/2017
09/01/2016
30/03/2015
09/01/2016
09/01/2016
1. Unapproved stand-alone agreement, no performance criteria.
2. EMI Company scheme, no performance criteria.
3. EMI stand-alone scheme, no performance criteria.
4.
EMI and Unapproved stand-alone scheme, with performance criteria which require the Board to determine whether certain identified technical developments have
been completed.
EMI and Unapproved stand-alone scheme, with performance criteria which allow the options to vest (i) when the audited accounts for the year ended 30 June 2010
become available and (ii) when the earnings per share of the financial year are a positive figure.
5.
6. EMI stand-alone scheme, with performance criteria as detailed in (5) above.
Share Investment Plan
The details of the Epistem Share Investment Plan are outlined in Note 18(b) to the accounts. The Directors’ interests in the shares of the
Company include shares acquired under the Share Investment Plan as follows:
Partnership
shares
No.
Cost of
matching
shares
£
Total
matching
Total
SIP shares
Total
SIP shares
shares 30 June 2010 30 June 2009
No.
No.
No.
Catherine Booth
Gerard Brady
Jeffrey Moore
John Rylands
Matthew Walls
Approved by the Board
D Evans
Non-executive Chairman
5 October 2010
512
512
512
512
512
2,991
2,991
2,991
2,991
2,991
1,026
1,026
1,026
1,026
1,026
1,538
1,538
1,538
1,538
1,538
419
419
419
419
419
Epistem Holdings Plc Annual Report 2010 25
Corporate Governance Report
For the year ended 30 June 2010
The Group is subject to the continuing requirements of the AIM Rules and is committed to adhering to corporate governance standards
appropriate for a company of its size. The Group follows the Quoted Companies Alliance guidelines and has Remuneration, Audit and
Nominations committees with written terms of reference and a schedule of matters reserved for the Board, which generally meets each month.
The Board has established an Audit Committee, a Remuneration Committee and a Nominations Committee. The membership of these
committees and attendance at meetings is as follows:
Audit Remuneration Nominations
Committee
Committee
Committee
David Evans (Non-executive Chairman)
Robert Nolan (Non-executive Director)
Roger Lloyd (Non-executive Director), Remuneration and Nominations Committees only
3
3
N/A
3
3
3
1
1
1
Remuneration Committee
The Remuneration Committee will review the scale and structure of the Executive Directors’ and senior management’s remuneration and
the terms of their service contracts. The remuneration and terms of appointment of the Non-executive Directors will be set by the Board.
The Remuneration Committee will also approve the issue of share options under schemes approved by the Board.
None of the Committee have any personal financial interest (other than as shareholders), conflicts of interest arising from cross-directorships,
or day-to-day involvement in the running of the business. No Director plays a part in any discussion about his or her own remuneration.
Audit Committee
The Audit Committee has responsibility for receiving accounts and reviewing reports from the management and the Company’s auditors, relating
to Annual and Interim Accounts and the accounting and internal controls in place throughout the Group. At this stage of the Group’s size and
development, the Committee has decided that an internal audit function is not required as the Group’s internal controls system in place is
appropriate for its size. The Audit Committee has met three times during the year.
Nominations Committee
The Nominations Committee has responsibility for reviewing the size, structure and composition of the Board, as well as retirements and
appointments of replacement and additional Directors, and for making appropriate recommendations to the Board.
Relations with shareholders
The Group recognises the importance of communicating with its shareholders to ensure that its strategy and performance is understood and
that it remains accountable to shareholders. The Board as a whole is responsible for ensuring that a satisfactory dialogue with shareholders
takes place, while the Chairman and Chief Executive ensure that the views of the shareholders are communicated to the Board as a whole.
The Board ensures that the Group’s strategic plans have been carefully reviewed in terms of their ability to deliver long-term shareholder value.
Internal controls
The Board acknowledges its responsibility for establishing and maintaining the Group’s system of internal controls and will continue to ensure
that management keeps these processes under regular review and improves them where appropriate. The system of internal controls is
designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable and not absolute
assurance against material misstatement or loss.
Social, environmental and ethical matters
The Board recognises the growing awareness of social, environmental and ethical matters and it endeavours to take into account the interests
of the Group’s stakeholders, including its investors, employees, suppliers and business partners, when operating the business.
Employment
At a subsidiary level the individual company has established policies which address key corporate objectives in the management of employee
relations, communications and employee involvement, training and personal development and equal opportunities.
Health, safety and environmental issues
The Board recognises its legal responsibilities to ensure the well-being, safety and welfare of its employees and to maintain a safe and healthy
working environment for them and for its visitors and subcontractors. Health and Safety is on the agenda for regularly scheduled Board meetings.
By their nature, the Group’s regular operations are judged to have a low environmental impact and are not expected to give rise to any significant
inherent environmental risks over the next twelve months.
The Group is committed to maintaining high standards in implementing appropriate health, safety and environmental protection policies.
The Group has an excellent health and safety record. Waste materials are recycled where appropriate, and hazardous waste is catalogued
and handled by licensed specialist disposal companies.
26 Epistem Holdings Plc Annual Report 2010
Independent Auditors’ Report to the Members of Epistem Holdings Plc
For the year ended 30 June 2010
G
o
v
e
r
n
a
n
c
e
We have audited the group and parent company Financial Statements (the Financial Statements) of Epistem Holdings Plc for the year ended
30 June 2010 which comprise the group income statement, the group and parent company balance sheets, the group and parent company
cash flow statements, the group and parent company statements of changes in equity and the related notes. The financial reporting framework
that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs), as adopted by the European
Union and, as regards the parent company’s Financial Statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in
an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditors
As explained more fully in the Statement of Directors’ responsibilities set out in the Directors’ Report the directors are responsible for the
preparation of the Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the Financial
Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). These standards require us to comply
with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that
the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
•
•
whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied
and adequately disclosed; and
the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the Financial Statements.
Opinion on the Financial Statements
In our opinion:
•
•
•
•
the Financial Statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 30 June 2010,
and of the group’s profit for the year then ended;
the group Financial Statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company Financial Statements have been properly prepared in accordance with the IFRSs as adopted by the European Union
and as applied in accordance with the requirements of the Companies Act 2006; and
the Financial Statements have been prepared in accordance with the requirements of Companies Act 2006 and as regards the group
Financial Statements, Article 4 of the IAS regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
•
•
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
the information given in the Directors’ Report for the financial year for which the Financial Statements are prepared is consistent with the
Financial Statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006, we are required to report to you if, in our opinion:
•
•
•
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
the parent company Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
certain disclosures or directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we required for our audit.
