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Preliminary Results & Business Update
October 2009
2
Disclaimer
This presentation has been organised by Sinclair Pharma plc (the Company) in order to provide general information on the Company. This material has been prepared solely by the Company and is (i) for your private information, and the Company is not soliciting any action based upon it; (ii) not to be construed as an offer to sell or a solicitation of an offer to buy any security and (iii) based upon information that the Company considers reliable. The Company does not represent that the information contained in this material is accurate or complete, and it should not be relied upon as such. No representation, warranty or undertaking, express or implied, is or will be made with respect to the fairness, accuracy or completeness of any of the information or statement of opinion or expectation contained herein or stated in the presentation or any other such information nor shall you be entitled to rely upon it. In furnishing you with this information no obligation is undertaken to provide you with any further information, to update this information nor any other information nor to correct any information contained herein orany omission therefrom.
The Company's securities have not been registered under the U.S. Securities Act of 1933 (as amended), and may not be offered or sold in the United States or to U.S. persons unless they have been registered under such Act, or except in compliance with anexemption from the registration requirements of such Act.
No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed, published, or disclosed by recipients to any other person, in each case without the Company's prior written consent. This material is only being provided to persons who are authorised persons or exempted persons within the meaning of the Financial Services and Markets Act 2000 or any order made thereunder or to other persons of a kind described in Articles 19 and 49 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 or who are otherwise permitted by law to receive it.
In relation to information about the price at which securities in the Company have been bought or sold in the past, note that past performance cannot be relied upon as a guide to future performance. In addition, the occurrence of some of the events described in this document and the presentation that will be made, and the achievement of the intended results, are subject to the future occurrence of many events, some or all of which are not predictable or within the Company's control; therefore, actual results may differ materially from those anticipated in any forward looking statements. The Company disclaims any obligation to update these forward looking statements.
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FY09 Financial results & operational highlightsBusiness restructuringManagement changesProduct acquisitionFundraisingOutlook
Agenda
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FY 2009 Review
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FY 2009 Overview
Sustained EBITDA profitability for second successive year
Restructuring of business with increased focus on sales, marketing & financial control
Key appointments to build team
Drive to efficiency and cost‐cutting
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Financial Overview
Maintained turnover and EBITDA within a challenging economic environment
Impacted by sector‐wide de‐stocking by wholesalersLed to a reduction in sales during the year
Benefited from greater revenues from licensing fees £7.4m (2008: £4.8m)Significant value enhancing deals (OBGYN )
Strong cost control ‐ drive to efficiency and cost cutting
Impact of restructuring costs
Sales support (sell‐out) shown to be effective
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Financial Highlights
FY 09 FY 08
Group revenues £30.4m £30.3m
Gross profit £20.7m £19.4m
EBITDA £2.3m £1.3m
Operating loss (before exceptional items) £(0.3m) £(0.8m)
EPS (basic, after exceptional items) (3.9)p 3.8p
8
Revenue Overview
Revenues flat Sales negatively impacted by wholesale de‐stocking
Positive impact of currency movements
Additional contribution from licensing deals
Top ten products increased by 21% year‐on‐year
0
5
10
15
20
25
30
35
2004 2005 2006 2007 2008 2009
£m Group revenue since IPO Top ten product revenues
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Licence fees
During the year Sinclair recognised licence fees and milestones of £7.4m
(2008: £4.8m)The major components of this are:
Agreement with Graceway for the sales of US distribution rights to Atopiclair cream and lotion for £2.1m
Non‐cash licensing agreement with BMG Pharma for Sinclair’s gynaecological portfolio which contributed £3.3m
Non‐cash licensing agreement with JB2 SA for Sinclair’s onychomycosis kit, which contributed £0.9m
