Oxford Biomedica Interim Results
OXFORD BIOMEDICA PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2019
Oxford, UK – 4 September 2019: Oxford Biomedica plc (“Oxford Biomedica” or “the Group”) (LSE: OXB), a leading gene and cell therapy group, today announces interim results for the six months ended 30 June 2019.
FINANCIAL HIGHLIGHTS
- Revenues were £32.1 million, a decrease of 9% (H1 2018: £35.3 million) reflecting the significant licence income received in H1 2018. However, bioprocessing and commercial development revenues increased 23% over H1 2018
- Operating EBITDA1 loss and operating loss of £1.4 million and £6.1 million respectively (H1 2018: £11.9 million and £9.4 million profit) were incurred due to lower revenues and increased expenditure to strengthen the Group’s operational and strategic capacity in preparation for further volume growth in bioprocessing volumes
- £11.5 million ($15 million) Axovant milestone achieved in H1 2019 with the dosing of the first patient in the second cohort of the AXO-Lenti-PD Parkinson’s disease clinical trial
- Novo Holdings A/S invested £53.5 million in the Group, representing 10.1% of the outstanding shares after the capital increase. The proceeds from the transaction were used to fully repay the debt facility of £43.6 million ($55 million) with Oaktree Capital Management in addition to providing funding to further develop Oxford Biomedica’s platform and product portfolio. This leaves the Group with a simplified, stronger balance sheet and removed the lien over the Group’s assets
- Cash generated from operations was £1.3 million compared to £18.3 million in H1 2018 reflecting the Axovant and Sanofi (Bioverativ) licence fees received in H1 2018
- Cash at 30 June 2019 was £26.1 million (31 December 2018: £32.2 million), reflecting expenditure in relation to the ongoing build and fit out of the new OxBox bioprocessing facility and the net cash inflow from the investment by Novo Holdings A/S after the loan facility repayment
- OxBox bioprocessing facility construction is progressing as planned with the Group’s capital expenditure increasing to £14.9 million in H1 2019 compared to £6.0 million in H1 2018, the cost of which was partly offset by £2.0 million of Innovate grant funding received to support the UK’s efforts to produce viral vectors and ensure adequate supply to service expected demand
1Operating EBITDA is defined as Earnings Before Net Finance Costs, Tax, Depreciation, Amortisation, Fair value adjustments of available-for-sale assets and share based payments. A reconciliation to GAAP measures is provided on page 8.
OPERATIONAL HIGHLIGHTS
Progress with proprietary product development
- The first patient of the second cohort in the SUNRISE-PD Phase 2 trial was dosed for the treatment of Parkinson’s disease in April 2019 triggering a £11.5 million ($15 million) milestone to Oxford Biomedica. Axovant expects initial data from this cohort in the fourth quarter of 2019. While the milestone is recognised in the first half, payment is due in the second half and hence was included in trade receivables at period end
Leading LentiVector® delivery platform for gene and cell therapy partnerships
- Oxford Biomedica entered into an R&D collaboration and option & licence agreement with Santen Pharmaceutical Co Ltd for development of gene therapy vectors for an undisclosed inherited retinal disease
- Oxford Biomedica is entitled to an undisclosed milestone payment from Santen on the exercise of the option to the LentiVector® platform as well as development milestones and up to a 10% royalty on net sales. Santen has worldwide commercial rights to the programme, while Oxford Biomedica retains an option to co-fund and participate in development and commercialisation of the product in the US and Europe
Novartis Collaboration
- Oxford Biomedica is the sole global supplier of lentiviral vector for Kymriah® and the collaboration with Novartis continues to perform well
- Global roll out of Kymriah® in both relapsed and refractory B-cell acute lymphoblastic leukaemia (r/r ALL) and relapsed and refractory diffuse large B-cell lymphoma (r/r DLBCL) indications continues at pace with 19 countries worldwide that have approved reimbursement in at least one indication
Innovation
- R&D collaboration announced with Microsoft to improve gene and cell therapy manufacturing using intelligent cloud and machine learning with the aim of improving yield and quality of the next generation gene therapy vectors
- Increasing use of robotics and automation across the platform aided in part by Innovate UK grants
Building the Future