Epistem Holdings Plc Annual Report 2010
27
Independent Auditors’ Report to the Members of Epistem Holdings Plc
(continued)
Under the Listing Rules we are required to review:
•
•
the Directors’ statement, set out in the Directors’ Report, in relation to going concern; and
the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2008 Combined
Code specified for our review.
Carol Graham FCA
(Senior Statutory Auditor)
For and on behalf of:
HW
Chartered Accountants & Statutory Auditors
Bridge House
157 Ashley Road
Hale
Altrincham
Cheshire
WA14 2UT
25 October 2010
28 Epistem Holdings Plc Annual Report 2010
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2010
A
c
c
o
u
n
t
s
Revenue
Contract costs
Discovery and development costs
General administrative costs
Operating profit/(loss)
Finance income
Finance costs
Profit/(loss) on ordinary activities before taxation
Taxation on ordinary activities
Total comprehensive income for the financial year
Earnings per share (pence)
– Basic
– Diluted
All of the activities of the Group are classed as continuing.
Notes
2010
£’000
2009
£’000
2
3
6
6
7
9
9
5,740
3,968
(2,697)
(1,433)
(1,298)
312
(2,424)
(1,131)
(1,114)
(701)
40
(2)
350
(60)
290
41
(9)
(669)
752
83
3.8p
3.3p
1.1p
1.0p
The Company has taken advantage of section 408 of the Companies Act 2006 not to publish its own income statement.
Epistem Holdings Plc Annual Report 2010 29
Consolidated Statement of Changes in Equity
For the year ended 30 June 2010
Equity
share
capital
£’000
Employee
share
Share
premium
incentive
account plan reserve
£’000
£’000
Share
options
reserve
£’000
Reverse
acquisitions
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
Balance at 1 July 2008
108
8,437
Allotment of ordinary shares
Exercise of options
Lapse of options
Recognition of equity-settled share-based payments
Total comprehensive income for the year
At 30 June 2009
Balance at 1 July 2009
Allotment of ordinary shares
Share issue costs
Purchase of own shares (SIP)
Exercise of options
Recognition of equity-settled share-based payments
Total comprehensive income for the year
–
–
–
–
–
24
6
–
–
–
108
8,467
108
8,467
11
–
–
–
–
–
2,873
(135)
–
1
–
–
–
–
–
–
–
–
–
–
–
–
(43)
–
–
–
547
(2,484)
(4,026)
2,582
–
(6)
(6)
71
–
606
–
–
–
–
–
–
–
6
–
83
24
–
–
71
83
(2,484)
(3,937)
2,760
606
(2,484)
(3,937)
2,760
–
–
–
(1)
28
–
–
–
–
–
–
–
–
–
–
–
–
290
2,884
(135)
(43)
–
28
290
5,784
At 30 June 2010
119
11,206
(43)
633
(2,484)
(3,647)
30 Epistem Holdings Plc Annual Report 2010
Consolidated Balance Sheet
As at 30 June 2010
A
c
c
o
u
n
t
s
Notes
2010
£’000
2009
£’000
Non-current assets
Intangible assets
Plant and equipment
Deferred taxation
Current assets
Trade and other receivables
Tax receivables
Cash and cash equivalents
Liabilities
Current liabilities
Deferred income
Trade and other payables
Obligations under finance leases
Corporation taxation
Bank overdrafts and loans
Net current assets
Total assets less current liabilities
Non-current liabilities
Deferred income
Obligations under finance leases
Net assets
Capital and reserves
Called-up equity share capital
Share premium account
Employee share incentive plan reserve
Share options reserve
Reverse acquisition reserve
Retained earnings
Total shareholders’ equity
10
11
12
13
14
15
16
17
15
17
22
23
23
23
23
23
135
608
536
1,279
1,011
150
5,371
6,532
974
1,014
37
2
–
2,027
4,505
5,784
–
–
5,784
119
11,206
(43) –
633
(2,484)
(3,647)
5,784
139
465
594
1,198
820
150
3,748
4,718
1,380
721
46
–
52
2,199
2,519
3,717
(920)
(37)
2,760
108
8,467
606
(2,484)
(3,937)
2,760
These Financial Statements were approved by the Directors and authorised for issue on 5 October 2010 and are signed on their behalf by:
D Evans
Non-executive Chairman
H J J Rylands
Company Secretary
Epistem Holdings Plc Annual Report 2010
31
2010
£’000
2009
£’000
312
169
28
509
(191)
(1,326)
293
(715)
40
–
40
(701)
131
71
(499)
(383)
2,300
293
1,711
41
183
224
(675)
1,935
(308)
(308)
(328)
(328)
2,884
(135) –
(43)
(48)
2,658
24
–
(53)
(29)
1,675
3,696
5,371
1,578
2,118
3,696
5,371
–
5,371
3,748
(52)
3,696
Consolidated Statement of Cash Flows
For the year ended 30 June 2010
Cash flows from operating activities
Operating profit/(loss) for the year
Depreciation, amortisation and impairment
Share-based payment expense
Operating profit/(loss) before changes in working capital and provisions
(Increase) in trade and other receivables
(Decrease)/increase in deferred income
Increase in trade and other payables
Net cash (outflow)/inflow from operations
Interest received
Tax received
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Acquisition of fixed assets
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Expenses of share issue
Purchase of own shares
Repayment of borrowings
Net cash inflow/(outflow) from financing activities
Net increase in cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Analysis of net funds
Cash at bank and in hand
Bank overdrafts
Net funds
32 Epistem Holdings Plc Annual Report 2010
Notes to the Financial Statements
For the year ended 30 June 2010
A
c
c
o
u
n
t
s
1. Significant accounting policies
Basis of accounting
The Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the
European Union and therefore comply with Article 4 of the EU IAS Regulation, International Financial Reporting Interpretations Committee (IFRIC)
interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
Epistem Holdings Plc is a company incorporated in the UK.
The Financial Statements consolidate those of the Company and its subsidiaries (together referred to as the Group). They are presented in
pounds sterling and all values are rounded to the nearest one thousand (£k) except where otherwise indicated.
The Financial Statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as
adopted by the EU.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods represented in these consolidated
Financial Statements.
The preparation of the Financial Statements requires management to make judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets, liabilities, duration of contracts, income, expenses and taxation.
•
•
•
Determining the value of Deferred income and expenditure requires an assessment of the duration of the contract to which the Deferred
income and expenditure relates which informs decisions as to when to recognise revenue and whether to carry forward costs.
Determining the value of Intangible assets requires a judgement about the extent to which the relevant asset will be brought into economic
use by the Company. The filing of a patent will generally lead to a judgement that the cost of filing the patent will have future economic use.