Sinclair also received several smaller licence fees including:£0.2m from a major animal health company to enable the company to evaluate the use of Delmopinol to treat or prevent periodontal disease in companion animals
£0.2m from Orapharma following validation of the Italian manufacturing site
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Unaudited Audited2009 2008
Pre-exceptional items
Exceptionaitems
l Total
Pre-exceptiona
itemsl Exceptiona
itemsl
Total£’000 £’000 £’000 £’000 £’000 £’000
Revenue 30,408 - 30,408 30,278 - 30,278Cost of sales (9,704) - (9,704) (10,830) - (10,830)Gross profit 20,704 - 20,704 19,448 - 19,448
Selling, marketing and distribution costs (9,535) - (9,535) (8,444) - (8,444)Administrative expenses (11,477) (2,428) (13,905) (11,803) 2,997 (8,806)Operating (loss)/profit (308) (2,428) (2,736) (799) 2,997 2,198
Finance income 131 - 131 67 380 447Finance costs (1,173) (260) (1,433) (741) (330) (1,071)(Loss)/profit before taxation (1,350) (2,688) (4,038) (1,473) 3,047 1,574Taxation 417 - 417 410 1,354 1,764
(Loss)/profit for the year (933) (2,688) (3,621) (1,063) 4,401 3,338
Attributable to:Minority interest - - - 1 - 1Equity holders of the Company (933) (2,688) (3,621) (1,064) 4,401 3,337
(933) (2,688) (3,621) (1,063) 4,401 3,338
(Loss)/earnings per share (basic) (1.0p) (2.9p) (3.9p) (1.2)p 5.0p 3.8p(Loss)/earnings per share (diluted) (1.0p) (2.9p) (3.9p) (1.2)p 4.8p 3.6p
Income statementUnaudited FY09 vs audited FY08
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Exceptional Items
During the year there were some exceptional items recorded which were outside the normal trading activities of the company
£2.7m loss in FY08 versus £4.4m gain in FY09Restructuring costs of £1.4m include severance costs and costs relating to the restructuring of the sales forces in Italy, France, and the closure of the UK sales operations during the year
Foreign exchange gains of £1.7m (£3.7m FY08)
An impairment provision of £0.9m has been made against the value of the product rights for Spiromix
A provision of £1.2m has been made during the year for a doubtful debt
Previously announced costs of £0.6m were incurred in relation to a strategic acquisition opportunity during 2008 calendar year
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Note
Unaudited Audited2009 2008£’000 £’000
Cash flows from operating activities
Net cash outflow from operations 12 -1,225 -3,250Interest paid -803 -281Interest paid on finance leases -45 -41Taxation received/(paid) 1,603 -124Net cash used in operating activities -470 -3,696Investing activitiesNet cash used in investing activities -2,770 -4,196Financing activitiesRepayments of obligations under finance leases -219 -156Proceeds from borrowings 3,866 5,370Repayments of borrowings -3,203 -653Proceeds from issue of share capital 1,598 -Share issue costs -63 -Net cash generated from financing activities 1,979 4,561
Net decrease in cash, cash equivalents and bank overdrafts -1,261 -3,331
Cash, cash equivalents and bank overdrafts at 1 July -354 2,604Exchange gains on cash and bank overdrafts 18 373
Cash, cash equivalents and bank overdrafts at end of year -1,597 -354Cash, cash equivalents and bank overdrafts -1,597 -354
Cash and Net Debt
13
Management Changes & Business Restructuring
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Restructuring of the business to facilitate an increased focus on sales, marketing & financial control
Divided into Country Operations and International OperationsSubstantial cost savings already achieved as part of drive to create streamlined organisationReallocation of sales force resources and efficiency drive. Upgrade of marketing skillsDefined job descriptions, performance expectations and evaluation procedures. Clear reporting linesRevised budgeting and planning process
Continued focus to maintain efficiency and cost control
Business Restructuring
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Country Operations
France
£9.8m revenues
New Country Operations Director
Sales team achieved full coverage of
3,200 dermatologists in both hospitals
and private clinics
Successful introduction of a sell‐out
team
Introduced of a sell‐in support team and
support advisors
Enhanced focus on direct sales to
pharmacies with OTC promotions of
Oxyplastine and Ephydrol
Introduction of a high profile Key
Opinion Leader programme called
Controverse
Italy
£2.0m revenues
Restructured to focus on the therapeutic
areas of acne, dry and sensitive skin and
seborrhoeic dermatitis
New Country Operations Director
Launched Sebclair Scalp Fluid, Papulex
moussant, and new formula
Dermachronic
Spain
£0.2m revenues
Acquisition of remaining Spanish
business
New Country Operations Director
UK
£0.4m revenues
Launch of Atopiclair lotion
Inclusion of Atopiclair lotion into hospital
formularies
Closure of operation in June 2009
16
International Operations
New structure implemented
Focus on geographical expansion in key emerging markets
Increasing the level of marketing support to our partners
Help increase product sell out, and ultimately generating more predictable income in relation to orders and re‐orders
