Arix Bioscience Plc - Annual Results for the year ended 31 December 2019
Full year results for the year ended
(“Arix”, LSE: ARIX) a global venture capital company focused on investing in and building breakthrough biotech companies, today announces its full year results for the year ended ., :
Two new portfolio companies added to the portfolio:
Funding continued growth in the portfolio
Together with the two new portfolio companies, these companies raised in aggregate over the period.
Continued clinical progress in the portfolio, with 26 live clinical trials
Over the period a number of companies reached important clinical milestones, notably:
Post period end
Quench Bio launched from stealth with Series A financing
In January, Arix announced the Series A financing and launch of Quench Bio, a company that Arix created and seeded with in . The Series A financing recognised a 40% uplift to the seed financing. Following the financing Arix retains a 21.7% stake in the business. This is the first company co-founded and formed by Arix from scratch, combining scientific discoveries from professors in with entrepreneurs and co-investors in . It encapsulates the benefits of Arix’s transatlantic footprint and culture.
raised in a public offering and reported additional encouraging data in AUTO3
In January, completed a follow-on financing raising net proceeds of approximately . Following the offering Arix retains a 6.5% ownership stake. This financing will enable to develop its lead programme, , in adult ALL through its Phase 2 trial and advance its next generation of T cell therapies into the clinic.
Appointment of Dr. as Entrepreneur in Residence
Dr. has been appointed as the second Entrepreneur in Residence at Arix. Roberto will focus on company creation, sourcing early stage European opportunities with Arix partner, , the strategic venture investing arm of . This new role extends Arix’s collaboration with to identify opportunities for early stage investment and create new biotechnology companies together.
Iterum raised through a private placement
Following the disappointing news, announced in Q4 2019, that results from its Phase 3 trial in complicated intra-abdominal infections narrowly missed its primary endpoint, Iterum completed a private placement with new and existing investors in . This will enable the company to fund the continued Phase 3 clinical development of sulopenem and the management of regulatory filings. Arix agreed to invest (£1.5 million) in the financing. This investment is in addition to Arix’s existing stake of 7.3% in Iterum (amounting to 1,089,903 ordinary shares).
Key anticipated milestones
The company notes key clinical milestones anticipated by its portfolio companies in 2020:
, CEO, commented:
“We remain focused on driving realisable value in our portfolio, and in turn our NAV, and I believe we are well positioned to do so through 2020 and beyond. We have had a challenging year with our shareholder structure and volatility in our public portfolio companies, but look ahead with confidence and see a portfolio that is maturing and has the potential to deliver real value.”
Conference Call and presentation Information
Arix will host a conference call today, 10 March at / , to discuss the company’s financial results and operational update.
To listen to the webcast and view the accompanying slide presentation, please go to:https://arixbioscience.com/investor-relations/events-presentations
The call may also be accessed by dialling (0)330 336 9125 for and European callers and +1 323-794-2588 for callers. Please reference conference ID 4517667.
For more information on Arix, please contact:
, Head of Investor Relations
+44 (0)20 7290 1072
T: +44 (0) 20 3950 9144
is a global venture capital company focused on investing in and building breakthrough biotech companies around cutting edge advances in life sciences.
We collaborate with exceptional entrepreneurs and provide the capital, expertise and global networks to help accelerate their ideas into important new treatments for patients. As a listed company, we are able to bring this exciting growth phase of our industry to a broader range of investors.
Good underlying progress in the portfolio with a focus on unlocking and realising value for shareholders in 2020
2019 was a year of both progress and challenge for the Company.
The Arix portfolio now comprises 16 biotech companies addressing serious unmet medical need, building on innovative science and led by successful entrepreneurs in their respective areas. The portfolio saw positive clinical data from four of these companies during the year and three raised additional capital at valuation uplifts to the prior round. Harpoon was one of these companies, the fourth in our portfolio to successfully list and raise capital on Nasdaq.
Our strategic partnerships continue to play an important role in guiding and supporting our activities at Arix. We have built a strong dialog with our pharmaceutical partners Fosun, Ipsen, and UCB and benefit from their expertise as they also gain access to our pipeline and portfolio of emerging biotech companies. Our academic partnerships with in and in are also beginning to bear fruit. Our first company incubated from , Quench Bio, attracted leading new investors in its well supported Series A funding round shortly after year-end.