Research and development expenditure will generally be expensed unless associated income can be identified.
Determining the value of the deferred tax asset requires an estimation of future taxable profits against which the accumulated tax losses may
be utilised.
Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
Basis of consolidation
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable
or convertible are taken into account. The Financial Statements of subsidiaries are included in the consolidated Financial Statements from the
date that control commences until the date that control ceases. Transactions between Group companies are eliminated on consolidation.
On 16 March 2007, Epistem Holdings Plc merged with Epistem Limited, and on that date the shareholders of Epistem Limited exchanged their
shares for equivalent shares in Epistem Holdings Plc. As Epistem Holdings Plc was newly incorporated at the time of the transaction under the
terms of IFRS 3 Business Combinations, this transaction has been accounted for as a reverse acquisition, on the basis that the shareholders of
Epistem Limited gained a controlling interest in the Group. The Financial Statements therefore represent a continuation of the Financial
Statements of Epistem Limited.
Revenue
Revenue is measured at the fair value of the consideration received or receivable and net of discounts and sales-related taxes.
Revenue recognition
a. Contract revenue
Contract revenue is recognised by reference to the stage of completion of its related transaction at the end of the reporting period.
b. Collaboration and licensing revenue
Contractually agreed up-front payments and similar non-refundable payments in respect of collaboration or licence agreements which are
not directly related to ongoing research activity are recorded as deferred income and recognised as revenue over the anticipated duration
of the agreement. Where the anticipated duration of the agreement is modified, the period over which revenue is recognised is also modified.
Non-refundable milestone and other payments that are linked to the achievement of significant and substantive technological or regulatory
hurdles in the research and development process are recognised as revenue upon the achievement of the specified milestone.
Income which is related to ongoing research activity is recognised as the research activity is undertaken, in accordance with the contract.
Epistem Holdings Plc Annual Report 2010 33
Notes to the Financial Statements
(continued)
1. Significant accounting policies (continued)
Segment reporting
A segment is a group of assets, liabilities and operations engaged in providing products or services that are subject to risks and returns that are
different from those of other parts of the business. The Group’s primary format for segment reporting is based on business segments.
Research and development
Research and development expenditure is written off in the year in which it is incurred, unless associated income has been identified.
Intangible assets
Intangible assets are stated at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated so as to
write off the cost of an intangible asset, less its estimated residual value, over the useful economic life of that asset, as follows:
Intellectual property – 5% straight line basis
Patents – over their estimated useful lives on a straight line basis
No amortisation is charged on those assets which are not yet available for use.
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated so as
to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:
Plant & machinery – 25% reducing balance basis
Fixtures & fittings – 25% reducing balance basis
Equipment – 25% reducing balance basis
Finance lease agreements
Assets held under finance lease agreements are capitalised and disclosed as Plant and equipment. The capital element of the future payments
is treated as a liability and the interest is charged to the consolidated income account so as to produce a constant periodic rate of interest on the
remaining balance of the liability.
Operating lease agreements
Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against
profits over the period of the lease.
Foreign currencies
Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. Non-monetary items carried at fair
value and denominated in foreign currencies are retranslated at the rates prevailing on the date when fair value is determined. The foreign
currency risks relating to assets and liabilities are detailed in Note 19.
Exchange differences arising on the settlement of monetary items and on the retranslation of monetary items are taken to the income account.
Exchange differences arising on non-monetary items, carried at fair value, are included in the income account, except for such non-monetary
items in respect of which gains and losses are recorded in equity.
Share-based payments
The Group issues equity-settled and cash-settled share-based payments to certain employees (including Directors). Equity-settled share-based
payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments
is expensed on a straight line basis over the vesting period, together with a corresponding increase in equity, based upon the Group’s estimate
of the shares that will eventually vest.
Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management’s
best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Where the terms of an equity-settled transaction are modified, as a minimum an expense is recognised as if the terms had not been modified.
In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date
of modification.
Where an equity-settled transaction is cancelled, it is treated as if it had vested on the date of the cancellation, and any expense not yet
recognised for the transaction is recognised immediately. However, if a new transaction is substituted for the cancelled transaction, and
designated as a replacement transaction on the date that it is granted, the cancelled and new transactions are treated as if they were a
modification of the original transaction, as described in the previous paragraph.
34 Epistem Holdings Plc Annual Report 2010
A
c
c
o
u
n
t
s
The issuance by the Company of share options to employees of its subsidiary represents additional capital contributions and the fair value of
such options and awards is therefore recognised as an increase in the Company’s investment in Group undertakings with a corresponding
increase in total equity shareholders’ funds.
Share Incentive Plan
The Company operates an HMR&C qualifying Share Incentive Plan. Under the scheme, the Company may contribute Matching shares to
employees who elect to invest in Epistem shares under the scheme.
The Matching shares have vesting conditions, which require participants to remain employed with the Company and retain their investment in
Epistem shares for at least three years. The cost of the Matching shares is expensed as and when the vesting conditions have been satisfied.
Pension contributions
Contributions to personal pension plans of employees on a defined contributions basis are charged to the income statement in the year in which
they are payable.
Financial instruments
Financial instruments are classified and accounted for, according to the substance of the contractual arrangement, as either financial assets,
financial liabilities or equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the Company after
deducting all of its liabilities.
Trade and other receivables
Trade and other debtors are recognised and carried forward at invoiced amounts less provisions for any doubtful debts. Bad debts are written
off when identified.
Cash and cash equivalents
Cash and cash equivalents are included in the balance sheet at cost. Cash and cash equivalents comprise cash at bank and in hand and
short-term deposits with an original maturity of three months or less.
Interest-bearing loans and borrowings
All loans and borrowings are recognised initially at cost, which is the fair value of the consideration received, net of issue costs associated with
the borrowing.
After initial recognition, interest-bearing loans and borrowings are measured at amortised cost using the effective interest method. Gains or
losses are recognised in the consolidated income account when liabilities are derecognised or impaired, as well as through the amortisation
process.
Investments
Investments in subsidiaries are stated at cost less any provisions for impairment. An impairment is recognised when the recoverable amount of
the investment is less than the carrying amount.
Taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted, or substantially
enacted, by the balance sheet date.
Deferred tax is recognised in respect of all temporary differences identified at the balance sheet date, except to the extent that the deferred tax
arises from the initial recognition of goodwill (if amortisation of goodwill is not deductible for tax purposes) or 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 profit nor taxable profit
and loss. Temporary differences are differences between the carrying amount of the Group’s assets and liabilities and their tax base.
