EVOLUTION OF DISCOVERY
Asterand plc Annual Report and Accounts 2010
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01 Highlights
02 Chairman’s Statement
04 Chief Executive’s Business Overview
06 Financial Review
08 Our Business
09 Case Study
Governance
10 Board of Directors
12 Corporate Governance Report
15 Directors’ Remuneration Report
20 Directors’ Report
Financial Statements
25 Independent Auditors’ Report
26 Consolidated Income Statement
27 Consolidated Statement of Comprehensive Income
28 Consolidated Balance Sheet
29 Company Balance Sheet
30 Consolidated Statement of Changes in Equity
31 Company Statement of Changes in Equity
32 Consolidated Cash Flow Statement
33 Company Cash Flow Statement
34 Notes to the Financial Statements
65 Notice of Annual General Meeting
2010, A Year in Review
18 February 2010
Asterand completes acquisition of BioSeek, a California
based company with proprietary cell based predictive
biology technology.
1 March 2010
Asterand’s Royston UK facility is accepted into the GLP
Compliance Monitoring programme, extending the
Company’s service offerings into the preclinical
development market.
23 March 2010
BioSeek and Ono initiate a new multi-year
collaboration for the use of the BioMAP
®
system in
Ono’s drug discovery programmes.
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• Revenue $21.3 million, an increase of 14% over 2009. Operating loss $2.1 million (2009: $1.6 million), nearly break-even adjusted
EBITDA (2009: $0.4 million profit).
Adjusted EBITDA is defined as interest, taxes, depreciation and amortisation (“EBITDA”) – and excluding exceptional items and share option related charge. See
page 27 for a reconciliation of operating loss to adjusted EBITDA.
• Successfully integrated our first acquisition as a public Company – BioSeek: 2010 revenues of $6.4 million represented a 68%
increase over 2009.
A California-based company with propriety human primary cell based predictive technology. Complementary to Asterand’s existing human tissue based business.
Total consideration of $9.5 million represents a multiple of less than 1.5 times 2010 sales – we believe that this is a favourable arrangement, given BioSeek’s true
value.
• Awarded prestigious contract under The Cancer Genome Atlas Project (TCGA) – (US National Cancer Institute (NCI) / the National
Human Genome Research Institute (NHGRI)). Up to $24 million over five years, including an initial base period of $5.4 million
over 17 months. A validation of Asterand’s approach.
• Won key contracts with pharmaceutical and diagnostic companies, and government agencies, including with Ono Pharmaceuticals,
Eisai Co. Ltd., Cellzome, Amylin Pharmaceuticals, the EPA (Environmental Protection Agency).
• Invested in science and innovation to lay the foundation for future growth and profitability. Established GLP at Royston (UK
facility). Held successful inaugural annual human tissue conference in Washington DC in April 2010. Appointed Dr Dalia Cohen
as CSO in September.
• Gross margin 56% (2009: 58%), operating expenses increased to $14.1 million (2009: $12.4 million) and cash resources of
$5.9 million (2009: $6.6 million).
Post Year End Events
• $8.5 million of contingent consideration due for BioSeek to be paid entirely in cash – $2.5 million in May 2011 and the remaining
$6 million financed through the issue of loan notes to the BioSeek vendors which mature over the period to December 2013.
• Statement on Japan earthquake and tsunami
We have many close business and personal relationships in Japan and we feel deep sadness over the tragic impact on the Japanese
people caused by the recent earthquake and tsunami. In terms of the Asterand business, 12% of 2010 revenues were from Japan.
However, most of our business conducted in Japan is from long term BioMAP collaborations with companies that were not
significantly impacted by the tragedy due to their geographical locations. Some minor delays in the progression of these contracts
may result in 2011. However, currently, all indications suggest that they will not be significant.
HIGHLIGHTS
14-15 April 2010
Asterand sponsors Inaugural Human Tissue
Conference, bringing together key opinion leaders to
discuss advances in human tissue models, cancer
research and drug discovery.
4 May 2010
BioSeek signs a two year agreement with Eisai Co.
Ltd. for the use of the BioMAP
®
system in Eisai’s
oncology and inflammation drug discovery
programmes.
14 May 2010
Asterand awards inaugural Biospecimen Science
Poster Awards at the 2010 International Society for
Biological and Environmental Repositories (ISBER)
Conference in Rotterdam, The Netherlands.
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CHAIRMAN’S STATEMENT
Dear Shareholders,
As you may know, it has been my long held belief that human tissue-based solutions
will play an ever increasing role in the discovery, development, and clinical evaluation
of more effective treatments and diagnostics, for human disease. I believe this now
more than ever, as the potential for drug discovery locked away in world biobanks is
beginning to be recognized more prominently. Asterand continues to be the leading
company in this growing niche, with ever growing channels of distribution and world
renowned standards in quality, diversity of materials and ethical protocols. This has
been validated with the new contracts and customers that we have secured in 2010.
We are well positioned to benefit from this growing trend while doing the important
work of helping our customers quicken the pace of bringing new treatments and
diagnostics to market.
Adding shareholder value
through the integration of BioSeek
On 18 February 2010, Asterand finalised its acquisition of BioSeek. Both organizations
immediately set to work, to capitalize on Asterand’s worldwide commercial connections
in order to expand the use of the BioSeek platform. BioSeek’s 2010 performance was
outstanding! Revenue grew 68% from 2009, greatly exceeding any previous year’s
sales.
Our shareholders will recall that the terms of the BioSeek acquisition included a
contingent payment based upon BioSeek’s 2010 revenue. Following the audit of
BioSeek’s 2010 revenues, this contingent payment was calculated as US $8.5 million.
As previously announced, the first US $3 million of this payment was to be satisfied
through the issue of 8.1 million Asterand shares, and the remaining $5.5 million
consideration was to have been paid in cash. To this end we announced in December
2010 that we had secured a term loan and a revolving credit line from Silicon Valley
Bank (“SVB”) to fund this payment. However, volatility in trading during March 2011
impaired our ability to draw on the revolving line of credit. The $3 million term loan
remains drawn and intact. As a consequence, we subsequently agreed with the
BioSeek vendors that the entire $8.5 million of contingent consideration will be
satisfied with cash – $2.5 million will be paid in May 2011 and the remaining $6 million
is to be satisfied in loan notes that mature over the period to December 2013, in a
payment schedule that fits well with our business.
I’d like to congratulate the Asterand and BioSeek management teams and employees
for the success of the integration. Mergers are never easy, but both organizations
worked tirelessly to make this one exceed our pre-acquisition goals.
Board changes and corporate governance
On 8 June 2010, Ian Ratcliffe’s Board of Director term expired and he did not present
himself for re-election. Ian has proven to be an asset to our company and has
contributed significantly to our success during his tenure. I would like to thank him
warmly for his insight and guidance over the past few years and wish him well in his
future endeavours. I would also like to take this opportunity to thank all of the Board
of Directors for their contributions throughout 2010. It has been my pleasure to work
with a Board of such high calibre. Their deep industry experience, entrepreneurial
spirit and willingness to take on any assignment has set the foundation for excellence
at the Company.
The Board and Management continues to have a policy of transparency in regards to
our strategy and related activities. An important component of this involves
communicating and listening to our shareholders to understand their ideas and points
of view.
17 May 2010
John Stchur, Asterand’s Chief Financial Officer,
receives the Financial Director of the Year Outside of
the FTSE 350 Award.
7 June 2010
US Environmental Protection Agency (EPA) expands
BioSeek’s participation in its ToxCast™ programme,
increasing the contract award amount to $3.2 million,
from $1.7 million.
14 June 2010
BioSeek and Amylin sign an agreement to apply
BioMAP
®
to screen Amylin’s PHORMOL library to
discover peptides with a potential to treat
inflammatory conditions.
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Aligning objectives between employees and
shareholders
During 2010, we granted a total of 2.5 million share options to our employees through
our Long Term Incentive programme. We have a deep commitment to this program
which enables us to retain key employees, while aligning the goals of our shareholders
with those of our employees and we were especially pleased to grant our first shares
to BioSeek employees. Every Asterand employee receives shares under this
programme, allowing them to own a part of the Company and benefit from the growth
and success they are helping to build.
Positive outlook
The year 2010 was a year of accomplishment on several fronts for Asterand: The
successful integration of the BioSeek acquisition, the acceptance of our Royston facility
for GLP accreditation, and the award of a substantial government contract with the
NCI/NHGRI have positioned us well to achieve our strategic goals. These
advancements were made possible through the extra efforts of Asterand’s employees
and management team. I’d like to take this opportunity to thank all of Asterand’s
employees for their dedication, commitment and hard work.
As witnessed in March 2011, we sometimes experience month to month volatility in
sales. As the business matures and grows, we have made progress towards stabilizing
monthly revenues with long term contracts. I am pleased to say that there is more
visibility into 2011 sales than ever before with several multi-year collaborative
agreements for the BioSeek platform and our contract with the NCI/NGHRI. Thus we
believe that Asterand is well positioned for 2011 and that the achievements of 2010
will provide a solid foundation for Asterand‘s continued leadership within the global
marketplace for years to come.
Jack Davis
Chairman, Asterand plc
22 September 2010
Asterand appoints Dr Dalia Cohen Ph.D. as its new
Chief Scientific Officer.
1 October 2010
The US National Cancer Institute awards a contract to
Asterand, valued at up to $24.3 million, for the supply
of human biospecimens for The Cancer Genome Atlas
project.
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CHIEF EXECUTIVE’S BUSINESS OVERVIEW
Dear Shareholders,
I’d like to take a brief moment to express my sympathy to the Japanese people. I have
a great many close business and personal relationships in Japan and was deeply
saddened by the tragic impact of the recent earthquake and tsunami.
2010
2010 was a good year for Asterand – a year of inflection.
Our revenues exceeded $21.3 million (an increase of 14% over 2009), and we were
nearly break even on an adjusted EBITDA basis.
Furthermore, we met four key milestones:
1. Acquisition of BioSeek
As our first acquisition as a public company, and after assessing many potential
targets, we focused on BioSeek, a California-based company with propriety human
primary cell based predictive technology. BioSeek met all of our acquisition criteria;
in particular its technology is complementary to Asterand’s human tissue based
business. We negotiated a de-risked deal, and I would like to thank our shareholders
for approving this deal on February 18th, 2010.
Of course, after approval, that is when the hard work starts, and those people who
have had involvement in M&A will know that the integration of two companies, cultures
and histories can be fraught with difficulties. Looking back now, I feel that we
managed the integration very well, and I feel very proud of the management team,
both those originally from Asterand and from BioSeek. This bodes well for future
acquisitions. 2010 Revenues of $6.4 million represented a 68% increase over 2009.
More importantly even than the revenue metric:
• We retained all of the senior key management team in BioSeek
• We established a blended selling model (where our territory based sales
representatives lead the promotion of a lite version, and a central specialist
team lead on larger deals). The sales cycle of BioSeek is longer than for
Asterand’s traditional business. Towards the end of 2010, we started getting
some real traction in this blended distribution model, which bodes well for
2011 and beyond.
2. Award under The Cancer Genome Atlas Project
(TCGA)
In September we were awarded a contract under The Cancer Genome Atlas Project
(TCGA) – (US National Cancer Institute (NCI) / the National Human Genome Research
Institute (NHGRI)) for $24 million over five years, including an initial base period of
$5.4 million over the first 17 months.
Under the contract Asterand will supply clinically annotated human biospecimens to
further the NCIs critical research into new treatments and diagnostics for cancer.
Many shareholders will already be very familiar with the NCI, but for the benefit of
those perhaps non-US shareholders I will point out that the NCI is an extremely
prestigious well respected organisation, that invests more in research into cancer than
any pharmaceutical company and is regarded as an opinion former and an establisher
of standards. We in Asterand therefore feel honoured to be given the opportunity of
working with the NCI, and feel that our quest for the highest quality specimens and
7000
6000
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4000
3000
2000
1000
0
2003 2004 2005 2006 2007 2008 2009 2010
Annual Revenues ($K)
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the most complete and assured information has been validated. As an example, on
award of this contract, the US Government approved Asterand’s model for the ethical
collection of tissues for research.
3. Establishment of new contracts
In 2010, we won key contracts with pharmaceutical and diagnostic companies, and
government agencies, including Ono Pharmaceuticals, Eisai Co. Ltd, Cellzome, Amylin
Pharmaceuticals, and the EPA (US Environmental Protection Agency).
We have an example of a new breed of deal for Asterand – beyond mere fee and
service, and encompassing the possibility of milestone payments, if compounds
progress through our platform. So, we have now demonstrated that our platform is
unique and significant enough to be worthy of such deals.
In June the US EPA increased its Phase II funding commitment to BioSeek under the
ToxCast™ screening program to $3.2 million. Approximately 750 chemicals and
nanomaterials are being screened to predict harmful effects using the BioMAP
platform. BioSeek began screening in 2010 and this project will continue throughout
2011.
4. Increased focus on science and innovation
We were awarded GLP accreditation at our Royston facility in February. In April, we
hosted a successful inaugural human tissue conference in Washington DC. The
conference provided an opportunity for opinion leaders in the government, academia
and commercial companies to gather and discuss key issues at a critical time in the
development of this new field.
In addition, we appointed Dr Dalia Cohen as CSO in September. Dalia is a recognised
leader in the drug and diagnostic development field; she will help move our company
to the next level.
The macro environment in the immediate term
The environment over the last eighteen months has not been easy, and the medium
to long term trends have been impacted by short term pressures. Our traditional
customers, big Pharma, have found themselves buffeted by patent expirations,
increasing costs and decreasing productivity of R&D, the economy, healthcare reform,
and have responded by offshoring, merging, reducing therapeutic sites and closing key
sites.
Whilst in the medium term, this will probably be advantageous for Asterand (e.g.
more outsourcing), over the last eighteen months it has led to a brake on demand.
It is pleasing therefore that our results described above have been achieved despite
these macro issues.
BioSeek payment
In April 2011, our contingent payment for BioSeek to the previous owners became
due. As previously announced in December 2011, our intention was to satisfy the
consideration with cash to avoid unnecessary dilution for our existing shareholders.
We have now achieved this, albeit that the Company now has debt of approximately
$9m, with what we believe is an acceptable and an achievable payment schedule.
What next for Asterand?
Towards the end of 2009, seeing the short term issues in Pharma, management in
Asterand decided to seek business with government and diagnostic companies (i.e.
as well as Pharma companies). In 2011, we anticipate that our two top customers will
be the NCI and the EPA. Furthermore, in our tissue business, three of the top five
commercial customers currently are diagnostic companies.
In terms of the medium to long term, let me quote from an independent report on
Biobanking in the Medical R&D Market from VisionGain (2009):
“The biobanking market is expected to see significant growth from 2010 to 2025, due
primarily to the realisation of advantages of biospecimens compared with animal
models in pre-clinical pharma research.”
“…we conclude that the biobanking market will thrive during the forecast period, from
2010 to 2025, biobanks will become one of the most important resources for
advancing medical research and development of drugs and diagnostic tests.”
So, we are very optimistic for 2011 and beyond. In 2011 we will have revenue from
the TCGA (negligible in 2010) and anticipate further growth for BioSeek (we already
have $5.5 million booked business). Indeed, our line of sight of business is higher than
ever previously.
We are fortunate to operate in a niche (human based solutions for companies engaged
in research) that has potential for substantive growth, has barriers to entry, and is very
fragmented, with the majority of competition stemming from academia and cancer
centres. We seek to be the leader and the consolidator in this niche, and to offer a
credible one stop shop to our customers.
We intend to hold our second human tissue conference, on the 1st and 2nd June
2011 in Chicago, and have already lined up an impressive cast of speakers.
While I’m proud of what Asterand has accomplished in 2010, I’m even more excited
about what our future holds.
Martyn Coombs
CEO, Asterand plc
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FINANCIAL REVIEW
Results for the year ended 31 December 2010
As previously communicated, we changed our presentation currency to US dollars
beginning in 2010. The majority of our sales and costs are denominated in USD, and
the USD has an increasing influence on the Company’s operations. Ongoing
presentation in USD should allow clear and transparent year to year comparability
with fewer effects from foreign currency translation.
The Group’s 2010 revenue was $21.3 million (2009: $18.7 million), an increase of
14%. To understand fully the performance in the business, one-off effects need to be
analysed. Revenue from 2009 included $3.7 million from Asterand’s contract with
Baylor College of Medicine. This contract was completed in that year. When proceeds
from this non-recurring source are excluded, revenue for the period (including BioSeek
from 18 February 2010) grew 42%. Excluding revenues from BioSeek and the Baylor
contract, human tissue based solutions revenues were relatively flat over 2009.
Revenue By Source 2007-2010
The Group’s cost of sales was $9.3 million (2009: $7 .9 million), leading to a gross profit
for the year of $12 million (2009: $10.8 million profit). As a result, gross margins
were 56% (2009: 58%). Margins were flat in a period of relatively flat sales.
On 31 December 2010, the carrying value of the biobank inventory was $9.1 million
(31 December 2009: $8.8 million). During 2010, the Group continued to invest in
expanding its donor network to meet changing customer needs. However, the
inventory expansion was more modest than ever before as we implemented changes
that enabled us to more efficiently match supply with demand.
Research & Development (R&D) expenses were $1.3 million (2009: $0.5 million).
2010 R&D expenses relate to an expansion in our scientific management through the
hiring of a CSO as well as improvements to new product offerings to support the
Group’s focus on the business of human tissue supply and human tissue-based
solutions.
Selling and distribution costs were $3.8 million (2009: $3.7 million). These costs relate
to sales staff salaries, commissions and marketing expenses. The modest increase is
attributable to additional marketing and sales staff salaries expense associated with
supporting the expanded product offering associated with the purchase of BioSeek.
Total general and administrative expenses were $8.9 million, an increase of 8% from
$8.2 million in 2009. General and administrative expenses are analysed between those
relating to exceptional costs and those to normal operations. Exceptional general and
administrative costs were $0.9 million (2009: $1.5 million). $0.4 million of the
exceptional expenses relate to the final purchase price for BioSeek being higher than
initial estimates, which is recorded as a loss for the year under IFRS 3 (revised). As
the final purchase price for BioSeek is based on a multiple of revenue in 2010, this
means that BioSeek revenues were higher than anticipated, not necessarily a bad
problem to have. The remaining $0.5 million of exceptional expenses related to
severance expenses, legal and professional fees associated with the BioSeek
acquisition and the defence of the Group’s ability to secure Asian supply collaborations.
General and administrative costs relating to normal operations were $8.0 million
(2009: $6.7 million). $1.8 million relates to additional costs related to BioSeek
operations. Excluding this, general and administrative costs were reduced by
$0.5 million as compared to 2009. The resulting loss for the year was $2.0 million
(2009: $1.6 million).
Though it is a non-IFRS measure, Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) and excluding exceptional items and share option related
charges is monitored closely by the Directors and management as a metric to measure
progress of business operations towards profitability and positive cash flow. The
adjusted EBITDA for 2010 was close to break-even, a $0.4 million reduction over
2009 (2009: $0.4 million profit).
}
$30
$25
$20
$15
$10
$5
$0
2007 2008 2009 2010
Licensing
Consulting
Baylor
Base Business
BioSeek Revenue
Millions
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BioSeek acquisition
BioSeek contributed $6.3 million in revenue to the Group after its acquisition on
18 February 2010, beating our original estimates of $6.2 million. Total consideration is
based on 2010 full year BioSeek revenues which were $6.4 million (2009: $3.8 million)
Initial consideration of $1.0 million was satisfied by the issue of 2.7 million shares in
February 2010. An additional contingent payment initially valued at $8.5 million (which
has been revalued at $7 .6 million on the balance sheet based on year-end share price
and exchange rates) is payable based on a multiple of 2010 revenue. Therefore, the
total purchase price is $9.5 million or 1.5 times revenue. As previously announced, the
first US $3 million of this payment was to be satisfied through the issue of 8.1 million
Asterand shares, and the remaining $5.5 million consideration we intended to pay with
cash. In December 2010, we announced that we secured a term loan and a revolving
credit line from Silicon Valley Bank (“SVB”) to fund this payment. However, volatility
in trading during March 2011 impaired our ability to draw on the revolving line of
credit. The $3 million term loan remains in place. In April 2011, we subsequently
agreed with the former BioSeek shareholders that the entire $8.5 million of contingent
consideration will be satisfied with cash – $2.5 million will be paid in May 2011 and the
remaining $6 million will be satisfied by the issue of loan notes which matures over the
period to December 2013.
Financing & liquidity
The Directors monitor the cash flow and cash resources closely. At 31 December 2010
the Group had cash and cash equivalents of $5.9 million (2009: $6.6 million). During
2010, the Group utilised $4.8 million of cash in operations principally attributable to
working capital movements. Other uses of cash include defence of the Group’s ability
to secure Asian supply collaborations, expenses and professional fees associated with
the BioSeek acquisition. The use of cash was partially offset by a new term loan from
Silicon Valley Bank that was secured and drawn down in December 2010 and $1.6
million of cash acquired in the BioSeek transaction. The term loan will be used to
fund part of the cash settlement of the remaining contingent payment for the BioSeek
acquisition on the basis described above.
Outlook
During 2010, the Group made investments in building its supply of biospecimens,
expanding its government contract business and integrating its new acquisition
BioSeek. These investments are paying off. We have begun to see adoption of the
BioMAP platform with some of our key clients and collaborative agreements for the
platform continue to grow. We secured a 5-year contract for supplying the US National
Cancer Institute with biospecimens for The Cancer Genome Atlas (TCGA) project.
With this contract and significant secured commitments from several other large
clients, we have a greater line of sight on sales than ever before. We believe that these
advancements put us on firm footing for future growth in revenue and that because
our business is quite scalable, this will result in sustainable profitability.
John Stchur, CPA
Chief Financial Officer
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Asterand plc is the leading global supplier of high quality, well characterised human
tissue-based solutions to pharmaceutical and biotechnology companies. We are
experts in the procurement, assessment, characterisation and use of human
biospecimens. We employ our scientific knowledge, products and services to assist
clients in the selection of drug candidates with an increased likelihood of clinical
success.
Models and methods to improve drug discovery
Asterand’s human tissue-based solutions are directed at reducing the critically high
failure rate of compounds in clinical trials. Pharmaceutical researchers have always
known that animal models do not provide a complete guide to drug response in
humans. These differences may provide foresight into the performance of a drug
during clinical trials. Thus, the incorporation of human tissue-based models at all
stages of the discovery process is gaining acceptance as scientists seek methods to
improve decision making during the development of medicines. Today, Asterand
products and services are used at each stage of drug development from target
identification to preclinical research.
Our product offerings
Asterand currently offers three primary product and service lines.
• XpressBANK
TM
• PhaseZERO
®
• BioMAP
®
Our XpressBANK
TM
biobank contains several hundred thousand specimens from a
broad range of therapeutic areas, offering rapid delivery of specimens that best meet
the research requirements of our clients. Each specimen is accompanied by thorough
disease characterisation and detailed clinical information making these samples
especially well suited for drug discovery research. In addition to the human tissue
biorepository, Asterand offers the following:
• Custom isolations of specific cell lines and primary cells
• Custom designed Tissue Microarrays (TMAs)
• Biofluids, including blood, serum and plasma
Through PhaseZERO
®
Asterand also offers human tissue-based drug discovery
research services on a fee-for-service basis. The services platform leverages our
unparalleled experience and proven track record in human tissue-based research.