- The development and fit out of the new 84,000 sqft manufacturing facility is progressing as planned with completion of the building phase by the end of 2019. The site is expected to be fully operational by the end of the second quarter 2020
- Successful conversion of a second GMP production suite to bioreactor process during H1 2019
- Lease signed for an additional 32,000 sqft discovery and innovation facility next to Windrush Court. The Windrush Innovation Centre will be staffed by multidisciplinary teams and will focus on driving innovations and technological advances to support both the product pipeline and platform
Commenting on the Group’s interim results, John Dawson, Oxford Biomedica’s Chief Executive Officer, said: “Oxford Biomedica has continued to make strong progress in first half of 2019 building on the existing and new partnerships signed in 2018. We are delighted with the 23% growth in bioprocessing and commercial development revenues and also the new collaborations we have signed with Santen and Microsoft. Our expansion to meet the fast growing demand in the cell and gene therapy arena is progressing as planned and we expect further deals to be signed this year. The addition of Novo Holdings as a shareholder and the paying down of the Oaktree loan puts the Group on a far stronger footing to maximise the opportunity we see in front of us.”
Conference call for analysts:
A briefing for analysts will be held at 13:00 BST / 8:00 EST on 4 September 2019 at 85 Gresham Street, London, EC2R 7HE. There will be a simultaneous live conference call with Q&A and the presentation will be available on the Group’s website at www.oxb.com.
Please visit the website approximately 10 minutes before the conference call to download the presentation slides. Conference call details:
Participant UK dial-in: +44 (0) 203 009 5710
Participant US dial-in: +1 9177 200178
Participant code: 2819988
A live webcast of the presentation will be available on Oxford Biomedica’s website at https://edge.media-server.com/mmc/p/eagi4mu6
Enquiries: | ||||
Oxford Biomedica plc John Dawson, Chief Executive Officer Stuart Paynter, Chief Financial Officer Catherine Isted, Head of Corporate Development & IR Sarah MacLeod, Head of Communications | T: +44 (0)1865 783 000 T: +44 (0)1865 783 000 T: +44 (0)1865 954 161 / E: ir@oxb.com T: +44 (0)1865 783 000 / E: media@oxb.com |
Consilium Strategic Communications Mary-Jane Elliott/Matthew Neal | T: +44 (0)20 3709 5700 |
Peel Hunt (Joint Corporate Brokers): T: +44 (0)20 7418 8900
James Steel
Dr. Christopher Golden
WG Partners (Joint Corporate Brokers): T: +44 (0)20 3705 9321
David Wilson
Claes Spång
About Oxford Biomedica
Oxford Biomedica (LSE:OXB) is a leading gene and cell therapy group focused on developing life changing treatments for serious diseases. Oxford Biomedica and its subsidiaries (the "Group") have built a sector leading lentiviral vector delivery platform (LentiVector®), which the Group leverages to develop in vivo and ex vivo products both in-house and with partners. The Group has created a valuable proprietary portfolio of gene and cell therapy product candidates in the areas of oncology, ophthalmology and CNS disorders. The Group has also entered into a number of partnerships, including with Novartis, Sanofi, Bioverativ (now part of Sanofi), Axovant Sciences (now Axovant Gene Therapies), Orchard Therapeutics, Santen, Boehringer Ingelheim, the UK Cystic Fibrosis Gene Therapy Consortium and Imperial Innovations, through which it has long-term economic interests in other potential gene and cell therapy products. Oxford Biomedica is based across several locations in Oxfordshire, UK and employs more than 480 people. Further information is available at www.oxb.com
OVERVIEW
The first half of 2019 has seen Oxford Biomedica continue to make strong progress not only building on the existing and new partnerships signed in 2018 but also in signing new collaborations with Santen and Microsoft. The Group’s partners have made significant steps forward with Novartis’ Kymriah® sales growth building momentum as more countries approve the reimbursement of the product in at least one indication and Axovant’s AXO-Lenti-PD moving into a second dose cohort, triggering a £11.5 million ($15 million) milestone payment payable to the Group. The Group ended the first half of the year with a significantly stronger Balance Sheet, having repaid in full the Oaktree loan following the £53.5 million investment from Novo Holdings. Looking to the future, the Group’s expansion plans to increase the number of GMP clean rooms from four to seven with the new 84,000 sqft facility is on track for completion of the building phase by year end.
