30th March 2004
TEPNEL LIFE SCIENCES PLC ("the Company", AIM:TED)
www.tepnel.com
Tepnel's preliminary results forthe year ended 31st December 2003
Tepnel Life Sciences provides nucleic acid purification solutions and
analytical services to the fast growing biomedical research and food safety
markets
Highlights
Major corporate milestones achieved
* Steady growth and significant progress towards becoming a profitable
company: increased sales, gross profits and margins. Annualised loss before
interest, tax and exceptional items, significantly reduced
* Appointment of Seymour Pierce Limited as the Company's nominated advisor
and broker
* Three financing rounds totalling �4.5 million
* Announcement of acquisition of Orchid Diagnostics for a consideration of
$3.45 million subject to further adjustment at close
Successful sales and marketing activity
* Significant growth in DNA purification service revenue
* First sales of two 'Nucleopure' DNA purification systems (formerly T2000
systems) to a leading UK-based global pharmaceutical company
* First sale of 'Nucleopure' DNA purification system to a `top five' US
biotech company
* Extended BAC application for `Nucleoplex BAC' (formerly T1000)
* Tepnel BioSystems' peanut detection assay became the first food allergen
test kit to receive `Performance-Tested Method' status by AOAC
International giving Tepnel significant commercial advantage over potential
competitors
* Collaboration with Professor John McCarthy (UMIST) to develop novel
ribosome-based anti-microbial screening technologies. If successful, Tepnel
has right to acquire IP.
Commenting on the result, Ben Matzilevich, Chief Executive Officer of Tepnel,
said: "Tepnel has achieved a step change in its position over the past 18
months. Turnoveris set to increase substantially and as part of the board's
focus on moving to profitability, we have this year completed a major
acquisition in the form of our purchase of Orchid Diagnostics. We continue with
our aim of moving this business into profit as soon as possible and further
strategic moves, including more acquisitions, are under consideration".
Post balance sheet events
Completion of acquisition of Orchid Diagnostics: This will establish a direct
US sales operation for Tepnel, creating anew distribution channel for existing
products and services.
Cornell Capital Partners Offshore provides Tepnel with accessible capital of up
to �5.0 million through an equity line of credit facility.
BBSRC (Biotechnology and Biological Sciences Research Council) Research Grant
awarded to Tepnel Life Sciences and Professor John McCarthy for `new
immobilised ribosome systems for use in bio-nanotechnology and pharmaceutical
screening'.
Current trading
Tepnel has made a solid start to the year, with revenues for Tepnel Scientific
Services and Tepnel Biosystems in line with management expectations. Tepnel
Life Sciences instrument sales started the year slowly; revenues from DNA
purification services compensated this, an area where Tepnel expects revenues
to double in 2004. Increased instrument sales are anticipated in 2004. First
benefits of the Orchid Diagnostics acquisition are emerging and the board is
pleased with sales and operational progress at the business during the first
two months of ownership.
Enquiries:
Ben Matzilevich, Chief Executive Office, Tepnel Life 0161 946 2200
Sciences PLC
Gron Ffoulkes-Davies, Finance Director, Tepnel Life 0161 946 2200
Sciences PLC
MarkPercy, Seymour Pierce Limited 0207 107 8000
Richard Anderson/Yvonne Alexander, De Facto Communications 0207 496 3300
plc
CHAIRMAN'S STATEMENT
Tepnel Life Sciences ("the Company")
Preliminary Results - 2003
Introduction
Since the company's fundraising and move to AIM in June 2001, Tepnel has built
a solid business foundation on an integrated offering of DNA purification
products, food safety and services for pharmaceutical, drug discovery and
biotechnology companies. The company continues to extend its integrated range
of products including, automated DNA purification systems, kits, reagents and
services through internal development and through acquisition. Tepnel has made
significant and steady progress in all areas of business during the period 30
June 2002 to 31 December 2003.
A highlight of the period was the announcement of the acquisition of the Orchid
Diagnostics business unit from Orchid BioSciences Inc. The transaction, which
was announced in October 2003, was completed in January of this year. This is a
strategically important acquisition for Tepnel as it positions the company in
genetic testing, creates an important North American sales capability,
significantly adds to the revenue stream and provides a sound base for future
growth and development. Tepnel raised �2.8 million for this acquisition and
ongoing working capital with its' broker and advisor, Seymour Pierce.