PhaseZERO
®
includes:
• XpressWay
®
– human gene expression in non-diseased and diseased tissues
• XpressArray
TM
– human protein expression profiling
• Human tissue-based and primary cell assays for metabolism and toxicity
analysis
Recent product innovation & expansion
BioMAP
®
, Asterand’s newest service platform through the acquisition of BioSeek, is
an innovative, cell based disease model used to generate a unique profile of human
biological response for specific drug candidates. The platform helps to reduce risk at
the earliest stages of research and at multiple decision points within the R&D process.
Most human cell lines used in preclinical testing are unable to provide truly predictive
information since they lack the natural regulatory activity inherent in humans. By
using primary cells directly isolated from the human body, the BioMAP
®
system
replicates the cellular interactions present in specific human diseases.
Asterand’s expertise in providing human-based solutions for drug discovery research
is renowned. We continue to expand and invest in new products and services as our
customers’ demands grow. For example, our UK facility was recently accepted into the
UK Good Laboratory Practices (GLP) Monitoring Programme. This accreditation will
allow us to offer GLP compliant preclinical safety study services to pharmaceutical and
biotech clients. Asterand’s initial GLP compliant product offering is tissue cross
reactivity testing.
Through our heritage of drug development, Asterand owns several therapeutic
programmes. Although we have ceased development of these programmes, out-
licensing offers us the opportunity to further advance these programmes whilst
maintaining focus on our base business. To date, we’ve licensed migraine compounds
to BTG and an eye disease programme to Allergan. Thus far, Asterand has received
more than £4.2 million in license fees and milestone payments.
We continue to seek alliances to capture additional value from this portfolio.
Growing leadership
Asterand’s extensive expertise allows for a comprehensive approach to meet the
research needs of drug development companies. The Group will continue to leverage
this expertise to become the predominant leader in the market for human-based
solutions for drug discovery and development scientists who require biospecimen
procurement, contract research services or biobank management.
OUR BUSINESS
15863 Asterand A&R FRONT SECTION:Layout 1 28/04/2011 06:56 Page 8 The biopharmaceutical industry still experiences high drug candidate attrition in
human clinical trials. New predictive technologies are needed to shift this paradigm.
The BioMAP
®
platform that Asterand acquired with BioSeek in 2010 has utility in
modelling a variety of human diseases economically in a laboratory setting. This can
provide unique insights into the therapeutic potential (or their potential side effect
liabilities) of drug candidates before the onset of expensive and time-consuming
clinical trials.
In collaboration with Onyx Pharmaceuticals of Emeryville, California, a NASDAQ-listed
(ONYX, www.onyx-pharma.com) biopharmaceutical company dedicated to improving
lives of people with cancer, the BioMAP
®
platform was deployed to investigate Onyx’s
pre-clinical drug candidate ONX 0914. This compound is a selective inhibitor of the
immunoproteasome enzyme that is expressed predominantly in immune cells. It has
potential to treat diseases of immune dysregulation.
We deployed six BioMAP
®
assay systems on behalf of Onyx, as follows:
i) human venular endothelial cells stimulated with pro-inflammatory cytokines to
model cardiovascular and chronic inflammatory diseases (3C);
ii) human venular endothelial cells stimulated with IL-4/histamine to model
asthma, allergy and oncology (4H);
iii) co-culture of human peripheral mononuclear and endothelial cells stimulated
with LPS to also model cardiovascular and chronic inflammatory diseases (LPS);
iv) co-culture of human peripheral mononuclear and endothelial cells stimulated
with superantigens to mimic autoimmune and chronic inflammatory diseases
(SAg);
v) human bronchial epithelial cells stimulated with pro-inflammatory cytokines to
mimic diseases of the lung such as COPD (BE3c); and
vi) human dermal fibroblasts stimulated with cytokines and growth factors to
model Th1 type diseases such as psoriasis, arthritis and MS (HDF3CGF).
These systems measure together a total of 74 mainly protein read-outs in parallel to
build up a signature of effects of test agents in a rapid and reproducible manner.
In a comparative study of ONX 0914 with Bortezomib, a marketed proteasome
inhibitor, the compounds were found to have overlapping effects on inhibiting T cell
activation but, unlike Bortezomib, it had no effects on endothelial cells or fibroblasts
and it inhibited monocyte TNFα production (Figure 1).
Further, upon cluster analysis compared to a range of other anti-inflammatory
compounds, ONX 0914 was found to have a unique anti-inflammatory profile (Figure
2). Specifically, this profile was both an inhibition of monocytes and T cell activation
without any apparent affects on non-immune cells.
Asterand plc - Annual Report and Accounts 2010 09
Figure 1 : BioMAP
®
readouts of bortezomib (green) vs. ONX 0914 (red)
illustrating differences and similarities in their profiles.
Figure 2: Computational clustering of the BioMAP
®
profile of ONX 0914
compared to other test agents
This data has given Onyx confidence to progress ONX 0914 to evaluation in pre-
clinical models of autoimmune diseases such as rheumatoid arthritis, inflammatory
bowel disease and lupus.
Common features
● Strongly inhibit T cell activation
Differential activities
● Bortezomib highly active against EC’s, Fibroblasts
● ONX 0914 inhibits monocyte TNFα production
}
}
ONX 0914
● Unique anti-inflammatory signature
● Inhibition of monocyte and T cell
activation without effects in
nonimmune cell systems
Common cluster features
● Strong inhibition of TNFa in monocytes
● No effect on T cell proliferation
CASE STUDY
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Chairman
Jack Davis – Non-Executive Director
Jack Davis was appointed as Chairman of Asterand in May 2008. He was previously on the Board of Asterand Inc. prior to its merger with
Pharmagene plc. He also serves on the Boards of Claros, Inc., Collages.net, Inc., Laboratory Partners, Inc., RedPath Integrated Pathology, Inc.
and HistoRx, Inc. Mr. Davis co-founded Dianon Systems, a company that specializes in providing pathology services, holding the position of
CEO and Chairman. He has also served as CEO of Calpyte Biomedical Corporation, Genica Pharmaceuticals and Infant Advantage, Inc. For over
15 years, Mr. Davis served in various executive positions with Abbott Laboratories, the last being Vice President and General Manager of
Worldwide Diagnostic Products.
Executive Director
Martyn Coombs – Chief Executive Officer
Martyn Coombs was appointed as CEO of Asterand plc in March 2007 . Prior to joining Asterand, Mr. Coombs worked for Amersham plc for nine
years. He led global logistics during Amersham’s period of rapid growth and merger activity in which the Company’s revenue tripled in size to
£1.4 billion. Subsequently he served in Japan for five years as Executive Vice President of Nihon Medi-Physics Co. Ltd, a $300 million revenue
Joint Venture between Amersham and Sumitomo Chemical. Mr. Coombs served on the Board of Nihon Medi-Physics Co., Ltd as Amersham’s
only Executive Director, and concurrently as President of Amersham KK. Mr. Coombs has also served as President of PerkinElmer Japan, a
subsidiary of PerkinElmer, Inc. He holds a degree in Mathematics, and an M.B.A. from Warwick Business School.
Executive Director
John Stchur – Chief Financial Officer
John Stchur was appointed to the Board of Directors in January 2009. He joined Asterand, Inc. in 2002 and led the Company through two
rounds of venture funding and listing on the London Stock Exchange by means of a reverse merger (with Pharmagene plc) to form Asterand
plc in January 2006. He was appointed Chief Financial Officer and Corporate Secretary of the new Group in 2007 . Prior to joining Asterand,
Mr. Stchur served as Vice President of Finance for Big Net Holdings, a telecommunications company and as an auditor for
PricewaterhouseCoopers L.L.P . Mr. Stchur is a certified public accountant with a degree in Business Management from the University of Maryland
and a Master’s of Science Degree in Accounting from Walsh College.
Dr. Peter Coggins – Non-Executive Director
(Senior Independent Director)
Peter Coggins was appointed as a Non-Executive Director of Asterand plc in April 2008. Dr. Coggins has over thirty-five years experience in the
biotechnology and life science industry. Previously he was President of PerkinElmer Inc. Life and Analytical Sciences, and as such had full P&L
responsibility for a business with sales of $1.2 billion and staff of 4,200. In this capacity he also served as a Corporate Officer and a member
of the Executive Committee. Prior to PerkinElmer, Dr. Coggins served as Executive VP Global Sales, at Amersham Biosciences. Dr. Coggins is a
past Chairman of ALSSA (Analytical & Life Science Sciences Association), a former advisory committee member to the US Secretary of Health
and Human Services, and is a former Director on the Boards of Biohit Oy (Helsinki) and deltaDOT Ltd (London). Dr. Coggins holds a first degree
and a Ph.D. in Zoology from Chelsea College, University of London.
BOARD OF DIRECTORS
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Jonathan Fleming – Non-Executive Director
Jonathan Fleming was appointed as a Non-Executive Director of Asterand plc in September 2008. Since 1996, he has been a General Partner
of Oxford Bioscience Partners and currently serves as the Managing General Partner. Oxford Bioscience Partners is an international venture
capital firm with more than $900 million under management that specializes in life science technology based investments. Prior to joining
Oxford Bioscience Partners, Mr. Fleming was a founding General Partner of MVP Ventures (Boston, MA) and a co-founder of Medica Venture
Partners (Israel). He currently serves as a Director on the Boards of Leerink Swann Investment Trust (Boston, MA), RailRunner NA Corp
(Lexington, MA), Enanta Pharmaceuticals (Watertown, MA), Lab Partners (Palo Alto, CA), Radius Pharmaceuticals (Cambridge, MA) and
Molecular Biometrics (Norwood, MA). He is a Trustee of the Museum of Science in Boston, a Member of the Board of the New England
Healthcare Institute and a Senior Lecturer at the MIT Sloan School of Business. Mr. Fleming holds a B.A. from the University of California,
Berkeley and a M.P.A. from Princeton University.
Jill Force – Non-Executive Director
Jill Force was appointed as a Non-Executive Director of Asterand plc in June 2008. Ms. Force is currently Executive Vice President, General
Counsel and Chief Administrative Officer for Springstone, Inc. a private equity backed healthcare services company based in Louisville, KY that
owns and operates mental health treatment facilities. From 1998-2010, Ms. Force was a partner and founder of The Allegro Group, Inc. which
provided interim management and business advisory services to healthcare companies and private equity firms. From 2005-2008 she served
as Executive Vice President, General Counsel and Chief Administrative Officer for LifeCare Holdings, a privately held Company that operates
20 long term acute care hospitals.
Ms. Force spent 10 years as SVP, General Counsel and Corporate Secretary for Vencor, Inc. (now Kindred Healthcare, Inc.) where she was part
of a team that grew the Company from one hospital to a Fortune 500 operator of hospitals, nursing facilities and contract medical services.
Ms. Force is a certified public accountant and an attorney with an A.B. in Political Science from Miami University, a M.S.A . from Georgetown
University and a J.D. from the University of Louisville School of Law.
Robert Salisbury – Non-Executive Director
Robert Salisbury was appointed as a Non-Executive Director of Asterand plc in June 2008. Mr. Salisbury has more than 20 years of experience
in the pharmaceutical industry. Previously, he was Executive Vice President & Chief Financial Officer of Pharmacia & Upjohn Inc (Windsor UK)
and as such had full responsibility for the finance, corporate strategy, human resources, investor relations & corporate communication functions
within the Company. In this capacity, he was integral to implementation of the post-merger global integration of the two companies across its
units and subsidiaries within 48 countries. Mr. Salisbury has extensive investor contacts through his involvement in Pharmacia’s $4 billion
secondary stock offering and other investor relations activities. Mr. Salisbury has a degree in Finance and an M.B.A. from Florida State University.
Mr. Salisbury is currently a Director and Chair of the Audit Committee at Enzon Pharmaceuticals Inc (Piscataway, NJ).
Additional Director Who Served in 2010
Ian Ratcliffe – Non-Executive Director
Ian Ratcliffe was appointed as a Non-Executive Director of Asterand plc in May 2008 and resigned 8 June, 2010. He is currently President and CEO of Stemgent Inc. a Boston,
MA based Company, focused on the development and sale of novel consumable reagents for use in stem cell research. Prior to Stemgent, Mr. Ratcliffe was President of Upstate,
a leading provider of cell signaling research products and services. He also previously served as the Company’s COO, CFO and EVP of Sales and Marketing. In his final post as
President, Mr. Ratcliffe was instrumental in facilitating the acquisition of Upstate by Serologicals Corp. in September 2004 and he served as President of the Upstate division
until May 2005. Mr. Ratcliffe has a degree in Chemical Engineering from University of Surrey, Guilford, England and an M.B.A. from the University of Virginia. Mr. Ratcliffe is
Chairman of Enzymatics (Boston), a manufacturer of molecular biology reagents, and Director of Global Cell Solutions (Charlottesville, VA), a biotech firm commercializing
proprietary 3D cell culture technology.
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The Combined Code
The Directors have set out below and in the Remuneration Report on pages 15 to 19
how the main principles of the Combined Code on Corporate Governance (the
“Combined Code”) published in June 2008 have been applied and the extent to which
the Group has complied with the best practice provisions as set out in Section 1 of the
Combined Code. A copy of the Combined Code is publicly available at www.frc.org.uk.
Board of Directors
As at 31 December 2010, the Board of Directors comprised the Chairman, two
Executive Directors and four Non-Executive Directors. The only change to the Board
during 2010 was the resignation of Ian Ratcliffe as Non-Executive Director, on 8 June
2010. Biographical details of current Directors are set out on pages 10 and 11.
The Directors have a considerable breadth and depth of relevant experience and each
brings an independent judgment to bear on matters of strategy, performance,
resources and standards of conduct. Appropriate training is made available to Directors
to assist them in the discharge of their duties and each has access to the advice and
services of the Company Secretary. The appointment or removal of the Company
Secretary is a matter reserved for the Board. Procedures have been established for
Directors to take independent professional advice at the Company’s expense.
The Company’s Articles of Association require a certain number of Directors to retire
and resubmit themselves for re-election each year. The Directors subject to election
or re-election in 2010 are Jill Force, Robert Salisbury and Jonathan Flemming.
Further details, including biographical information are included in the AGM notice on
page 65.
The Board met formally on six occasions during the year to consider all significant
issues, as well as matters reserved specifically for Board consideration. All members
were present at each of these meetings, with the exception of Ian Ratcliffe who missed
one meeting. He was briefed on the agenda and contents of the meeting in advance
such that he was able to provide feedback and counsel. Separate sessions with the
Chairman and Non-Executive Directors without the Executive Directors being present
were held at each of the meetings during the year. There is a formal schedule of
matters reserved to the Board for its decision, including the determination and
monitoring of Group strategy, the consideration and approval of significant
transactions, resource commitments and major capital expenditure programmes, the
approval and monitoring of progress against budgets, the implementation and
monitoring of risk management and internal control policies and the consideration
and approval of annual and interim financial statements.
Certain Board responsibilities may be delegated to committees of the Board.
Appropriate information is provided to the Board in advance of Board meetings and
the Chairman ensures that all Directors are properly briefed on issues arising at Board
meetings. The roles of Chairman and Chief Executive Officer are separate. Peter
Coggins served as the Senior Independent Director throughout 2010.
The Board considers that each of Jack Davis, Peter Coggins, Jill Force, Robert
Salisbury and Ian Ratcliffe, during his appointment as director, are independent of the
management and free of any business or other relationships which could materially
interfere with the exercise of independent judgment. The Board considers that
Jonathan Fleming is not regarded as an independent Director since he is a partner of
Oxford Bioscience Partners, a fund with a significant shareholding in the Company.
However, he is considered independent of management.
Committees of the Board
Copies of the Audit Committee, Remuneration Committee and Nomination Committee
Terms of Reference are available from our Company Secretary at the address below.
Mr. John Stchur, CPA
Asterand plc
2 Orchard Road, Royston, Herts, SG8 5HD
United Kingdom
Remuneration committee
In 2010, the remuneration committee was chaired by Peter Coggins and included Jack
Davis and Ian Ratcliffe until his resignation on 8 June 2010 when Mr. Fleming joined
the committee. The remuneration committee meets at least twice a year. The functions
of the remuneration committee and its policy on remuneration are detailed on pages
15 to 19. The remuneration committee met formally on three occasions during the
year at which all members were present.
Audit committee
In 2010, the audit committee was chaired by Jill Force and included Robert Salisbury
and Jonathan Fleming.The Board is satisfied that all members of the audit committee
who served during the year have recent and relevant financial experience. Although
Jonathan Fleming is not considered to be independent of shareholders because he is
a partner of Oxford Bioscience Partners, a fund with a significant shareholding in the
Company, he is independent of management and was nominated to the committee
because of the depth of his financial experience and knowledge. This committee meets
at least four times a year to review the scope and results of the audit and the Group’s
accounting policies and financial reporting.
The committee reviews the external auditors’ independence and the effectiveness of
the audit process together with the engagement of external auditors to supply non-
audit services. The committee also has primary responsibilities for making
recommendations on the appointment, reappointment and removal of the external
auditors.
The committee also reviews the Group’s annual and interim reports (and any
announcements relating to financial performance) and provides a forum through which
the Group’s external auditors report to the Board. Members of executive management
and the Group’s auditors are also invited to attend audit committee meetings as
appropriate. At least once a year, the committee meets with the auditors with no
Executive Directors present.
The audit committee and the Board have considered the need for an internal audit
function and concluded that, for the Group at its current stage of development, such
a function is not required.
The provision of non-audit services by the external auditors is subject to the approval
of the committee and where appropriate to a tendering process. The audit committee
takes sufficient steps to ensure that it is satisfied with the independence of the
auditors. The audit committee met formally five times during the year. All committee
members were present at these meetings.
Nomination committee
The nomination committee is comprised of all the Directors and was chaired by Ian
Ratcliffe until his resignation on 8 June 2010 and Jack Davis was appointed Chairman
CORPORATE GOVERNANCE REPORT
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of the committee. It meets as and when necessary to review and recommend
appointments to the Board. Induction procedures for new Directors are in place. The
exact content of the induction process is tailored to the requirements of the individual
Director. Efforts are made to identify opportunities for introducing new Directors to
major shareholders as required and, in any event, at the Annual General Meeting of
the Company following their appointment.
The committee reviews the time commitment expected of Non-Executive Directors
and this is reflected in their letters of appointment. All Directors are requested to
disclose any changes to their commitments at each meeting of the Board. The
nomination committee did not meet during 2010.
Executive management committee
Operational decision making is delegated to the executive management committee
within limits agreed by the Board. The committee meets bi-weekly, and as and when
necessary to discuss significant matters which may arise in the course of business.
During 2010, the executive management committee was comprised of the Chief
Executive Officer, the Chief Financial Officer, the General Managers of US and UK
operations, the VP of Sales & Marketing and the heads of other major business areas.
Internal control
The Directors are responsible for ensuring that the Group maintains an adequate
system of risk management and internal controls and for reviewing its effectiveness.
Any system of internal control is designed to manage rather than eliminate risk and
will only provide reasonable rather than absolute assurance against material
misstatement or loss.
In accordance with the 2005 Turnbull Guidance a continuous process for identifying,
evaluating and managing the significant business, operational, financial, compliance
and other risks faced by the Group has been in place for the whole of 2010 and up
to the date of approval of the annual report. This includes a review of the effectiveness
of the Group’s system of internal control. The key features of the Group’s internal
control system are:
• clear statements on mission and strategy;
• clearly identified and properly communicated business objectives;
• an organisational structure which is appropriate to the needs of the Group
and which may be subject to periodic review as those needs change;
• clear and appropriate delegated authorities;
• financial approval and reporting procedures which enable progress against
business objectives to be monitored and performance against budget to be
compared each month; and
• identification of risks and controls in place to manage those risks.
The Board ensures that there are effective internal controls over the financial reporting
and consolidation processes. Monthly accounts and forecasts are presented to the
Board for review. The finance team undertakes a programme of review of accounting
processes and Company performance to provide assurance to the Board on the
integrity of the information supplied, which forms part of the consolidated results of
the Group.
Meetings of Non-Executive Directors
The Non-Executive Directors meet informally at least once annually without the
Chairman being present to appraise the Chairman’s performance. The Non-Executive
Directors meet without the Executive Directors present at each meeting.
Performance evaluation
An evaluation of the effectiveness of the Board, its Directors and Committees was
completed in 2010 via confidential internal survey of the Board. The results of this
evaluation were collated including comments and areas of concern from members. The
results were then distributed to Board members for consideration and action as
necessary.
Directors’ conflicts of interest
Directors have a duty to avoid a situation in which they have, or can have, a direct
or indirect conflict of interest or possible conflict of interest with the company. The duty
applies in particular to the exploitation of any property, information or opportunity,
whether or not Asterand could take advantage of it. The company’s Articles of
Association include a general power for the Board to authorise such conflicts. There
is no breach of duty if the relevant matter has been so authorised in advance.
Whistle blowing
The Group maintains a whistle blowing policy. Under the policy, all staff members
have direct access to the Company Secretary, CEO, Chairman and Senior Independent
Director in the event that he or she feels that a disclosure cannot be made via the
usual management channels. In addition, the Company has established free phone
hotline where employees can submit information anonymously.
Statement of compliance
The Board has complied with the relevant principles and provisions of the Combined
Code throughout the period under review save in respect of the following matters:
Code Provision C.3.1
Jonathan Fleming was appointed as a member of the audit committee in 2008 and
continued to serve in 2010. Although he is considered to be independent of
management, Jonathan is not considered to be independent of shareholders because
he is a partner of Oxford Bioscience Partners, a fund with a significant shareholding
in the Company. Jonathan was appointed to the audit committee because of the depth
of his financial experience and knowledge.
Communication with shareholders
The Board attaches a high priority to effective communications with shareholders,
both private and institutional. Representatives of the Board, comprising the Executive
Directors are available to meet with shareholders twice a year following the publication
of the Group’s interim and annual results. Other meetings with shareholders are held
as and when requested and certain of such meetings in the past year have included
the Chairman. In addition, a report is made at each Board meeting of communications
with major shareholders, analysts and brokers. All shareholders are sent copies of the
Annual and Interim Reports and given notice to attend the Company’s Annual General
Meeting. Shareholders whose shares are held by nominees may receive copies of
such communications on request. The Annual General Meeting offers the opportunity
for private and institutional shareholders to question the Directors and their
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participation is welcomed. In addition, the Company has established an internet
website (www.asterand.com) to provide additional information and access to all press
releases issued by the Group.
The BioIndustry Association (“BIA”) code of best
practice
The Group is a member Company of the UK BioIndustry Association and as such is
required to support and adhere to the principles embedded within the BIA Code. The
BIA Code has established principles of best practice for communicating and managing
information in a way that is fair, equal and balanced for all interested parties. The
Board is committed to the principles of the Code and seeks to comply with best
practice as prescribed in the BIA Code.
Takeover Directive
The disclosure requirements set out in the Disclosure and Transparency Rules,
paragraph 7 .2.6 are included in the Directors’ Report on pages 20 to 24.