OPERATIONAL REVIEW
Novartis collaboration progress
The collaboration with Novartis signed in July 2017 for the commercial and clinical supply of lentiviral vectors used to generate Kymriah®and other undisclosed CAR-T products continues to be strong with Oxford Biomedica as the sole global supplier of lentiviral vector for Kymriah® (tisagenlecleucel, formerly CTL019).
Global roll out of Novartis’ Kymriah®, in both relapsed and refractory B-cell acute lymphoblastic leukaemia (r/r ALL) and relapsed and refractory diffuse large B-cell lymphoma (r/r DLBCL) indications continues at pace with 19 countries worldwide having approved reimbursement in at least one indication. This includes major jurisdictions such as the US, Canada, Europe and Australia, and most recently Japan in the first half of 2019. Kymriah® is the first, and so far only, CAR-T therapy to receive regulatory approval for two distinct B-cell malignancies in all of the aforementioned jurisdictions.
Oxford Biomedica continues to support Novartis with vector for clinical trials in existing indications where Novartis is aiming to bring forward Kymriah’s® use in the treatment cascade. Additionally the Group continues to work with Novartis on a second CAR-T programme.
Santen – R&D collaboration and option and licence agreement
In June 2019, Oxford Biomedica entered into an R&D collaboration and option & Licence agreement with Santen Pharmaceutical Co Ltd (Santen) for development of gene therapy vectors for an undisclosed inherited retinal disease. Santen is the market leader for prescription ophthalmic pharmaceuticals in Japan and has a global presence in over 60 countries.
The aim of the R&D collaboration is to generate preclinical proof of concept to treat an inherited retinal disease with lentiviral vectors developed and manufactured by Oxford Biomedica. The collaboration includes an option to a licence to use Oxford Biomedica’s LentiVector® platform and access to its industrial-scale manufacturing capabilities.
In addition, Oxford Biomedica is entitled to an undisclosed milestone payment on exercise of the option to the LentiVector® platform as well as development milestones and up to a 10% royalty on net sales. Santen has worldwide commercial rights to the programme, while Oxford Biomedica retains an option to co-fund and participate in development and commercialisation in the US and Europe.
Partnering progress
In addition to Novartis and the new collaboration with Santen, the strategic partnerships with Orchard Therapeutics, Sanofi (formally Bioverativ) and the UK Cystic Fibrosis Gene Therapy Consortium, Boehringer Ingleheim and Imperial Innovations partnership continue to progress well. Orchard Therapeutics is expecting the US rolling submission for OTL-101 in ADA-SCID (adenosine deaminase severe combined immunodeficiency) to start in the first half of 2020. This will be followed by a MAA filing submission in Europe.
Discussions and feasibility studies are ongoing with various other potential gene and cell therapy partners and the Group aims to increase not only the number of partners but also the number of programmes worked on by existing partners.
Axovant Gene Therapies licencing agreement for OXB-102 (AXO-Lenti-PD)
In 2018, the Group entered into an exclusive worldwide licensing agreement with Axovant Sciences (now Axovant Gene Therapies) to develop and commercialise OXB-102 (now known as AXO-Lenti-PD) for Parkinson’s disease in a deal worth up to $842.5 million.
The SUNRISE-PD Phase 2 clinical trial commenced in the fourth quarter of 2018 and in March 2019 Axovant reported 3-month data from the first cohort of this trial. Based on these data and earlier data produced by Oxford Biomedica, the Data Monitoring Committee (DMC) agreed that Axovant could proceed to the second dose cohort.