The portfolio is reaching a point where investors can expect to start to see value realisations either through the strategic sale of portfolio companies to pharmaceutical or larger biotech companies or through the sale of publicly listed holdings. The executive team will be focused on this in 2020 as well as attracting additional investment to the company. During 2019, the book value of the portfolio was impacted significantly by , one of our listed companies whose stock price was riding high in the early part of the year but has come back significantly. However, we do continue to see good progress in this company’s clinical programmes.
An additional challenge during the year was the suspension in of the , our largest shareholder with a 19.8% holding in Arix. We have been seeking to achieve an orderly transition of this holding to long-term supportive investors, and remove the distraction and consequent uncertainty that it has had on the share price in recent months.
In the latter part of 2019 the Board held a strategy day to review the performance of the company and the portfolio and to agree the outline of a three year plan to deliver value for shareholders. We also reviewed options to further build the business as value is delivered over the next three years.
From a governance perspective we have also started to build a more centric Board with the skills and experience to guide the company through the next few critical years. In particular, , who joined as a Non Executive in 2019 brings broad experience in capital markets and in advising public company Boards. , who joined more recently, brings strong transatlantic industry experience in clinical development, business development and venture capital. With the added industry and financial experience of , deep R&D expertise of and the successful venture and industry track record of , the governance is in place to guide the company to take the actions needed to deliver value for shareholders.
I would also like to take this opportunity to thank , and for their service as Board members and for their important contributions in the formative years as we created and built Arix.
Arix has built a portfolio of companies pursuing breakthroughs in treating serious diseases for the benefit of patients. To continue this important work I look forward to 2020, where we start to achieve cash realisations to reinvest in new companies, to attract new investors and to deliver value for shareholders. I know and the team at Arix are up to the challenge and have a portfolio that can deliver on this.
Chief Executive Officer’s Review
Developing the long term potential of the business
We are working closely with our portfolio companies to build realisable value for our shareholders and see multiple clinical and scientific development milestones in the year ahead.
We have made good progress since the IPO in . The portfolio is now well-balanced and diverse, with science that is showing significant promise and products that have progressed well in clinical trials. To date, we have invested £138 million in the Gross Portfolio, which was valued at £154m by year-end, including £5 million of realisations. The team at Arix has the right blend of experience and talent to make the most of the significant opportunities in the portfolio on behalf of shareholders.
Despite this, and disappointingly, during 2019, the results for the period show a 25% decline in Net Asset Value (NAV) per share (down 51p per share) compared to a positive return of 32% (48p per share) a year earlier. Our results were particularly impacted by the volatility of our public stocks, which collectively fell by 38% in 2019, giving up strong gains made in the prior year. As a result, our reported NAV at year-end was £202 million (£1.49 per share) compared to £270 million (£2.00 per share) at .
Most of our portfolio companies were small private companies at the time we first invested. As we reported last year, progress has been rapid and four of these have already made the transition to public companies following IPOs on the Nasdaq.
An IPO is not necessarily an exit point for us, but rather a means for the portfolio company to access additional capital from the public markets to speed the development of new products through clinical testing. But the development of these medicines takes time; it is a competitive business and clinical trials in humans, rightly, are highly regulated and set very high standards for proving efficacy and safety before approval is achieved for new products to treat patients. As a result, public biotech company share prices can be volatile in the period between their listing and producing definitive data, as was seen with Arix’s listed portfolio companies, which made up 44% of our NAV at the beginning of the year.
Our view is that such fluctuations, although important to manage to the extent they can be, are less relevant to true value creation than is making solid progress with clinical development. On that count, during 2019 we saw meaningful progress in the clinical development plans of our portfolio companies. This is key to securing sustainable uplifts in our NAV and this remains our top priority.
