Allergy Therapeutics plc (AIM: AGY), the integrated commercial biotechnology company specialising in allergy vaccines, announces its unaudited interim results for the six months ended 31 December 2022 and expected restoration of trading in the Company's ordinary shares on AIM with effect from 7.30am today.
Financial Review
Revenue for the first half of the financial year was 18% lower at GBP39.9m (2022 H1: GBP48.7m) as a consequence of the short-term pause in production in October 2022.
Cost of sales increased to GBP14.1m (2022 H1: GBP12.8m), with an ongoing programme of continuous improvement across the supply chain and quality systems, together with higher labour costs.
Gross profit decreased by 28% to GBP25.8m (2022 H1: GBP35.9m), which represents a gross margin of 65% (2022 H1: 74%), reflecting reduced absorption of fixed production overheads on lower revenue.
Sales, marketing and distribution costs were slightly higher at GBP13.2m (2022 H1: GBP13.1m) as a result of higher labour costs offset by cost savings. Administrative expenses increased to GBP11.9m (2022 H1: GBP10.6m), resulting from increased IT spend to improve productivity and security. Research and development costs increased to GBP8.5m (2022 H1: GBP5.0m), including initiation of the G306 Pollinex Quattro grass study. Exceptional costs were GBP0.4m (2022 H1: GBPnil) from the ongoing review of funding options.
The operating profit pre-R&D of GBP0.5m (2022 H1: GBP12.5m) reflects the decline in revenue caused by the short-term pause in production, together with increased manufacturing, administrative and exceptional costs.
Research and development costs increased to GBP8.5m (2022 H1: GBP5.0m), mainly due to initiation of the G306 Pollinex Quattro grass study and preparation for the P101 peanut study.
The operating loss was GBP8.0m (2022 H1: GBP7.4m, profit), and the loss before tax was GBP8.2m (2022 H1: GBP7.3m, profit). The tax charge of GBP0.3m (2022 H1: GBP0.6m) relates to the overseas subsidiaries. The basic loss per share was 1.29 pence per share (2022 H1: 1.04 pence per share, gain).
Property, plant and equipment increased to GBP22.1m (30 June 2022: GBP20.2m), mainly as a result of ongoing construction of the energy centre in the UK, offset by depreciation.
The investment in the retirement benefit asset increased to GBP7.0m (30 June 2022: GBP6.0m), reflecting investment returns and corporate contributions. Retirement benefit obligations relating to the German pension scheme were slightly lower at GBP8.2m (30 June 2022: GBP8.3m).
Net assets excluding cash have increased to GBP22.8m (30 June 2022: GBP17.9m), mainly due to capital investment and changes to pension assets and liabilities.
There was an operating cash outflow of GBP7.5m caused by the decline in profitability. After capital expenditure of GBP2.9m, gross share proceeds of GBP7.0m, financing costs of GBP0.5m and repayment of loans of GBP0.5m, there was a net decrease in cash and cash equivalents of GBP5.4m.
At 31 December 2022, the Group had cash of GBP15.2m (30 June 2022: GBP20.5m) and debt of GBP2.0m (30 June 2022: GBP2.4m).
Pursuant to the subscription and debt financing announced in September 2022, the Company received GBP6.5m of net share proceeds from the issue of new ordinary shares in October 2022 and received GBP10m from the issue of loan notes on 28 February 2023, together with the issue of 33,333,332 warrants to subscribe for new ordinary shares at a warrant exercise price of 30 pence per warrant.
On 6 April 2023, the Group entered into a senior secured facility agreement in an aggregate principal amount of GBP40.75m to refinance the existing GBP10 million loan notes issued on 28 February 2023, to continue key clinical trials, to finance trading and to provide working capital. The NatWest revolving credit facility has been cancelled to provide security for the new funding.
In conjunction with the senior secured facility agreement, the Company also entered into an equity commitment agreement to raise gross proceeds of GBP40.75m, which will be principally used to repay the amounts owed pursuant to the senior secured facility agreement.
The Company also entered into an agreement with the lenders to pay a substantial finance premium on the principal amount outstanding in the event that there is a successful G306 data read-out, and the Company intends to complete the equity financing and repay all amounts outstanding under the facility agreement to avoid the contingent payment, subject to various conditions.
The Directors have applied the going concern principle in preparing the interim results for the six months ended 31 December 2022, however there is material uncertainty for the following reasons: the need for additional near-term funding; the risk that existing investors are unwilling or unable to provide further funds; the risk that foreign direct investment clearance required for the equity raise is not obtained meaning that the Group is unable to repay the loan or the contingent payment for the successful G306 read-out.
Outlook
Owing to the seasonality of the pollen allergy market, approximately one third of revenue is generated in the second half of the financial year. Compared to the prior comparable period, the Group expects sales for the second half year to 30 June 2023 to continue at a slightly improved trend when compared with the trend seen for the first half of the year, with correspondingly lower gross margins. Overheads before R&D and exceptionals are expected to be similar to the first half year.
As a result of the manufacturing capacity that needs to be allocated to clinical batches, sales for the financial year to 30 June 2024 are expected to be slightly lower than the comparable period, with consequently reduced gross margins, while overheads before R&D and exceptionals are expected to be similar. The investment in clinical trials for the G306 grass study, G308 paediatric study, B302 birch study and P101 peanut study will result in a stepped increase in R&D costs. Further investment in plant and equipment is planned to support the continuing improvements in manufacturing and quality.
With over 90% of revenues and approximately 50% of costs (excluding research and development costs) denominated in euros, and approximately 60% of research and development costs denominated in US dollars, movements in the currency markets have an effect on the Group's operational finances, which are partially managed in the near-term by foreign currency forward contracts.
Notwithstanding the recent loan funding and planned equity refinancing of the loan, the Group expects that additional funding will be required from around September 2023 onwards for trading, working capital, capital expenditure and continuing R&D programmes. Discussions have commenced with certain shareholders on providing additional funding; these discussions are at an early stage with no binding arrangements but have been positive.
Lifting of Suspending in Trading
As a result of publication of the 2022 Annual Report and Accounts and publication of these Interim Results, trading in the Company's ordinary shares on AIM is expected to be restored with effect from 7.30am today.
This announcement contains inside information for the purposes of the UK Market Abuse Regulations.
Contact:
Manuel Llobet
Tel: +44 (0)1903 845 820
About Allergy Therapeutics
Allergy Therapeutics is an international commercial biotechnology company, headquartered in the UK, focussed on the treatment and diagnosis of allergic disorders, including aluminium free immunotherapy vaccines that have the potential to cure disease. The Group sells proprietary and third-party products from its subsidiaries in nine major European countries and via distribution agreements in an additional ten countries. Its broad pipeline of products in clinical development includes vaccines for grass, tree, house dust mite and peanut.
ALLERGY THERAPEUTICS PLC 