The first patient of the second cohort was dosed in April 2019 triggering a £11.5 million ($15 million) milestone to Oxford Biomedica. Up to six patients will be dosed in this second cohort.
In June 2019, Axovant provided a six-month update from the first cohort of patients in the SUNRISE-PD trial and noted that AXO-Lenti-PD was observed to be generally well tolerated, with no serious adverse events related to the product or the procedure and patients showed continued improvement from baseline across multiple measurements.
The initial three-month data from the second cohort is expected in the fourth quarter of 2019.
Additionally, further preclinical data on AXO-Lenti-PD were published in the September 2019 edition of Molecular Therapy: Methods and Clinical Development. The publication titled “Gene Therapy for Parkinson’s Disease: Preclinical Evaluation of Optimally Configured TH:CH1 Fusion for Maximal Dopamine synthesis” reports safety and efficacy of AXO-Lenti-PD in the MPTP macaque model of Parkinson’s disease.
Unencumbered proprietary pipeline programmes
Oxford Biomedica currently has six proprietary unencumbered products in the product pipeline. Potential partnership discussions are ongoing for further out-licencing or spinout of the proprietary products.
The Group will now use its stronger balance sheet to further identify and develop its preclinical portfolio to ensure it maximises the value of its proprietary pipeline. To this end the Group is currently undertaking a review of all its proprietary programmes to determine which programme(s) to prioritise for further preclinical development and potentially advance into the clinic in the coming 12-18 months.
LentiVector® platform development and innovation
The Group’s world leading LentiVector® platform is built on expertise, IP (both patents and know-how), facilities and quality systems. The platform underpins not only the collaborations with Oxford Biomedica’s partners but also Oxford Biomedica’s own proprietary pipeline. Oxford Biomedica is continually innovating to enhance potency, purity, yield and efficiency of the process and develop the platform such as with the TRiP System and packaging and producer cell lines. Investment in automation and robotics is all also enabling the continued development of the platform.
During the first half of 2019 Oxford Biomedica successfully converted another of its GMP production suites to its serum free suspension (bioreactor) process and now has two suites running with bioreactors and one remaining on the adherent process.
In March 2019, Oxford Biomedica announced that it has entered into a research and development collaboration with Microsoft to improve the yield and quality of next generation gene therapy vectors using the intelligent cloud and machine learning.
The collaboration will combine the expertise of Oxford Biomedica researchers and the team within the Station B initiative at Microsoft to explore new ways to increase the yield and improve the purity of Oxford Biomedica’s lentiviral vectors, while further reducing the cost. Through its processes Oxford Biomedica produces a significant amount of data and by utilising the Microsoft Azure intelligent cloud platform and machine learning capabilities, it aims to develop in silico models and novel algorithms to help advance the next generation of cell and gene delivery technology.
Expansion of capacity
In September 2018, the Group signed a lease on a new 84,000 sqft (7,800 sqm) facility located around a mile from Oxford Biomedica’s Windrush Court headquarters in Oxford. The Group’s planned Phase I and Phase 2 expansion will fit out around 45,000 sqft (4,200 sqm) with four GMP clean room suites and two fill and finish suites as well as offices, warehousing and QC laboratories, with space available for future expansion.
The development and fit out of the new facility is progressing as planned with completion of the building phase by year end 2019. Following validation batches and expected regulatory approval, the site is expected to be fully operational by the end of the second quarter 2020.
In December 2018, the Group also signed a lease on a 32,000 sqft building adjacent to Windrush Court. This new discovery and innovation facility named the Windrush Innovation Centre will be staffed by multidisciplinary teams that will focus on driving innovations and technological advances to support both the product pipeline and the LentiVector® platform. Teams started to move into the facility in the second quarter of 2019 with further refurbishment and fit out taking place over the coming 12 months to make the new centre fully operational.
Corporate and organisational development
In May 2019, Oxford Biomedica announced that Novo Holdings A/S (Novo Holdings) had agreed to invest £53.5 million in the Group in return for new ordinary shares representing 10.1% of the outstanding shares after the capital increase. The price paid per new ordinary share was equal to the closing market price on the day prior to the announcement.