Going concern
At 31 December 2010, the Group had cash of $5.9 million and borrowings of $3.0
million. The Directors have made an assessment of the risks and uncertainties in the
business, as disclosed in this Annual Report and Accounts, have reviewed the 2011
budgets and projections for 2012 and considered the projected effect on the Group’s
cash resources, taking into account the revision to the means of settlement of the
BioSeek contingent consideration (see note 27 to the financial statements). Following
this review, the Directors have a reasonable expectation that the Group has adequate
cash resources to fund the requirements of the business for at least the next 12
months and have therefore adopted the going concern basis in preparing the financial
statements for the year ended 31 December 2010.
On behalf of the Board
John Stchur, CPA
Chief Financial Officer & Company Secretary
28 April 2011
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Unaudited information
For the year ended 31 December 2010
Remuneration committee
In 2010, the remuneration committee was chaired by Peter Coggins and included,
Jack Davis and Ian Ratcliffe until his resignation on 8 June 2010, at which time
Jonathan Fleming joined the committee. The remuneration committee has the
responsibility for determining the Group’s overall policy on executive remuneration
and for deciding the specific remuneration, benefits and terms of employment for
Executive Directors. The remuneration committee also has regard to remuneration
packages for senior executives who are not Board Directors, but have a significant
influence over the Group’s ability to meet its strategic objectives. Fees paid to the
Chairman and Non-Executive Directors are determined by the Board as a whole and
no Director is responsible for approving his or her own remuneration. The
remuneration committee, in its deliberations on the remuneration policy for the
Company’s Directors, seeks to give full consideration to the Combined Code, including
the provisions set out in Schedule A to the Code. The Company Secretary acts as
secretary to the remuneration committee. The remuneration committee performs a
benchmarking exercise in determining compensation prior to the appointment of any
Executive Director.
Policy on Directors’ remuneration
This section of the remuneration report covers the policies set by the remuneration
committee. Detailed disclosure of Directors’ remuneration for the year ended 31
December 2010 together with disclosure of share ownership and entitlement to share
options is set out on pages 17 to 19.
The policies set by the remuneration committee are intended to attract and retain
high calibre executives, to motivate them to build a successful Company and seek to
maximise shareholder value. Remuneration committee policies and procedures also
aim to ensure that Executive Directors receive remuneration appropriate to their
performance, experience, responsibility and geographic location without paying more
than appropriate in the circumstances.
The Group operates in a dynamic business sector. The remuneration committee’s
policies aim to align business strategy and corporate objectives with executive
remuneration. Certain policies may need to be adjusted from time to time in order to
ensure an appropriate mix between performance-based and non performance-based
elements and between long and short-term goals and rewards, depending upon the
challenges facing the business and its objectives at any given point in its development.
Where major changes in remuneration policy may be required, the remuneration
committee would expect to discuss these with key shareholders in advance. Executive
Directors’ remuneration packages are comprised of a basic annual salary, a
performance related bonus and other customary benefits such as pension
contributions and health insurance together with long-term incentive arrangements in
the form of share options and share incentive plans. The Board believes that incentives
such as share options and the share incentive plans serve as a valuable role in
motivating Executive Directors and employees to act in the interests of creating
shareholder value.
Basic salary
The basic salary of each Executive Director is determined by the remuneration
committee taking into account individual performance and aims to ensure that
remuneration remains competitive with similar companies in terms of size and
complexity. Basic salary levels for Executive Directors are designed to be at least at
the median level reflecting the levels of performance, experience and responsibility
held by each of the Executive Directors.
Performance bonus
Each Executive Director is eligible for a discretionary annual bonus in recognition of
that Director’s contribution to the success of the Group and the achievement of
specified performance targets. These performance targets include a combination of
corporate and individual objectives except for the Chief Executive Officer whose bonus
is based entirely on the achievement of corporate objectives.
The targeted composition of each Executive Director’s remuneration excluding share
options and shares acquired under the Performance Share Plan for those Directors
who have served during the year is as follows:
Executive Directors for the year ended 31 December 2010
Basic salary, pension and Performance
other benefits bonus
M Coombs 70% 30%
J Stchur 70% 30%
The Group contributes a sum equal to a fixed proportion of basic salary to a defined
contribution scheme on behalf of each Executive Director (and participating
employees) each month. The Group funds the provision of private medical insurance
for Executive Directors and their immediate family and funds permanent health
insurance and life assurance cover for executives. Executive Directors are also provided
with a mobile phone for business and personal use. Company cars are not provided
to Directors or staff.
Share Options
Executive Director, Martyn Coombs, was granted options in 2007 at the closing mid-
market value of the Company’s Ordinary Shares on the day of grant. The options had
no performance criteria and vested, three years after grant. Mr. Coombs met the
criterion relating to continued performance. In 2010 Mr. Coombs was granted shares
under a subscription to the Company’s ‘Growth Share Option Plan’ (GSOP) which was
approved by the shareholders on 8 June 2010. The GSOP is designed to exactly
reproduce the economic effects of ordinary share options in a tax efficient manner
through the use of shares in subsidiary entities that are convertible into shares of the
Group if certain conditions are met. Shares granted under the GSOP have no
performance criteria and a 3 year cliff vesting. This block of shares was issued in
order to continue to positively associate the performance (and resulting remuneration)
of the Executive to that of the Group.
Executive Director John Stchur was granted nil cost options in 2007 , 2009 and 2010.
Performance conditions attached to share options granted to John Stchur under the
2007 LTIP are consistent with the policy set out on page 16.
DIRECTORS’ REMUNERATION REPORT
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Share Incentive Plan
The Company’s intention is to encourage share ownership at all levels of the business,
thereby aligning all employees’ interests with those of the shareholders. Accordingly,
the Company introduced the Pharmagene plc 2002 Inland Revenue Approved Share
Incentive Plan (the “SIP”) in 2003. All eligible employees may participate in the SIP
which contains three elements: partnership shares, matching shares and free shares
(known internally as Corporate Bonus Shares).
Partnership shares may be purchased by employees out of their pre-tax salary up to
£1,500 (or 10% of salary if lower) per year. Where employees purchase partnership
shares, they can be awarded additional matching shares at no additional cost to the
employee. Under the rules of the SIP, the Directors are given discretion to determine
the ratio of partnership shares to matching shares. The ratio is currently 1:1. During
the year 128,114 partnership and 128,114 matching shares were allocated in
aggregate to eligible employees under the SIP. Free shares may be distributed to
eligible employees with a maximum market value of £3,000 per employee per year.
For the year ended 31 December 2010, no awards of free shares were made.
Long Term Incentive Plan
The Long Term Incentive Plan was introduced in May 2007 (the “2007 LTIP”). Under
the 2007 LTIP, selected individuals may receive awards structured either as a
conditional right to receive shares or as nil cost options.
Awards granted in 2007 and 2009 to Executive Directors are subject to EBITDA
performance targets as are awards granted to senior management in 2007 . Other
awards are subject to time-based vesting only.
The Remuneration Committee believes the 2007 LTIP represents a sensible long ¬term
incentive arrangement which is not excessive, is cost effective for the Company taking
into account both share usage and the accounting treatment of share plans and will
mean that a significant but not excessive proportion of the Executive’s remuneration
will be linked to a requirement to generate superior returns to shareholders.
During 2010, the rights over 2,516,500 shares were awarded under this plan (2009:
1,773,000 shares). There were no performance conditions attached.
Executive Directors’ service contracts
The Chief Executive Officer’s service contract is a rolling contract, terminable on not
less than 12 months’ written notice. In the event of a material breach of contract or
gross misconduct by the Executive Director, the Company may terminate the
employment by written notice having immediate effect.
The details of the service contract of the Executive Director who served during the year is:
1
Original date of Maximum contractual
Executive appointment Contract Notice termination
Directors as Director date Term period payment
1 year’s salary and
M. Coombs 27-Mar-07 27-Mar-11 Rolling 1 year associated benefits in kind
1
A service contract for John Stchur, Executive Director and the Company’s CFO, is under negotiation.
Non-Executive Directors’ letters of appointment
Non-Executive Directors have signed letters of appointment terminable on three months’ written notice from either party. Non-Executive Directors receive fees for services as
members of the Board to reflect the time commitment and responsibilities of the role. None of the Company’s Non-Executive Directors participate in the Group’s current share
option or share incentive schemes.
The details of the letters of appointment of those Non-Executive Directors who served during the year are:
Original date of Expiry date of Contractual Period served as
Non-Executive appointment current letter of Notice termination Director as at
Directors as Director appointment period payment 31-Dec-10*
J Davis 03-Jan-06 31-Dec-11 3 months Accrued fees and expenses 5 years
P. Coggins 03-Apr-08 08-June-13 3 months Accrued fees and expenses 2 years 9 months
I. Ratcliffe
1
15-May-08 14-May-11 3 months Accrued fees and expenses 2 years 1 months
J. Force 17-Jun-08 16-Jun-11 3 months Accrued fees and expenses 2 years 6 months
R. Salisbury 17-Jun-08 16-Jun-11 3 months Accrued fees and expenses 2 years 6 months
J. Fleming 02-Sep-08 01-Sep-11 3 months Accrued fees and expenses 2 years 4 months
* or at date of resignation if earlier
1
I Ratcliffe resigned on 8 June 2010
15863 Asterand A&R FRONT SECTION:Layout 1 28/04/2011 06:57 Page 16 Total shareholder return for the last five years to 31 December 2010 Relative Performance (rebased to ATD)
The remuneration committee believes the UK techMark Mediscience Index to be the most appropriate index against which Asterand should be measured because it is comprised
of emerging, early growth stage companies whose business is within or dependent on the pharmaceutical, medical supplies, healthcare or biotechnology sectors.
Interests in shares
The following table sets out the interests of the Directors who held office during the year (including the interests of their immediate families and persons connected with the
Directors) in the share capital of the Company as at 31 December 2010 and 31 December 2009, or on the date of appointment or resignation where applicable. All interests
are beneficially held by the Director concerned or their immediate family.
31-Dec 2010 31-Dec 2009
Directors Number Number
M Coombs 484,764 344,764
J. Stchur 119,556* 119,556
J Davis 1,156,216 1,156,216
J Force 110,000 110,000
R. Salisbury 50,000 50,000
J Fleming 26,570,325 26,570,325
* At the year end, 700,000 share options had been exercised but the shares had not been issued.
Jonathan Fleming is a partner of Oxford Bioscience Partners. As such he is deemed to have a beneficial interest in the shareholdings of this entity. Consequently, the disclosure
shown above includes the shareholdings by this entity in the capital of the Company. There have been no changes in the interests set out above between 31 December 2010
and 28 April 2011.
0
5
10
15
20
25
30
35
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
ATD Share Price
techMARK Mediscience Index
Asterand plc
Asterand plc - Annual Report and Accounts 2010 17
15863 Asterand A&R FRONT SECTION:Layout 1 28/04/2011 06:57 Page 17 18 Asterand plc - Annual Report and Accounts 2010
Audited information
The information contained within the remuneration report below is audited.
Directors’ emoluments for the year ended 31 December 2010
Executive Directors Total 2010 Total 2009
Benefits excluding Pensions excluding Pensions
Fees Salary in kind Bonuses Pensions 2010 Pensions 2009
$ $$$ $$ $ $
M Coombs – 334,000 2,596 – 336,596 40,269 337 ,246 45,184
J Stchur
1
– 221,400 10,377 – 231,777 7 ,350 223,202 8,543
Subtotal – 555,400 12,973 – 568,373 47 ,619 560,448 53,727
Non-Executive Directors
J Davis 160,000 –– – 160,000 – 160,000 –
P Coggins 43,338 –– – 43,338 – 43,829 –
I Ratcliffe
2
28,000 –– – 28,000 – 56,000 –
J Force 56,000 –– – 56,000 – 56,000 –
R Salisbury 50,000 –– – 50,000 – 50,000 –
J Fleming 50,000 –– – 50,000 – 50,000 –
Subtotal 387 ,338 –– – 387 ,338 – 415,829 –
Total 387 ,338 555,400 12,973 – 955,711 47 ,619 976,277 53,727
1
J Stchur was appointed on 5 January 2009
2
I Ratcliffe resigned on 8 June 2010
For the year ended 31 December 2010, the Group contributed 12% (2009: 12%) of basic salary to a defined contribution pension scheme for the UK based Executive Director
and 3.3% (2009: 3.9%) of basic salary to a define contribution scheme for the US based Executive Director. Benefits in kind include private medical insurance for Executive
Directors and their immediate family, dental insurance, permanent health insurance and life assurance cover.
15863 Asterand A&R FRONT SECTION:Layout 1 28/04/2011 06:57 Page 18 Interests in share options
Details of the interests of Directors in share options are set out below.
Directors As at At Date
January Granted Exercised Lapsed in 31 December Exercise from which Expiry
2010 in the year in the Year the year 2010 price exercisable date
M. Coombs 3,849,809
*
–– – 3,849,809 4.9p 26.03.10 26.03.17
J. Stchur 18,975
*
–– – 18,975 $0.058 11.12.07 11.12.13
J. Stchur 113,850
*
–– – 113,850 $0.058 10.08.08 10.08.14
J. Stchur 700,000 – (700,000) –– nil 21.12.10 21.12.17
J. Stchur 150,000– – – 150,000 nil 26.06.12 26.06.19
J. Stchur – 125,000– – 125,000 nil 04.10.13 04.10.20
M. Coombs – 2,325,822– – 2,325,822 14.75p 18.06.13 18.06.20
4,832,634 2,450,822 (700,000) – 6,583,456
* There are performance conditions attached to these options.
There were no other grants of share options to any Director during the year.
Performance conditions attached to share options granted to John Stchur under the 2007 LTIP are consistent with the policy set out in the Directors’ Remuneration Report on page 16.
Gains made in the year by Directors on the exercise of share options were $179,000 (2009: $nil). The mid-market price of the Company’s shares at 31 December 2010 was
18.6p. During the year, the mid market price of the Company’s shares ranged from 13.0p to 30.0p. There have been no changes in interests set out above between 31 December
2010 and 28 April 2011.
On behalf of the Board
Peter Coggins
Senior Independent Non-Executive Director
28 April 2011
Asterand plc - Annual Report and Accounts 2010 19
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The Directors present their Annual Report on the
affairs of the Group together with the audited
consolidated financial statements for the year ended
31 December 2010.
Principal activities and business review
The principal objective of the Group is to enable its pharmaceutical and biotechnology
clients to identify relevant human disease targets, and to discover and develop new
drug candidates using human tissues and thereby take safer and more effective drug
candidates into the clinic with increased confidence. The Group achieves this through
the provision of human tissue samples, tissue derivatives, drug discovery services and
consulting services using the Group’s expertise in human tissue based research.
The principal activity of the Company is to act as the holding company of the Group,
providing central treasury services.
In addition, the Group maintains a portfolio of potential drug candidates which have
been previously discovered and developed by the Group. All internal research and
development activities in regards to these compounds have ceased as all operations
are now focused on the provision of human tissue and human tissue related services.
However, the Group is seeking licensing opportunities with specialist third party
partners to realise the maximum value from these assets. A review of the business is
contained within the Chief Executive’s Business Overview on pages 4 to 5 and within
the Financial Review on pages 6 to 7.
Future Developments
Future developments for the Group have been outlined within the Chief Executive’s
Business Overview on pages 4 to 5 and within the Financial Review on pages
6 to 7.
Research and development
The Group carried out research and development into the use of human tissue
samples in drug discovery and development. This includes methods of handling and
processing tissue derivatives including cells, proteins, DNA and RNA. It also includes
the development and improvement of assays for drug discovery and development
where the Group will provide these as an applied contract research service. The Group
incurred research and development costs of $1.3 million (2009: $0.5 million) during
the year which have been recognised in the income statement in accordance with the
Group’s accounting policies.
Donations
The Group made no donations to charitable organisations during 2010 (2009: $nil)
and made no donations to political organisations during 2010 (2009: $nil).
Dividend
The Directors do not propose the payment of a dividend (2009: $nil).
Directors and Directors’ interests
The Directors of the Company during the year ended 31 December 2010 are listed
below:
Jack Davis
Chairman
Martyn Coombs
Chief Executive Officer & Executive Director
John Stchur
Chief Financial Officer & Executive Director
Peter Coggins
Senior Independent Non-Executive Director
Jonathan Fleming
Non-Executive Director
Jill Force
Non-Executive Director
Ian Ratcliffe
Non-Executive Director (resigned 8 June 2010)
Robert Salisbury
Non-Executive Director
Biographical details of the current Directors are given on pages 10 and 11.
The interests of the Directors and their families in the Ordinary Shares of the Company
and options over the Ordinary Shares of the Company are shown in the Remuneration
Report on pages 17 to 19.
Indemnification of Directors
Qualifying third party indemnity provisions (as defined in section 234 of the Companies
Act 2006) are currently in force for the benefit of the Directors and former Directors
who held office during 2010. The indemnity was in force throughout the year ended
31 December 2010.
Substantial shareholdings
As at 31 December 2010, the authorised share capital of the Group is 150,000,000
Ordinary Shares of 5 pence each and 116,343,860 Ordinary Shares have been issued
and are fully paid up (116,412,806 as of 31 March 2011). Subject to the Companies
Act 2006 and the Articles of Association of Asterand plc, in a general meeting, every
holder of Ordinary Shares in person or by proxy is entitled to one vote for each share
held. At 31 March 2011, the Company had been notified of the following shareholdings
accounting for 3% or more of its share capital.
Number Percentage
Oxford Bioscience Partners 26,570,325 22.84%
Chrysalis Ventures II LP 15,735,457 13.52%
Hale Fund I LLC 6,343,089 5.45%
Gartmore Investment Limited 6,254,273 5.38%
Arboretum Ventures LLC 4,903,676 4.21%
Fort Washington Private Equity Investors II LP 4,846,346 4.16%
Inflection Point Investments LLP 4,785,356 4.11%
At 31 March 2011, no persons had notified the Company of any non-material interests
of 10% or more of its ordinary share capital. Directors may exercise all of the powers
of the Company subject to the provisions the Articles of Association, applicable
statutes, and to such directions as may be given by the Company in General Meeting
by special resolution. The Company may purchase its own shares. New shares may
be issued under authority given by ordinary or special resolution. Directors may
DIRECTORS’ REPORT
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appoint a person to be Director of the Company either to fill a casual vacancy or as
an addition to the existing Directors but so that the total number of Directors shall not
exceed ten. Any Director so appointed shall hold office until the next Annual General
Meeting, and shall then be eligible for reappointment. Executive Directors are entitled
to payment in lieu of notice in the event that their employment is terminated as a
result of change in control of the Company.
Shares acquired through the employee share schemes rank equally with all other
Ordinary shares in issue. Pharmagene Laboratories Trustees Limited, as trustee of
the Employee Ownership Plan Trust, holds 0.2% of the issued share capital of the
Company as at 29 March 2011 in trust for the benefit of the executive directors, senior
executives and managers of the Group.
The voting rights in relation to these shares are exercised by the trustee. The trustee
may vote or abstain from voting, or accept or reject any offer relating to shares, in
any way it sees fit, without incurring any liability and without being required to give
reasons for its decision.
Employees and disabled persons
The Group’s policy towards employee involvement includes a commitment to
promoting awareness of the activities of the Group and stimulating encouragement of
employees to participate in and contribute towards the growth of the business. Such
participation is encouraged by regular formal and informal meetings between
management and all staff are invited to discuss progress, plans, performance or any
issues affecting them or the Group. The Board recognises that it is important to invest
in training, development, welfare provision and to communicate at all levels in order
to recruit, retain and motivate the best employees. The Group offers equivalent
opportunities to disabled people in every matter concerning recruitment, development,
facilities and career progression. When employees become disabled in the course of
their employment, the Group will attempt to ensure they remain in employment by
making reasonable adjustments to accommodate their disability. Employees, following
a qualifying period of employment, are eligible to participate in relevant share option
schemes.
Creditor payment policy
It is the Group’s policy where possible to follow a standard payment procedure for all
payments to creditors for supply of materials, equipment and services. The standard
practice is to agree payment terms with suppliers when agreeing the terms of the
transaction. The Group has complied with this policy during the year. The average
number of creditor days for the Group for the year ended 31 December 2010 was 34
days (2009: 29 days) and for the Company for both years was nil.
Purchase of own shares
No purchases of own shares were made during the year.
Statement of directors’ responsibilities
The Directors are responsible for preparing the Annual Report, the Directors’
Remuneration Report and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements for each financial
year. Under that law the Directors have elected to prepare the group and parent
company financial statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union. Under company law the
Directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the group and the company and of
the profit or loss of the group for that period. In preparing these financial statements,
the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable IFRSs as adopted by the European Union have been
followed, subject to any material departures disclosed and explained in the
financial statements;
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company and the Group and enable
them to ensure that the financial statements and the Directors’ Remuneration Report
comply with the Companies Act 2006 and, as regards the group financial statements,
Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets
of the Company and the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the company’s
website. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed in the Directors’ Report,
confirm that, to the best of their knowledge:
• the Group financial statements, which have been prepared in accordance with
IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities,
financial position and loss of the group; and
• the Directors’ Report includes a fair review of the development and
performance of the business and the position of the group, together with a
description of the principal risks and uncertainties that it faces.
Health, safety and environmental issues
The Group is committed to maintaining high standards in implementing appropriate
health, safety and environmental protection policies. The Group has an excellent health
and safety record. Waste materials are recycled where possible, and hazardous waste
is catalogued and handled by licensed, specialist disposal companies.
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Corporate social responsibility
The Board regularly considers and is updated on health, safety, environmental and
ethical matters. The identification, assessment and management of risk arising from
such matters are included within the risk review process which is reported upon in the
Corporate Governance Report on pages 12 to 14.
The Board recognises that research involving human tissue and associated medical
information presents special issues for consideration, such as informed consent and
privacy. The Group is licensed by the United Kingdom Human Tissue Authority (the
“HTA”) to store human tissue for research purposes. The Group maintains a
designated individual to oversee full compliance with all HTA Codes of Practice and
directives. In addition, the Group maintains an internal bioethics program staffed by
quality assurance, legal and clinical liaison professionals. This allows us to achieve
the highest ethical and legal standards for the handling of human biomaterials and
medical information.
Takeover Directive
The Company has one class of shares outstanding, Ordinary Shares, that entitle the
holders thereof, at any meeting of the members of the Company, to one vote on a
show of hands and, on a poll, to one vote for each share held. The holders of ordinary
shares are entitled to participate pro rata in dividends and other distributions declared
from time to time. Major shareholdings can be found on page 20. The management
of the Company is vested in the Board of Directors who have general powers to
manage the affairs of the Company. The Board has power to appoint additional
Directors but any Director so appointed must stand for re-election by Shareholders
at the Company’s next Annual General Meeting. In addition, at each Annual General
Meeting one third of the Board, by rotation, must stand for re-election by
Shareholders. The Group does not have contracts or other arrangements which
individually are essential to the businesses nor is it party to any significant agreements
that would take effect, alter or terminate upon a change of control following a takeover
bid. The company does not have agreements with any Director or employee that
would provide compensation for loss of office or employment resulting from a takeover,
except that provisions of the company’s share plans may cause options and awards
granted under such plans to vest on a takeover. Details of the termination provisions
in the company’s framework contracts for Executive Directors are given on page 16.