During 2019, we have had a particular focus on building start-up companies based on cutting edge science to balance our portfolio of later stage companies. Company creation involves substantial effort from our team, and yields high ownership of the resulting company for relatively modest investment of capital. We have started a programme of bringing accomplished life science entrepreneurs into Arix to help us with such work and recently the first results of this emerged in the shape of STipe, our new portfolio company, led by , Arix Entrepreneur in Residence. Our investment team has also been busy helping to build Quench Bio – a company that emerged from stealth mode shortly after year-end. We are looking to extend these efforts in company creation and as part of this are pleased to have announced the appointment of as our second Entrepreneur in Residence in .
The year ahead
We remain focused on driving realisable value in our portfolio, and in turn our NAV, and I believe we are well positioned to do so through 2020 and beyond.
We have had a challenging year with our shareholder structure and volatility in our public portfolio companies, which in the near term continues with the emergence of a new risk in the form of coronavirus, but look ahead with confidence and see a portfolio that is maturing and has the potential to deliver real value.
I am privileged to lead such a talented and dedicated team, optimistic about the direction in which our business is heading and confident in the long-term value Arix can deliver.
Chief Executive Officer
Arix’s core focus is to invest in and build breakthrough biotech companies, whilst maintaining disciplined capital allocation.
2019 has been a year of transition for Arix’s finances, during which the Group implemented a leaner structure and lower ongoing cost base. Arix’s portfolio companies have continued to progress, although this year’s results are marked by volatility in the valuation of Arix’s listed investments, which has led to a reduction in the Group’s net asset value, and a loss for the financial year.
At year-end, net asset value totalled £202.1 million, a reduction of £68.1 million compared to 2018’s £270.2 million. This was predominantly driven by a net downward revaluation of Arix’s investments of £58.6 million in the year (2018: £51.2 million positive revaluation).
Arix ended the year with cash and deposits of £54.6 million (2018: £91.2 million), the reduction predominantly driven by strong investment activity, with £39.2 million deployed across both new and existing portfolio companies; partially offsetting this, some initial modest realisations were seen (£8.9 million of proceeds).
Arix added one new company to its Core Portfolio during the year, co-leading the Series B investment into Imara, with a commitment of (£11.3 million). In the first half of the year, Harpoon Therapeutics completed its Nasdaq IPO, in which Arix invested a further (£4.7 million); and Aura Biosciences successfully closed a Series D financing round, at a 33% uplift to the 2017 Series C, when Arix first invested in the company. also completed a follow-on financing, in , in which Arix invested a further £3.8 million. Investment pace slowed during the second half of the year, although milestone investments were made into , Aura Biosciences and Artios Pharma (the latter funded in ), in line with existing commitments.
The Core Portfolio incurred a net negative revaluation of £54.6 million during the year, arising almost exclusively from Arix’s listed investments. The majority of the impact was from , with Arix’s stake falling by £50.8 million, compared to a £55.9 million positive revaluation in 2018. Other notable decreases in the value of listed stakes were seen with (£7.7 million) and Pharmaxis (£2.6 million). Arix’s stake in Harpoon Therapeutics increased in value by £6.1 million in the period, while the unlisted investments in the Core Portfolio contributed £1.9 million.
Shortly prior to year-end, with the stock at all-time highs, Arix realised 11% of its stake in Harpoon, at two times the average cost of investment, marking the first modest proceeds received from the Core Portfolio.
Arix holds its earliest stage assets in the Discovery Portfolio. This acts as a development pool for some of the most promising emerging areas of biotech, with the companies often in the initial stages of research and development. One new company was added to this portfolio in the year, as Arix co-led the €20 million Series A financing of Stipe Therapeutics, committing €5.7 million (£4.8 million), for a 19.8% stake. Meanwhile, a decision was taken to wind down Mitoconix Bio, in which Arix had invested £0.8 million. While it is always disappointing when a company does not reach its potential, this highlights Arix’s risk-based approach, initially committing small amounts of capital split into milestone-dependent tranches, meaning cash is preserved when necessary levels of conviction are not achieved.
A positive development within the Discovery Portfolio was Quench Bio, which emerged from stealth mode shortly after year-end, concluding its Series A financing. Arix co-founded the company in 2018, alongside , incubating the investment within the Discovery Portfolio over the past 18 months.