Deferred tax liabilities may be offset against deferred tax assets within the same taxable entity. Any remaining deferred tax asset is recognised
only when, on the basis of all available evidence, it can be regarded as probable that there will be suitable taxation profits, within the same
jurisdiction, in the foreseeable future against which the deductible temporary difference can be utilised.
Deferred tax is provided on temporary differences arising in subsidiaries, jointly controlled entities and associates, except where the timing of
reversal of the temporary difference will not reverse in the foreseeable future. Deferred tax is measured at the average tax rates that are expected
to apply in the periods in which the asset is realised or liability settled, based on tax rates and laws that have been enacted or substantially
enacted by the balance sheet date. Measurement of deferred tax liabilities and assets reflects the tax consequence expected from the manner
in which the asset or liability is recovered or settled.
Epistem Holdings Plc Annual Report 2010 35
Notes to the Financial Statements
(continued)
1. Significant accounting policies (continued)
New standards and interpretations not applied
The International Accounting Standards Board (IASB) and IFRIC have issued the following standards and interpretations with an effective date for
financial years beginning on or after 1 January 2010:
IFRS 3 (revised)
IFRS 7 (revised)
IAS 1 (revised)
IAS 7 (revised)
IAS 32 (revised)
IAS 36 (revised)
IAS 38 (revised)
IFRIC 15
Business combinations
Statement of cash flows arising from 2009 Annual Improvements
Presentation of Financial Statements, comprehensive revision
Statement of cash flows, arising from 2009 Annual Improvements
Puttable financial instruments
Impairment of assets, arising from 2009 Annual Improvements
Intangible assets, arising from 2009 Annual Improvements
Agreements for construction of real estate
The Directors do not anticipate that the adoption of these standards and interpretations will have a material effect on the Group’s Financial
Statements in the period of initial application.
2. Segment information
The Group’s primary reporting format is business segments and the secondary format is geographical segments.
Business segments
Contract
Research Personalised
Medicine
Services
£’000
£’000
Novel
Therapies Unallocated
£’000
£’000
Total
£’000
2,519
800
2,421
–
5,740
759
(31)
(6)
722
(51)
(36)
(12)
(99)
1,067
(1,265)
(80)
–
987
(22)
(11)
(1,298)
510
(169)
(29)
312
2,295
670
1,003
–
3,968
607
(37)
(7)
563
739
60
521
24
51
(24)
(19)
8
(103)
(1,054)
(53)
(2)
(17)
(43)
(158)
(1,114)
(499)
(131)
(71)
(701)
218
17
736
192
6,118
39
7,811
308
–
–
423
38
2,218
25
3,162
86
Twelve months ended 30 June 2010
Revenue
Segment trading result
– less depreciation and amortisation
– less equity-settled share-based payments
Operating profit/(loss)
Twelve months ended 30 June 2009
Revenue
Segment trading result
– less depreciation and amortisation
– less equity-settled share-based payments
Operating profit/(loss)
Twelve months ended 30 June 2010
Segment assets
Segment capital expenditure
Twelve months ended 30 June 2009
Segment assets
Segment capital expenditure
36 Epistem Holdings Plc Annual Report 2010
Geographical segments
The Group’s operations are located in the United Kingdom. The following table provides an analysis of the Group’s revenue by
geographical market:
A
c
c
o
u
n
t
s
United Kingdom
Europe
United States of America
Asia
2010
£’000
2009
£’000
412
782
4,524
22
5,740
687
762
2,508
11
3,968
Revenues from customers accounting for more than 10% of turnover are detailed below:
(a) £2,880k revenue, of which £1,380k represents recognition of deferred income, was derived from international pharmaceutical company,
Novartis, with revenue included in all divisions (2009: £1,222k). No milestone or licensing revenue was receivable in the year (2009: £nil); and
(b) £692k revenue was derived from the University of Maryland on behalf of the US Government with revenue included within Contract
Research Services (2009: £514k).
3. Operating profit/(loss)
The Group operating profit/(loss) is stated after charging:
Discovery and development expenditure
Amortisation
Depreciation of owned fixed assets
Depreciation of assets held under finance lease agreements
Auditors’ remuneration
– as auditors
– for other services
Operating lease costs – property rent
4. Particulars of employees
The average number of staff employed by the Group during the financial year amounted to:
Contract services
Research and development
Administrative
The aggregate payroll costs of the above were:
Wages and salaries
Social security costs
Equity-settled share-based payments
Pension payments
2010
£’000
2009
£’000
1,433
1,131
4 4
143
22
23
– 5
173
80
47
20
153
2010
No.
2009
No.
29
12 9
6 5
47
28
42
2010
£’000
2009
£’000
2,144
250
28
13 –
2,435
2,022
218
71
2,311
Epistem Holdings Plc Annual Report 2010
37
Notes to the Financial Statements
(continued)
5. Directors’ remuneration
Remuneration
Pension contribution
Equity-settled share-based payments
Full details of the Directors’ remuneration and Directors’ options are contained in the Directors’ Remuneration Report.
6. Finance income and costs
Finance income
– interest receivable
– differences in foreign exchange
Total finance income
Finance costs (finance leases)
7. Taxation on ordinary activities
(a) Recognised in the income statement
Current tax
Research and development tax credits
UK corporation tax on profits for the period
Adjustment relating to a previous period
Total current tax
Deferred tax
Prior year tax losses now recognised
Current year tax losses
Prior year capital allowances in excess of depreciation now recognised
Current year capital allowances in excess of depreciation
In respect of prior year share options charges now recognised
In respect of current year share options charges
Total deferred tax
2010
£’000
946
7 –
11
964
2009
£’000
961
53
1,014
2010
£’000
2009
£’000
8
32 –
40
41
41
(2)
(9)
2010
£’000
2009
£’000
–
2 –
–
2
(8)
20
–
52
–
(6)
58
(150)
(8)
(158)
(423)
(74)
26
49
(153)
(19)
(594)
Total tax charge/(credit) for the year
60
(752)
38 Epistem Holdings Plc Annual Report 2010
(b) Reconciliation of the total tax charge
Profit/(loss) before taxation
Tax using the UK corporation tax rate of 28% (2009: 28%)
Expenditure not deductible for tax purposes
Transfers from previously unrecognised deferred tax
Adjustments in respect of research and development tax credits
Adjustment relating to a previous year
Total tax in income statement
A
c
c
o
u
n
t
s
2010
£’000
2009
£’000
350
(669)
98
(187)
5 2
0
(35)
(8)
60
(550)
(9)
(8)
(752)
The Group had losses, as computed for tax purposes, of approximately £1,749k (2009: £1,764k) available to carry forward to future periods.