Key performance indicators
The Directors believe that during 2010 the key performance indicators (“KPIs”) for
the Group have been revenues; gross profit and gross margins; adjusted EBITDA;
cash flow and cash resources. Each of these KPIs are reviewed in the Financial Review
on pages 6 and 7.
Financial risk management
The Group’s financial risk management policies are disclosed in Notes 1 and 21 to the
financial statements.
Provision of information to auditors
So far as each of the Directors is aware, there is no relevant audit information of
which the Company’s auditors are unaware and each of the Directors has taken all the
steps possible in order to make themselves aware of any audit information and to
establish that the Company’s auditors are aware of that information.
Principal risks and uncertainties
The Directors have considered the risks faced by the Group and consider that the
following are the principal risks and uncertainties faced by the Group.
• Reliance on key staff and management of international operations – the Group
is highly reliant on the continued services of its key personnel, who have skills
which are critical to the continued successful operation of the Group. Failure
to retain such individuals, or to attract and retain strong management and
technical staff in the future could have an adverse effect upon the Group’s
business and its results. The risk of injury or illness to the Group’s employees
could lead to the Group failing to achieve objectives, which could have an
adverse effect on the financial condition or results of operations of the Group.
• Tissue Supply and loss of key suppliers – given the nature of the Group’s
operations, its future performance is reliant on the preservation or
enhancement of existing relationships with its key suppliers. The Group’s
operations are also dependent on securing an adequate supply of human
tissue and related data to meet research demands. All source sites are subject
to rigorous ethical and quality control standards and it therefore can be time
consuming to expand the supply network. To the extent that supply does not
meet demand or supply sources are concentrated geographically and subject
to political or other forces in these regions, revenues could be diminished.
The loss of a major supplier would have a significant detrimental impact upon
the performance of the Group.
• Competition – the Group faces competition from alternate suppliers of human
tissue samples and from organisations providing similar contract research
services. To the extent that these organizations gain market share this could
reduce the commercial opportunity the Group could exploit. In addition, the
Group can face internal competition from within its clients, which could limit
the commercial opportunity available. This is because some pharmaceutical
companies source human tissue samples directly from donor site hospitals
and/or conduct applied research on human tissue samples, rather than
outsourcing this work to organisations such as Asterand.
• Government regulation – the Group’s operations are subject to laws and
regulations. If the Group fails to comply with the laws and regulations that are
applicable to its business, it could suffer civil and/or criminal penalties or it
could be required to cease operations. There can be no assurance that its
operations will not be subject to increased regulations or laws which could
have an adverse effect on the Group’s business. There can be no assurance
that the Group will be able to comply with any new regulations or laws to
which it might become subject.
• Financial and liquidity risk – the Directors have adopted a business plan which
is intended to sustain profitability and positive operating cash flow. This plan
assumes that revenues will increase during the second half of 2011 and that
the Group will be able to provide tissue supply to meet customer demands
(refer to “Tissue Supply” and “Reliance on Key Clients” herein). If profitability
and positive cash flow were not achieved and the current cash resources
become significantly diminished then the Group would be reliant upon securing
additional finance to continue operations. Additionally, the Group maintains a
term loan subject to certain covenants. In the event that these covenants were
to be breached, for example as a result of short-term trading volatility, there
is a risk that it could result in loss of the credit lines if new terms could not be
renegotiated.
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Other risks and uncertainties
• Reliance on key clients – the Group counts the majority of major
pharmaceutical and biotechnology companies as its clients and has
relationships with significant academic institutions. However, certain
relationships do represent significant sources of revenue. The loss of revenue
from one or more of these clients could significantly impact the financial
results.
• Foreign exchange risk – the Group operates from sites in the UK and US.
Approximately two-thirds of its staff and assets are located at the US site with
the remaining third at the UK facility. Approximately 90% of revenues are
denominated in US dollars, however the Group receives the remainder of its
revenue in currencies other than in US dollars; including yen, pounds sterling
and euro. Consequently, movement in foreign currency exchange rates could
adversely affect earnings, cash flow and the financial position of the Company.
• Handling risks – the Group receives, ships, and handles human tissue samples.
In addition, it operates scientific research laboratories to acquire, process and
conduct scientific research on such samples and in the process receives
experimental drug candidates from client companies. In conducting
experiments, the Company handles materials which are potentially hazardous
to health. In the conduct of such work, the Group has established stringent
health and safety standard operating procedures to protect its staff. We
maintain Biosafety level II laboratories which recommends universal
precautions are taken to ensure against accidental exposure to health hazards.
This includes the use of personal protective equipment (PPE) and biological
safety cabinets for use with human tissue. In addition, the staff are required
to attend training sessions on the use of PPE, and the mitigation of
transmission risks of communicable and infectious diseases. There remains a
risk of exposure which might cause personal injury.
• Operational risk – the Group faces a risk of loss resulting from, among other
factors, systems failure, theft, fraud and natural disaster. Operational risk of
this kind can occur in many forms including, among others, errors, business
interruptions, inappropriate behaviour of, or misconduct by, employees of the
Group, or those contracted to perform services for the Group and third parties
that do not perform in accordance with their contractual agreements. These
events could result in financial losses or other damage to the Group.
Furthermore, the Group relies on internal and external information technology
systems to manage its operations and is exposed to risk of loss resulting from
breaches in the security, or other failures, of these systems which could have
an adverse effect upon the trading performance of the Group.
The Group’s approach to operational risk management is intended to reduce
the risk of such loss. To monitor and manage operational risk, the Group
maintains a framework of internal controls designed to provide a sound and
well-controlled operational environment. The Group strives to maintain
appropriate levels of operational risk relative to its businesses’ strategies, its
competitive and regulatory environment, and the markets in which it operates.
The Group is indemnified, to the extent to which the Board considers
reasonable, under insurance policies and programmes for those operating
risks that can be mitigated through the purchase of insurance. Nevertheless,
notwithstanding these control measures and this insurance coverage, the
Group remains exposed to operational risk that could negatively impact their
business and results of operations.
• Acquisition risk – part of the Group’s strategy is to expand its business further
through acquisitions of other businesses. Acquisitions will require the
integration of new operations into the Group’s business.
If the Group fails to integrate its acquisitions successfully, this could have a
material adverse effect on its business, financial condition and operating
results.
• Economic risks – general public confidence about future economic conditions
or the performance of Asterand or its suppliers or customers may impact on
the ability or desire of others to trade with the Group and, following
completion, the Enlarged Group and result in a downturn in customer demand
or affect the ability of the Enlarged Group to meet customer demand.
• Purchasing pattern risk – purchasing patterns within the Group’s customer
base could change over time due to a variety of factors. These changes could
result in less demand for tissue based solutions.
• Interest rate risks – interest rate risk is the risk that the Group will sustain
losses from adverse movements in interest bearing assets and liabilities. The
Group has an exposure to interest rate risk arising principally from changes
in Euro, pounds sterling and US dollar interest rates. The Group does not
hedge against its interest rate risk.
• International trade risk – the Group derives a significant part of its revenue
from customers outside the UK. Asterand expects that its sales will continue
to be made across a number of territories and as a result, in common with
other multi-national organisations, the occurrence of any negative economic,
political or geographical events in these locations could have a material impact
on revenues. This in turn could cause the Group’s business to be harmed.
These international trade risks include:
• fluctuations in exchange rates;
• unexpected changes in regulatory environments;
• imposition of tariffs and other barriers and restrictions; and
• changes in foreign company law.
• Tax Risk – any changes to current UK and international taxation legislation
(including corporate, personal, capital and indirect taxation), the interpretation
of such legislation by tax authorities as well as changes to accounting
standards, may impact on the Company’s and consequently the Group’s
projected activities, financial situation and results. There is also a risk of
unexpected tax costs through the failure of tax planning or challenge by tax
authorities of the bases of transfer pricing.
• Possible volatility of the price of the Ordinary Shares – the market price of the
Ordinary Shares may be affected by a variety of factors such as changes in
sentiment regarding the Ordinary Shares, variations in the Group’s operating
results compared with the expectations of market analysts and investors, its
business developments or those of its competitors, the operating performance
of its competitors, speculation about the Group’s business, or regulatory
changes affecting the Group’s operations. Shareholders should be aware that
the value of the Ordinary Shares can go down as well as up and may not
always reflect the underlying asset value or prospects of the Group.
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Corporate Governance
The disclosure requirements set out in the Disclosure and Transparency Rules,
paragraph 7 .2, are included within the Corporate Governance Report on pages 12 to
14.
Post balance sheet events
$8.5 million of contingent consideration became payable in April 2011 to complete the
BioSeek acquisition (see also note 26 – Acquisition). As previously announced, the first
US $3 million of this payment was to be satisfied through the issue of 8.1 million
Asterand shares (the “Consideration Shares”) at 22 pence per share, and the
remaining $5.5 million consideration was to be paid with cash. We also announced that
we secured a term loan and a revolving credit line from Silicon Valley Bank (“SVB”)
to fund this payment. However, volatility in trading during March 2011 impaired our
ability to draw on the revolving line of credit. The $3 million term loan remains drawn
and intact. Subsequently in April 2011 a new arrangement was agreed with the former
BioSeek shareholders whereby the entire $8.5 million of contingent consideration will
be satisfied with cash – $2.5 million will be paid in May 2011 and the remaining $6
million as a loan note that matures in December 2013.
Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of Buchanan
Communications, 45 Moorfields, London, EC2Y 9AE on 8 June 2011 at 10:00 a.m. The
notice of the Annual General Meeting is set out on pages 65 – 69.
Auditors
PricewaterhouseCoopers LLP have expressed their willingness to continue as auditors.
A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the Company will
be proposed at the Annual General Meeting.
By order of the Board
John Stchur
Chief Financial Officer & Company Secretary
28 April 2011
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INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF ASTERAND PLC
We have audited the financial statements of Asterand plc for the year ended
31 December 2010 which comprise the Consolidated Income Statement, the
Consolidated Statement of Comprehensive Income, the Consolidated and Company
Balance Sheets, the Consolidated and Company Statement of Changes in Equity, the
Consolidated and Company Cash Flow Statements and the related notes. The financial
reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union
and, as regards the parent Company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
Respective statement of responsibilities of Directors
and auditors
As explained more fully in the Statement of Directors’ Responsibilities set out on page
21, the Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s
members as a body in accordance with Chapter 3 of Part 16 of the Companies Act
2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed by our prior
consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial
statements sufficient to give reasonable assurance that the financial statements are
free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s and the
parent Company’s circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the
Directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s
and of the parent Company’s affairs as at 31 December 2010 and of the
Group’s loss and Group’s and parent Company’s cash flows for the year then
ended;
• the Group financial statements have been properly prepared in accordance
with IFRSs as adopted by the European Union;
• the parent Company financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the lAS Regulation.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly
prepared in accordance with the Companies Act 2006;
• the information given in the Directors’ Report for the financial year for which
the financial statements are prepared is consistent with the financial
statements.
Matters on which we are required to report by
exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or
returns adequate for our audit have not been received from branches not
visited by us; or
• the parent Company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the accounting
records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made;
or
• we have not received all the information and explanations we require for our
audit.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 14, in relation to going concern;
• the parts of the Corporate Governance Statement relating to the Company’s
compliance with the nine provisions of the June 2008 Combined Code specified
for our review; and
• certain elements of the report to shareholders by the Board on Directors’
remuneration.
Simon Ormiston (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors Cambridge
28 April 2011
15863 Asterand A&R BACK SECTION:Layout 1 28/04/2011 06:58 Page 25 26 Asterand plc - Annual Report and Accounts 2010
Consolidated Income Statement
for the year ended 31 December 2010
2010 2009
Re-presented
Note $’000 $’000
Revenue 3 21,310 18,706
Cost of sales (9,332) (7 ,893)
Gross profit 11,978 10,813
Research and development costs (1,326) (478)
Selling and distribution costs (3,824) (3,661)
General and administrative expenses – pre exceptional items (8,003) (6,735)
Exceptional items (severance, acquisition and litigation costs) 6 (920) (1,491)
Total general and administrative expenses (8,923) (8,226)
Total operating expenses (14,073) (12,365)
Operating loss (2,095) (1,552)
Financial income 7 4 48
Financial costs 7 (57) (49)
Foreign exchange credit/(charge) 107 (374)
Finance income/(expense) 54 (375)
Loss before taxation 5 (2,041) (1,927)
Taxation 8 (32) 296
Loss for the financial year attributable to owners of the parent (2,073) (1,631)
Loss per 5p ordinary share
Basic 10 (1.8)c (1.4)c
Diluted 10 (1.8)c (1.4)c
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Consolidated Statement of Comprehensive Income
for the year ended 31 December 2010
Group Group
2010 2009
Re-presented
$’000 $’000
Loss for the financial year (2,073) (1,631)
Other comprehensive income:
Exchange translation difference on consolidation recognised directly in equity (66) 271
Other comprehensive expense for the year net of tax (2,139) (1,360)
Total comprehensive expense for the year (2,139) (1,360)
There is no tax arising on the exchange translation difference on consolidation recognised directly in equity.
Non-IFRS Measure
Earnings before interest, taxes, depreciation and amortisation (“EBITDA”) – excluding exceptional items and share option related charge
for the year ended 31 December 2010
2010 2009
Re-presented
$’000 $’000
Operating loss (2,095) (1,552)
Exceptional items (severance, acquisition and litigation costs) 920 1,491
Share option related charge 132 86
Depreciation and amortisation 1,022 340
Adjusted EBITDA (21) 365
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Consolidated Balance Sheet
as at 31 December 2010
2010 2009 2008
Re-presented Re-presented
Note $’000 $’000 $’000
Assets
Non-current assets
Intangible assets 11 4,778 1,311 997
Property, plant and equipment 12 3,386 756 672
Deferred tax asset 14 4,843 1,129 –
Trade and other receivables 16 94 ––
13,101 3,196 1,669
Current assets
Biobank inventory 15 9,136 8,818 6,453
Trade and other receivables 16 6,216 3,645 5,948
Cash and cash equivalents 17 5,918 6,644 9,957
21,270 19,107 22,358
Liabilities
Current liabilities
Trade and other payables 18 (5,250) (4,884) (6,136)
Income tax payable (797) (395) –
Other financial liabilities – Finance leases 19 (12) ––
Other Financial liabilities – Current debt 19 (703) (57) (46)
Other Financial liabilities – Contingent consideration 19 (7 ,624) ––
(14,386) (5,336) (6,182)
Net current assets 6,884 13,771 16,176
Non-current liabilities
Deferred tax liability 14 (282) (364) –
Other financial liabilities – Finance leases 19 (5) ––
Other Financial liabilities – Long term debt 19 (2,348) ––
Other payables 20 (2,191) ––
(4,826) (364) –
Net assets 15,159 16,603 17 ,845
Equity attributable to owners of the parent
Ordinary shares 22 9,262 9,043 8,226
Share premium 84,298 84,282 76,561
Shares to be issued 535 5 29
Reverse acquisition reserve (66,757) (66,757) (60,664)
Merger reserve 510 ––
Other reserves 4,910 4,910 4,462
Profit and loss reserve (22,149) (19,496) (17 ,885)
Currency translation reserve 4,550 4,616 7 ,116
Total equity 15,159 16,603 17 ,845
The financial statements on pages 26 to 64 were approved by the Board of Directors on 28 April 2011 and were signed on its behalf by:
John Stchur,
Chief Financial Officer
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Company Balance Sheet
as at 31 December 2010
2010 2009 2008
Re-presented Re-presented
Note $’000 $’000 $’000
Assets
Non-current assets
Investment in subsidiaries 13 24,574 16,163 14,641
Amounts receivable from Group companies 16 3,001 4,767 6,573
27 ,575 20,930 21,214
Current assets
Trade and other receivables 16 161 161 84
Cash and cash equivalents 17 10 9 61
171 170 145
Liabilities
Current liabilities
Trade and other payables 18 (22) (100) (242)
Contingent consideration 26 (7 ,624) ––
(7 ,646) (100) (242)
Net current (liabilities)/assets (7 ,475) 70 (97)
Net assets 20,100 21,000 21,117
Equity attributable to owners of the parent
Ordinary shares 22 9,262 9,043 8,226
Share premium 84,298 84,282 76,561
Shares to be issued 535 5 29
Merger reserve 510 ––
Retained losses (85,165) (83,140)(80,945)
Currency translation reserve 10,660 10,810 17 ,246
Total equity 20,100 21,000 21,117
The financial statements on pages 26 to 64 were approved by the Board of Directors on 28 April 2011 and were signed on its behalf by:
John Stchur,
Chief Financial Officer
Asterand plc
Registered number: 3355618
15863 Asterand A&R BACK SECTION:Layout 1 28/04/2011 06:58 Page 29 30 Asterand plc - Annual Report and Accounts 2010
Consolidated Statement of Changes in Equity
as at 31 December 2010
Reserve Investment Profit and Currency
Ordinary Shares to Share acquisition Merger Other in own loss translation Total
shares be issued premium reserve reserve reserves shares reserve reserve equity
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2009 8,226 29 76,561 (60,664) – 4,462 (998) (16,887) 7 ,116 17 ,845
Comprehensive income
Loss for the year ––––––– (1,631) – (1,631)
Other comprehensive income
Exchange translation –––––––– 271 271
Total comprehensive income ––––––– (1,631) 271 (1,360)
Employee share option schemes
Value of employee services ––––––– 86 – 86
Proceeds from shares issued 26 (31) 32 –––––– 27
Shares to be issued –5–––––––5
Reclassification (36) ––––– 36 –––
Currency translation 827 2 7 ,689 (6,093) – 448 (100) (2) (2,771) –
Transactions with owners 817 (24) 7 ,721 (6,093) – 448 (64) 84 (2,771) 118
At 31 December 2009 9,043 5 84,282 (66,757) – 4,910 (1,062) (18,434) 4,616 16,603
Comprehensive income
Loss for the year ––––––– (2,073) – (2,073)
Other comprehensive income
Exchange translation –––––––– (66)(66)
Total comprehensive income –––––––(2,073)(66)(2,139)
Employee share option schemes
Value of employee services ––––––– 132 – 132
Proceeds from shares issued 6– 16 –––––– 22
Modification to equity settled
share option scheme ––––––– (187) – (187)
Shares to be issued – 530 –––– (525) ––5
Acquisition of BioSeek 213 ––– 510 –––– 723
Transactions with owners 219 530 16 – 510 – (525) (55) – 695
At 31 December 2010 9,262 535 84,298 (66,757) 510 4,910 (1,587) (20,562) 4,550 15,159
Included within the investment in own shares reserve are 150,780 shares of 5p each held by an Employee Share Ownership Plan (‘ESOP’) of the Group and 532,313 shares of
5p each held by The Pharmagene plc Employment Benefit Trust (‘PEBT’). In 2007 , the ESOP and PEBT were discontinued and the shares were transferred to the 2007 Employee
Ownership Plan Trust (‘2007 EOPT’) for the satisfaction of share obligations under all option plans. The costs of funding and administering the 2007 EOPT are charged to the
income statement of the Group in the period to which they relate. At 31 December 2010, the shares owned by the 2007 EOPT had a market value of $176,981 (2009: $206,700;
2008: $241,914).
In the year ended 31 December 2009, $36,000 was reclassified from share capital to investment in own shares to reflect the exercise of share options satisfied by the 2007 EOPT.
Other reserves represent the merger reserve arising on consolidation, being the share capital and share premium account balances of Pharmagene Laboratories Limited
(renamed Asterand UK Limited) less the nominal value of the shares issued by the Company to acquire these shares, before the merger with Pharmagene plc (renamed
Asterand plc) prior to the initial public offering of the Company in 2000.
The merger reserve represents the premium to the nominal value of the shares issued on the acquisition of BioSeek during the year.
A currency translation is recorded in the year ended 31 December 2009 to the equity balances as a result of the change in presentational currency from pounds sterling to US
dollars (see Note 1 for further details).
During the year, a modification was made to an equity settled share option scheme (2007 LTIP options) to settle this partly in cash to allow US employees to settle their US tax
liability on US vested options. This resulted in a charge of $187 ,000 being recorded through reserves.
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Company Statement of Changes in Equity
as at 31 December 2010
Profit and Currency
Ordinary Shares to Share Merger loss translation Total
shares be issued premium reserve reserve reserve equity
$’000 $’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2009 8,226 29 76,561 –(80,945) 17 ,246 21,117
Comprehensive income
Loss for the year –– –– (2,280)– (2,280)
Other comprehensive income
Exchange translation –– –– – 2,081 2,081
Total comprehensive income –– –– (2,280) 2,081 (199)
Employee share option scheme
Value of employee services –– –– 33 – 33
Capital contribution –– –– 53 – 53
Proceeds from shares issued 26 (31) 32 –– – 27
Shares to be issued –5 –– ––5
Reclassification (36) –– –– – (36)
Currency translation 827 2 7 ,689 –(1) (8,517)–
Transactions with owners 817 (24) 7 ,721 – 85 (8,517) 82
At 31 December 2009 9,043 5 84,282 –(83,140) 10,810 21,000
Comprehensive income
Loss for the year –– –– (1,970) – (1,970)
Other comprehensive income
Exchange translation –– –– – (150) (150)
Total comprehensive income –– –– (1,970) (150) (2,120)
Employee share option schemes
Value of employee services –– –– 67 – 67
Capital contribution –– –– 65 – 65
Proceeds from shares issued 6– 16 –– – 22
Modification to equity settled share option scheme–– –– (187) – (187)
Shares to be issued – 530 –– –– 530
Acquisition of BioSeek 213 –– 510 –– 723
Transactions with owners 219 530 16 510 (55)– 1,220
At 31 December 2010 9,262 535 84,298 510 (85,165) 10,660 20,100
See Consolidated Statement of Changes in Equity for explanation of changes in equity.