The proceeds from the transaction were used to repay, in full, the existing debt facility with Oaktree Capital Management, which was completed prior to the end of the first half of 2019. In addition, the proceeds will be used to further develop the LentiVector® platform and the proprietary product portfolio to help enable the Group to take advantage of its leading position and further exploit the growth opportunities in the sector.
Novo Holdings was additionally granted the right to appoint a Non-Executive Director to the Board of Oxford Biomedica. Following the issuance of the new ordinary shares, Robert Ghenchev, a Director at Novo Holdings, joined the Board in June 2019.
The Senior Executive Team has also continued to grow in order to support the expansion of the business, with the appointment, in the first half of 2019, of a Chief Medical Officer and a General Counsel. The headcount has increased as planned with average employee numbers increasing from 352 in the first half of 2018 to 465 in the first half of 2019.
Outlook
New partnerships announced over the past 12 months will continue to help to bolster revenues from bioprocessing and commercial development activities. Reflecting the normal annual January shutdown as well as the conversion of another GMP suite from adherent processing to bioreactors in the first half of 2019, the Board is confident that the Group would expect, as previously observed, a stronger second half of the year.
In addition, discussions and feasibility studies are ongoing with various other potential gene and cell therapy partners and the Group aims to increase not only the number of partners but also the number of programmes worked on by existing partners. The Group remains focused on securing further partnerships through 2019 and discussions on our proprietary products are also ongoing regarding further out-licencing or spinout opportunities; clearly the number and financial construct of such deals will also influence the overall financial result for the current year. The Group hopes to be able to update the market on the progress of these discussions in the second half of 2019.
Capex spend in the second half of 2019 will continue at a higher rate than in 2018 with the ongoing build and fit out of the new OxBox bioprocessing facility. Operating expenses will increase as the Group’s total number of employees moves towards 600 by the end of the year. This investment is essential for the Group to capture and take full advantage of the opportunity that is ahead of Oxford Biomedica.
The Group is excited about the opportunity ahead. As a leading global lentiviral vector company, Oxford Biomedica has never been in a stronger position to deliver value to shareholders as the Group takes advantage of the dynamic and fast growth in the cell and gene therapy sector.
Financial Review
The first half of 2019 has seen the Group build on the significant commercial success achieved during 2018. Bioprocessing and commercial development revenue increased by 23% and a significant milestone was triggered with the dosing of the first patient in the second cohort of the AXO-Lenti-PD Parkinson’s disease clinical trial. The Group also made significant improvements to its balance sheet with £53.5 million equity raised from new Investor Novo Holdings A/S which was used to fully repay the £43.6 million ($55 million) Oaktree loan. A new research and development collaboration was signed with Santen, and construction of the new OxBox bioprocessing facility is continuing as planned with production expected to commence in the first half of 2020. The key financial indicators used by the Board are set out in the table below and the highlights are:
- Revenue (£32.1 million) decreased by 9% over H1 2018 (£35.3 million) as the 23% increase in bioprocessing and commercial development revenues, and £11.5 million ($15 million) Axovant milestone, was unable to compensate for the £18.3 million of licence income received in H1 2018 on signing of the Sanofi (Bioverativ) and Axovant agreements
- Operational losses (Operating loss and Operating EBITDA1 loss) of £6.1 million and £1.4 million respectively were incurred due to lower revenues and an increase in expenditure to strengthen the Group’s operational and strategic capacity in preparation for further volume growth