In accordance with the provisions of the Finance Act 2000 in respect of research and development allowances, the Group is entitled to claim
tax credits for certain research and development expenditure. The amount included in the Financial Statements in respect of the year ended
30 June 2010 is £nil (2009: £150k).
8. Profit attributable to members of the parent company
The profit dealt with in the accounts of the parent company was £6k (2009: £34k).
9. Earnings per share
The basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders for the year by the weighted average
number of ordinary shares in issue during the year less the weighted average number of Matching Shares held by the Epistem SIP which are not
yet vested.
The diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of
all dilutive potential ordinary shares in relation to share options and share warrants. The number of share options has been adjusted to take into
account the issue price and the fair value, consistent with IAS 33 Earnings per share.
Profit/(loss) for the year after taxation
Weighted average number of ordinary shares in issue
Dilutive ordinary shares from options and warrants in issue
Dilutive weighted average number of ordinary shares
Earnings per share
– basic
– diluted
2010
£’000
290
2010
No.
2009
£’000
83
2009
No.
7,649,732 7,201,928
739,372
1,075,938
8,725,670 7,941,300
3.8p
3.3p
1.1p
1.0p
Epistem Holdings Plc Annual Report 2010 39
Notes to the Financial Statements
(continued)
10. Intangible assets
Cost
At 1 July 2009
Additions
At 30 June 2010
Amortisation
At 1 July 2009
Charge for the year
At 30 June 2010
Net book value
At 30 June 2009
At 30 June 2010
Cost
At 1 July 2008
Additions
At 30 June 2009
Amortisation
At 1 July 2008
Charge for the year
At 30 June 2009
Net book value
At 30 June 2008
At 30 June 2009
Patents
£’000
Intellectual
property
£’000
Total
£’000
88
–
88
–
–
88
88
–
88
88
–
–
–
–
88
77
–
77
26
4
30
51
47
77
–
77
22
4
26
55
51
165
–
165
26
4
30
139
135
77
88
165
22
4
26
55
139
During the year to 30 June 2010, the cost of the Company’s Patents assessed as not having been brought into economic use amounted to £88k
(2009: £88k).
11. Plant and equipment
Cost
At 1 July 2009
Additions
At 30 June 2010
Depreciation
At 1 July 2009
Charge for the year
At 30 June 2010
Net book value
At 30 June 2009
At 30 June 2010
40 Epistem Holdings Plc Annual Report 2010
Lab
equipment
£’000
Fixtures
& fittings
£’000
Other
equipment
£’000
Total
£’000
885
269
1,154
482
143
625
403
529
19
11
30
12
4
16
7
14
110
28
138
1,014
308
1,322
55
18
73
55
65
549
165
714
465
608
Cost
At 1 July 2008
Additions
At 30 June 2009
Depreciation
At 1 July 2008
Charge for the year
At 30 June 2009
Net book value
At 30 June 2008
At 30 June 2009
A
c
c
o
u
n
t
s
Lab
equipment
£’000
Fixtures
& fittings
£’000
Other
equipment
£’000
Total
£’000
684
201
885
372
110
482
312
403
19
–
19
9
3
12
10
7
71
39
110
774
240
1,014
41
14
55
30
55
422
127
549
352
465
Obligations under finance leases
Included within the net book value of lab equipment is £67k (2009: £89k) relating to assets held under finance lease agreements.
The depreciation charged to the Financial Statements in the year in respect of such assets amounted to £22k (2009: £30k).
Capital commitments
Contracted but not provided for in the Financial Statements
12. Deferred taxation
Recognised
Tax losses carried forward
Excess of tax allowances over depreciation
Share-based payment transactions
2010
£’000
2009
£’000
–
120
2010
£’000
490
(124)
170
536
2009
£’000
497
(75)
172
594
Deferred tax assets are recognised to the extent that the Directors, having reviewed expectations of future profitability, consider it is probable that
there will be sufficient profit available against which the deferred tax asset may be utilised.
The Group did not recognise deferred tax assets in respect of share-based payment transactions of £2,963k (2009: £2,765k).
13. Trade and other receivables
Trade receivables
Other receivables
Prepayments
Accrued income
2010
£’000
2009
£’000
662
114
46
189
1,011
474
71
106
169
820
Epistem Holdings Plc Annual Report 2010
41
Notes to the Financial Statements
(continued)
13. Trade and other receivables (continued)
Analysis of trade receivables
Neither impaired nor past due
Past due but not impaired
Trade receivables
2010
£’000
2009
£’000
611
51
662
461
13
474
Ageing of past due but not impaired trade receivables
There is no other class of financial assets that is past due but not impaired except for trade receivables. The Group’s credit period generally
ranges up to 60 days. The age analysis of the trade receivables have been considered from the date of the invoice and, net of allowances that
are past due, is given below:
Not later than one month
Later than one month but not later than three months
14. Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
2010
£’000
2009
£’000
15 –
36
13
2010
£’000
2009
£’000
371
5,000
5,371
484
3,264
3,748
Cash and cash equivalents comprise current accounts held by the Group with immediate access and short-term bank deposits with a maturity
of three months or less. Market rates of interest are earned on such deposits. The credit risk on such funds is limited because the counter parties
are banks with high credit ratings assigned by international credit rating agencies.
15. Deferred income
The items recorded as Deferred income are to be recognised over future periods as follows:
2010
£’000
2009
£’000
974
–
974
1,380
920
2,300
2010
£’000
2009
£’000
457
213
344
1,014
349
147
225
721
Amounts to be recognised within one year
Amounts to be recognised within two to five years
16. Trade and other payables
Trade payables
Other payables
Accruals
42 Epistem Holdings Plc Annual Report 2010
17. Obligations under finance leases
Future commitments under finance lease agreements are as follows:
Due within one year
Due within two to five years
– less future finance charges
Present value of finance lease obligations
Current obligations
Non-current obligations
Obligations under finance leases
A
c
c
o
u
n
t
s
2010
£’000
2009
£’000
41
–
41
(4)
37
37
–
37
49
40
89
(6)
83
46
37
83
18. Share-based payments
(a) Share options outstanding at 30 June 2010
Prior to 28 November 2007, the Company operated a number of HMR&C approved and unapproved share option schemes for employees
(including Directors). The original options were granted by Epistem Limited but, following the acquisition by Epistem Holdings Plc, these were
released in exchange for equivalent options over the ordinary shares of Epistem Holdings Plc. On 28 November 2007 the Company established
the 2007 Epistem Share Option Scheme.