Seymour Pierce was appointed in the summer of 2003. As a primary broker to AIM
companies, with research-led expertise in the life sciences sector, it is in an
excellent position to support Tepnel's future growth. Shortly after its
appointment, Seymour Pierce helped Tepnel raise �1.51 million to extend its
development activities and facilitate the move from Tepnel Scientific Services'
existing premises in Glasgow and Edinburgh, Scotland, to a new facility in
Livingston. Tepnel also completed a further smaller financing of �227,500 in
December 2003.
Tepnel has continued to focus its food testing business in the area of food
allergens, which is a high growth segment of the food safety marketplace. In
May 2003, Tepnel Biosystems' peanut detection assay became the first food
allergen test kit to receive `Performance-Tested Method' status by AOAC
International's Research Institute. This independent authority provides food
labelling enforcement authorities with the added confidence that they are using
appropriately validated test kits.
During the period, Tepnel successfully launched its new Nucleopure (T2000) DNA
purification system, secured its first three sales in pharmaceutical and
biotech environments and has developed a strong pipeline of sales leads. It has
also launched the bacterial artificial chromosome (BAC) purification
application for its Nucleoplex BAC (formerly T1000) DNA purification system.
Financial results
Turnover for the eighteen months ended 31st December 2003, reached �5.68
million from the �3.31 million in the 12 months to 30 June 2002. Turnover in
the calendar year 2003 increased 5% to �3.87 million (2002 - �3.69 million).
Turnover in the second half of calendar year 2003 increased 7% to � 1.94
million (2002- � 1.81 million). Although turnover growth in the second half of
2003 was not as great as earlier anticipated, the second half demonstrates an
increasing rate of year on year growth when compared to first half 2003 growth
of 2%.
Operating losses for the eighteen months were � 5.94 million (2002: � 3.61
million) after taking account of exceptional items totalling � 2.35 million
(2002: �552,000). Exceptional losses were recognised in three areas in the
final six months of the period:
1. Following an annual impairment review of the carrying value of goodwill and
intangible assets as required by FRS11 Impairment of Fixed Assets and
Goodwill, the company has written off �1.64 million from the balance sheet.
In respect of the balance written off, in future years there will be no
goodwill amortisation charged to the profit and loss account;
2. A SNPstream 25K system and proprietary database of single nucleotide
polymorphism (SNP) assays acquired from Orchid BioSciences Inc. in October
2001 at a cost of �528,000 has been fully written down. The market in SNP
genotyping did not emerge in the way the company anticipated in 2001 and
Orchid themselves have exited this marketplace through business unit
disposal during 2003; and
3. Theweakness of the US dollar in the final quarter 2003, when Tepnel had
$4.3m in escrow pending completion of the Orchid Diagnostics acquisition,
resulted in a foreign currency translation loss of �178,000.
Operating losses pre-exceptional items in calendar year 2003, were �2.17
million (Operating loss �4.51 million), a reduction of 20% from the 2002
calendar year loss of �2.72 million (Operating loss �2.99 million). Operating
losses pre-exceptional items in the second half of 2003 were �1.16 million
(Operating loss �3.51 million) compared to �1.00 million (Operating loss �1.00
million) in the first half of the year and �1.43 million (Operating loss � 1.43
million) in the corresponding period in 2002. The operating result in the
second half, before exceptional costs, was slightly weaker than expected due to
a small deferral by customers of product and service revenues into 2004 and an
increase in sales and marketing and administrative expenses in anticipation of
further growth in 2004.
Overall, during the last eighteen-month period Tepnel has demonstrated
increased sales, increased gross profits and increased margins. In addition,
losses before interest, tax and exceptional items were significantly reduced.
Board changes
Alec Craig,formerly a Non-Executive Director, was appointed Non-Executive
Chairman in May 2003 following the resignation of Peter Raymond.
Following the resignation of Dr. Peter Highfield, the Company's Technical
Director in April of 2003, Tepnel absorbed Dr. Highfield's duties and
responsibilities into the technical team within the company.
Post year-end events
In January 2004, Tepnel completed its $3.45m acquisition of the Orchid
Diagnostics business unit following shareholders' approval of an associated
placing in November 2003. The diagnostics unit will now operate as Tepnel
Lifecodes Corporation in the U.S., Tepnel Diagnostics Limited in the UK and
Tepnel Lifecodes in Europe.