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Consolidated Cash Flow Statement
for the year ended 31 December 2010
2010 2009
Re-presented
Note $’000 $’000
Cash flows from operating activities
Loss for the year (2,073) (1,631)
Adjustments for:
Contingent consideration remeasurement 6 356 –
Finance (income)/expense (54) 375
Tax charge/(credit) 32 (296)
Depreciation of property, plant and equipment 12 827 307
Amortisation of intangible assets 11 195 33
Share option compensation charge 132 86
Operating cash flows before movement in working capital (585) (1,126)
(Increase)/decrease in trade and other receivables (2,242) 2,040
Increase in biobank inventories (318) (2,365)
Decrease in trade and other payables (1,570) (1,422)
Cash used in operations (4,715) (2,873)
Interest received 7 4 48
Interest paid 7 (53) (49)
Interest element of finance lease rental payments 7 (4) –
Income taxes paid (120) (83)
Receipt of research and development tax credit – 120
Net cash used in operating activities (4,888) (2,837)
Cash flows from investing activities
Cash acquired on acquisition of BioSeek 26 1,573 –
Purchase of property, plant and equipment 12 (311) (340)
Sale of property, plant and equipment – 2
Purchase of intangible assets 11 (64) (246)
Net cash generated/(used) in investing activities 1,198 (584)
Cash flows from financing activities
Proceeds from issue of ordinary share capital 22 27
Proceeds from ordinary share capital to be issued 5 5
Proceeds from exercise of share options – 1
Loan received 2,948 –
Debt and finance lease principal payments (11) 11
Net cash generated from financing activities 2,964 44
Net decrease in cash and cash equivalents (726) (3,377)
Exchange gains on cash and cash equivalents – 64
Cash and cash equivalents at beginning of year 6,644 9,957
Cash and cash equivalents at end of year 17 5,918 6,644
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Company Cash Flow Statement
for the year ended 31 December 2010
Company Company
2010 2009
Re-presented
Note $’000 $’000
Cash flows from operating activities
Loss for the year (1,970) (2,280)
Adjustments for:
Share option compensation charge 67 33
Operating cash flows before movement in working capital (1,903) (2,247)
Increase in trade and other receivables – (68)
Decrease/(increase) in trade and other payables 78 (166)
Cash used in operating activities (1,825) (2,481)
Cash flows from investing activities
Increase in loans to subsidiary undertakings 1,799 2,396
Net cash generated from investing activities 1,799 2,396
Cash flows from financing activities
Proceeds from issue of ordinary share capital 22 27
Proceeds from ordinary share capital to be issued 5 5
Proceeds from exercise of share options – 1
Net cash generated from financing activities 27 33
Net increase/(decrease) in cash and cash equivalents 1 (52)
Cash and cash equivalents at beginning of year 9 61
Cash and cash equivalents at end of year 17 10 9
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Incorporation and history
Asterand plc is a public limited Company incorporated and domiciled under the laws of England and Wales under the Companies Act 2006 and listed on the London Stock Exchange.
The address of its registered office is 2 Orchard Road, Royston, Hertfordshire, SG8 5HD. The registered company number is 3355618.
Group undertakings incorporated in the UK include Asterand UK Limited and Pharmagene Laboratories Trustees Limited. Group undertakings incorporated in the US include
Asterand, Inc. and BioSeek, LLC.
The structure of the Asterand plc Group of companies is shown below:
Asterand plc – is the holding Company of the Group. It provides central treasury services and is listed on the London Stock Exchange. It has one employee (2009: one).
Asterand UK Limited – is the UK trading subsidiary. It conducts contract research services and supplies a limited number of tissue samples to clients. Additionally, it has a
portfolio of proprietary drug development candidates. Asterand UK Limited employs all UK based staff.
Pharmagene Laboratories Trustees Limited – is a vehicle which acts as trustee to hold shares for an employee share scheme.
Asterand, Inc. – is a US trading subsidiary. It supplies the majority of tissue samples to clients and provides certain contract research services.
BioSeek, LLC. – is a US trading subsidiary, owned 100% by Asterand Inc. It conducts drug discovery services using propriety human primary cell based predictive technology.
Definitions – throughout the Annual Report and Accounts “Group” refers to the consolidated results of Asterand plc and all subsidiary companies; “Company” refers solely
to Asterand plc on a standalone basis.
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, International Accounting Standards
(IAS) and the IFRS Interpretations Committee (IFRIC) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and therefore
comply with Article 4 of the IAS Regulations.
Use of estimates
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity,
or areas where presumptions and estimates are significant in the consolidated financial statements, are disclosed in Note 2.
Asterand plc
Pharmagene
Laboratories Trustees
Limited
BioSeek, LLC
Asterand, Inc. Asterand UK Limited
100%
100%
100%
100%
34 Asterand plc - Annual Report and Accounts 2010
NOTES TO THE FINANCIAL STATEMENTS
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Adoption of new accounting standards
The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010:
IFRS 3 (revised), ‘Business combinations’, and consequential amendments to IAS 27 , ‘Consolidated and separate financial statements’, IAS 28, ‘Investments in associates’, and
IAS 31, ‘Interests in joint ventures’, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after 1 July 2009.
The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with IFRS 3. For example, all payments
to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the consolidated
income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling
interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs are expensed.
The revised standard was applied to the acquisition of 100% of the share capital of BioSeek Inc on 18 February 2010. Contingent consideration of $7 ,268,000 was recognised
at fair value on 18 February 2010. Subsequent remeasurement of the contingent consideration to $7 ,624,000 at the balance sheet date has resulted in a loss of $356,000 being
recorded in the consolidated income statement. Prior to the revision of the standard, this loss would have been recorded as an adjustment to the goodwill arising on the
acquisition. Acquisition-related costs of $962,000 (year ended 31 December 2010: $153,000 and year ended 31 December 2009:$809,000) have been recognised in the
consolidated income statement, which previously would have been included in the consideration for the business combination.
IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no
longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value,
and a gain or loss is recognised in profit or loss. There has been no impact of IAS 27 (revised) on the current period, as there are no non-controlling interests.
The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2010, but are not
currently relevant to the Group:
• IFRIC 12, ‘Service concession arrangements’ (effective 30 March 2009)
• IFRIC 15, ‘Arrangements for construction of real estates’ (effective 1 January 2009 but EU-endorsed for use from 1 January 2010)
• IFRIC 16, ‘Hedges of a net investment in a foreign operation’ (effective 1 October 2008 but EU-endorsed for use from 1 July 2009)
• IFRIC 17 , ‘Distributions of non cash assets to owners’ (effective 1 July 2009)
• IFRIC 18, ‘Transfer of assets from customers’ (effective 1 July 2009 but EU-endorsed for use from 31 October 2009)
• IFRS 1 (revised), ‘First time adoption’ on additional exemptions (effective 1 January 2010)
• Annual improvements 2009 (effective 1 January 2010)
• Amendment to IAS 39, ‘Financial instruments: Recognition and measurement’, on eligible hedged items (effective 1 July 2009)
• Amendment to IFRS 2, ‘Share based payments – Group cash-settled share-based payment transactions’ (effective 1 January 2010)
• Amendment to IAS 36, ‘Impairment of assets’ (effective 1 January 2010)
The following new standards, amendments and interpretations have been issued but are not effective for the financial year beginning 1 January 2010 and have not been early
adopted:
• Amendment to IAS 32, ‘Financial instruments: Presentation’ on classification of rights issues (effective 1 February 2010). This addresses the accounting for rights issues
which are denominated in a currency other than the functional currency of the issuer.
• Amendment to IFRS 1, ‘First time adoption’ on ‘Financial instrument disclosures’ (effective 1 July 2010). This amendment provides first-time adopters with the same
transition provisions as included in the amendment to IFRS 7 regarding comparative information for the new three level classification disclosures. This is not relevant to
the Group or Company as consolidated and parent company accounts are already prepared under IFRS.
• IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’ (effective 1 July 2010). This clarifies the accounting when an entity re-negotiates the terms of its
debt with the result that the liability is extinguished through the debtor issuing its own equity instruments to the creditor.
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• Amendment to IAS 24, ‘Related party disclosures’ (effective 1 January 2011). The revised standard clarifies and simplifies the definition of a related party. The Group
will apply the revised standard from 1 January 2011. When the revised standard is applied, the Group and the parent will need to disclose any transactions between its
subsidiaries and its associates.
• Amendment to IFRIC 14, ‘Prepayments of minimum funding requirement’ (effective 1 January 2011). This relates to companies that are required to make minimum
funding contributions to a defined benefit pension plan. The Group does not have such schemes and therefore it will not be relevant.
• Annual improvements 2010 (effective 1 January 2011, although not yet EU-endorsed). This set of amendments includes changes to six standards and one IFRIC. These
are minor amendments and are not expected to have a significant impact on the Group.
• Amendments to IFRS 7 , ‘Financial instruments: Disclosures’ on derecognition (effective 1 July 2011, although not yet EU-endorsed). These amendments are part of the
IASB’s comprehensive review of off balance sheet activities. The amendments will promote transparency in the reporting of transfer transactions and improve users’
understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entity’s financial position, particularly those involving
securitisation of financial assets.
• Amendment to IFRS 1, ‘First time adoption’ on hyperinflation and fixed dates (effective 1 July 2011, although not yet EU-endorsed). These amendments are based on
two exposure drafts. The first amendment replaces references to a fixed date of ‘1 January 2004’ with ‘the date of transition to IFRSs’, thus eliminating the need for
companies adopting IFRS for the first time to restate derecognition transactions that occurred before the date of transition to IFRS. The second amendment provides
guidance on how an entity should resume presenting financial statements in accordance with IFRS after a period when the entity was unable to comply with IFRS because
its functional currency was subject to severe hyperinflation. This is not relevant to the Group or Company as consolidated and parent company accounts are already
prepared under IFRS.
• Amendment to IAS 12, ‘Income taxes’, on deferred tax (effective 1 January 2012, although not yet EU-endorsed). This amendment introduces an exception to the existing
principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. This is not relevant to the Group as it does not
currently own any investment properties.
• IFRS 9, ‘Financial instruments’ on ‘classification and measurement’ (effective 1 January 2013, although not yet EU-endorsed). This is the first part of a new standard
to replace IAS 39. IFRS 9 has two measurement categories: amortised cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured
at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise it is measured at fair value
through the income statement.
It is too early to tell whether the adoption of these standards, annual improvements and interpretations will have an impact in future periods on the financial statements when
they come into effect for accounting periods after 1 January 2011.
Basis of accounting
The financial statements are prepared in accordance with the historical cost convention and have been prepared on a basis consistent with the IFRS accounting policies as set
out below.
As the Group’s principal assets and operations are in the US and the majority of its operations are conducted in US dollars, the Directors have changed the presentational currency
to US dollars for the Company and the Group effective 1 January 2010. In addition, on the same date, as a result of the majority of the operations being denominated in US
dollars, the functional currency of the Company became the US dollar.
A change in presentation currency is accounted for as a change in accounting policy and is applied retrospectively, as if the new presentation currency had always been the
presentation currency. Consequently, the comparatives for the year ended, and as at, 31 December 2009 and 2008 have been re-presented in US dollars using average exchange
rates for income and expenses and the closing rate at the balance sheet date for assets, liabilities and items related to equity. Retained earnings have been translated using
the historic closing rate applicable on 1 January 2005 (i.e. the date of transition to IFRS) and were not retranslated at each subsequent balance sheet date. Resulting exchange
differences have been recognised within equity. The currency translation reserve was set to nil at 1 January 2005. All subsequent movements comprising differences on the
retranslation of the opening net assets of non US dollar subsidiaries have been charged to the currency translation reserve.
In accordance with IAS 1, ‘Presentation of financial statements’, an additional balance sheet for the Group and the Company has been presented as at the beginning of the
earliest comparative period, being 1 January 2009, together with the related notes.
The closing exchange rate applied at 31 December 2010 is $1.5468:£1 (2009: $1.5926:£1; 2008: $1.4473:£1).
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Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. A subsidiary is an entity over which the Group has the power
to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. Intra-Group transactions, profits and balances
are eliminated in full on consolidation. The results of Asterand UK Limited are translated at average exchange rates and its balance sheets is translated at the rate ruling at the
balance sheet date. Exchange differences arising on translation of the opening net assets and results of Asterand UK Limited are dealt with through reserves. The accounting
policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the subsidiary. Separately recognised
goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the
disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing.
The allocation is made to those cash-generating units or Groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
(b) Computer software
Costs that are directly associated with the development of identifiable software products that are controlled by the Group, and that will probably generate economic benefits
exceeding costs beyond one year, are recognised as intangible assets, and are amortised over their estimated useful lives (not exceeding five years). Computer software is stated
at cost less accumulated amortisation.
(c) Licences and certification costs
Costs incurred in obtaining licenses and certification marks are capitalised only if they meet the recognition criteria set out in IAS 38 ‘Intangible Assets’. If these recognition
criteria are met, the costs are capitalised as an intangible asset and amortised on a straight-line basis over the useful economic life of the asset, not exceeding 20 years, from
the time it is available for use. Licences and certification costs are stated at cost less accumulated amortisation.
(d) Developed technology
Developed technology represents the valuation assigned to the developed proprietary human primary cell-based, high throughput assay systems (BioMAP®), as secured on
acquisition of BioSeek. Developed technology is being amortised on a straight-line basis, from the date of acquisition for a 20 year period.
Foreign currencies
Exchange differences arising on consolidation are translated into US dollars as follows:
(i) monetary assets and liabilities are translated at the closing rate at the balance sheet date;
(ii) income and expenses are translated at average exchange rates; and
(iii) all resulting exchange differences are recognised as part of equity.
Exchange differences arising on trading are taken to the income statement.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown
net of value added tax, returns, rebates and discounts and after eliminating sales within the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow through to the entity and when
specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies
relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics
of each arrangement.
(a) Services
Amounts received or receivable for services provided under research and development contracts are recognised as revenue when earned as defined within their contracts. Amounts
received or receivable in respect of milestone payments under contracts and agreements are recognised as revenue when the specific conditions in the contract have been satisfied.
The Group also provides human tissue related services to governmental entities under contracts. These services are provided on either a time and material basis or as a fixed-
price contract, with contract terms generally ranging from less than one year to five years. Amounts received or receivable for these services are recognised as revenue when
specific conditions in the contracts have been satisfied.
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If circumstances arise that may change the original estimates of revenues, costs or extent of progress toward completion, estimates are revised. These revisions may result in
increases or decreases in estimated revenues or costs and are reflected in income in the period in which the circumstances that give rise to the revision become known by
management.
(b) Tissue
Tissue sales are recognised at the point of shipment of materials and clinical data to the customer in compliance with contractual arrangements.
(c) License fees
License fees for the provision of data sets are recognised when the Group has discharged all responsibilities and will incur no further significant costs in connection with the
data sets.
(d) Interest income
Interest income is recognised on a time-proportion basis.
Segmental reporting
The Group operates as two business segments: Tissue Based Solutions and Licensing. All revenue and costs are recorded in the income statement under these segments.
The Group operates across four geographical segments. The UK is the home country of the legal parent.
IFRS 8 ‘Operating Segments’ requires an entity to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or
aggregations of operating segments that meet specified criteria.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has
been identified as the Chief Executive Officer (CEO).
The CEO assesses the performance of the operating segments by reviewing revenue, adjusted EBITDA and gross margins by segment. Adjusted EBITDA excludes the effects
of restructuring costs, share option compensation charges, depreciation and amortisation, from the operating segments. Finance income and expenditure is not included in the
results for the operating segments that are reviewed by the CEO.
Research and development
Research and development expenditure is currently written off to the Income Statement as it is incurred. The Group does not currently have any internal development costs
that qualify for capitalisation as intangible assets under IAS 38 – ‘Intangible Assets’.
Exceptional items
Exceptional items are those significant items which are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group’s financial performance.
Transactions which may give rise to exceptional items are principally severance, acquisition, and litigation costs.
Leases
Leasing agreements which transfer to the Group substantially all the benefits and risks of ownership of an asset are treated as finance leases, as if the asset had been purchased
outright. The assets are included in Plant and Machinery and the capital elements of the leasing commitments are shown as obligations under finance leases. Assets held under
finance leases are depreciated on a basis consistent with similar owned assets or the lease term if shorter. The interest element of the lease rental is included in the income
statement. All other leases are operating leases and the rental costs are charged to the income statement on a straight-line basis over the lease term.
Benefits, such as rent-free periods, received and receivable as incentives to take on operating leases are spread on a straight-line basis over the lease term, or, if shorter than
the full lease term, over the period to the review date on which the rent is first expected to be adjusted to the prevailing market rent. The excess is recorded as a deferred
credit in early periods of the lease, when cash payments are generally lower than straight line rent expense, and is reduced in the later periods of the lease when payments
begin to exceed the straight line expense.
Leasehold improvements (‘tenant improvement allowance’) made by the Group that have been funded by landlord incentives or allowances under an operating lease are
recorded as deferred rent and amortised as reductions to lease expense over the lease term.
Retirement benefit costs
Retirement benefits to employees and Directors are provided by defined contribution pension schemes. The assets of these schemes are held separately from those of the Group
in independently administered funds. Contributions made by the Group are charged to the income statement in the year in which they become payable.
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Property, plant and equipment
Property, plant and equipment is shown at historical cost less accumulated depreciation. The cost of property, plant and equipment is its purchase cost, together with any incidental
costs of acquisition.
Depreciation is calculated so as to allocate the cost of property, plant and equipment on a straight line basis to their residual values over their estimated useful lives, as follows:
Leasehold improvements the shorter of 10 years or the term of the lease
Plant and machinery 3-10 years
Laboratory equipment purchased solely for a particular project is depreciated over the life of that project. Leasehold improvements are depreciated over the lease term concerned.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement.
Inventory
Biobank inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less applicable
selling expenses.
Cost is determined using the average cost method. The cost of finished goods comprises tissue acquisition costs, direct labour and other direct costs and related production
overheads. Due to the nature of processing, there is no material amount of work in progress at any given time.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition, a provision for impairment of receivables is established if there is objective
evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Provisions are made where there is evidence of a risk of
non-payment, taking into account ageing and general economic conditions. The amount of the provision is the difference between the asset’s carrying amount and the present
value of estimated cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of a bad debt account and the
amount of the loss is recognised in the income statement within selling and distribution costs. Subsequent recoveries of amounts previously provided for are credited to selling
and distribution costs.
Cash and cash equivalents
Cash and cash equivalents consist of cash in hand and deposits with banks that have a maturity of three months or less from the date of acquisition. Cash and cash equivalents
are carried in the consolidated balance sheet at cost.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition, they are measured at amortised cost. Long term payables are discounted where
the effect is material.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs. Borrowings are subsequently carried at amortised cost, with the difference between the proceeds, net
of transaction costs, and the amount due on redemption being recognised in the income statement over the period of the borrowings.
Fees paid on establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down.
To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment and amortised over the period
of the facility to which it relates.
Provisions
Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required
to settle the obligations, and the amount has been reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole.
A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations is small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the obligations. The increase in the provision due to passage of time is recognised as interest expense.
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Current and deferred taxation
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company’s
subsidiaries operate and generate taxable income.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the
consolidated financial statements in accordance with IAS 12 ‘Income taxes’. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will
be available against which the temporary differences can be utilised. Deferred tax is provided using rates of tax that have been enacted or substantively enacted by the balance
sheet date. Deferred tax liabilities and assets are not discounted.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the
proceeds. Shares in the Company held by employee trusts are funded by loans from the Company. These shares are presented as a deduction from equity at cost.
Share options
The Group operates equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is recognised as
an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-
market vesting conditions (for example, profitability and sales growth targets). Non-market based vesting conditions are included in assumptions about the number of options
that are to become exercisable. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises
the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds
received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. In accordance with
the exemption available under IFRS 1 the Group has adopted the exemption to recognise no share option charges for options granted before 7 November 2002 or which had
vested by 1 January 2006.
Investment in subsidiary undertakings
Contingent consideration arising on the acquisition of a subsidiary undertaking is recorded at its fair value on the date of acquisition. The fair value gains and losses arising on
the revaluation of the contingent consideration at each balance sheet date are recorded against the carrying value of the investment in the parent company accounts.
Financial Instruments
Foreign currency risk
The Group has operations and trade in the UK and the US. Revenues are denominated principally in US dollars. Financing is denominated principally in US dollars and expenses
are incurred in both US dollars and sterling. Through these operations, the Group is subject to foreign exchange risk, including the risk of fluctuations in the Group’s net
investment in, and reported results from, the UK trading subsidiary when translated into US dollars. Management does not consider it necessary to put in place measures to
hedge against such risk. In addition, the UK trading subsidiary enters into contracts in a variety of foreign currencies.
The Group had overall surplus cash funds throughout the year but had to determine in which currency to hold cash available for working capital and surplus funds. This was
done with reference to anticipated future expenditure patterns and relative returns on funds held in different currencies.
With the exception of gains and losses on those inter-Company balances that are considered to be as permanent as equity and which are recorded in reserves, foreign exchange
gains and losses arising are recorded immediately in the income statement. These amounts include US dollar denominated cash balances held in the UK subsidiary. In addition,
the Group has other current assets and liabilities denominated in foreign currencies that the Board does not consider to be significant. The Company considers the factors affecting
the Group when making decisions on which currencies to hold cash in.
At 31 December 2010, if the US dollar had weakened/strengthened by 5% against the pound sterling with all other variables held constant, post-tax loss for the Group and
post-tax loss for the Company for the year would have been $67 ,000 and $nil respectively (2009: $573,000 and $88,000 respectively) higher/lower, mainly as a result of foreign
exchange movements on translation of US dollar denominated intercompany loans.
At 31 December 2010, if the pound sterling had weakened/strengthened by 5% against the US dollar with all other variables held constant, post-tax loss for the Group and
post-tax loss for the Company for the year would have been $83,000 and $nil respectively (2009: $50,000 and $nil) higher/lower, mainly as a result of foreign exchange
movements on translation of pound sterling denominated intercompany receivables.
Interest rate risk
The Group finances its operations predominantly through cash and liquid resources generated through operating activities, from the issuance of equity shares, through financial
liabilities, through an overdraft facility and loans. It is the Group’s policy to invest surplus cash on deposit or in money market funds managed by professional money managers.
The performance of the investments is reviewed by management on a regular basis to ensure that competitive rates of return are being achieved, subject to the Board’s
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requirement relating to the accessibility of funds and standing of financial institutions used. Management reviews regularly the financing facilities available to the Group to ensure
competitive rates of interest are being obtained.
A $3 million term loan was in place and drawn down at the year end with Silicon Valley Bank. The interest rate on the term loan is variable based on Prime rate. Assuming an
outstanding balance of $3 million, each 1% move in interest rate during the year would result in an additional $30,000 in interest expense during the period. The Group also
has an undrawn borrowing facility at Silicon Valley Bank for up to $3 million of which the interest rate is also variable based on Prime rate.
Liquidity risk
The Board monitors the level of cash and liquid resources on a regular basis, and management monitors the level on a daily basis, to ensure that the Group has sufficient liquid
funds to enable it to meet its commitments as they fall due. This is achieved through the production and review of cash forecasts, including sensitivity analyses. The majority
of the Group’s cash balances are invested in managed funds or invested in bank deposits within the parameters set by the Board. Credit facilities are subject to certain covenants
related to liquidity and debt service capability. Covenants are monitored on a monthly basis to ensure compliance and that sufficient headroom is available on undrawn facilities.
Credit risk
Credit risk is managed on group basis. Credit risk arises from cash and cash equivalents deposited with banks and financial institutions, as well as credit exposures with our
customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are
accepted. A large proportion of customers are very well capitalized large pharma and biotech bearing a low level of credit risk. Smaller customers are assessed for credit quality,
taking into account publicly available information, past experience and other factors and payments are settled in cash or using major credit cards if a high level of risk is thought
to exist. Management does not expect any significant losses from non-performance of payment obligations.
2. Critical accounting estimates and assumptions
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be
based on reasonable assumptions under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related results. The estimates and
assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Impairment of goodwill
The excess of acquisition cost over the net assets acquired is recognised as goodwill in the financial statements.
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 1.
A value in use calculation using discounted cash flow analysis has been prepared. This has been compared to the carrying value of goodwill and accordingly the Directors have
concluded that there is no impairment to goodwill.
At 31 December 2010 the total carrying value of goodwill was $1,348,000.