Share options
Award
EMI – Approved
EMI – Approved
EMI – Approved
EMI – Approved
Share Warrants (Note 22)
EMI – Unapproved
EMI – Approved
EMI – Unapproved
EMI – Approved
EMI – Approved
EMI – Approved
EMI – Unapproved
EMI – Approved
EMI – Unapproved
2007 Epistem Share Option Scheme
2007 Epistem Share Option Scheme
Number of
awards
Exercise
price
Period within which
options are exercisable
Fair value
per option
Fair value
£
88,800
11,200
9,000
10,200
198,554
78,000
31,824
472,153
197,722
9,400
80,644
177,653
25,903
57,727
71,918
65,800
£0.50
07 Jan 2002 to 06 Jan 2012
See note below
£0.75
£0.75
£0.75
£1.61
£1.29
£1.20
£1.20
£1.20
£1.20
£1.24
£1.24
£1.67
£1.60
£1.53
£1.77
31 Mar 2003 to 30 Mar 2013
07 Apr 2003 to 06 Apr 2013
21 Jul 2004 to 20 Jul 2014
18 Mar 2005 to 17 Mar 2015
31 Mar 2005 to 30 Mar 2015
25 Nov 2005 to 24 Nov 2015
10 Jan 2006 to 09 Jan 2016
10 Jan 2006 to 09 Jan 2016
29 Sept 2006 to 28 Sept 2016
28 Mar 2007 to 27 Mar 2017
28 Mar 2007 to 27 Mar 2017
27 Jul 2007 to 26 Jul 2017
15 Oct 2007 to 14 Oct 2017
03 Mar 2011 to 02 Mar 2018
31 Jul 2011 to 30 Jul 2018
28.2p
28.2p
26.6p
56.1p
44.9p
42.6p
42.6p
42.6p
41.6p
42.6p
42.6p
38.9p
36.0p
36.0p
37.0p
3,158
2,538
2,713
111,389
35,022
13,557
201,137
84,230
3,910
34,354
75,680
10,076
20,782
25,890
24,346
Epistem Holdings Plc Annual Report 2010 43
Notes to the Financial Statements
(continued)
18. Share-based payments (continued)
Option valuations
The options were valued using the Black-Scholes option-pricing model. Where appropriate, performance conditions were included in the fair
value calculations. The fair value per option granted and the assumptions used in the calculations are in the table below. The Group’s effective
date for IFRS 2 (Share-based payments) implementation is 1 July 2006 and the IFRS has been applied to all options granted after 7 November
2002 which have not been vested by this effective date.
Award
EMI – Approved
EMI – Approved
EMI – Approved
Share Warrants
EMI – Unapproved
EMI – Approved
EMI – Unapproved
EMI – Approved
EMI – Approved
EMI – Approved
EMI – Unapproved
EMI – Approved
EMI – Unapproved
2007 Epistem Share Option Scheme
2007 Epistem Share Option Scheme
Expected
term
(Note a)
Grant date
31 Mar 2003
5 years
07 Apr 2003
21 Jul 2004
18 Mar 2005
31 Mar 2005
25 Nov 2005
10 Jan 2006
10 Jan 2006
29 Sept 2006
28 Mar 2007
28 Mar 2007
27 Jul 2007
15 Oct 2007
03 Mar 2008
31 Jul 2008
5 years
5 years
5 years
5 years
5 years
5 years
5 years
5 years
5 years
5 years
5 years
5 years
5 years
5 years
Expected
dividend
yield
%
(Note b)
Expected
volatility
%
(Note c)
Risk
free rate
(Note d)
Performance
condition
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
60
60
60
60
60
60
60
60
60
60
60
45
45
45
40
3.75
3.75
4.50
4.75
4.75
4.50
None
None
None
None
None
None
4.50 See Note (e)
4.50
4.50
None
None
5.25 See Note (f)
5.25
See Note (f)
5.50
5.75
5.25
5.00
None
Note (g)
Note (h)
Note (h)
(a) The expected term used in the model is five years and is based upon the Directors’ best estimates for the effects of exercise restrictions and
behavioural considerations;
(b) The dividend yield of 0% reflects the absence of a history of paying dividends and a clear dividend policy at the relevant grant dates;
(c) The expected volatility at the date of grant was estimated by the Directors after inspection of the Financial Statements of comparable
businesses in the same business sector as the Group;
(d) The risk free rate used is based upon the prevailing UK bank base rate at the date of the grant;
(e) These options vest on dates dependant on anniversaries of commencing employment with the Group which commenced 1 September
2005 with the final tranche vesting on 1 September 2008;
(f) The main conditions for these options to vest are the later of (i) when the audited accounts for the year ended 30 June 2010 become available
and (ii) when the earnings per share of the financial year are a positive figure;
(g) These options are subject to performance criteria which are appropriate to the option holders’ role within the Company and which are
assessed by the Remuneration Committee.
(h) These options may be exercised following the third anniversary of grant and are subject to performance criteria which are appropriate to the
option holders’ role within the Company and which are assessed by the Remuneration Committee.
The number of options and their weighted average exercise prices are as follows:
Group
Outstanding as at 1 July
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding as at 30 June
Number
Weighted average
exercise price
2010
2009
2010
2009
Weighted average
remaining contracted
life – years
2010
2009
1,590,148 1,583,298
68,050
–
(19,200)
(2,900)
(42,000)
(750)
1,586,498 1,590,148
£1.28
–
£1.21
£1.76
£1.28
£1.26
£1.77
£1.27
£1.53
£1.28
5.62
6.62
Options exercisable at 30 June
1,190,483 1,193,383
£1.24
£1.24
5.11
6.11
The weighted average share price at the exercise dates was £3.23 (2009: £2.57).
44 Epistem Holdings Plc Annual Report 2010
A
c
c
o
u
n
t
s
(b) Share Investment Plan
During the year, the Company introduced the Epistem Share Investment Plan, SIP, which is open to Directors and employees in accordance
with HMR&C approved rules. Under the terms of the SIP, Directors and employees may invest up to £125 per month to be invested in ordinary
shares (Partnership Shares) in the Company at the prevailing market price. At the same time as each monthly subscription, a maximum of two
Matching Shares for each Partnership Share will be acquired on behalf of the SIP’s participants. Both the Partnership and the Matching Shares
are purchased on behalf of the scheme’s participants by Epistem SIP Trustee Limited, a wholly owned subsidiary of the Company. Participants,
who must be employed by the Company, may withdraw their Matching Shares once their associated Partnership Shares have been held for
three years. The cost of the Matching Shares is expensed as and when this vesting condition is met.
Capital SIP Shares
Partnership Shares held at 30 June
Matching Shares held at 30 June
2010
2009
5,852
11,694
N/A
N/A
Unamortised cost of Matching Shares (comprising Employee SIP reserve)
£43k –
19. Financial risk management objectives and policies
The Group holds or issues financial instruments in order to achieve three main objectives, being:
(a) to finance its operations; and
(b) to manage its exposure to interest and currency risks arising from its operations and from its sources of finance.