Continued expansion through partner network65 new marketing agreements for 27 products in 47 markets
44 launches, 7 products covering 22 markets
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New CEOChris Spooner
Board intention that Michael Flynn (67) will retire and be replaced by Chris Spooner (41) at this years’ AGM
Previously co‐founder and CEO of HealthCor Management UK LLP, the European division of HealthCor LP, one of the world’s largest dedicated health care funds with c.$3bn under management
Highly‐regarded in the European health care industry both in corporate and financial circles, having been a top‐rated analyst for many years
In addition, Christophe Foucher will join the Board
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Product Acquisition & Fundraising
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Product AcquisitionAcquisition of Flammazine & Flammacerium
Strategic opportunity to acquire established pan‐European derma brand with revenues of >£9m p.a. providing first 12 months’ EBITDA of >£2mPurchase consideration c.£16m plus total stock, working capital and deal costs c.£4mRationale:
Product has significant USPsOpportunity to broaden Sinclair‘s European commercial presenceOpportunity for significant upside through geographic expansion and line extensionOpportunity to acquire a significant brand for Sinclair providing 24%* of pro‐forma revenuesSignificant enhancement to Sinclair’s EBITDA**, enhancing the quality of underlying earnings
Aiming for completion before calendar year end
*12mths 2009**Pre‐exceptionals, pre‐intangibles impairment
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Flammazine
Sterile, topical cream used in the treatment of burns
Gold standard, well recognised brand
Active ingredient, silver sulphadiazine is not patent protected. However there are significant barriers to entry
expensive set‐up and challenging regulatory requirements
most existing sterile facilities are for micro‐packaging (opthalmics)
franchise is below the radar of most competitors
Reimbursed with bulk of sales in hospital
Approved throughout EuropeFranchise excludes the UK and Italy (Smith & Nephew)
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Flammacerium
Sterile, topical cream used for the prophylaxis and treatment of infection in serious burns
Silver sulfadiazine cream plus cerium nitrate
Cerium nitrate prevents systemic immunosuppression (which often leads to organ failure)
Reimbursed and almost always used in hospital
Approved throughout Europe, various small emerging marketsFranchise excludes the UK and Italy (Smith & Nephew)
Orphan drug status in the USA
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Project SulphurFund raising
Sinclair intends to raise funds through a mix of debt and equity, and in doing so introduce new well‐known and respected fund managers
Company is cash constrained. Deal helps push underlying business into sustainable profitability. Fund raising provides small cushion
£25 m equity fundraisingScaled back to £18m once £9m debt facility obtained
Following sharp share price rise over the last month, issue price of 32p represents discount of 28%
23
Outlook
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Looking forward:Corporate Strategy
With the backing of high‐profile new investors, Sinclair seeks to create shareholder value through the addition of product acquisitions and selected M&A targets in order to sweat the assets of its core specialty pharma business
Sinclair will continue to focus on dermatology, but intends to exploit the value of other in‐house technologies and assets, notably Decapinol/delmopinol, OB‐GYN and nano silver
Sinclair’s plan is to build European critical mass in the dermatology arena with a view to becoming an in‐licensing agent of choice
Reduce complexity and improve profitability by marketing fewer, larger products
Less emphasis on medical device route for new product approvals
Operate with a less stressed balance sheet
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FY 2010 Outlook
SummaryFY09 a challenging year, but second successive year of EBITDA profitability
Restructuring positions the company well for future growth
Product acquisition offers Sinclair additional stable revenues and strategic advantage
Management changes further strengthen the existing management team and Board
Maximise operational gearing
Pending milestonesPost‐period Sebclair launch in the US (complete)
Completion of Flammazine and Flammacerium acquisition (before the end of 2009)
Preparing for Decapinol US (date tbc)
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AppendicesRevenue from key products
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Aloclair revenuePer annum since 2002
28
Decapinol revenuePer annum since 2005
29
Sebclair revenuePer annum since 2006
30
FY05
FY06
FY07
FY08
FY09
411
1156
2994
2106
2077
Sales£000
Atopiclair revenuePer annum since 2005