$973,000 was allocated to Asterand UK Limited and Asterand plc as a combined Cash Generating Unit. A 5 year discounted cash flow analysis has been prepared assuming an
average 15% annual growth in revenue based on management forecasts and a 10% discount rate based on recent investor reports. This has been compared to the carrying
value of goodwill and net liabilities and accordingly the Directors have concluded that there is no impairment to goodwill. As an added sensitivity, if the estimated growth in
revenue applied to the discounted cash flows had been prepared assuming an average 10% annual growth in revenue, there would still have been no impairment of goodwill
as the net present value of future cash flows would still have been higher than the carrying value of goodwill and net liabilities.
The Group acquired 100% of the share capital of BioSeek, Inc. (“BioSeek”) on 18 February 2010. Goodwill arising out of this transaction was $375,000 and was allocated to
BioSeek as a Cash Generating Unit. A 5 year discounted cash flow analysis has been prepared based on conservative management forecasts and a 10% discount rate based
on recent investor reports. This has been compared to the carrying value of goodwill and accordingly the Directors have concluded that there is no impairment to goodwill. As
an added sensitivity, if the estimated growth in revenue applied to the discounted cash flows had been reduced by 5%, there would still have been no impairment of goodwill
as the net present value of future cash flows would still have been higher than the carrying value of the net assets of BioSeek including goodwill. The carrying value of net
assets acquired in the transaction can be found in Note 26.
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3. Segmental reporting
As discussed in Note 1 the Directors are of the opinion that under IFRS 8 ‘Operating Segments’, the Group has two business segments: Tissue Based Solutions and Licensing.
All revenue and costs are recorded in the income statement under these two segments.
The segment information for the year ended 31 December 2010 is as follows:
Group 2010 Tissue Based
Solutions Licensing Total
$’000 $’000 $’000
Revenue from external customers 21,291 19 21,310
Adjusted EBITDA 202 (223) (21)
Gross margin 57% – 56%
Share option related charge 132 – 132
Depreciation and amortisation 1,022 – 1,022
Exceptional items 920 – 920
Finance income 4– 4
Finance costs 57 – 57
Income tax charge 32 – 32
Total allocated assets 29,528 – 29,528
Additions to non-current assets (other than financial instruments and deferred tax assets) 7 ,164 – 7 ,164
The segment information for the year ended 31 December 2009 is as follows:
Group 2009 Tissue Based
Solutions Licensing Total
$’000 $’000 $’000
Revenue from external customers 18,706 – 18,706
Adjusted EBITDA 796 (431) 365
Gross margin 60% – 58%
Share option related charge 86 – 86
Depreciation and amortisation 340 – 340
Exceptional items 1,491 – 1,491
Finance income 48 – 48
Finance costs 49 – 49
Income tax credit 296 – 296
Total allocated assets 21,174 – 21,174
Additions to non-current assets (other than financial instruments and deferred tax assets) 586 – 586
A reconciliation of adjusted EBITDA to loss before tax is provided as follows:
2010 2009
$’000 $’000
Adjusted EBITDA for total segments (21) 365
Share option related charge (132) (86)
Depreciation and amortisation (1,022) (340)
Exceptional items (920) (1,491)
Finance income/(expense) 54 (375)
Loss before tax (2,041) (1,927)
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Reportable segments’ assets are reconciled to total assets as follows:
2010 2009
$’000 $’000
Segment assets 29,528 21,174
Unallocated:
Deferred tax asset 4,843 1,129
Total assets 34,371 22,303
There were no revenues during the year ended 31 December 2010 that were derived from a single customer where that customer contributed more than 10% of total revenues
(2009: $3.7 million of revenue from one customer contributing more than 10% of total revenue was attributable to the Tissue Based Solutions segment). The licensing revenue
for the year ended 31 December 2010 is $19,000 (2009: $nil). The Group continues to invest modestly to maintain certain intellectual property in this segment.
The Group operates across four geographical segments. The UK is the home country of the legal parent.
Revenue (by destination) Revenue (by origin) Net (liabilities)/assets Capital expenditure
2010 2009 2010 2009 2010 2009 2010 2009
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
United Kingdom 1,356 724 3,743 4,061 (815) 1,687 70 401
Rest of Europe 4,906 3,506 – – – – – –
North America 12,469 13,700 17 ,567 14,645 15,974 14,916 305 185
Japan 2,579 776 – – – – – –
21,310 18,706 21,310 18,706 15,159 16,603 375 586
4. Employee information
The average monthly number of persons (including Executive Directors) employed by the Group during the year was:
2010 2009
Number Number
By activity
Sales and marketing 16 16
Technical 47 51
Administration 25 22
88 89
Staff costs for the above persons during the year were:
Group Group
2010 2009
$’000 $’000
Wages and salaries 8,609 7 ,797
Social security costs 736 623
Pension contributions 388 360
Share based payments 132 85
9,865 8,865
Pension costs relate to contributions to defined contribution schemes. The Group operates a defined contribution Group personal pension scheme for employees and Directors.
The total pension cost for the Group was $388,000 (2009: $360,000). Outstanding pension obligations at the year end were $25,000 (2009: $26,000).
Fees paid to the Non-Executive Directors are included in the wages and salaries costs of the Company.
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Key management compensation
The Directors are of the opinion that key management personnel are comprised of the Board of Directors. These persons have the authority and responsibility for planning,
directing and controlling the activities of the Group.
2010 2009
$’000 $’000
Salaries and short-term employee benefits 956 976
Pension contributions 48 54
Share based payments 60 33
1,064 1,063
At 31 December 2010 two (2009: two) key management personnel had retirement benefits accruing under a defined contribution scheme as a result of their services to the
Group.
5. Loss before taxation
The following items have been charged/(credited) in arriving at loss before taxation:
2010 2009
$’000 $’000
Depreciation of property, plant and equipment 827 307
Amortisation of intangible assets 195 33
Other operating lease rentals payable (taking into account the rent free period) 995 452
Release of tenant improvement allowance (see Note 20) (343) –
Repairs and maintenance expenditure on property, plant and equipment 198 149
Research and development expenditure 1,326 478
Trade receivables impairment 37 24
Foreign exchange differences 107 374
Services provided by the Asterand Group’s auditor and network firms
During the year the Group (including its overseas subsidiaries) obtained the following services from its auditor, PricewaterhouseCoopers LLP, at costs detailed below.
2010 2009
$’000 $’000
Auditors’ remuneration
Audit services
– Fees payable to Company auditor for the audit of Company and consolidated accounts 97 63
Non-audit services
Fees payable to the Company’s auditor and its associates for other services:
– The audit of Company’s subsidiaries pursuant to legislation 43 41
– Other services pursuant to legislation 27 235
– Tax services 23 28
Other services pursuant to legislation includes $203,000 in the year ended 31 December 2009 related to the reporting accountant role in relation to acquisition of BioSeek, Inc.
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6. Exceptional items
Unusual and/or one time general and administrative expenses incurred outside the normal course of business are classified as exceptional items in the income statement.
Exceptional items comprised the following:
Group Group
2010 2009
$’000 $’000
Professional fees in relation to acquisition and litigation 466 1,491
Severance costs 98 –
Fair value movements on acquisition consideration 356 –
920 1,491
Exceptional legal and professional expenses of $466,000 (2009: $1,491,000) were incurred during the year. These related to the acquisition of BioSeek, Inc, the litigation to
secure access to key procurement sites in Asia and Group transfer pricing tax advisory fees.
The severance costs recognised in 2010 are as a result of the restructuring of the Detroit operations in July 2010.
For further details surrounding fair value movements on acquisition consideration of $356,000, see Note 26.
7 . Financial income – net
2010 2009
$’000 $’000
Finance income
– Interest on short term bank deposits 4 48
Finance costs
– Finance lease interest payable (4) –
– Bank and credit card interest payable (53) (49)
(57) (49)
Financial income – net (53) (1)
8. Taxation
Analysis of (charges)/credits for the year
2010 2009
$’000 $’000
Current tax
– US current tax on profits for the year (797) (617)
– US adjustments in respect of prior years 262 28
– UK adjustments in respect of prior years 85 120
Total current tax (450) (469)
Deferred tax
Origination and reversal of temporary differences 418 765
Total deferred tax 418 765
Income tax (charge)/credit for the year (32) 296
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The tax (charge)/credit for the year is different from the standard rate of UK corporation tax. The differences are explained below.
2010 2009
$’000 $’000
Loss on ordinary activities before tax (2,041) (1,927)
Loss before tax multiplied by the UK Corporation tax rate of 28% (571) (540)
Effects of:
Expenses not deductible for tax 206 174
Tax loss carried forward (subject to government body approval) 604 798
Adjustments to tax in respect of prior periods (347) (148)
Difference in average tax rates in overseas countries 76 12
Total tax (charge)/credit for the year (32) 296
9. Profits of holding Company
As permitted by section 408 of the Companies Act 2006, the parent Company’s income statement has not been included in these financial statements.
The parent Company’s results for the financial year was a loss of $1,970,000 (2009: $2,280,000).
10. Loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of 5p Ordinary Shares in issue during the year.
For diluted earnings per share, the weighted average number of Ordinary Shares in issue is adjusted to assume conversion of all potentially dilutive Ordinary Shares.
These represent share options granted to employees where the exercise price is less than the average market price of the Company’s Ordinary Shares during the year ended
31 December 2010.
Since 31 December 2010, no 5p ordinary shares have been issued (2009: 35,690).
2010 2009
Loss attributable to owners of the parent ($’000s) (2,073) (1,631)
Weighted average number of shares (000’s) 115,792 112,847
Basic loss per Ordinary Share (1.8)c (1.4)c
Diluted loss per Ordinary Share (1.8)c (1.4)c
In the year ended 31 December 2010, the Group had no potentially dilutive potential Ordinary Shares in issue because it made a loss for the year.
At the balance sheet date, the contingent consideration due on the acquisition of BioSeek (see Note 26) required part of the consideration to be settled in shares. Based on
the revenue recorded by BioSeek in the year ended 31 December 2010, 8.1 million shares were to be issued. As the Group is loss-making for the year ended 31 December
2010, the impact on the loss per share is anti-dilutive and consequently has not been reflected in the calculation of diluted loss per share. As disclosed in note 27 , it is no longer
anticipated that any of the contingent consideration will be settled in shares.
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11. Intangible assets
Developed Licences and Computer
technology certification cost software Goodwill Total
Group 2010 $’000 $’000 $’000 $’000 $’000
Cost
At 1 January 2010 – 231 190 973 1,394
Additions – 23 41 – 64
Assets acquired on acquisition of BioSeek 3,224 – 11 375 3,610
Exchange differences – (7) (5) – (12)
At 31 December 2010 3,224 247 237 1,348 5,056
Accumulated amortisation
At 1 January 2010 – – 83 – 83
Charge for year 141 12 42 – 195
Exchange differences – – –– –
At 31 December 2010 141 12 125 – 278
Net book value at 31 December 2010 3,083 235 112 1,348 4,778
Licences and Computer
certification cost software Goodwill Total
Group 2009 $’000 $’000 $’000 $’000
Cost
At 1 January 2009 – 158 884 1,042
Additions 227 19 – 246
Exchange differences 4 13 89 106
At 31 December 2009 231 190 973 1,394
Accumulated amortisation
At 1 January 2009 – 45 – 45
Charge for year – 33 – 33
Exchange differences –5 –5
At 31 December 2009 – 83 – 83
Net book value at 31 December 2009 231 107 973 1,311
Computer
software Goodwill Total
Group 2008 $’000 $’000 $’000
Cost
At 1 January 2008 149 1,219 1,368
Additions 63 – 63
Exchange differences (54) (335) (389)
At 31 December 2008 158 884 1,042
Accumulated amortisation
At 1 January 2008 28 – 28
Charge for year 32 – 32
Exchange differences (15) –(15)
At 31 December 2008 45 – 45
Net Book Value at 31 December 2008 113 884 997
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The $973,000 goodwill at 1 January 2011 arose on the merger between Asterand Inc. and Pharmagene plc on 3 January 2006 and goodwill of $375,000 arose on the acquisition
of BioSeek on 18 February 2010. Goodwill is not amortised, but is tested for impairment annually. Value in use calculations are utilised to calculate recoverable amount. Value
in use is calculated as the net present value of the projected risk-adjusted, post-tax cash flows of the cash generating unit in which the goodwill is contained.
During the year the goodwill was tested for impairment in accordance with IAS 36. The conclusion of this exercise was that there had been no impairment. Further details are
available in Note 2 on page41.
The amortisation charge arising on intangible assets other than goodwill for the year of $195,000 (2009: $33,000; 2008: $25,000) has been charged to general and administrative
expenses (normal operations).
The Company owns no intangible assets.
12. Property, plant and equipment
Leasehold Plant and
improvements machinery Total
Group 2010 $’000 $’000 $’000
Cost
At 1 January 2010 666 3,497 4,163
Additions – 311 311
Assets acquired on acquisition of BioSeek 2,524 655 3,179
Disposals – (24) (24)
Exchange differences – (153) (153)
At 31 December 2010 3,190 4,286 7 ,476
Accumulated depreciation
At 1 January 2010 459 2,948 3,407
Charge for year 438 389 827
Disposals – (21) (21)
Exchange differences – (123) (123)
At 31 December 2010 897 3,193 4,090
Net book value at 31 December 2010 2,293 1,093 3,386
Leasehold Plant and
improvements machinery Total
Group 2009 $’000 $’000 $’000
Cost
At 1 January 2009 605 3,091 3,696
Additions – 340 340
Disposals – (18) (18)
Exchange differences 61 84 145
At 31 December 2009 666 3,497 4,163
Accumulated depreciation
At 1 January 2009 366 2,658 3,024
Charge for year 55 252 307
Disposals – (18) (18)
Exchange differences 38 56 94
At 31 December 2009 459 2,948 3,407
Net book value at 31 December 2009 207 549 756
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Leasehold Plant and
improvements machinery Total
Group 2008 $’000 $’000 $’000
Cost
At 1 January 2008 826 3,146 3,972
Additions 7 417 424
Disposals –(28)(28)
Exchange differences (228)(444)(672)
At 31 December 2008 605 3,091 3,696
Accumulated depreciation
At 1 January 2008 485 2,565 3,050
Charge for year 19 399 418
Disposals –(24)(24)
Exchange differences (138)(282)(420)
At 31 December 2008 366 2,658 3,024
Net book value at 31 December 2008 239 433 672
Assets held under finance leases had a net book value of $23,000 (2009: $nil; 2008: $nil) at the year end.
The depreciation expense of $827 ,000 (2009: $307 ,000; 2008: $325,000) has been charged to general and administrative expenses (normal operations).
The Company owns no property, plant and equipment.
13. Details of principal subsidiaries
Company Company Company
2010 2009 2008
Fixed asset investments $’000 $’000 $’000
Shares in Group undertakings
As at 1 January 16,163 14,641 20,192
Capital contribution relating to share based payments 65 53 3
Currency translation – 1,469 (5,554)
Acquisition of BioSeek 8,346 ––
As at 31 December 24,574 16,163 14,641
The capital contribution relates to the share option compensation charge in respect of share options granted by the Company to employees of Asterand UK Limited, Asterand, Inc.
and BioSeek, LLC.
For further details surrounding the acquisition of BioSeek, see Note 26.
Details of subsidiary undertakings are as follows:
Proportion of nominal value of issued
shares and voting
Name of undertaking Country of incorporation Description of shares held rights held by the Group
Asterand UK Limited England and Wales ordinary shares 100%
Asterand, Inc. US 1 cent class A common stock 100%
The principal business activity of Asterand UK Limited is the use of human biological information in drug discovery and development. Asterand, Inc.’s principal activity is the
collection and supply of human tissue samples to pharmaceutical and biotechnology companies.
Asterand UK Limited owns 100% of the issued share capital of the following company:
Name of undertaking Country of incorporation Description of shares held Principal activities
Pharmagene Laboratories Trustees Limited England and Wales £1 ordinary shares Trustees of the employee share
ownership plan
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Asterand Inc owns 100% of the membership interests of the following company:
Name of undertaking Country of incorporation Description of shares held Principal activities
BioSeek LLC (acquired as BioSeek, Inc.) US 100% of membership interests Drug discovery services
All of the above subsidiaries are included in the consolidated accounts and have a year end of 31 December.
14. Deferred income tax
The analysis of deferred tax assets and deferred tax liabilities is as follows:
2010 2009 2008
$’000 $’000 $’000
Deferred tax assets:
– US deferred tax asset to be recovered after more than 12 months 4,674 1,129 –
– US deferred tax asset to be recovered within 12 months 169 ––
Total deferred tax asset 4,843 1,129 –
Deferred tax liabilities:
– US deferred tax liability to be recovered within 12 months (282) (364) –
Total deferred tax liability (282) (364) –
Deferred tax assets (net) 4,561 765 –
The gross movement on the deferred income tax account is as follows:
2010 2009 2008
$’000 $’000 $’000
At 1 January 765 ––
US Income statement charge (Note 8) 418 765 –
Arising on acquisition of BioSeek 3,378 ––
At 31 December 4,561 765 –
The movement in deferred income tax assets and liabilities during the year is as follows:
Deferred tax assets Provision BioSeek
Inventory for impairment Accrued net operating
reserve of receivables income losses Total
$’000 $’000 $’000 $’000 $’000
At 31 December 2008 –– –– –
Credited to the income statement 1,126 3– – 1,129
At 31 December 2009 1,126 3– – 1,129
Deferred tax asset acquired on acquisition of BioSeek –– – 3,378 3,378
Credited/(charged) to the income statement 462 13 30 (169) 336
At 31 December 2010 1,588 16 30 3,209 4,843
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Deferred tax liabilities Insurance Deferred
proceeds revenue Total
$’000 $’000 $’000
At 31 December 2008 –– –
Charged to the income statement (277) (87) (364)
At 31 December 2009 (277) (87) (364)
Credited to the income statement 69 13 82
At 31 December 2010 (208) (74) (282)
No current tax liability arises on the UK results for each year due to losses incurred. At 31 December 2010, there were UK tax losses available for carry forward in excess of
$54.7 million (2009: $54.1 million) subject to approval by HM Revenue and Customs. A potential deferred tax asset of up to $14.8 million (2009: $15.1 million) based on UK
losses available for carry forward at the full Corporation rate (27% as set out in the Finance (No. 2) Act 2010) has not been recognised because it is not probable that these
assets will be recovered in the foreseeable future.
A number of changes to the UK Corporation Tax System were announced in the June 2010 Budget Statement. The Finance (No. 2) Act 2010, which was substantively enacted
on 20 July 2010, includes legislation reducing the main rate of corporation tax from 28% to 27% from 1 April 2011. As no UK deferred tax has been recognised, there is no
impact of this change in these financial statements.
In the March 2011 UK Budget Statement, legislation was proposed to reduce the main rate of corporation tax to 26% from 1 April 2011 with further deductions to the main
rate proposed to reduce the rate by 1% per annum to 23% by 1 April 2014. The changes had not been substantively enacted at the balance sheet date and, therefore, are not
included in these financial statements.
15. Biobank inventory
Group Group Group
2010 2009 2008
$’000 $’000 $’000
Raw materials 1,016 1,933 964
Finished goods 8,120 6,885 5,489
9,136 8,818 6,453
The cost of inventories recognised as an expense and included in cost of sales in 2010 amounted to $3,611,830 (2009: $3,722,587).
In 2008, inventory of $233,000 was written off due to a freezer failure.
16. Trade and other receivables
Group Group Group Company Company Company
2010 2009 2008 2010 2009 2008
$’000 $’000 $’000 $’000 $’000 $’000
Trade receivables 5,228 2,803 4,550 – ––
Less: provision for impairment of receivables (47) (10) (74) – ––
Trade receivables – net 5,181 2,793 4,476 – ––
Other receivables 162 161 84 161 161 84
Prepayments and accrued income 788 691 1,388 – ––
Corporation tax recoverable 85 –– – ––
Current portion 6,216 3,645 5,948 161 161 84
Prepayments and accrued income 94 –– – ––
Non-current portion: loans to subsidiaries – –– 76,646 78,412 73,498
Less: provision against receivables from subsidiaries – –– (73,645) (73,645) (66,925)
Non current portion 94 –– 3,001 4,767 6,573
The fair values of trade and other receivables are the same as their reported book values.
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Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base which is chiefly comprised of major international pharmaceutical
companies. The Directors, therefore, believe there is no further credit risk provision required in excess of normal provision for doubtful receivables.
Receivables from subsidiaries are $3.0 million (2009: $4.8 million; 2008: $6.6 million). During 2006, Asterand plc established a provision of $66.9 million in the Company accounts
against the opening receivable from Asterand UK Limited pre-merger. Accordingly, the corresponding amount was charged to the Company’s income statement. Asterand plc
has not written off this debt and Asterand UK Limited records the debt at full value. Upon consolidation the provision and the intra-Group balances have been eliminated and
consequently have no effect on the Group’s results. Amounts advanced to both Asterand UK Limited and Asterand, Inc., since the merger have been recorded in the Company
balance sheet at full value and are not considered impaired.
As of 31 December 2010, the Company’s other receivables of $161,000 (2009: $161,000; 2008: $84,000) were fully performing.
All non-current receivables are due within five years from the balance sheet date.
As of 31 December 2010, trade receivables of $3,257 ,000 (2009: $1,645,000; 2008: $3,240,000) were fully performing.
As of 31 December 2010, trade receivables of $1,924,000 (2009: $1,148,000; 2008: $1,236,000) were past due but not impaired. The ageing analysis of these trade receivables
is as follows:
Group Group Group
2010 2009 2008
$’000 $’000 $’000
Up to 3 months 1,416 827 925
3 to 6 months 323 153 155
Over 6 months 185 168 156
1,924 1,148 1,236
As of 31 December 2010, trade receivables of $47 ,000 (2009: $10,000; 2008: $74,000) were impaired and provided for in full. These were all past due by more than six months.
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
Group Group Group
2010 2009 2008
$’000 $’000 $’000
Sterling 786 553 848
US dollars 5,337 2,918 5,003
Other currencies 187 174 97
6,310 3,645 5,948
The carrying amounts of the Company’s receivables are denominated in the following currencies:
Company Company Company
2010 2009 2008
$’000 $’000 $’000
Sterling 3,162 4,928 6,657
Movements on the Group provision for impairment of trade receivables are as follows:
Group Group Group
2010 2009 2008
$’000 $’000 $’000
At 1 January (10) (74) (55)
Provision for receivables impairment (37) (24) (64)
Exchange differences – (8) (10)
Unused amounts reversed – 96 55
At 31 December (47) (10) (74)
The creation and release of provision for impaired receivables have been included in ‘general and administrative expenses’ in the income statement. Amounts charged to the
allowance account are generally written off when there is no expectation of recovering additional cash.
The other classes within trade and other receivables do not contain impaired assets.
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above together with the fair value of cash and cash equivalents.
The Group does not hold any collateral as security.
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Grouploans and receivables comprise trade and other receivables (excluding non-financial assets) of $5,700,000 (2009: $3,091,000; 2008: $5,415,000) and cash and cash
equivalents of $5,918,000 (2009:$6,644,000; 2008: $9,957 ,000), totalling $11,618,000 (2009: $9,735,000; 2008: $15,372,000). There are no other financial assets.