In addition, various financial instruments (e.g. trade receivables, trade payables, accruals and prepayments) arise directly from the Group’s and
the Company’s operations.
Transactions in financial instruments result in the Group assuming or transferring to another party one or more of the financial risks
described below.
Interest rate risk
The Group currently finances its operations through reserves of cash and liquid resources and does not have a borrowing requirement. Surplus
cash at bank is placed on deposits at variable rates. The Board monitors the financial markets and the Group’s own requirements to ensure that
the policies are exercised in the Group’s best interests.
The following table demonstrates the sensitivity to a possible change in interest rates on the Group’s profit before tax through the impact of
floating rate cash balances.
2010
Cash and cash equivalents
2009
Cash and cash equivalents
Decrease in
the basis
points
Effect on loss
before tax
and equity
£’000
25
25
5
5
An increase in 25 basis points would have a similar opposite effect.
Credit risk
The Group monitors credit risk closely and considers that its current policies of credit checks meet its objectives of managing exposure
to credit risk.
The Group has no significant concentrations of credit risk. Amounts shown in the balance sheet best represent the maximum credit risk
exposure in the event that other parties fail to perform their obligations under financial instruments.
Liquidity risk
The Board’s policy aims to ensure that sufficient funds are held on a short-term basis in order to meet operational needs.
Epistem Holdings Plc Annual Report 2010 45
Notes to the Financial Statements
(continued)
19. Financial risk management objectives and policies (continued)
Currency risk
The Group’s functional currency is sterling. The exposure to currency risk relates to licence income and those short-term trade receivables
which are not invoiced in sterling. There are no significant costs incurred that involve payments in foreign currency.
The Group has no forward contracts at the year end (2009: nil) to manage foreign currency risk.
Balances which are denominated in US dollars are detailed below:
Trade and other receivables
Cash and cash equivalents
2010
£’000
325
340
665
2009
£’000
121
479
600
The following table demonstrates the sensitivity to a possible change in currency rates on the Group’s loss before tax through the impact of
sterling weakening against the US dollar.
2010
Trade and other receivables
Cash and cash equivalents
2009
Trade and other receivables
Cash and cash equivalents
An increase in currency rate of 5% would have a similar opposite effect.
Fair values of financial assets and liabilities
There is no material difference between the book value and the fair value of the Group’s financial assets or liabilities.
20. Commitments under operating leases
At 30 June 2010 the Group had annual commitments under non-cancellable operating leases as set out below.
Operating leases which expire
Within one year
Decrease in
the currency
rate
Effect on loss
before tax
and equity
£’000
5%
5%
5% 6
5%
16
17
24
Land and buildings
2009
2010
£’000
£’000
148
143
The operating leases are in respect of the company’s office and laboratories which are held under short-term leases.
21. Related party transactions
At the balance sheet date, the amounts owed to the following Directors, Prof. C Potten and D Evans were £3k and £8k respectively
(2009: £7k and £3k). The transactions during the year with these related parties relate entirely to Directors’ remuneration for the year
and the amounts for each are detailed in the Directors’ Remuneration Report.
46 Epistem Holdings Plc Annual Report 2010
22. Share capital
On 25 November 2009, the Company adopted new Articles of Association which removed the requirement for the shareholders to proscribe a
level of Authorised share capital. Prior to 25 November 2009, the Authorised share capital had been set at 10,000,000 shares (£150k.)
A
c
c
o
u
n
t
s
Allotted and called up share capital:
At 1 July
Private placing
Exercise of options
2010
No.
2010
£’000
2009
No.
2009
£’000
7,211,083
720,000
2,900
108 7,191,883
–
10
1
19,200
108
–
–
Ordinary shares of £0.015 each
7,933,983
119 7,211,083
108
On 16 March 2007, the Company entered into a warrant instrument in respect of the subscription for up to 198,554 ordinary shares of £0.015
each in Epistem Holdings Plc. This warrant instrument replaced a previous warrant instrument created by Epistem Limited on 18 March 2005.
Each warrant confers the right to subscribe for one ordinary share at a subscription price of £1.61 per ordinary share. The subscription rights
under the warrants may be exercised up to 21 September 2015.
23. Reserves
Balance as at 1 July 2008
Total Comprehensive Income for the year
Allotment of ordinary shares
Exercise of options
Lapse of options
Recognition of equity-settled share-based payments in the year
Balance at 30 June 2009
Balance as at 1 July 2009
Total Comprehensive Income for the year
Allotment of ordinary shares
Share issue costs
Unamortised cost of Matching Shares
Exercise of options
Recognition of equity-settled share-based payments in the year
Balance at 30 June 2010
Share
Employee
premium share incentive
account plan reserve
£’000
£’000
Share
options
reserve
£’000
Reverse
acquisition
reserve
£’000
Retained
earnings
£’000
8,437
–
547
(2,484)
(4,026)
–
24
6
–
8,467
8,467
–
2,873
(135)
–
1
–
11,206
–
–
(6)
(6)
71
606
–
–
–
–
83
–
6
–
(2,484)
(3,937)
606
(2,484)
(3,937)
–
–
–
–
(1)
28
–
–
–
–
–
–
290
–
–
–
–
–
633
(2,484)
(3,647)
–
–
–
–
(43)
–
(43)
The reverse acquisition reserve arises as a difference on consolidation under merger accounting principles and is solely in respect of the merger
of the Company and Epistem Limited.
The employee share incentive plan reserve represents 11,694 shares in Epistem Holdings Plc (2009: nil shares) all of which are held by Epistem
SIP Trustee Limited. These shares are listed on the Alternative Investment Market and their market value at 30 June 2010 was £38k (2009: £nil).
The nominal value held at 30 June 2010 was £175 (2009: £nil).
