Allergy Therapeutics (AIM: AGY), the fully integrated specialty pharmaceutical company specialising in allergy vaccines, today announces its preliminary results for the year ended 30 June 2021.
– Record pre-R&D operating profit ahead of market expectations reflecting continued sales growth
– Successful ex-vivo VLP Peanut biomarker study showing 24-fold reduction in allergenicity and beneficial efficacy profile paving the way for first-in-human trial in 2022
– Strong cash balance of £40.3m providing sufficient funds with a small amount of debt under current assumptions to support Grass MATA MPL pivotal Phase III field studies and Phase I VLP Peanut PROTECT trial
Financial highlights
· 8% revenue growth in actual terms and 6% at constant rate* to £84.3m (2020: £78.2m)
· 19% increase in pre-R&D operating profit to £16.9m (2020: £14.2m) as a result of sales growth and lower overhead cost growth
· Strong cash balance of £40.3m at 30 June 2021 (2020: £37.0m)
· Net profit of £2.9m for the year (2020: Net profit of £7.1m including cash settlement of £3.2m)
Operating highlights (including post period)
· Successful ex-vivo VLP Peanut biomarker study ahead of Phase I trial (named PROTECT) anticipated in Q1 2022
· Robust growth across all key products and countries in a challenging year
· Successful launch of ImmunoBON in Germany and Austria
· Grass MATA MPL exploratory field trial to read out in autumn 2021
· Registration of Venomil in Austria
*Constant currency uses prior year weighted average exchange rates to translate current year foreign currency denominated revenue to give a year on year comparison excluding the effects of foreign exchange movements. See table in finance review for an analysis of revenue.
Chairman’s Report
Performance
This has been another year of growth for Allergy Therapeutics with impressive financial performance and the delivery of strong operating profit, well ahead of market expectations. The Group also made encouraging progress with key products in its innovative pipeline of potential new immunotherapeutic treatments for allergy patients. At the same time, we successfully managed the continued challenges posed by COVID-19, the logistical challenges of Brexit and continuing changes in the regulatory environment.
Research and Development
Developing innovative and patient-focused products remains the Group’s priority. Results from the ex-vivo virus-like particle (VLP) Peanut biomarker study with Imperial College London, although early stage, demonstrate the exciting potential behind this next generation peanut allergy vaccine candidate. The R&D and regulatory teams have worked incredibly hard on the scale up and regulatory pathway for this potentially transformational product, and that hard work now continues. We look forward to providing the market with further updates as this candidate enters the clinic in 2022. Work has also continued on the Group’s other main platform, Pollinex Quattro, with the Grass MATA MPL exploratory field study (G309) fully recruited and the treatment phase complete. The study remains on track, with results expected in the autumn.
Board changes
Steve Smith, who joined the Board at the AIM listing in 2004 and who has supported the business through a number of significant challenges over the years, will step down as a Director at the Group’s next Annual General Meeting. I would like to take this opportunity to thank Steve for his wise counsel and contribution over the years. He has been a highly valued and appreciated member of the Board.
New auditor
As announced in April and following a competitive tender process, the Board appointed BDO LLP as Group external auditor in place of Grant Thornton LLP. On behalf of Allergy Therapeutics, I would like to thank Grant Thornton for its service over the past 13 years.
Sustainable long-term value
Our purpose is to transform the lives of our patients and the people around them. Guided by our vision and values, we generate value for all our stakeholders. During the coming year, the business will adopt an environmental, social and governance (ESG) framework defining responsibilities in this area across the whole business and holding us to account over the coming years. We will aim to achieve net zero carbon emissions by 2030 and will publish defined timelines for this in 2022. All our activities are underpinned by a commitment to health & safety and ethical practices.
Outlook
Allergy Therapeutics continues to develop and innovate. The coming year will see further investment in the Group’s infrastructure as the business matures as a well-established and growing European business. The Group also continues to invest in its pipeline of next generation allergy immunotherapeutics. Upcoming results from the Grass MATA MPL exploratory field study, the pre-Investigational New Drug (IND) application meeting with the U.S. Food and Drug Administration (FDA) for VLP Peanut, followed by the commencement of the Phase I trial (called PROTECT) in the U.S are all promising and exciting developments and set the course for the future of the business.