Arix’s Other Interests reflect legacy holdings, which continue to wind down. Proceeds of £4.3 million were received during the year, while net writedowns of £4.5 million were recognised; at year-end, the remaining positions total £2.7 million.
Cash and deposits totalled £54.6 million at year-end, compared to £91.2 million the previous year. The reduction in the period was predominantly driven by ongoing deployment into Arix’s portfolio, with £39.2 million invested. This was partially offset by the realisation of a portion of Arix’s Harpoon holding, and by the wind down of Arix’s Other Interests, which cumulatively generated £8.8 million of proceeds during the year.
At year-end, amounts committed to portfolio companies, upon completion of agreed milestones, totalled £8.5 million; this excludes 2019’s £4.3 million investment in Artios, the funds for which were transferred in . Arix continues to take a prudent approach to cash management, reserving funds for both the anticipated future requirements of the portfolio and the ongoing costs of the business, leaving Arix well placed to continue supporting the existing portfolio.
Consolidated Statement of Comprehensive Income
The largest component of Arix’s Statement of Comprehensive Income is the change in fair value of investments, which reduced by £58.6 million in the year (2018: increase of £51.2 million). The significant movements in this balance are discussed on the previous page.
Throughout 2019, Arix has been transitioning to a leaner organisational structure and lower cost base. Significant changes were made to the management team, with Sir and departing, and moving to a Non-Executive role. The previously announced premises review resulted in the sub-letting of Arix’s US office and a move to smaller location. Despite incurring a number of one-off costs associated with these changes during 2019, Administrative Expenses excluding Depreciation and Amortisation were £1.5 million lower than the previous year, at £9.3 million. Arix anticipates that these costs will be below £9.0 million in 2020.
As expected, Revenue decreased to £0.5 million (2018: £1.3 million), reflecting The Wales Life Sciences Investment Fund’s reducing contribution as the fund enters the later years of its life. Interest income of £0.8 million (2018: £0.7 million) was earned on Arix’s cash and deposits.
Other deductions in the period relate to foreign exchange losses of £4.4 million (2018: £4.6 million gain), predominantly arising from Arix’s increasingly US dollar denominated investment portfolio; a one-off £0.5 million impairment relating to Arix’s sub-let US property; a £0.8 million impairment to intangible assets; and a share based payment charge of £2.8 million (2018: £3.3 million).
Movements in Arix’s tax balance to date have principally related to deferred tax balances. Revaluations in Arix’s investments are only taxable once realised, but a deferred tax charge is recognised in the same period as an unrealised revaluation. Where possible, Arix aims to take advantage of the UK’s Substantial Shareholding Exemption, which exempts taxable gains or losses arising from the disposal of shares, where certain conditions are met.
Arix’s investments are valued in accordance with International Private Equity and Venture Capital Valuation Guidelines (‘IPEV Guidelines’). Quoted investments are marked-to-market at the period end. Unquoted investments are valued with reference to the most recent funding round; milestones; or by discounted cash flow.
The Group monitors a number of principal risks and uncertainties that may impact the business. These include financial, non-financial, internal and external concerns.
Risk management framework
The Directors are able to manage the business, and achieve its strategic objectives, due to an effective risk management framework which features multiple layers.
Managing risk is a key responsibility of the Board, who set a strong tone, in line with best practice corporate governance.
oversees the effectiveness of the risk management processes.
The Remuneration Committee ensures incentives and reward are balanced and appropriate for achieving the strategy.
The Nomination Committee addresses the need for continuing strength at the senior levels of the Company and is responsible for succession planning.
The management team is responsible for identifying, assessing and mitigating the day-to-day operational risks.
boards and independent assurance
The boards of our Portfolio Companies are responsible for ensuring they meet key commercial objectives, and in this they are typically supported by senior members of the team, who also sit on their boards.
Independent assurance is provided by industry experts when required. For example, external advisors are engaged to provide regulatory compliance support to the , Arix Bioscience’s -regulated fund management subsidiary.
Risks and Mitigants
The key risks to Arix have been assessed in light of the current environment; these, along with the steps taken by Arix to manage such risks, are detailed below.