- Cash generated from operations of £1.3 million was £17.0 million lower than the £18.3 million achieved in H1 2018 as a result of the Sanofi (Bioverativ) and Axovant licence fees received in H1 2018, whilst the £11.5 million ($15 million) Axovant milestone will only be received in H2 2019
- Capital expenditure increased as expected from £6.0 million in H1 2018 to £14.9 million in H1 2019 mainly as a result of the ongoing construction of the OxBox bioprocessing facility
- Cash burn2 increased from a net inflow of £10.1 million in H1 2018 to an outflow of £16.9 million due to the reasons explained above
- Net cash (cash less loans) at 30 June 2019 was £26.1 million compared to £5.2 million at 30 June 2018
KEY FINANCIAL INDICATORS (£ m) | H1 2019 | H1 2018 | |
Revenues | Bioprocessing/commercial development | 18.8 | 15.4 |
Licence fees, milestones & royalties | 13.3 | 19.9 | |
Total | 32.1 | 35.3 | |
Operating (loss)/profit | (6.1) | 9.4 | |
Operating EBITDA1 | (1.4) | 11.9 | |
Cash generated from operating activities | 1.3 | 18.3 | |
Capital expenditure | (14.9) | (6.0) | |
Cash burn2 | (16.9) | 10.1 | |
Period end cash | Cash | 26.1 | 44.0 |
Loan | - | (38.8) | |
Net cash | 26.1 | 5.2 | |
Headcount | Period end | 480 | 364 |
Average | 465 | 352 |
- Operating EBITDA (Earnings Before Net Finance Costs, Tax, Depreciation, Amortisation, Fair value adjustments of available-for-sale assets and Share Based Payments) is a non-GAAP measure often used as a surrogate for operational cash flow as it excludes from operating profit or loss all non-cash items, including the charge for share options. A reconciliation to GAAP measures is provided on page 8.
- Cash burn is net cash generated from operating activities and less net finance costs paid plus capital expenditure. A reconciliation to GAAP measures is provided on page 11.
As stated in the 2018 Annual report, the Board has taken the decision to move away from using Gross Income and Operating EBIDA as Key Financial Performance Indicators and will instead make use of Revenue, Operating EBITDA and Operating loss/(profit) in future.
Revenue
Revenues were £32.1 million in H1 2019, 9% below the £35.3 million achieved in H1 2018.
£m | H1 2019 | H1 2018 |
Bioprocessing/commercial development | 18.8 | 15.4 |
Licence fees, milestones & royalties | 13.3 | 19.9 |
Revenue | 32.1 | 35.3 |
Revenues from bioprocessing/commercial development were 23% higher in H1 2019 as compared to H1 2018, with the increase driven by a greater volume of development activity for existing customers, Novartis and Orchard Therapeutics, as well as by development activity from new customer agreements secured in 2018. Revenues generated from bioprocessing clinical and commercial batches for Novartis and Orchard Therapeutics were slightly lower than the prior period, commensurate with the number of completed bioprocessing runs, and were also impacted by the conversion of the Yarnton bioprocessing facility from an adherent process to bioreactors.
Revenues from licence fees, milestones and royalties, including the £11.5 million ($15 million) Axovant milestone achieved in H1 2019, represented a decrease of 34% from the prior year due to £18.3 million of licence income received in H1 2018 on the signing of the Sanofi (Bioverativ) and Axovant agreements.
Operating EBITDA
£m | H1 2019 | H1 2018 |
Revenue | 32.1 | 35.3 |
Other operating income | 0.5 | 0.7 |
Total expenses1 | (34.0) | (24.1) |
Operating EBITDA2 | (1.4) | 11.9 |
Depreciation, amortisation, share option charge and fair value adjustments of available-for-sale assets | (4.7) | (2.5) |
Operating (loss)/profit | (6.1) | 9.4 |
1 Cost of goods plus research, development and bioprocessing costs excluding depreciation, amortisation and share option charge. A reconciliation to GAAP measures is provided on page 9.
2 Operating EBITDA is defined as Earnings Before Net Finance Costs, Tax, Depreciation, Amortisation, Fair value adjustments of available-for-sale assets and share based payments.
Total expenses in H1 2019 were £34.0 million, compared with £24.1 million in H1 2018, a 41% increase on the H1 2018. The increase was driven by increased headcount and facility costs, as well as additional materials and subcontracted expenses for commercial development and bioprocessing activities.