Finally, on behalf of the Board, I would like to thank the leadership team and all members of staff for their determination, creativity and commitment throughout the last year with the continuing challenges of COVID-19 and Brexit.
CEO Report
Allergy Therapeutics has performed strongly in the period, as demonstrated by the Group’s market expectation-beating growth, further cementing its technology leadership in the allergy immunotherapy field.
Financial Performance
The business continued to grow well, despite challenging market conditions, with revenue up 8% in actual terms at £84.3m (2020: £78.2m) and 6% at constant rate over the prior year. Growth from the year came from Northern Europe and Germany in particular, due to the benefit of allergy clinics being situated outside of hospitals and therefore able to maintain consultations with allergy patients during COVID-19 restrictions. Sales in Spain have also continued to grow and, overall, Southern Europe has defended its market share well, gaining market share, in some cases, in a depressed market due to COVID-19. The impact of COVID-19 will likely remain next year even if hospitals return to normal, due to the number of patients who missed their first year of treatment this year and would have been expected to return in the following year.
In our commercialised portfolio, our subcutaneous vaccines Pollinex Quattro, Pollinex, Acarovac and Venomil continued to lead the way with good growth, especially Germany (10%) and Austria (7%), in spite of a preference towards the use of oral products during the confinement period.
Non-R&D operating costs for the year at £45.9m (2020:£44.5m) were up 3% on the prior year, with approximately half of that increase due to exchange rates. This lower than expected increase in costs reflects the constricting impact of COVID-19 on travel and a reduction in scientific conference attendance and other promotional events. This reduction in costs significantly outstripped further investment made throughout the year in IT, pharmacovigilance and the additional costs of transport and testing due to the impact of Brexit. We continue to build first-class infrastructure to prepare the Group for the future. The Group also benefited from the spot revaluation of forward currency contracts to the value of £1.3m (2020: £0.4m loss).
Operating profit pre-R&D increased by 19% to £16.9m (2020:£14.2m), reflective of a strong Group performance in challenging market conditions, driven by continued growth in sales and cost savings due to COVID-19 and foreign exchange.
R&D expenditure in the year was £12.9m, up from the £9.0m last year (excluding legal cost recovery), as the Group invested significantly in its pipeline, with the successful manufacturing scale up of batches of VLP Peanut for the upcoming Phase I PROTECT trial and execution of the Grass MATA MPL G309 exploratory field trial.
The Group achieved a net profit of £2.9m (2020:£7.1m).
Cash at the end of June 2021 stood at £40.3m which will be sufficient, under current assumptions, to fund the two Grass MATA MPL trials as well as the Peanut Phase I PROTECT trial, with a small amount of additional debt. If the Grass MATA MPL trials are successful, the only further trial that will be required before submission of the Biological Licence Application (BLA) is the completion of the safety database. The Board continually reviews the Group’s funding requirements and options for the future including, but not limited to, a potential path to a Nasdaq dual listing.
Clinical development
The exciting results of the ex-vivo VLP Peanut biomarker study, with Imperial College London, provide us with further confidence in this development programme and the huge potential of this vaccine candidate. In tests with human blood samples from peanut allergic patients, the results showed an impressive 24-fold reduced basophil reactivity and basophil histamine release response (basophils are white blood cells playing a crucial role in allergic reactions) after treatment with VLP Peanut compared to Ara h 2 (the major peanut allergen) indicating that the product is likely to be hypoallergenic (the target was a 10 fold reduction), and unlikely to cause an allergic reaction in patients burdened by peanut allergy. In addition, the secondary endpoints demonstrated support for a beneficial efficacy profile promoting a class switch from the allergic Th2 pathway to the more tolerogenic Th1 pathway These results, which are consistent with our preclinical data package, form an important part of the submission to the FDA for the opening of the upcoming IND application. A Pre-IND meeting with the FDA is imminent.