Companyloans and receivables comprise trade and other receivables (excluding non-financial assets) of $3,162,000 (2009: $4,928,000; 2008: $6,657 ,000) and cash and cash
equivalents of $10,000 (2009: $9,000; 2008: $61,000), totalling $3,172,000 (2009: $4,937 ,000; 2008: $6,718,000). There are no other financial assets
17 . Cash and cash equivalents
Group Group Group Company Company Company
2010 2009 2008 2010 2009 2008
$’000 $’000 $’000 $’000 $’000 $’000
Cash at bank and in hand 5,918 6,644 9,957 10 9 61
The Group maintains all cash and bank balances in Sterling and US dollar accounts. Cash and bank balances represent cash attracting interest at floating rates held in current
accounts, deposit accounts with banks at interest rates based on LIBID and US Prime and a fixed rate deposit maturing within less than three months. Interest of between
0.1% and 0.25% was earned during the year.
The weighted average interest rate of fixed rate deposits at 31 December 2010 was 0.1% (2009: 1.03%; 2008: 3.02%) and the weighted average period to maturity was
1 day (2009: 1 day; 2008: 8 days).
18. Trade and other payables
Group Group Group Company Company Company
2010 2009 2008 2010 2009 2008
$’000 $’000 $’000 $’000 $’000 $’000
Trade payables 1,173 973 1,030 – ––
Other taxation and social security payable 64 62 109 – ––
Other payables 319 149 49 – ––
Accruals 1,644 2,578 3,871 22 100 242
Deferred income 2,050 1,122 1,077 – ––
5,250 4,884 6,136 22 100 242
The following tables show the maturity profile of the Group’s non-derivative financial liabilities:
Within one One year to After ﬁve
year five years years
2010 $’000 $’000 $’000
Trade and other payables 1,556 ––
Borrowings 703 2,348 –
Finance lease liabilities 12 5–
Other financial liabilities 7 ,624 ––
Within one One year to After five
year five years years
2009 $’000 $’000 $’000
Trade and other payables 1,184 ––
Other financial liabilities 57 ––
Within one One year to After five
year five years years
2008 $’000 $’000 $’000
Trade and other payables 1,188 ––
Other financial liabilities 46 ––
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The Group has the following undrawn borrowing facilities held at Silicon Valley Bank:
2010 2009 2008
$’000 $’000 $’000
Floating rate:
– Expiring within one year – – 2, 896
– Expiring beyond one year 3,000 5,000 –
The facilities expiring beyond one year are subject to review at various dates during 2011. The Group’s ability to draw on credit facilities above has been impacted by post balance
sheet events (see note 27).
Groupother financial liabilities at amortised cost comprise borrowings (excluding finance lease liabilities) of $3,051,000 (2009: $57 ,000; 2008: $46,000), finance lease liabilities
of $17 ,000 (2009: $nil; 2008: $nil) and trade and other payables (excluding non-financial liabilities) of $3,136,000 (2009: $3,700,000; 2008: $4,950,000), totalling $6,204,000
(2009: $3,757 ,000; 2008: $4,996,000). Liabilities at fair value through profit or loss comprise contingent consideration of $7 ,624,000 (2009: $nil; 2008: $nil). There are no
other financial liabilities.
Company other financial liabilities at amortised cost comprise trade and other payables (excluding non-financial liabilities) of $22,000 (2009: $100,000; 2008: $242,000). There
are no other financial liabilities.
19. Other financial liabilities
Current
Group Group Group
2010 2009 2008
$’000 $’000 $’000
Current portion of debt 703 57 46
Finance leases 12 ––
Contingent consideration (see Note 26) 7 ,624 ––
8,339 57 46
Non-current
Group Group Group
2010 2009 2008
$’000 $’000 $’000
Long term debt 2,348 ––
Finance leases 5 ––
2,353 ––
A $3 million three year term loan was in place and drawn down at the year end. The loan bears interest at 2.5% above the Prime Rate. The Group also had an undrawn borrowing
facility at Silicon Valley Bank totalling $3 million (see note 18 and note 27). Substantially all assets of the Group are pledged as collateral under this facility.
The loan arrangement fees for the term loan have been deducted from the amounts borrowed and are being amortised over a three year period.
The Company has no financial liabilities.
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Finance lease liabilities
Group Group Group
2010 2009 2008
Gross finance lease liabilities – minimum lease payments $’000 $’000 $’000
No later than one year 15 ––
Later than one year and no later than five years 5 ––
20 ––
Future finance charges on finance leases (3) ––
Present value of finance leases 17 ––
The present value of finance lease liabilities is as follows:
Group Group Group
2010 2009 2008
$’000 $’000 $’000
No later than one year 12 ––
Later than one year and no later than five years 5 ––
17 ––
20. Other payables
Non-current
Group Group Group
2010 2009 2008
$’000 $’000 $’000
Other payables 2,191 ––
2,191 ––
Included in other payables is $1,866,000 of un-amortised tenant improvement allowance. This is amortised over the remaining life of the South San Francisco office lease, crediting
general and administrative expenses (normal operations). The remaining amount of $325,000 relates to a rent free period that is being amortised over the life of the lease and
recognised in general and administrative expenses (normal expenses).
21. Financial instruments
The financial risks faced by the Group include interest rate risk, currency risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks. The
Group’s main objective in using financial instruments is to obtain an acceptable return from funds held on deposit. Credit facilities are primarily utilised to fund new acquisitions
within the Group. The Group’s policy is to raise cash in advance of when it is required using whatever financial instruments can be negotiated with the providers of finance at
that time. This policy is, however, dependent on particular prevailing stock market conditions and the ability of the Group to obtain leasing and borrowing facilities on acceptable
terms. The Group finances certain capital assets through the use of finance leases. Due to the nature of the Group’s activities, the Directors do not consider it necessary to use
derivative financial instruments to hedge the Group’s exposures to fluctuations in interest rates, as these exposures are not considered significant. The Group uses forward foreign
exchange contracts and foreign bank accounts to hedge against foreign currency exposures when considered appropriate.
The Group does not expose itself to substantial credit risk exposure on its cash resources. It places deposits only with A rated banking institutions and amounts are placed for
relatively short maturities.
All credit facilities, drawn and available, are subject to variable rates of interest based on the prime rate.
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The table below shows the rating of the financial institutions that the Group’s cash and cash equivalents are held with:
2010 2009 2008
Group $’000 $’000 $’000
A rated institutions (including A-1 rating for short-term deposits) 5,916 6,642 9,955
5,916 6,642 9,955
Company
A-1 rated institutions 10 9 61
10 9 61
The Group disclosure above does not include cash in hand amounting to $2,000 (2009: $2,000; 2008: $2,000).
There is no material difference between the book values and fair values of the Group’s financial assets and liabilities as at 31 December 2010, due to their short term maturity.
Fair values have been calculated by discounting cash flows at prevailing interest rates.
The maturity and interest rate profile of cash and cash equivalents is set out in Note 17 .
Currency profile of cash and borrowings
The currency profile of the cash and borrowings of the Group at 31 December 2010 is as follows:
Sterling US dollar Total
$’000 $’000 $’000
At 31 December 2010
Financial assets
Cash and cash equivalents 359 5,559 5,918
Current borrowings
Finance leases – (12) (12)
Current debt – (703) (703)
– (715) (715)
Non-current borrowings
Finance leases – (5) (5)
Long term debt – (2,348) (2,348)
– (2,353) (2,353)
Sterling US dollar Total
$’000 $’000 $’000
At 31 December 2009
Financial assets
Cash and cash equivalents 734 5,910 6,644
Current borrowings
Current debt – (57) (57)
– (57) (57)
At 31 December 2008
Financial assets
Cash and cash equivalents 645 9,312 9,957
Current borrowings
Current debt – (46) (46)
– (46) (46)
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Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for
other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
The Group monitors capital and its ability to service debt on the basis of the quick ratio. This ratio is calculated as quick assets divided by current liabilities. Quick assets are
calculated as cash plus trade and other receivables as shown in the consolidated balance sheet. Current liabilities are as shown in the consolidated balance sheet less deferred
revenue.
During 2010, the Group’s strategy, which was unchanged from 2009 and 2008 was to maintain a quick ratio at greater than 2 to 1 in order to secure access to finance at a
reasonable cost. The quick ratios at 31 December 2010, 2009 and 2008 were as follows:
Group Group Group
2010 2009 2008
$’000 $’000 $’000
Cash 5,918 6,644 9,957
Accounts receivable 6,216 3,645 5,948
Quick assets 12,134 10,289 15,905
Current liabilities 5,250 4,884 6,136
Less deferred revenue (2,050) (1,122) (1,077)
Total 3,200 3,762 5,059
Quick ratio 3.8:1 2.7:1 3.1:1
The increase in the quick ratio during 2010 (2009: decrease) resulted primarily from the $3 million loan received during the year, $2.3 million of which is classed as non-current
and so is not included in the above calculation.
22. Called up share capital and share premium
2010 2010 2009 2009 2008 2008
Called up Share capital Number $’000 Number $’000 Number $’000
Group and Company
Authorised
150,000,000 ordinary shares of 5p each 150,000,000 12,920 150,000,000 12,920 150,000,000 12,920
Allotted, called up and fully paid
At 1 January 113,559,530 9,043 113,686,216 8,226 110,035,250 10,952
Allotted under share option schemes 88,474 6 342,998 26 850,966 78
Chrysalis Ventures II, L.P. shares issued –– –– 2,700,000 250
Other ordinary shares issued –– –– 100,000 9
Other ordinary shares re-classification –– (469,684) (36) ––
Currency translation –– – 827 – (3,063)
Issued on acquisition of BioSeek 2,695,856 213 –– ––
At 31 December 116,343,860 9,262 113,559,530 9,043 113,686,216 8,226
During the year, the Company issued a total of 2,784,330 (2009: 342,998; 2008: 3,650,966) ordinary shares of 5p nominal value. Of these, 2,695,856 were issued as part of
the initial consideration to acquire BioSeek. A further 88,474 (2009: 342,998; 2008: 850,966) shares were issued under the Share Incentive Plan (the “SIP”). 2008 included
2,700,000 shares that were issued to Chrysalis Ventures II, L.P.
The 469,684 reduction in ordinary shares of 5p during 2009 was to re-classify the Company share options exercised that were satisfied using existing shares under the ESOP
scheme (Employee Share Ownership Plan shares of 5p each held by The Pharmagene plc Employment Benefit Trust).
The currency translation in 2008 and 2009 has arisen on the re-translation of the sterling share capital balance into US dollars following the change in presentational currency
on 1 January 2010 which has been applied retrospectively.
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23. Share option schemes
All Executive Directors and employees are eligible for grants of share options based on a proportion of salary. In order to promote sustained performance, Asterand’s remuneration
committee gives consideration annually to the grant of share options.
Pharmagene plc prior to the merger had established the following employee share and share option schemes:
(i) the Pharmagene plc Discretionary Share Option Scheme;
(ii) the Pharmagene Laboratories Trustees Limited Discretionary Share Option Scheme;
(iii) the Executive Share Option Scheme;
(iv) the Profit Sharing Scheme;
(v) the LTIP;
(vi) the (1999) Approved Discretionary Share Option Scheme;
(vii) the (1999) Unapproved Discretionary Share Option Scheme;
(viii) the Share Incentive Plan; and
(ix) the Performance Share Plan.
All of the above share option schemes are closed (without prejudice to existing options) so that no further options may be granted under them. In the following tables these
are referred to as the “Former Pharmagene Share Option Schemes”.
In addition, Asterand, Inc. had established two option schemes: the 2000 Stock Plan – Employee share option scheme; and the 2000 Stock Plan – Investor incentive share
option scheme. In the following tables these are referred to as the “Former Asterand, Inc. Share Option Schemes”.
Under the Merger Agreement Pharmagene plc (renamed Asterand plc) assumed the former Asterand, Inc. Share Option Schemes. Shares issued under these schemes are
translated at the merger ratio rate of approximately 7 .59 Asterand plc shares for each Asterand, Inc. share. However, provision in the Merger Agreement provides for the re-
basing of options where shares would be issued at less than nominal value. This re-basing permits the amendment of the call and the number of shares issued provided the
economic value to the option holder is maintained. During 2010 no options over Asterand, Inc. shares were exercised.
The Long Term Incentive Plan was introduced in May 2007 (the “2007 LTIP”). Under the 2007 LTIP , selected individuals may receive awards structured either as a conditional
right to receive shares or as nil cost options. Awards granted in 2007 and 2009 to Executive Directors are subject to EBITDA performance targets as are awards granted to senior
management in 2007 . Other awards are subject to time-based vesting only. During 2010, the rights over 2.5 million (2009: 1.8 million) shares were awarded under this plan.
There are no performance conditions attached to these awards.
Executive Director Martyn Coombs was granted options in 2007 at the closing mid-market value of the Company’s Ordinary Shares on the day of grant. The options have no
performance criteria and vest three years from date of grant, subject to continued employment. In 2010 Martyn Coombs was also granted shares under a subscription to the
Company’s ‘Growth Share Option Plan’ (GSOP). The GSOP is designed to exactly reproduce the economic effects of ordinary share options in a tax efficient manner through
the use of shares in subsidiary entities that are convertible into shares of the Group if certain conditions are met. Shares granted under the GSOP have no performance criteria
and a 3 year cliff vesting.
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Former Pharmagene plc Share Option Schemes
A reconciliation of option movements over the year to 31 December 2010 is shown below:
2010 2009
Weighted Weighted
average average
exercise exercise
Number price Number price
Outstanding at 1 January 661,733 £0.49 844,690 £0.51
Granted –– ––
Forfeited –– (182,957) £0.62
Exercised –– ––
Outstanding at 31 December 661,733 £0.49 661,733 £0.49
Exercisable at 31 December 579,320 £0.49 579,320 £0.49
2010 2009
Weighted average Weighted average
remaining life remaining life
Weighted Weighted
average average
Range of exercise exercise Number exercise Number
price price of shares Expected Contractual price of shares Expected Contractual
£0.05 to £0.30 £0.05 104,507 – 3.3 £0.05 104,507 1.0 4.3
£0.30 to £0.40 £0.33 55,577 – 1.7 £0.33 55,577 – 2.7
£0.40 to £0.55 £0.48 378,880 –– £0.48 378,880 ––
£0.55 to £0.80 –– –– – –– –
£0.80 to £1.00 £0.91 99,535 – 1.2 £0.91 99,535 – 2.2
£1.00 to £2.00 £1.04 23,234 – 0.3 £1.04 23,234 – 1.3
661,733 661,733
The total charge for the year relating to the former Pharmagene plc share option schemes was $nil (2009: credit of $36,894), all of which related to equity-settled share based
payment transactions.
The fair value of options granted was estimated on the date of grant using the Black Scholes option pricing model assuming no dividend yield. There were no options granted
under these plans in 2010 or 2009.
Former Asterand, Inc. Share Option Scheme – Employee Option Scheme
2010 2009
Weighted Weighted
average average
exercise exercise
Number price Number price
Outstanding at 1 January 1,185,884 $0.08 1,361,874 $0.07
Granted –– ––
Forfeited (161,287) $0.08 (7 ,590) $0.06
Exercised (83,490) $0.05 (168,400) $0.11
Outstanding at 31 December 941,107 $0.07 1,185,884 $0.08
Exercisable at 31 December 941,107 $0.07 1,185,884 $0.08
15863 Asterand A&R BACK SECTION:Layout 1 28/04/2011 06:58 Page 59 60 Asterand plc - Annual Report and Accounts 2010
2010 2009
Weighted average Weighted average
remaining life remaining life
Asterand plc Asterand plc
share share
Asterand Inc. share option option
option exercise exercise Number exercise Number
price price of shares Expected Contractual price of shares Expected Contractual
$0.20 $0.03 28,463 – 0.7 $0.03 36,053 – 1.7
$0.40 $0.05 154,168 – 2.0 $0.05 222,478 – 3.0
$0.44 $0.06 549,751 – 3.9 $0.06 657 ,908 0.9 4.9
$0.88 $0.12 208,725 0.2 4.4 $0.12 269,445 1.8 5.3
941,107 1,185,884
There was a credit of $11,110 (2009: charge of $1,947) for the period relating to the former Asterand, Inc. share option scheme.
The fair value of options granted was estimated on the date of grant using the Black-Scholes option pricing model assuming no dividend yield. There were no options granted
under these plans in 2010 or 2009. Share options were granted subject to service. The estimate of the probability of meeting these conditions is reflected in the “Expected”
versus the “Contractual” remaining life above. The range of assumptions used for each year in estimating the fair values are set out below.
The expected volatility is based on historical volatility over the last four years. The expected life is the average expected period to exercise. The risk free rate of return is the
yield on a US Treasury Bond of a term consistent with the assumed option life.
Asterand plc Share Option Schemes
A reconciliation of option movements over the year to 31 December 2010 is shown below:
Weighted
average
exercise
Number price
Outstanding at 1 January 9,284,809 £0.020
Granted 2,516,500 –
Forfeited (950,000) –
Exercised (2,051,000) –
Outstanding at 31 December 8,800,309 £0.021
Exercisable at 31 December 967 ,000 –
2010 2009
Weighted average Weighted average
remaining life remaining life
Weighted Weighted
average average
exercise Number exercise Number
Exercise price price of shares Expected Contractual price of shares Expected Contractual
nil nil 4,950,500 2.7 7 nil 5,435,000 3.7 8
£0.049 £0.049 3,849,809 2.7 7 £0.049 3,849,809 3.7 8
The total charge for the year relating to the Asterand plc share option schemes was $83,540 (2009: $120,985), all of which related to equity settled share based payment
transactions.
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Growth Share Option Plan (GSOP)
A reconciliation of option movements over the year to 31 December 2010 is shown below:
Weighted
average
exercise
Number price
Outstanding at 1 January ––
Granted 2,325,822 £0.15
Outstanding at 31 December 2,325,822 £0.15
Exercisable at 31 December ––
2010
Weighted average
remaining life
Weighted
average
exercise Number
Exercise price price of shares Expected Contractual
£0.15 £0.15 2,325,822 5.7 9.5
The total charge for the year relating to the Growth Share Option Plan was $59,578 (2009: $nil), all of which related to equity settled share based payment transactions.
The fair value of options granted was estimated on the date of grant using the Black Scholes option pricing model assuming no dividend yield. The assumptions for the grants
were as follows:
Options fair value assumptions
4 October 18 June 15 April 29 June
2010 2010 2010 2009
Grant Date Scheme 2007 LTIP 2010 GSOP 2007 LTIP 2007 LTIP
Weighted average share price 12.8p 14.8p 17 .5p 24p
Exercise price nil 14.8p nil nil
Vesting period (years) 3 years 3 years 3 years 3 years
Expected volatility 75% 75% 75% 25%
Expected life (years) 5.7 5.7 5.7 5.7
Risk free rate 2.7% 2.7% 2.7% 4.5%
Fair value per option 12.8p 14.8p 17 .5p 24p
Share options were granted under service conditions. The estimate of the probability of meeting these conditions is reflected in the “Expected” versus “Contractual” remaining
life above. The above share options cliff vest after 3 years and are thus more likely to lapse before being exercisable than if they vested equally over the same period. This
assumption is factored into the charge for the period.
The expected volatility is expressed as the standard deviation of expected share price returns.
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24. Commitments
The Group and Company had no commitments (2009: $nil; 2008: $nil) at the end of the year for capital expenditure contracted for but not provided in the financial statements.
The Group leases all of its laboratories and office premises under non cancellable operating lease agreements. The leases have varying terms, and renewal rights. The Group
also leases a small amount of plant and machinery.
The lease expenditure charged to the income statement during the year is disclosed in Note 5.
At 31 December 2010, the Asterand Group had future aggregate minimum lease payments under non cancellable operating leases as follows:
Group Group Group
2010 2009 2008
$’000 $’000 $’000
No later than one year 1,079 457 101
Later than one year and not later than five years 3,150 659 236
Later than five years 2 ––
4,231 1,116 337
The company has no commitments (2009: $nil; 2008: $nil) under non-cancellable operating leases.
25. Related party transactions
The Company entered into the following transactions in the year with subsidiaries of the Group:
Company Company Company
2010 2009 2008
Intercompany receivable $’000 $’000 $’000
At 1 January 4,767 6,573 8,909
Amounts received (1,766) (2,396) (766)
Currency translation – 590 (1,570)
At 31 December 3,001 4,767 6,573
During 2010, the Group paid $117 ,000 (2009: $nil) on behalf of Martyn Coombs, CEO to cover the taxes payable on his Growth Share Ownership Plan implemented during the
year. This amount was subsequently reimbursed and was fully repaid by the year end. The Group did not enter into any other related party transactions during the year.
26. Acquisition
The Group acquired 100% of the share capital of BioSeek, Inc. (“BioSeek”) on 18 February 2010. BioSeek is a privately held drug discovery services company that has developed
proprietary human primary cell-based, high throughput assay systems (BioMAP
®
) designed to replicate the intricate cell and pathway interactions present in disease. The
system helps to predict clinical activities of a potential drug candidate through comparison of assay results to a proprietary database of data profiles for known compounds. The
Board of Asterand believe that Asterand and BioSeek are highly complementary businesses, with BioSeek’s assay systems extending the range of human tissue-based products
and services currently provided by Asterand.
The initial consideration paid by Asterand was a sum of $1.0 million satisfied by the issue of 2,695,856 New Asterand Shares at $0.37 (22p) per share – calculated based on
the per share closing prices of Ordinary Shares on the London Stock Exchange during the thirty (30) consecutive trading day period ended on 17 November 2009, converted
into U.S. dollars at the exchange rate for purchasing U.S. dollars with pound sterling as quoted in the Financial Times on such date.
An additional sum (“Contingent Payment”) is payable based on the following criteria:
(a) if the BioSeek 2010 Revenue is less than $4.0 million, the Contingent Payment will be an amount equal to (A) 0.75 multiplied by BioSeek’s 2010 Revenue minus $1.0
million, which will be payable only in Ordinary Shares;
(b) if the BioSeek 2010 Revenue is equal to or greater than $4.0 million, the Contingent payment will be an amount equal to (A) $3.6 million plus (B) the product of 2.5
multiplied by the amount by which the BioSeek 2010 Revenue exceeds $4.0 million minus $1.0 million.
Actual BioSeek revenue for the year ended 31 December 2010 was $6,370,000 resulting in a Contingent Payment of $8.5 million (total purchase price of $9.5 million including
initial consideration). The Contingent Payment became due in April 2011. As previously announced, the first US $3 million of this payment was to be satisfied through the issue
of 8.1 million Asterand shares, and the remaining $5.5 million consideration was to be paid in cash. All amounts recorded at the balance sheet date (valued under IFRS 3 (revised))
have been made under this assumption. However, in April 2011 we subsequently agreed with the former BioSeek shareholders that the entire $8.5 million of contingent
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consideration will be satisfied with cash – $2.5 million will be paid in May 2011 and the remaining $6 million satisfied by the issue of loan notes that mature over the period to
December 2013. The Company has also entered into a warrant agreement with the lenders whereby the Lenders will have the right to subscribe for up to 5.2 million new Ordinary
Shares at 14.12p per share. This warrant agreement will expire on 30 December 2013, on redemption of the loan. See also note 27 – post balance sheet events.