As a result of the lower revenues and increased expenses, the operating EBITDA loss in H1 2019 was £1.4 million. In H1 2018, the Group generated an operating EBITDA profit of £11.9 million, the difference being £13.5 million.
Total expenses
£m | H1 2019 | H1 2018 |
Research and development costs | 17.7 | 13.5 |
Bioprocessing costs1 | 4.1 | 0.7 |
Administrative expenses | 4.0 | 2.4 |
Operating expenses | 25.8 | 16.6 |
Depreciation, amortisation & share option charge | (3.5) | (2.6) |
Adjusted operating expenses | 22.3 | 14.0 |
Cost of Sales | 11.7 | 10.1 |
Total expenses | 34.0 | 24.1 |
1 Bioprocessing costs have increased from the prior period due to additional facility costs, headcount and related spend incurred due to the Group’s investment in additional bioprocessing capacity at OxBox. It was also impacted by downtime at the Group’s Yarnton bioprocessing facility as when it was converted from an adherent process to bioreactors, the costs were not recovered to cost of goods but remained in bioprocessing whilst the facility was not in use.
The table below shows total expenses by type of expenditure (excluding depreciation, amortisation and other non-cash items):
£m | H1 2019 | H1 2018 |
Raw materials, consumables and other external bioprocessing costs | 7.7 | 5.4 |
Personnel-related | 17.9 | 11.6 |
External R&D expenditure | 3.9 | 3.4 |
Other costs | 4.5 | 3.7 |
Total expenses | 34.0 | 24.1 |
Raw materials, consumables and other external bioprocessing costs have increased as a result of increased bioprocessing activity, as well as higher material and subcontracted spend. Personnel related costs are higher due to average employee numbers increasing from 352 in H1 2018 to 465 in H1 2019. External research and development expenditure was higher due to increased commercial development activities for customers. Other costs were higher due to increased facility costs for the OxBox and Windrush Innovation Centre properties, partly offset by lower royalties payable on new licence agreements entered into in 2018 which did not recur in 2019.
Operating loss and net loss
£m | H1 2019 | H1 2018 |
Operating EBITDA1 | (1.4) | 11.9 |
Depreciation, amortisation and share option charge | (3.5) | (2.5) |
Change in fair value of available-for-sale-asset | (1.2) | - |
Operating (loss)/profit | (6.1) | 9.4 |
Interest | (5.0) | (3.0) |
Foreign exchange revaluation | (1.0) | (1.2) |
Tax credit | 1.9 | - |
Net (loss)/profit | (10.2) | 5.2 |
1 Operating EBITDA is defined as Earnings Before Net Finance Costs, Tax, Depreciation, Amortisation, Fair value adjustments of available-for-sale assets and share based payments.
The Operating EBITDA loss of £1.4 million was further impacted by additional depreciation, amortisation and the share option charge; as well as the change in fair value of the available-for-sale asset.
Depreciation increased by £0.7 million mainly due to capital expenditure of £10.1 million incurred in 2018, and depreciation arising on leased assets following the adoption of IFRS 16 (Leases). The share option charge increased by £0.3 million to £0.7 million due to the increased employee headcount.
In H1 2019 a £1.2 million, change in fair value was recognised on the Orchard Therapeutics available-for-sale asset based on the share price at 30 June 2019. In H1 2018, the Orchard group was not yet listed with no change in market value identified.
The impact of these charges resulted in an operating loss of £6.1 million compared to a profit of £9.4 million in 2018.
The interest charge of £5.0 million in H1 2019 increased by £2.0 million as a result of a non-cash accelerated interest charge incurred as a result of the early repayment of the Oaktree loan, but also interest arising on the adoption of IFRS 16 (Leases).
The negative foreign exchange movement on the Oaktree loan of £1.0 million occurred due the devaluation of sterling versus the dollar.
The tax credit in H1 2019 increased to £1.9 million based on the Group’s eligible research & development expenditure, and a decrease in the deferred tax liability. As the Group was profitable in H1 2018 it was not expected to receive the benefits of its R&D tax claim in cash and hence no corresponding credit was reflected in the income statement.