We believe this product has the potential to be a ground-breaking, next-generation immunotherapy for peanut allergy sufferers and follows our strategy of developing ultra-short course treatments for patients that provide a long-lasting protective immune response. Though the current generation of peanut allergy products tend to increase the body’s tolerance to peanuts, they require repeat administration and do not offer the same potential for long-term protection and a significant reduction in allergic reactions. The Group believes that VLP Peanut, incorporating our novel VLP technology platform, has the potential to provoke a disease-modifying effect and to bring a significant positive impact to the lives of patients and families affected by peanut allergy, and to health systems. The current US market for peanut allergy sufferers is estimated to be worth approximately $5bn. Around 6% of all children suffer from this life-threatening allergy with the number of sufferers increasing by 4% each year.
Completion of the treatment phase in the Group’s innovative G309 exploratory field study to evaluate the safety and efficacy of our Grass MATA MPL product in May 2021 was an important milestone. This trial represents a truly innovative way to concurrently test a variety of dosing regimens in an allergy trial and will provide valuable information to optimise the study design of the pivotal Phase III study (G306). Results from the exploratory study are expected in the autumn. Following the data readout, work will begin to prepare for the pivotal trial, in parallel with readiness planning for the Group’s commercial approach to the US market.
The Group has also registered Venomil in Austria to extend the markets where this important venom treatment is approved.
Pipeline
Beyond the significant progress being made in our peanut and grass allergy development programmes, preparatory work continues on a future Birch MATA MPL pivotal field trial (B302) which, subject to funding, would be expected to start following results from the Grass MATA MPL pivotal trial (G306). The Birch product would form part of the Group’s US portfolio, along with a Ragweed MATA MPL product.
In addition to our VLP Peanut vaccine candidate, the Group continues to pursue the potential of VLP technology in applications beyond the allergy immunotherapy field. Following the exclusive licence agreement signed with Saiba AG and DeepVax GmbH in 2020 to use its patented VLP technology platform to develop and commercialise vaccines targeting asthma, solid cancer tumours, atopic dermatitis and psoriasis, early stage work has begun on two new VLP candidate programmes – melanoma and asthma. These programmes will build on the Group’s technological skills, subcutaneous expertise and experience of adjuvant systems – a key element of Allergy Therapeutics’ strategy given their potential to create immunotherapies that act faster, generate a sustained response, and work more efficiently than traditional therapies.
Mild allergy – a new market segment
ImmunoBON, the novel, patented protein-based oral product, which mimics the so-called ‘farm effect’, has made a strong start in our German and Austrian commercial markets. While sales of ImmunoBON are not yet material to the business, the product has significant potential across Europe and in major pharmaceutical markets worldwide.
ImmunoBON provides not only relief for a wide variety of allergies, but also targets mild allergy patients, providing Allergy Therapeutics with a commercial product in the largest segment of the allergy market as an over-the-counter product. The product also has the advantages of being natural and, with a relatively short treatment period of three months, offers the potential for higher patient compliance compared to longer course allergy treatments. Existing early data support its use as a treatment for birch and house dust mite allergies and the Group is exploring its potential against grass, cat, dog and horse allergies.
Environmental, Social and Governance (ESG)
Like many other businesses, the Group is developing its ESG agenda. We are aiming to achieve net zero carbon by 2030 and we are focused on managing our operations responsibly. We seek to generate positive outcomes for all our stakeholders, ensuring good standards of professional ethics and corporate governance whilst maintaining an inclusive and diverse culture. This year we have launched our Leading Together programme which helps to develop our senior managers into business leaders. Our employees are key to our success and we promote an innovative culture which allows employees to reach their potential whilst creating value for our stakeholders.
We have a clear purpose, to transform the lives of our patients and the people around them. That purpose and our values shape the Group’s vision which provides us with a long-term approach to deliver value and generate benefits for our stakeholders.