IFRS 3 (revised), ‘Business combinations’ was applied to the acquisition of BioSeek, Inc. on 18 February 2010. Acquisition costs of $153,000 (2009: $809,000) have been
recognised in the income statement.
The Contingent Consideration is classified as a financial liability under IFRS 3 (revised) and has been re-valued at the period end to $7 ,624,000 based on 8,087 ,568 shares expected
to be issued multiplied by the 31 December 2010 Asterand closing share price of 16.75p and the 31 December 2010 spot rate of $1.55 to the pound sterling, together with a
cash payment of $5,524,000. This has resulted in a loss of $356,000 being recorded as an exceptional loss within operating expenses in the income statement.
A reconciliation of total consideration as valued in the transaction to the revaluation under IFRS 3 (revised) is as follows.
Value under Value under
IFRS 3 IFRS 3
(revised) (revised)
at 18 February at 31 December Exceptional
Consideration 2010 2010 gain/(loss)
$’000 $’000 $’000 $’000
Initial consideration 1,000 722
(1)
722 –
Contingent consideration
– Shares 3,000 2,168 2,100 68
– Cash – estimate at 18 February 2010 – 5,100 ––
– Cash – final amount due at 31 December 2010 5,524 – 5,524 –
Cash total 5,524 5,100 5,524 (424)
Total consideration 9,524 7 ,990 8,346
(2)
(356)
Initial consideration 722
Contingent consideration (before revaluation under IFRS 3 (revised)) 7 ,268
7 ,990
Fair value of assets acquired (see below) 7 ,615
Goodwill 375
(1)
Calculated based on 2,695,856 shares, the 18 February 2010 Asterand closing share price of 17p and 18 February 2010 spot rate of 1.57 dollars to the GBP.
(2)
Calculated based on total consideration of $8.3 million including $1 million initial consideration. The first $3.0 million of contingent consideration is calculated based on 8,087 ,568 shares issued multiplied
by the 31 December 2010 Asterand closing share price of 16.75p and 31 December 2010 spot rate of 1.55 dollars to the GBP.
The assets and liabilities arising from the acquisition are as follows:
Carrying Fair
Value Value
$’000 $’000
Cash and cash equivalents 1,573 1,573
Property, plant and equipment (including computer software of $11,000) 3,190 3,190
Developed technology – 3,224
Deferred tax asset – 3,378
Trade and other receivables 316 316
Trade and other payables (1,509) (1,509)
– Financial liabilities – finance leases (14) (14)
Non-current liabilities
– Finance lease obligations (15) (15)
– Deferred rent (2,528) (2,528)
Net assets acquired 1,013 7 ,615
The goodwill is attributable to the expected synergies from combining the business operations and the assembled workforce. No goodwill is expected to be deductible for tax
purposes.
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The acquired BioSeek business contributed revenues of $6,285,000 and net profit of $1,732,000 to the Group for the period from 18 February 2010 to 31 December 2010. If
the acquisition had occurred on 1 January 2010, consolidated revenue and consolidated loss for the twelve months ended 31 December 2010 would have been $21,394,000
and $2,790,000, respectively.
The fair value of trade and other receivables is $316,000 and includes trade receivables with a fair value of $204,000. The gross contractual amount for trade receivables due
is $204,000; all of which is expected to be collectible.
27 . Post balance sheet events
$8.5 million of contingent consideration became payable in April 2011 to complete the BioSeek acquisition (see also Note 26 – Acquisition). As previously announced, the first
US $3 million of this payment was to be satisfied through the issue of 8.1 million Asterand shares and the remaining $5.5 million consideration was to be paid in cash. We also
announced that we secured a term loan and a revolving credit line from Silicon Valley Bank (“SVB”) to fund this payment. However, volatility in trading during March 2011 impaired
our ability to draw on the revolving line of credit. The $3 million term loan remains drawn and intact. Subsequently in April 2011 we agreed with the former BioSeek shareholders
that the entire $8.5 million of contingent consideration will be satisfied with cash – $2.5 million will be paid in May 2011 and the remaining $6 million will be satisfied by the
issue of loan notes that mature over the period to December 2013. The Company has also entered into a warrant agreement with the lenders whereby the Lenders will have
the right to subscribe for up to 5.2 million new Ordinary Shares at 14.12p per share. This warrant agreement will expire on 30 December 2013, on redemption of the loan.
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NOTICE OF ANNUAL GENERAL MEETING OF
ASTERAND PLC
Notice is hereby given that the Annual General Meeting of Asterand plc (the “Company”) will be held at the offices of Buchanan Communications,
107 Cheapside, London, EC2V 6DN on Wednesday 8 June 2011 at 10:00 am to consider and if thought fit, pass, the following Resolutions. Resolutions
1 to 6 inclusive and Resolutions 8 and 9 will be proposed as ordinary resolutions and Resolutions 7 , 10 and 11 as special resolutions.
Explanatory notes to the notice of Annual General Meeting of Asterand plc (“Company”)
Resolution 1– Accounts
The Companies Act 2006 requires that, for each financial year, the Directors of the Company (“Directors”) present the audited accounts and the reports of the Directors and
auditors to a general meeting of shareholders. These are contained in the Company’s 2010 Annual Report and Accounts as set out on pages 1 to 64 of this document.
Resolution 2– Remuneration report
The Directors’ Remuneration Report Regulations 2002 require UK companies quoted on the London Stock Exchange to put an ordinary resolution to shareholders at the Annual
General Meeting seeking approval of the Remuneration Report. The Remuneration Report is contained on pages 15 to 19 of this document. The vote is advisory in nature, in
that payments made or promised to Directors will not have to be repaid in the event that the ordinary resolution is not passed.
Resolutions 3, 4 and 5 – Reappointment of Directors
Under the Company’s Articles of Association (“Articles”), Directors are required to retire by rotation every three years.
Jill Force has served as a Director since June 2008 and offers herself for a three year term renewal.
Jill Force was appointed as a Non-Executive Director of Asterand plc in June 2008. Ms. Force is currently Executive Vice President, General Counsel and Chief Administrative
Officer for Springstone, Inc. a private equity backed healthcare services company based in Louisville, KY that owns and operates mental health treatment facilities. From 1998-
2010, Ms. Force was a partner and founder of The Allegro Group, Inc. which provided interim management and business advisory services to healthcare companies and private
equity firms. From 2005-2008 she served as Executive Vice President, General Counsel and Chief Administrative Officer for LifeCare Holdings, a privately held Company that
operates 20 long term acute care hospitals. Ms. Force spent 10 years as SVP, General Counsel and Corporate Secretary for Vencor, Inc. (now Kindred Healthcare, Inc.) where
she was part of a team that grew the Company from one hospital to a Fortune 500 operator of hospitals, nursing facilities and contract medical services. Ms. Force is a certified
public accountant and an attorney with an A.B. in Political Science from Miami University, a M.S.A . from Georgetown University and a J.D. from the University of Louisville
School of Law.
Robert Salisbury has served as a Director since June 2008 and offers himself for a three year term renewal.
Robert Salisbury was appointed as a Non-Executive Director of Asterand plc in June 2008. Mr. Salisbury has more than 20 years of experience in the pharmaceutical industry.
Previously, he was Executive Vice President & Chief Financial Officer of Pharmacia & Upjohn Inc (Windsor UK) and as such had full responsibility for the finance, corporate
strategy, human resources, investor relations & corporate communication functions within the company. In this capacity, he was integral to implementation of the post-merger
global integration of the two companies across its units and subsidiaries within 48 countries. Mr. Salisbury has extensive investor contacts through his involvement in Pharmacia’s
$4 billion secondary stock offering and other investor relations activities. Mr. Salisbury has a degree in Finance and an M.B.A. from Florida State University. Mr. Salisbury is
currently a Director and Chair of the Audit Committee at Enzon Pharmaceuticals Inc (Piscataway, NJ).
Jonathan Fleming has served as a Director since September 2008 and offers himself for a three year term renewal.
Jonathan Fleming was appointed as a Non-Executive Director of Asterand plc in September 2008. Since 1996, he has been a General Partner of Oxford Bioscience Partners and
currently serves as the Managing General Partner. Oxford Bioscience Partners is an international venture capital firm with more than $900 million under management that
specializes in life science technology based investments. Prior to joining Oxford Bioscience Partners, Mr. Fleming was a founding General Partner of MVP Ventures (Boston, MA)
and a co-founder of Medica Venture Partners (Israel). He currently serves as a director on the Boards of Leerink Swann Investment Trust (Boston, MA), RailRunner NA Corp
(Lexington, MA), Enanta Pharmaceuticals (Watertown, MA), Radius Pharmaceuticals (Cambridge, MA) and Molecular Biometrics (Norwood, MA). Mr. Fleming holds a B.A. from
the University of California, Berkeley and a M.P.A. from Princeton University.
Resolution 6– Reappointment of auditors and auditors’ remuneration
The Company is required to appoint auditors at each general meeting at which accounts are laid before the Company, to hold office until the next such meeting. Following the
recommendation of the audit committee, the Directors propose to reappoint PricewaterhouseCoopers LLP as auditors of the Company. The resolution also proposes that the
Directors be authorised to determine the level of the auditors’ remuneration.
Resolution 7– Amendment to Articles
This resolution is to amend the Articles to remove the statement of the authorised share capital of the Company and any related references thereto within the Articles. The
Companies Act 2006 abolished the requirement for a company to have an authorised share capital and these amendments will reflect this. The Directors will still be limited as
to the number of shares they can at any time issue because allotment authority continues to be required under the Companies Act 2006, save in respect of employee share
schemes. This resolution will be proposed as a special resolution.
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Resolution 8– Amendment to Memorandum
This resolution is to amend the Company’s memorandum of association, which is deemed to form part of the Articles, to delete the statement of the authorised share capital
of the Company contained in paragraph 7 thereof.
Resolution 9–Issue of shares by the Directors
Resolution 9 is to renew the Directors’ authority to issue shares in the capital of the Company.
The authority is over shares up to an aggregate nominal value of £1,940,213, (38,804,260 ordinary shares of 5p each) which represents approximately 33% of the Company’s
issued ordinary share capital. The Directors currently have no intention of exercising the authority, and only intend to issue relevant securities pursuant to rights under employee
share schemes (such issues being permitted by the Companies Act 2006 outside the authority sought by Resolution 9). As of the date of the Notice of the Annual General Meeting
the Company does not hold any shares in treasury.
Resolution 10– Disapplication of pre-emption rights
Resolution 10 is to renew the Directors’ authority to issue a limited number of shares for cash without first offering them to existing shareholders. This resolution disapplies the
statutory pre-emption rights of existing shareholders contained in section 561 of the Companies Act 2006. The authority is limited to shares up to an aggregate nominal value
of £582,064, (11,641,280 ordinary shares of 5p each) which represents approximately 10% of the Company’s issued ordinary share capital. Following consultation with major
shareholders and having regard to the relatively small size of the Company and its stage of development, the Directors have concluded that it is appropriate for the Company
to depart from the guidelines published by the Pre-emption Group which includes representation of the Association of British Insurers and the National Association of Pension
Funds, which recommend that the disapplication of pre-emption rights should be for no more than (a) 5% of the Company’s issued ordinary share capital in any year and (b)
7 .5% in any rolling three-year period. This resolution will be proposed as a special resolution.
The authorities sought by Resolutions 9 and 10 are to replace the powers of the Directors granted at the Company’s Annual General Meeting in 2010, which will expire at the
conclusion of the Annual General Meeting. The authorities sought will expire at the conclusion of the Annual General Meeting to be held in 2012.
Resolution 11 – Notice of general meetings
This resolution is required to reflect the implementation in August 2009 of the Shareholder Rights Directive. The regulation implementing this Directive increased the notice
period for general meetings of the Company to 21 clear days. The Company was previously able to call general meetings (other than an annual general meeting) on 14 clear
days’ notice and would like to renew this ability. In order to be able to do so after August 2009, shareholders must have approved the calling of meetings on 14 clear days’
notice. Resolution 11 seeks such approval. The approval will be effective until the Company’s next annual general meeting, when it is intended that a similar resolution will be
proposed. The Company will also need to meet the requirements for electronic voting under the Directive before it can call a general meeting on 14 clear days’ notice. The
shorter notice period would not be used as a matter of routine for general meetings, but only where the flexibility is merited by the business of the meeting and is thought to
be in the best interests of shareholders as a whole. If the proposals at a given meeting are not time-sensitive the Company will not normally use the shorter notice period.
Resolution 11 will be proposed as a special resolution.
CREST Proxy Voting Service
Shareholders who hold shares in uncertificated form (i.e. in CREST) are offered the facility of sending back an electronic proxy through the CREST proxy voting service in
accordance with the procedures set out in the CREST manual and summarised in the notes to the notice of Annual General Meeting on pages 68-70.
Ordinary business
1. That the audited accounts of the Company for the year ended 31 December 2010, together with the Directors’ and auditors’ reports thereon, be received.
2. That the Remuneration Report for the year ended 31 December 2010 be approved.
3. That Jill Force, who retires by rotation in accordance with the Company’s articles of association, be re-appointed as a director in accordance with the Company’s articles
of association.
4. That Robert Salisbury, who retires by rotation in accordance with the Company’s articles of association, be re-appointed as a director in accordance with the Company’s
articles of association.
5. That Jonathan Fleming, who retires by rotation in accordance with the Company’s articles of association, be re-appointed as a director in accordance with the Company’s
articles of association.
6. That the Company’s auditors, PricewaterhouseCoopers LLP, be appointed as the Company’s auditors to hold office until the conclusion of the next general meeting at
which accounts are laid before the Company, and to authorise the Directors to determine their remuneration.
7 . That the Company’s articles of association (the “Articles”) be amended as follows:
(a) by deleting Article 3 in its entirety;
(b) by, in Article 9, replacing the words “Unissued shares” with the words “Allotment of shares” in the title of the Article;
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(c) by, in Article 9, replacing the words “all unissued shares (whether forming part of the original or any increased capital) shall be at the disposal of the Directors
who may (subject to the provisions of the Statutes) allot (with or without conferring a right of renunciation), grant options over, offer or otherwise deal with or
dispose of them” with the words “the Directors may (subject to the provisions of the Statutes) allot (with or without conferring a right of renunciation), grant
options over, offer or otherwise deal with or dispose of the Company’s shares”;
(d) by, in Article 145.1, deleting the word “unissued”;
(e) by, in Article 145.2, deleting the word “unissued”; and
(f) by, in Article 146.3, deleting the word “unissued”.
8. That, subject to the passing of Resolution 7 above, the Company’s memorandum of association, being deemed to form part of the Articles, be amended by deleting
paragraph 7 .
9. That the Directors be generally and unconditionally authorised, pursuant to and in accordance with section 551 of the Companies Act 2006 (the “Companies Act”) to
allot Relevant Securities (as defined below) up to an aggregate nominal amount of 1,940,213 provided that this authority shall, unless renewed, varied or revoked by
the Company, expire at the conclusion of the next Annual General Meeting of the Company save that the Company may, before such expiry, make offers or agreements
which would or might require Relevant Securities to be allotted and the directors may allot Relevant Securities in pursuance of such offer or agreement notwithstanding
that the authority conferred by this resolution has expired. Such authority shall be in substitution for the authority granted to the directors pursuant to section 551 of
the Companies Act 2006 at the Company’s Annual General Meeting in 2010, which is hereby revoked without prejudice to any allotments made or agreed to be made
under it. In this resolution, “Relevant Securities” means:
a) shares in the Company other than shares allotted pursuant to:
i) an employee share scheme (as defined by section 1166 of the Companies Act);
ii) a right to subscibe for shares in the Company where the grant of the right itself constituted a Relevant Security; or
iii) a right to convert securities into shares in the Company where the grant of the right itself constituted a Relevant Security;
b) any right to subscribe for or to convert any security into shares in the Company other than rights to subscribe for or convert any security into shares allotted
pursuant to an employee share scheme (as defined by section 1166 of the Companies Act). References to the allotment of Relevant Securities in this resolution
include the grant of such rights.
10. That, subject to the passing of Resolution 9, the directors be given the general power to allot equity securities (as defined by section 560 of the Companies Act) for
cash, pursuant to the authority conferred by Resolution 9, as if section 561(1) of the Companies Act did not apply to any such allotment, provided that this power shall
be limited to the allotment of equity securities:
a) in connection with an offer of such securities by way of rights to holders of ordinary shares in proportion (as nearly as may be practicable) to their respective
holdings of such shares, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional
entitlements or any legal or practical problems under the laws of any territory, or the requirements of any regulatory body or stock exchange; and
b) otherwise than pursuant to sub-paragraph (a) above up to an aggregate nominal amount of £582,064;
and shall expire (unless previously renewed, waived or revoked) at the conclusion of the next Annual General Meeting of the Company, on terms that the Company may
before such expiry make an offer or agreement which would or might require relevant securities to be allotted after the expiry of such period, and the Directors may
allot equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred hereby has expired.
11. That a general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice.
By order of the Board
John Stchur
Chief Financial Officer and Company Secretary
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1. Proxy
A member entitled to attend and vote at the Company’s Annual General Meeting to be held on 8 June 2011 (“Meeting”) is entitled to appoint one or more proxies to attend,
speak, and, on a poll, to vote instead of him. A proxy need not be a member of the Company. The instrument appointing a proxy (enclosed) must be delivered to the office of
the Company’s Registrars Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR4 4TU not later than 48 hours before the time appointed for holding the Meeting.
Return of a completed form of proxy will not preclude a member from attending and voting in person. You may appoint more than one proxy provided that each proxy is appointed
to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share.
2. CREST proxy voting service
CREST members who wish to appoint a proxy or proxies by utilising the CREST proxy voting service may do so for the Meeting and any adjournment(s) thereof by utilising the
procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service
provider, should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in
accordance with CRESTCo’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether
it relates to the appointment of a proxy or to an amendment to the instruction given for a previously appointed proxy, must, in order to be valid, be transmitted so as to be
received by our Registrars, Capita Registrars (ID RA1 0), by not later than 48 hours before the time appointed for holding the Meeting. For this purpose, the time of receipt
will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications’ Host) from which the Registrar’s are able to retrieve the message
by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the
appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that CRESTCo does not make available special procedures in CREST for
any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST
member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his
CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular
time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST
Manual concerning practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
3. Entitlement to vote
Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, only those shareholders registered in the register of members of the Company at 6:00 p.m. on
6 June 2011 (or, in the event that this meeting is adjourned, in the register of members 48 hours before the time of any adjourned Meeting), shall be entitled to attend or to
vote at this Meeting in respect of the number of shares registered in their names at that time. Changes to entries on the register of members after 6:00 p.m. on 6 June 2011
(or, in the event that this Meeting is adjourned, 48 hours before the time of any adjourned meeting), shall be disregarded in determining the rights of any person to attend or
vote at the Meeting.
4. Documents available for inspection
Copies of the Directors’ service contracts and letters of appointment with the Company or its subsidiaries will be available for inspection at the registered office of the Company
during normal business hours and on the date of the Annual General Meeting at Buchanan Communications, 107 Cheapside, London, EC2V 6DN from 9:00 a.m. until the conclusion
of the Meeting.
5. Attending in person
If you wish to attend the Meeting in person and you hold shares as a beneficial owner within a nominee account, you will need to bring an original letter of representation from
the nominee in order to gain entrance as a shareholder (unless the nominee has validly appointed you as its proxy). Registration of the Meeting will open 45 minutes before it
starts.
6. Nominated Persons
If you are a person who has been nominated under section 146 of the Companies Act 2006 to enjoy information rights (“Nominated Person”):
(a) you may have a right under an agreement between you and the member of the Company who has nominated you to have information rights (“Relevant Member”)
to be appointed or to have someone else appointed as a proxy for the General Meeting.
(b) if you either do not have such a right or if you have such a right but do not wish to exercise it, you may have a right under an agreement between you and the Relevant
Member to give instructions to the Relevant Member as to the exercise of voting rights.
Your main point of contact in terms of your investment in the Company remains the Relevant Member (or, perhaps, your custodian or broker) and you should continue to contact
them (and not the Company) regarding any changes or queries relating to your personal details and your interest in the Company (including any administrative matters). The
only exception to this is where the Company expressly requests a response from you.
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7 . Issued shares and total voting rights
As at 6:00 p.m. on 27 April 2011 the Company’s issued share capital comprised 116,412,806 ordinary shares of 5p each. Each ordinary share carries the right to one vote at
a general meeting of the Company and, therefore, the total number of voting rights in the Company as at 6:00 p.m. on 27 April 2011 is 116,412,806.
8. Questions at the General Meeting
Under section 319A of the Companies Act 2006, the Company must answer any question you ask relating to the business being dealt with at the meeting unless:
(a) answering the question would interfere unduly with the the preparation for the meeting or involve the disclosure of confidential information;
(b) the answer has already been given on a website in the form of an answer to a question; or
(c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
9. Website publication of audit concerns
Pursuant to Chapter 5 of Part 16 of the Companies Act 2006 (sections 527 to 531), where requested by a members or members meeting the qualification criteria set out at
Note 10 below, the Company must publish on its website a statement setting out any matter that such members propose to raise at the Meeting relating to the audit of the
Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the Meeting.
Where the Company is required to publish such a statement on its website:
(a) it may not require the members making the request to pay any expenses incurred by the Company in complying with the request;
(b) it must forward the statement to the Company’s auditors no later than the time the statement is made available on the Company’s website;
and
(c) the statement may be dealt with as part of the business of the Meeting.
The request:
• may be in hard copy form or in electronic form (see Note 11 below);
• either set out the statement in full or, if supporting a statement sent by another member, clearly identify the statement which is being supported;
• must be authenticated by the person or persons making it (see Note 11 below); and
• must be received by the Company at least one week before the Meeting.
10. Members’ qualiﬁcation criteria
In order to be able to exercise the members’ right to requirethe Company to publish audit concerns (see Note 9), the relevant request must be made by:
• a member or members having a right to vote at the Meeting and holding at least 5% of total voting rights of the Company; or
• at least 100 members have a right to vote at the Meeting and holding, on average, at least £100 of paid up share capital.
For information on voting rights, including the total number of voting rights, see Note 7 above and the website referred to in Note 12.
11. Submission of hard copy and electronic requests and authentication requirements
Where a member or members wishes to request the Company topublish audit concerns (see Note 11),such request be must be made in one of the following ways:
• A hard copy request which is signed by the Member, states the Member’s full name and address and is sent to John Stchur, 2 Orchard Road, Royston, Hertfordshire
SG8 5HD.
• A request which is signed by the Member, states the Member’s full name and address and is sent to 01763 211555 marked for the attention of [NAME OR TEAM].
• A request which states the Member’s full name, and address, and number of shares held by them and is sent to advantage@asterand.com.
Please state “ASTERAND AGM” in the subject line of the e-mail.
12. Website giving information regarding the General Meeting
A copy of this notice, and other information required by section 311A of the Companies Act 2006, can be found at www.asterand.com
By order of the Board
John Stchur
Chief Financial Officer and Company Secretary
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R1841
15863 Asterand A&R BACK SECTION:Layout 1 28/04/2011 06:58 Page 70 Asterand plc
2 Orchard Road
Royston
Hertfordshire SG8 5HD
Registered Number 3355618
Telephone +44 (0) 1763 211600
www.asterand.com
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