The BBSRC (Biotechnology and Biological Sciences Research Council) awarded a
research grant to Tepnel Life Sciences and Professor John McCarthy for their
research into `new immobilised ribosome systems for use in bio-nanotechnology
and pharmaceutical screening'. Tepnel will have first call on all intellectual
property relatingto any commercially useful discoveries.
Providing Tepnel with an ideal means of maintaining development momentum, the
company reached an agreement with Cornell Capital Partners Offshore
L.P., in March 2004, whereby, at the company's option, Cornell can provide
Tepnel with additional working capital. Tepnel have drawn �600,000 in relation
to this facility and have access to a further �4.4 million to fund capital and
other projects if and when, required.
Future Prospects
The key objective for Tepnel is to become a profitable company thereby
generating value for shareholders. Tepnel has made considerable progress
towards this end during the period, and is focussed on achieving its objective
during the second half of 2004.
In addition to providingTepnel with genetic transplantation testing
capabilities, the acquisition of Orchid Diagnostics creates a strong
opportunity to penetrate the US market for DNA purification through a direct
sales channel. Manual DNA purification kits and T2000 Nucleopure systems are
currently being marketed and sold in the US. Significant sales growth is
expected in 2004.
The initial integration of Tepnel products into the US will be on Tepnel
Biosystems' food safety products, as this is expected to generate rapid market
penetration. As the largest food market in the world, the US provides Tepnel
with an ideal platform for sales of food safety products.
Following a positive response on the T1000 Nucleoplex application extension to
include BAC purification, sales are expected to resume and accelerate in 2004.
For the T2000 Nucleopure system, further sales are expected in the first half
of 2004. As more systems are sold, a significant on-going revenue stream will
be generated from the sale of reagents.
DNA purification services are expected to double from already contracted work
in 2004.
Looking ahead, Tepnel will continue to build on its solid business foundation
through investment in further research and development and new technologies. In
addition, Tepnelis also looking for further strategic M&A opportunities, with
which to accelerate the achievement of its' business objectives.
Current Trading
Tepnel has made a solid start to the year. The board is confident of further
progress towards profitabilityin 2004.
Tepnel Life Sciences (TLS)
Sales of manual DNA purification kits are already ahead of the corresponding
period in 2003. With the acquisition of Orchid Diagnostics in January 2004, we
have made our first DNA purification kit sales into the USmarketplace.
Improvements to the kit range, together with our US presence, promise increased
revenues this year.
We are confident in increasing instrument sales this year, despite a slow start
resulting from hardware and software improvements to both marketed systems.
Our repositioned Nucleoplex BAC instrument has returned positive results in
trials and we expect to announce a resumption of sales in the near future. Our
Nucleopure system continues to perform well in customer laboratories. Whilst
the system was originally anticipated as a DNA extraction system only, our
discussions with customers show that user's requirements vary. We are committed
to satisfying individual customer needs, although this does lengthen the sales
cycle. We are certainthat our tailored approach will result in greater sales
in the longer term. We expect to announce further instrument sales in Q2 2004.
We are currently evaluating development options for our T3000 Nucleomax system.
The Tepnel Group may consider entering into a collaborative arrangement with a
specialised instrument manufacturer.
The DNA purification service business is trading well. We already have
contracts in place for 2004 which, subject to sample receipt, will double
revenues compared to 2003.
Tepnel BioSystems (TBS)
Tepnel BioSystems has traded profitably during the first two months of 2004.
TBS has made a conscious decision to focus efforts into higher margin areas
rather than its low margin microbiology service work. This will initially limit
sales growth in the first half of 2004.
The appointment of a sales representative covering the US marketplace, based
from the Tepnel Lifecodes facility in Stamford, Connecticut, is expected to
increase sales and margins in the second half of the calendar year.
TBS continues to develop further food allergen and toxin kits. We are expecting
TBS to be profitable and cash generative this year.
Tepnel Scientific Services (TSS)
Tepnel Scientific Services started the year in line with the board's
expectations. Recent contract wins in the areas of bioanalysis, microbiology
and analytical chemistry promise a successful first half of 2004.
The board continues to evaluate sites for relocation of the Edinburgh and
Glasgow based laboratories into a purpose built facility in Livingston. A
further announcement can be expected next month.
We are expecting TSS to be profitable and cash generative this year before
costs associated with the move to new premises.