Outlook
As previously indicated in the Group’s June 2021 trading update, revenue in the financial year to 30 June 2022 is expected to grow at low single-digits at a constant rate, reflecting a combination of factors. The Group is improving the quality of its portfolio by streamlining a number of non-differentiated older products to maintain its focus on short course subcutaneous immunotherapy (SCIT) and innovative allergy treatments. This, alongside the ongoing impact of COVID-19, means that sales are expected to grow at low single-digit levels at constant rates.
Non-R&D operating costs are expected to be around 20% higher than 2021 due to delayed 2021 commercial projects, further investment in infrastructure and increased R&D activities, and some delayed costs from 2021. Continued investments in infrastructure including IT, pharmacovigilance, market access and regulatory affairs, reflect the Group’s growth and need to maintain business resilience within a challenging environment. Low sales growth and higher overheads are expected to affect operating margin.
Research and development expenditure next year is expected to be in the region of £4m more than 2021, reflecting completion of the Grass MATA MPL G309 exploratory field study and commencement of the VLP Peanut Phase I PROTECT trial.
The Group looks forward to the results of the Grass MATA MPL exploratory field study in the autumn as well as the start of the VLP peanut Phase I PROTECT trial in 2022. That trial is expected to read out in H2 2023, but the design of the trial should allow interim reporting of progress. Overall, the next year provides multiple key inflection points with clinical and regulatory progress, and we look forward to providing the market with further updates.
Financial Review
Overview
The Group has continued to grow profitably, achieving an operating profit excluding R&D1 of £16.9m (2020: £14.2m) for the year to 30 June 2021 despite the impact of continued challenges of COVID-19 and Brexit. As in 2020, COVID-19 especially impacted Southern Europe with lower Italian sales and slower growth in Spain as can be seen in the segmental reporting section (see Note 4). Including R&D expense of £12.9m (2020: £5.8m after offsetting receipt from settlement of legal claims totalling £3.2m), the Group reported an operating profit of £4.0m (2020: £8.3m).The net profit after tax for the period was £2.9m (2020: £7.1m).The impact of IFRS 16, Leases, for 2021 has been similar to that of 2020 with all the Group’s leases shown on the balance sheet as a ‘right-of-use’ asset and lease liability with the 2021 EBITDA uplifted by £1.9m (2020: £1.9m) and the operating profit by £0.2m (2020: £0.3m).
Revenue
Reported revenue increased by 8% to £84.3m (2020: £78.2m). The weighted average Euro exchange rate in the year was €1.12 to £1 compared to €1.14 in 2020. Revenue at constant currency 2 was 6% higher.
Revenue from Germany was 64% (2020: 61%) of total reported revenue reflecting the relative impact of Covid 19 with clinics in Northern Europe staying open for most of the time while those in Southern Europe, which are inside hospitals, were closed. Rebates were higher this year due to increased revenue. Sales of Venomil and Pollinex continued to grow strongly while Oralvac and Pollinex Quattro achieved reasonable growth. Total sales from other products contributed £4.0m for the year ended 30 June 2021 (2020: £3.5m). Revenue in Germany grew well in the year with revenue at constant currency22 increasing to £52.8m (2020: £48.0m), an increase of 10%.
All the main European markets (except for Italy and Switzerland) exhibited good sales growth at constant currency2 with Spain showing 4%, the Netherlands 3%, Austria 7% and Germany 10%. The Group continues to develop new and existing markets to broaden its reach and reduce reliance on any one market or product.
Gross profit
Cost of sales increased to £22.1m (2020: £20.2m) reflecting additional Brexit costs. The gross margin was 74% (2020: 74%), leading to a gross profit of £62.2m (2020: £58.0m).
Operating expenses
Total overheads were £5.3m higher than prior year at £58.8m (2020: £53.5m). This included R&D expenditure that rose by £3.9m to £12.9m (2020: £9.0m excluding the one-off receipt in respect of a legal settlement) due to investment in 2021 reflecting work on VLP Peanut and Grass MATA MPL.
Non-R&D operating costs of £45.9m increased by £1.4m (2020: £44.5m) due to further investment in compliance, new products and rising labour costs while some expenses were deferred.