As a consequence of the above, the net loss for H1 2019 was £10.2 million, as compared to a profit of £5.2 million in H1 2018.
Segmental analysis
Reflecting the way the business is being managed by the Senior Executive Team, the Group reports its results within two segments, namely the ”Platform” segment which includes the revenue generating bioprocessing and process development activities for third parties, and internal technology projects to develop new potentially saleable technology, improve the Group’s current processes and bring development and manufacturing costs down. The other segment, “Product“, includes the costs of researching and developing new product candidates.
H1 2019
£m | Platform | Product | Total |
Revenues | 19.3 | 12.8 | 32.1 |
Operating EBITDA1 | (11.0) | 9.6 | (1.4) |
Operating loss/(profit) | (15.4) | 9.3 | (6.1) |
H1 2018
£m | Platform | Product | Total |
Revenues | 25.1 | 10.2 | 35.3 |
Operating EBITDA1 | 4.4 | 7.5 | 11.9 |
Operating profit | 2.3 | 7.1 | 9.4 |
1 A reconciliation to GAAP measures is provided on page 8.
Revenues from the platform segment were lower than H1 2018 as the increase in commercial development revenues were insufficient in offsetting the licence income received in H1 2018 on the signing of the Sanofi (Bioverativ) and Axovant agreements. Operating results were lower due to increased headcount and additional material and subcontracted cost spend on commercial development and bioprocessing activities.
Results from the product segment were better as the £11.5 million ($15 million) Axovant milestone achieved in H1 2019 on dosing of the first patient in the second cohort exceeded the licence fee income received in H1 2018 upon signing of the Axovant agreement.
Cash flow
£m | H1 2019 | H1 2018 | |
Operating (loss)/profit | (6.1) | 9.4 | |
Depreciation, amortisation and share option charge | 3.5 | 2.5 | |
Revaluation of equity investments | 1.2 | - | |
Operating EBITDA | (1.4) | 11.9 | |
Costs to sell available-for-sale assets | 0.1 | - | |
Working capital | 2.6 | 6.4 | |
Cash generated from operations | 1.3 | 18.3 | |
Capital expenditure | (14.9) | (6.0) | |
Interest paid, less received | (3.3) | (2.2) | |
Cash burn | (16.9) | 10.1 |
As discussed above, the Operating EBITDA for the first six months of 2019 was £13.3 million lower than the £11.9 million Operating EBITDA profit achieved in H1 2018. The positive inflow from working capital decreased as the receipt of the Axovant licence fee did not recur but remained positive as a result of increased cash receipts from bioprocessing and commercial development customers. Capital expenditure of £14.9 million was £8.9 million higher than in H1 2018 mainly due the construction of the OxBox bioprocessing facility.
Interest paid of £3.3 million in H1 2019 was £1.1 million higher than in H1 2018 mainly due to the cash portion of the redemption fee payable on repayment of the Oaktree loan at the end of June 2019.
Balance sheet
Non-current assets – Property, plant and equipment increased from £31.8 million to £50.3 million due to the £14.9 million of capital expenditure incurred as part of the construction of the OxBox bioprocessing facility, £6.4 million of right-of-use assets recognised as required by IFRS 16 (Leases), partly offset by depreciation charges of £2.8 million. Investments decreased as the Orchard equity was reclassified as an available-for-sale asset within current assets as the Group now has the ability to sell the equity should it choose to do so. A fair value adjustment of £1.2 million was recognised on the Orchard available-for-sale asset.
Current assets – Trade and other receivables increased from £18.1 million to £24.7 million due to the £11.5 million ($15 million) Axovant milestone being outstanding at 30 June 2019, offset by lower trade receivables on bioprocessing batches. Contract assets decreased from £8.9 million to £7.5 million due to a lower level of bioprocessing revenues recognised. Inventories decreased to £3.1 million from £4.3 million at 31 December 2018 due to work in progress balances on bioprocessing batches decreasing as these batches are QP released. Current tax assets have increased by £1.7 million as the 2018 R&D tax claim has not yet been
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