Tepnel Lifecodes Corporation (TLC) and Tepnel Diagnostics (TD)
The acquisition was completed on 21 January this year. The board is pleased
with sales and operational progress at the company, with trading in line with
expectations during the first two months of ownership.
We are beginning to see the benefits of having a US sales office for existing
products and services. Integration into the wider Tepnel group is expected to
be complete before the end of Q2 2004, with the exception of moving the TD
facility from the Orchid Biosciences facility in Abingdon to a new facility in
the surrounding area.
TLC is expected to be loss making in 2004 as we continue to invest in R&D for
the benefit of future revenues. TD is expected to be profitable this year,
before any exceptional costs associated with the move to new premises.
Our key focus at TLC and TD is to improve margins from existing revenue lines
as we drive the business through to profitability.
Overall
With the acquisition of TLC and TD, our group revenues will grow sharply in
2004.
We are focussed on profitability and cash generation from each of our
individual business units and are confident of announcing further financial and
operating progress during the course of the year.
Alec Craig
Non-Executive Chairman
30th March 2004
Consolidated Profit & Loss account for the 18 months ended
31 December 2003
Unaudited Audited
18 Months Year ended
ended
30 June 2002
31 December
2003
�'000 �'000
Turnover 5,676 3,307
Cost of sales (3,041) (1,752)
Gross profit 2,635 1,555
Research and development 1,613 1,976
Sales and marketing 1,295 992
Administrative expenses 3,320 1,641
Administrative expenses - exceptional 2,348 552
Total expenses 8,576 5,161
Operating loss (5,941) (3,606)
Interest receivable 100 181
Interest payable (41) (11)
Loss on ordinary activities before (5,882) (3,436)
taxation
Taxation 221 604
Loss on ordinary activities after (5,661) (2,832)
taxation
Basic loss per share 5.6p 3.0p
Fully diluted loss per share 5.6p 3.0p
The results for all periods include all recognised gains and losses.
Consolidated Balance Sheet as at
31 December 2003
Unaudited Audited
31 December 30 June 2002
2003
�'000 �'000
Fixed assets
Intangible assets - 1,783
Tangible assets 1,171 1,471
1,171 3,254
Current assets
Stocks 995 840
Debtors - due within one year 1,382 1,411
Investments - 20
Cash at bank and in hand 4,244 3,299
6,621 5,570
Creditors due within one year 1,760 1,478
Net current assets 4,861 4,092
Creditors due greater than one year 137 14
Total assets less liabilities 5,895 7,332
Capital and reserves
Called up share capital 1,337 973
Share premium account 30,438 26,578
Profit and loss account (25,880) (20,219)
Equity shareholders' funds 5,895 7,332
All items under capital and reserves are equity.
Notes
1 The preliminary results for the eighteen months ended 31 December 2003 are
un-audited and are approved by the directors. The financial information set out
above does not constitute statutory accounts within the meaning of Section 240
of the Companies act 1985. The information as at 30 June 2002 has been
extracted from the statutory accounts for the year ended 30 June 2002, which
have been delivered to the Registrar of Companies and contained an unqualified
auditor's report.
2 The directors do not recommend the payment of an interim dividend.
3 The operating loss is arrived at after writing off research and development
expenditure and exceptional items to the profit and loss account in the period
in which it was incurred
4 The accounting policies used are consistent with those applied in the latest
published company accounts.
* Turnover
Turnover by geographic Unaudited Audited
destination
18 months Year ended
ended
30 June
31 December 2002
2003
�'000 �'000
UK 4,137 2,240
Rest of Europe 831 528
Americas 472 334
Asia 156 135
Rest of World 80 70
5,676 3,307
Turnover by geographical origin
UK 5,676 3,307
* Exceptional items
*
Unaudited Audited
18 months ended Year ended
31 December 2003 30 June 2002
�'000 �'000
Fixed asset impairment 528 -
Foreign currency exchangeloss 178 -
Goodwill Impairment 1,642 -
Redundancy costs - 470
Costs relating to restructuring and relocation - 82
costs
2,348 552
* The basic loss per share has been calculated on the following basis:
Unaudited Audited
18 months Year ended
ended
30 June
31 December 2002
2003
Loss for the period �'000 (5,661) (2,832)
Weighted average number of shares 101,402,875 93,123,901
In the current period the average number of ordinary shares is the same on a
diluted basis.
END
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