Sales, marketing and distribution costs increased by £0.3m to £25.2m (2020: £24.9m) mainly as a result of investment in new products (especially ImmunoBON). Other administration expenses increased by £1.1m to £20.7m (2020: £19.6m) as a result of additional investment in compliance and support functions.
Other income in the year of £0.6m (2020: £0.6m) was due to R&D tax credits in the UK.
Tax
The current and prior year tax charges are predominantly made up of provisions for tax in the Italian and German subsidiaries.
Looking forward to the current financial year, some R&D expenditure originally expected in 2021 will now be incurred in 2022, due to the phasing of those costs.
IFRIC 23 continues to impact the tax provision reflecting the charge in the income statement of £0.8m (2020: £1.0m). The charge was also affected by the change in UK legislation in respect of use of losses.
Balance sheet
Property, plant and equipment (including IFRS 16) reduced by £0.7m to £19.7m (2020: £20.4m) reflecting higher depreciation (due to IFRS16) than investment in upgrading of plant in the UK factory and equipment for R&D.
Goodwill reduced by £0.2m to £3.3m (2020: £3.5m) due to exchange rate fluctuations, whilst other intangible assets increased by £0.1m to £1.4m (2020: £1.3m).
Total current assets, excluding cash, reduced to £17.6m (2020: £18.2m). Inventory increased further by £0.7m due to early production of stock to fill the extended Brexit supply chain. Trade and other receivables have reduced by £1.9m mainly due to improved collection of trade debtors. Cash and cash at hand increased to £40.3m from £37.0m in 2020 mainly as a result of a continued strong trading result. The Group had a net cash inflow of £3.7m in the year (2020: £9.5m cash inflow including legal settlement of £3.2m) primarily due to good trading.
The fair value of derivative financial instruments changed from a liability to an asset of £0.5m in 2021 (2020: £0.8m liability) due to exchange rate fluctuations.
Retirement benefit obligations, which relate solely to the German pension scheme, decreased to £11.3m (2020: £13.5m). The decrease in the liability was mainly driven by the increase in the discount rate from 0.8% to 1.15% (resulting from German bond yields).
Currency
The Group uses forward exchange contracts to mitigate exposure to the effects of exchange rates. The current policy of the Group is to cover, on average, about 70% of the net Euro exposure for a year on a declining basis.
Financing
The Group’s bank debt on its balance sheet consists mainly of bank loans arranged to fund development of products in the Spanish market. Group borrowing totalled £3.4m (2020: £3.8m) at 30 June 2021. The overdraft facility of £7m was unused at 30 June 2021 and has since been renewed.
The Directors believe that the Group will have adequate facilities for the foreseeable future and accordingly they continue to adopt the going concern basis in preparing the full year results. For further details, see Note 1, Going Concern.
Legal
On 23 February 2015, the Company received notification that the Federal Office for Economics and Export had made a decision to reverse their preliminary exemption to the increased manufacturers rebate in Germany for the period July to December 2012. The Company was granted a preliminary exemption to the increased rebate for this period by BAFA in 2013. The Company recognised revenue of €1.4m (£1.1m at that time, £1.2m now) against this exemption in the year ended 30 June 2013. All other preliminary exemptions (granted for periods up to 30 June 2012) have previously been ratified as final by BAFA. After taking legal advice, the Company has lodged an appeal against this decision and is confident that the exemption will be reinstated. Therefore, as at 30 June 2021, no provision has been recognised for the repayment of the rebate refund of €1.4m (£1.2m). This position will be kept under review.
Manuel Llobet, CEO of Allergy Therapeutics, stated: “Allergy Therapeutics has performed well in 2021, driving our European commercial business and progressing our clinical programmes amid challenging conditions. Our commercial and pipeline products demonstrate our commitment to allergy and immunology solutions to help people worldwide.
“Engaging with our stakeholders is key to our success as a business. They trust us to deliver safe and effective products on time, to stand by our values and to operate our business with high standards of quality and integrity. Our three core values – Vision, Commitment and Menschlichkeit (Humanity), shape the way in which we work and are at the heart of every decision we make. I would like to thank our team and all our partners for their contribution to another successful year.”
