Renovo

financial review

Summary of financial review

Cash consumed by operations during the year was

£21.0 million
(2008: £18.3 million)

Net cash position including investments
at 30 September 2009 was

£65.3 million
(2008: £82.6 million)

David Blain
Renovo’s balance sheet remains strong with £65.3 million in cash and investments at 30 September 2009.

Overview

The results for the year have been significantly influenced by both the commencement of our first pivotal Phase 3 pan-European trial for Juvista and the significant reduction in achievable interest rates on our cash investments. We continue to invest with counterparties who have the highest credit ratings and both during the year and since the year end there has been no impairment in the carrying value of our investments. The volatility of our major trading currencies has also posed challenges during the year. However, and despite these difficulties, the overall results are in line with management’s expectations.

Cash flow

During 2009 the cash consumed by operations was £21.0 million (2008: £18.3 million). The cash on hand and on term deposits at 30 September 2009 was £65.3 million (2008: £82.6 million). Interest receivable from placing funds on short-term deposits generated income of £2.6 million (2008: £5.1 million).

Operating income

Revenue of £5.1 million (2008: £7.6 million) was generated as a result of our licensing agreement with Shire. £2.7 million arose from the release of deferred income (2008: £3.6 million) and £2.4 million represents recharges of costs incurred (2008: £4.0 million). In accordance with our accounting policy the deferred revenue is being recognised over the period of the associated development agreement. Revenue related research and development expenditure amounted to £3.3 million (2008: £5.1 million).

Operating expenses

Since commencing commercial operations, the Group has been focused on drug discovery and development programmes.

In the current year we again expensed all research and development costs in the period in which they were incurred. Given the stage of development of our drug pipeline, most of our costs are related to the execution of our clinical trials and the largest single cost category is costs of research and development personnel.

Research and development expenses were £21.6 million (2008: £23.7 million) representing 78% (2008: 80%) of total operating expenses for the year. Research and development expenses include costs for:

  • personnel associated with research and development activities;
  • clinical trials;
  • formulation and manufacturing activities including process validation;
  • pre-clinical studies, including toxicology;
  • regulatory affairs;
  • IT development of image management systems; and
  • quality assurance activities.

Administrative expenses consist primarily of remuneration for employees in executive and operational functions including finance, business development and human resources. Other significant administrative expenses include facilities costs and professional fees for accounting and legal services.

The Group is required to expense the cost of share incentives granted to employees in accordance with IFRS 2. This cost, which is not a cash item, amounted to £0.5 million (2008: £1.5 million).

Finance income

Finance income consists of bank interest received on short-term cash deposits and investments. The Group is principally equity funded and invests its funds in short-term bank deposits with a panel of financial institutions generally rated AA or better (or equivalent ratings). We impose an upper limit for each counterparty investment to ensure our investment risk is spread.

Tax on loss on ordinary activities

We continue the policy of surrendering tax losses by making research and development tax credit claims to the tax authorities and this year anticipate a tax credit receivable of £3.0 million (2008: £3.3 million) under this scheme. Recent legislative changes to the scheme are unlikely to affect our policy in the foreseeable future. Indeed, the amount we are able to claim under the scheme is capped to the total payments we make to HMRC for PAYE and NIC in each financial year.

Corporate restructure

We have implemented a plan to reduce the staffing levels by around one third. The primary aim of the plan is to ensure that we have remaining cash resources of £25 million to £30 million when the first Juvista phase 3 trial reports in H1 2011. The restructuring was completed by 30 November 2009 and, as the decision to go ahead with the restructuring was made in September 2009, we have accrued in these accounts an amount of £0.4 million to cover the redundancy and associated costs.

Outlook

Renovo’s main priority is to progress the clinical trials on its major pipeline candidates, particularly the EU Phase 3 programme for Juvista. Accordingly the Group expects to incur net cash outflows over the next several years as a result of continuing clinical development and the associated regulatory approval process. Renovo’s balance sheet remains strong with £65.3 million in cash and investments at 30 September 2009.


MR DAVID BLAIN

CHIEF FINANCIAL OFFICER
AND COMPANY SECRETARY