The Board has assessed the prospects of Arix over a period greater than 12 months. We have considered a period of three years from the balance sheet date, as the Board expects the majority of Arix’s current commitments and new proceeds raised to be committed over the next three years, and therefore reflects the period over which the Group’s cash flows are assessed internally.
A robust assessment of the principal risks and their mitigants has been carried out. The Board assessed Arix’s business model, particularly its approach to future cash commitments to existing portfolio companies. Key judgements reflected how future cash requirements may change from restrictive regulations, and how the availability of capital may be impacted from the loss of key personnel.
Having initially started with a base case scenario considering Arix’s finances over the assessment period, the estimated impacts on the Group’s cash flow, as described above, are modelled, creating a range of adverse scenarios. An extreme downside case is then considered, reflecting the estimated cash flow impact of all considered risks occuring concurrently. Finally, the analysis considers the mitigating actions the Group could take to reduce the financial impact of the noted risks.
Based on its review, and the consideration of any changes that had occurred post year-end, the Board has a reasonable expectation that Arix will be able to continue in operation and meet its liabilities as they fall due over a three-year period from the date of this report and confirm that preparing the financial statements on a going concern basis is appropriate.
Consolidated statement of comprehensive income
For the year ended
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
Consolidated statement of financial position
The accompanying notes form an integral part of the financial statements. The financial statements were approved by the Board of Directors and authorised for issue on , and were signed on its behalf by
Chief Executive Officer
Consolidated statement of changes in equity
For the year
For the year ended
Consolidated statement of cash flows
For the year ended
Notes to the financial statements
1. General Information
The principal activity of (the ‘Company’) and its subsidiaries (together the ‘Arix Group’ or ‘the Group’) is to invest in and build breakthrough biotech companies around cutting edge advances in life sciences.
The Company is incorporated and domiciled in the . was incorporated on as and changed its name to . It subsequently re-registered as a public limited company and changed its name to . The address of its registered office is , , W1J 6EQ. The registered number is 09777975.
2. Accounting Policies
A. Basis of preparation
The consolidated financial statements of the have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) applicable to companies reporting under IFRS as adopted by the . The financial statements comply with IFRS as issued by the (IASB) as adopted by the .
The financial statements have been prepared on a historical cost basis, except for certain financial assets which have been measured at fair value. The financial statements are presented in British pounds sterling, which is the functional and presentational currency of the Company, and the presentational currency of the Group; balances are presented in thousands of British pounds sterling unless otherwise stated.
has applied all standards and interpretations issued by the IASB that were effective at the period end date. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented.
Use of judgements and estimates
In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the Arix Group’s accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
Significant estimates are made by the when determining the appropriate methodology for valuing investments (see Note 2(i)) and share-based payments (see Note 2(o) and Note 18).
In preparing these financial statements, the Directors have considered the relationship that the Group has with (the “WLSIF”) and specifically as to whether the Group controls WLSIF. The Directors note that while (a 100% subsidiary of ), in its role as fund manager to WLSIF, and (a 100% subsidiary of ) in its role as general partner of the WLSIF, both exercise power over the activities of WLSIF, they do not have sufficient exposure to variability of returns from WLSIF to meet the definition of control and therefore acts as agents, rather than principals of WLSIF. Accordingly, WLSIF has not been consolidated into these financial statements.
B. Basis of consolidation
Subsidiaries are entities over which the has control. controls an entity when it is exposed to, or has the right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group.
The consolidated financial statements comprise a consolidation of the subsidiary entities listed below. This table contains the disclosures required by Section 409 of the Companies Act 2006 for subsidiaries.
All companies are involved in investing in and building breakthrough biotech companies around cutting edge advances in life sciences, other than and the companies, which are engaged in fund management activity, and , which holds a financial interest in a limited partnership.
*, a dormant company, was deregistered on .
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset.
Associates are entities over which the Group has significant influence, but does not control, generally accompanied by a shareholding of between 20% and 50% of the voting rights.