Epistem Holdings Plc Annual Report 2010
47
Company Balance Sheet
As at 30 June 2010
Non-current assets
Investments
Current assets
Amounts receivable from Group undertakings
Cash and cash equivalents
Current liabilities
Trade and other payables
Net current assets
Total assets less current liabilities
Capital and reserves
Called-up equity share capital
Share premium account
Share options reserve
Retained earnings
Total shareholders’ equity
Notes
2010
£’000
2009
£’000
a
b
22
23
23
5,663
5,635
1,492
5,001
6,493
735
3,001
3,736
(2) –
6,491
12,154
3,736
9,371
119
11,206
633
196
12,154
108
8,467
606
190
9,371
These Financial Statements were approved by the Directors and authorised for issue on 5 October 2010 and are signed on their behalf by:
D Evans
Non-executive Chairman
H Rylands
Company Secretary
48 Epistem Holdings Plc Annual Report 2010
Company Statement of Changes in Equity
For the year ended 30 June 2010
A
c
c
o
u
n
t
s
At 1 July 2008
108
8,437
547
150
9,242
Share
capital
£’000
Share
premium
account
£’000
Share
options
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
Allotment of ordinary shares
Recognition of equity settled share-based payments
Exercise of options
Lapse of options
Profit for the year
At 30 June 2009
Balance at 1 July 2009
Allotment of ordinary shares
Share issue costs
Recognition of equity settled share-based payments
Exercise of options
Profit for the year
At 30 June 2010
–
–
–
–
–
24
–
6
–
–
–
71
(6)
(6)
–
108
8,467
606
–
–
–
6
34
190
24
71
–
–
34
9,371
108
8,467
606
190
9,371
11
–
–
–
–
2,873
(135)
–
1
–
–
–
28
(1)
–
–
–
–
6
2,884
(135)
28
–
6
119
11,206
633
196
12,154
Epistem Holdings Plc Annual Report 2010 49
Company Statement of Cash Flows
For the year ended 30 June 2010
Cash flows from operating activities
Profit for the year
Operating profit before changes in working capital and provisions
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Cash (outflow)/inflow from operations
Interest received
Tax (paid)/received
Net cash outflow from operating activities
Cash flows from financing activities
Proceeds from issue of share capital
Expenses of share issue
Net cash inflow from financing activities
Net increase in cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Analysis of net funds
Cash at bank and in hand
Bank overdrafts
Net funds
2010
£’000
2009
£’000
– –
– –
(757)
–
(757)
8
– –
8
961
(19)
942
34
34
(749)
976
2,884
(135) –
2,749
2,000
3,001
5,001
5,001
– –
5,001
24
24
1,000
2,001
3,001
3,001
3,001
50 Epistem Holdings Plc Annual Report 2010
Notes to the Company Financial Statements
For the year ended 30 June 2010
a. Investments
The Company is the holding company of the Group.
A
c
c
o
u
n
t
s
The Company owns 100% of the issued share capital of Epistem Limited and Epistem SIP Trustees Limited, companies both registered in
England and Wales. The issued share capital is fully paid and is included in the consolidated Financial Statements of the Group. The principal
activity of Epistem Limited is the provision of services to the biotechnology and pharmaceutical industries. The principal activity of Epistem SIP
Trustees Limited is to act as trustee to the Epistem Share Incentive Plan. On 29th August 2009 Epistem Holdings Plc subscribed for 100%
of the share capital of Epistem Inc., a company that was incorporated in United States of America. The principal activity of Epistem Inc. is the
provision of services to the biotechnology and pharmaceutical industries.
Cost
At 1 July 2009
Additions
At 30 June 2010
Net book value
At 30 June 2009
At 30 June 2010
Cost
At 1 July 2008
Additions
At 30 June 2009
Net book value
At 30 June 2008
At 30 June 2009
Investment in
subsidiary
£’000
5,635
28
5,663
5,635
5,663
Investment in
subsidiaries
£’000
5,564
71
5,635
5,564
5,635
Additions in the year ended 30 June 2010 comprised the fair value of the share options issued to employees of the subsidiary undertaking during
the year of £28k. Additions in the year ended 30 June 2009 comprised the fair value of the share options issued to employees of the subsidiary
undertaking during the year of £71k. Full details of the share options issued are set out in Note 18 to the consolidated Financial Statements.
b. Cash and cash equivalents
Company
Cash at bank and in hand
Short-term bank deposits
2010
£’000
2009
£’000
1
5,000
5,001
1
3,000
3,001
Cash and cash equivalents comprise current accounts held by the Group with immediate access and short-term bank deposits with a maturity
of three months or less. Market rates of interest are earned on such deposits. The credit risk on such funds is limited because the counter parties
are banks with high credit ratings assigned by international credit rating agencies.
c. Related party transactions
During the course of the year, Epistem SIP Trustee acquired 11,694 (2009: nil) shares in Epistem Holdings Plc on behalf of the Epistem Share
Investment Plan at a cost of £43k (2009: nil).
Epistem Holdings Plc Annual Report 2010
51
Notes
52 Epistem Holdings Plc Annual Report 2010
Business Overview
Introductory Highlights
What We Do
Epistem: Contract Research Services
Epistem: Personalised Medicine
Epistem: Novel Therapies
Our Business and Strategy
Review of the Year
Strength in Depth
Chairman’s Statement
Chief Executive’s Review
IFC
2
4
6
8
10
12
14
16
Governance
Board of Directors
Directors’ Report
Directors’ Remuneration Report
Corporate Governance Report
Independent Auditors’ Report
Accounts
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Company Statement of Cash Flows
Notes to the Company Financial Statements
Directors, Secretary and Advisers
20
22
24
26
27
29
30
31
32
33
48
49
50
51
IBC
Year of profit
2nd
45%
5.4m
Revenue growth year-on-year
Cash balance (£million)
Directors, Secretary and Advisers
Directors
David Evans
Matthew Walls
Chris Potten
Catherine Booth
Gerard Brady
Roger Lloyd
Jeffrey Moore
Robert Nolan
John Rylands
Company Secretary
John Rylands
Registered Office
48 Grafton Street
Manchester M13 9XX
United Kingdom
Registrars
Neville Registrars Limited
18 Laurel Lane
Halesowen B63 3DA
Nominated Adviser and Broker
KBC Peel Hunt Limited
111 Old Broad Street
London EC2N 1PH
Legal Advisers
McGrigors LLP
Princes Exchange
1 Earl Grey Street
Edinburgh EH3 9AQ
Auditors
HW Chartered Accountants
Bridge House
157 Ashley Road
Hale
Altrincham
Cheshire WA14 2UT
Principal Banker
Natwest Commercial Banking
1 Spinningfields Square
Deansgate
Manchester M3 3AP
Printed on Revive 50:50 Gloss.
Revive 50:50 Gloss is an FSC-recognised paper, produced from
well-managed forests, and recycled wood or fibre. This publication
was printed with vegetable oil-based inks by an FSC-recognised
printer that holds an ISO 14001 certification.
Cover and IFC photography by Hubert Sieverding
Epistem Holdings Plc
Annual Report and Accounts 2010
Controlling life-long tissue renewal
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Epistem Plc
48 Grafton Street
Manchester M13 9XX
United Kingdom
T +44 (0)161 606 7258
F +44 (0)161 606 7348
www.epistem.co.uk
Divisional development
and core company strength