No associates are presented on the Statement of Financial Position as the Group elects to hold such investments at fair value through profit and loss. This treatment is permitted by IAS 28 Investment in Associates and Joint Ventures, which permits investments held by entities that are akin to venture capital organisations to be excluded from its measurement methodology requirements where those investments are designated, upon initial recognition, at fair value through profit or loss and accounted for in accordance with IFRS 9 Financial Instruments. Changes in fair value of associates are recognised in the Statement of Comprehensive Income in the period in which the change occurs. The Group has no interests in associates through which it carries on its business.
The disclosures required by Section 409 of the Companies Act 2006 for associated undertakings are included in Note 11 to the financial statements. Similarly, those investments which may not have qualified as an associate but fall within the wider scope of significant holdings and so are subject to Section 409 disclosure acts are also included in Note 11 to the financial statements.
WLSIF is considered neither a subsidiary nor an associate, as detailed in Note 2(a).
C. Adoption of new and revised standards
Certain new accounting standards and interpretations have been applied by the Group from . The Group’s assessment of the impact of these new standards and interpretations is set out below.
The Group has adopted IFRS 16 Leases retrospectively from , but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on .
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments. Right of use assets were measured at the amount equal to the lease liability. There were no onerous lease contracts that would have required an adjustment to the right of use assets at the date of initial application, although one right of use asset has subsequently been impaired, in line with IFRS 16.
Assessment for Impairment and Resulting Investment Property
The Group has assessed its right of use assets for impairment, in line with IAS 36 Impairment of Assets. During the year, the Group vacated its office at , and has sub-let that space. The right of use asset at has therefore been impaired to its fair value, being the expected proceeds to the Group from sub-letting. As the property no longer contributes to the Group’s core business and is able to produce its own independent cash flows it is considered its own cash generating unit, and is therefore required to be classified as an investment property in line with IAS 40 Investment Property. The property is held at its fair value, being the expected proceeds to the Group from sub-letting.
D. Revenue recognition
Revenue is generated from fund management fees, and from Non-Executive Directors’ fees. Fund management fees are earned as a percentage of funds managed and are recognised in the period in which these services are provided. Non-Executive Directors’ fees are recognised on an accruals basis.
E. Foreign currency translation
The assets and liabilities of foreign operations are translated to Group’s presentational currency (British pounds sterling) at foreign exchange rates ruling at the period-end date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive income and accumulated in the translation reserve.
As explained in Note 2(c) above, the Group has changed its accounting policy for leases. Until , leases of the Group’s premises were classified as as operating leases. Rents payable under operating leases were charged against income on a straight-line basis over the lease term, even if payments were not made on such a basis.
G. Exceptional items
Items that are material in size and unusual in nature are disclosed separately to provide a more accurate indication of underlying performance.
H. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset.
Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets:
Office equipment Three years
Fixtures and fittings Five years
Office furniture Five years
Leasehold property Five years
I. Financial assets
classifies its financial assets as either at fair value through profit or loss or amortised cost. The classification depends on the purpose for which the financial assets have been acquired and is determined on initial recognition.
Amortised cost assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current assets. The Arix Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the Consolidated Statement of Financial Position.
Regular purchases and sales of financial assets are recognised on the trade date – the date on which the commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the has transferred substantially all risks and rewards of ownership.
Those investments in the that are held with a view to the ultimate realisation of capital gains are recognised as equity investments within the scope of IFRS 9 and are classified as financial assets at fair value through profit or loss. This includes investments in associated undertakings, as per Note 11. When financial assets are initially recognised they are measured at fair value. They are subsequently remeasured at their fair value if a valuation event occurs.
Valuation of investments
The fair value of the Group’s investments is determined using International Private Equity and Venture Capital Valuation Guidelines (‘IPEV Guidelines’), which comply with IFRS.
The fair value of quoted investments is based on bid prices at the period end date.
Upon investment, the fair value of unlisted securities is recognised at cost. Similarly, following a further funding round with participation by at least one third party, the price of the funding round is generally considered to represent the investment’s fair value at the transaction date, although the specific terms and circumstances of each funding round must always be considered.
Following the transaction date, each investment is observed for objective evidence of an increase or impairment in its value. This reflects the fact that investments made in seed, start-up and early stage biotech companies often have no current and no short-term future revenues or positive cash flows; in such circumstances, it can be difficult to gauge the probability and financial impact of the success or failure of development or research activities and to make reliable cash flow forecasts. As such, the Group carries out an enhanced assessment based on milestone analysis, which seeks to determine whether there is an indication of a change in fair value based on changes to the company’s prospects. A milestone event may include, but is not limited to, technical measures, such as clinical trial progress; financial measures, such as a company’s availability of cash; and market measures, such as licensing agreements agreed by the company. Indicators of impairment might include significant delays to clinical progress, technical complications or financial difficulties. Often qualitative milestones provide a directional indication of the movement of fair value. Calibrating such milestones may result in a fair value equal to the transaction value. Any ultimate change in valuation reflects the assessed impact of the progress against milestones and the consequential impact on a potential future external valuation point, such as a future funding round or initial public offering.
When forming a view of the fair value of its investment, the takes into account circumstances where an investment’s equity structure involves different class rights on a sale or liquidity event.
The valuation metrics used in these financial statements are discussed in Note 11.
Although the Directors use their best judgement, there are inherent limitations in any valuation techniques. Whilst fair value estimates presented herein attempt to present the amount the could realise in a current transaction, the final realisation may be different, as future events will also affect the current estimates of fair value. The effects of such events on the estimates of fair value, including the ultimate realisation of investments, could be material to the financial statements.
Treatment of gains and losses arising on fair value
Realised and unrealised gains and losses on financial assets at fair value through profit and loss are included in the Statement of Comprehensive Income in the period in which they arise.
Recognition of financial assets
Purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
Loans and receivables are subsequently carried at amortised cost using the effective interest method.
Impairment of financial assets
At the end of each reporting period the Group assesses whether there is objective evidence that its loans and other receivables are impaired. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced through the use of an allowance account and the amount of the loss is recognised in the Statement of Comprehensive Income within administrative expenses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in the Statement of Comprehensive Income within administrative expenses. The Group’s financial assets that are subject to IFRS 9’s expected credit loss model are its loans and receivables, cash and cash equivalents and cash on long term deposit. The identified impairment loss is considered immaterial.
Financial assets and liabilities are offset when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the or the counterparty. Where these conditions are met, the net amount is reported in the Statement of Financial Position.
and cash equivalents and Cash on long-term deposit
Cash and cash equivalents comprise cash at bank and in hand, call deposits and bank overdrafts. Cash on long-term deposit comprises cash held on term deposit for a period of at least three months.
and intangible assets
Intangibles were acquired by the as part of the acquisition of and .
It is the policy of the to amortise these fair values over the period in which the is expected to obtain economic benefit from the related intangible assets. The excess of consideration transferred over the fair value of net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in the Statement of Comprehensive Income as a bargain purchase. The asset is assessed for impairment periodically and marked down appropriately if an indication of impairment is noted.
L. Share capital
Ordinary shares and Series C Shares are classified as equity. Equity instruments issued by the are recorded at the proceeds received, net of direct issue costs.
Own shares represent shares of that are held by an employee share trust for the purpose of fulfilling obligations in respect of various employee share plans. Own shares are treated as a deduction from equity until the shares are cancelled, reissued or disposed of. When they vest, they are transferred from own shares to retained earnings at their weighted average cost.
M. Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer).
If not, they are presented as non-current liabilities.
Trade payables are initially recognised at fair value, generally being the invoiced amount and are subsequently measured at amortised cost, using the effective interest method.
and deferred taxation
The tax expense for the year comprises deferred tax. Tax is recognised in the Statement of Comprehensive Income, except to the extent that it relates to items recognised directly in equity.
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 operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the balance sheets, using the liability method. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the Statement of Financial Position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
O. Share-based payments
operates an equity incentive plan and an executive share option plan in which the Group’s founders also participate. Share options must be measured at fair value and recognised as an expense in the Statement of Comprehensive Income with a corresponding increase in equity. The fair value of the option is estimated at the date of grant using a Black-Scholes Model or Monte Carlo simulation and is charged as an expense in the Statement of Comprehensive Income over the vesting period. Where relevant, the charge is adjusted each year to reflect the expected and actual level of vesting. Estimation uncertainty arises with this balance as the calculation incorporates assumptions for share price, exercise price, expected volatility (based on similar quoted companies), risk-free interest rate and share option term. Further detail on Share-based Payments is available in Note 18.
P. Financial risk management
is exposed to market risk, interest rate risk, credit risk and liquidity risk. The senior management oversees the management of these risks and ensures that the financial risk taking is governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Arix Group’s policies and risk appetite.
The Board of Directors review and agree the policies for managing each of these risks, which are summarised below:
Foreign exchange risk – the operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and euros. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. has certain investments whose net assets are exposed to foreign currency translation risk; at period-end the held US dollar-denominated assets valued at ; euro-denominated assets valued at €4.7m; Canadian dollar-denominated assets valued at ; and Australian dollar-denominated assets valued at . A 10% appreciation in each currency would have a £9.4m negative impact on Arix’s Income Statement; a 10% depreciation would have a £11.5m positive impact on Arix’s income statement. The impact of foreign exchange on these holdings is closely monitored.
Price risk – the is exposed to equity securities price risk because investments are held at fair value through profit or loss.
The Group’s strategy is to deploy long term capital into innovative companies which have novel, high-impact outcomes; Arix believes that such companies are less susceptible to macroeconomic cycles. The Group monitors the availability of its capital closely, ensuring sufficient balances are available for the continuing operation of the business throughout the period assessed in the viability statement.
Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates.
The Arix Group’s income is substantially independent of changes in market interest rates. Interest-bearing assets include only cash and cash equivalents, which earn interest at variable rates. has a treasury policy to manage cash and cash equivalents. In the year ended , a 10% change in underlying interest rates would have impacted Arix’s Finance Income by £71k.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the . The major classes of financial assets of the are cash and cash equivalents (£54.6m (2018: £31.0m)); cash on long-term deposit (£nil (2018: £60.2m)); and trade and other receivables (£1.1m (2018: £2.2m)).
Risk of counterparty default arising on cash and cash equivalents is controlled within a framework of dealing with high-quality institutions.
As at , 100% of cash and cash equivalents and cash on long-term deposit was deposited with institutions that have a credit rating of at least category A+, according to Fitch ratings.
No counterparty has failed to meet its obligations over the period. The maximum exposure to credit risk is represented by the carrying amount of each asset. Management does not expect any significant counterparty to fail to meet its obligations.
manages liquidity risk by maintaining sufficient cash to enable it to meet its operational requirements. The following table details the Group’s remaining contractual maturity for its financial liabilities based on undiscounted contractual payments:
Capital risk management
manages its capital to ensure that it will be able to continue as a going concern, whilst also maximising the operating potential of the business. The capital structure of the consists of equity attributable to equity holders of the , comprising issued capital and retained earnings as disclosed in the Consolidated Statement of Changes in Equity. is not subject to externally imposed capital requirements.
The total revenue for the has been derived from its principal activity of investing in and building breakthrough biotech companies around cutting edge advances in life sciences. All of this revenue relates to trading undertaken in the .
4. Segmental Information
Information for the purposes of resource allocation and assessment of performance is reported to the Arix Group’s Chief Executive Officer, who is considered to be the chief operating decision maker, based wholly on the overall activities of the . Although Arix makes investments globally, these are considered by one Investment Committee and reported internally as a single portfolio. It has therefore been determined that the has only one reportable segment under IFRS 8 (‘Operating Segments’), which is that of sourcing, financing and developing healthcare and life science businesses globally. The Arix Group’s revenue, results and assets for this one reportable segment can be determined by reference to the Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position.
5. (Loss)/Profit Before Taxation
Non-audit services in the year relate to the interim review (£30k) and an FCA Client Asset Report (£6k) (2018: capital raise £150k; remuneration advice £10k; interim review £29k; FCA Client Asset Report £6k).
6. Administrative Expenses
The administrative expenses charge broken down by nature is as follows:
7. Net Finance Income/(Expenses)
8. Employee Costs
Employee costs (including Directors) comprise:
9. Income Tax
10. (Loss)/Earnings per Share
On , the Group issued 114,358 ordinary shares, in relation to certain share awards. On , 530,000 shares were issued, in relation to certain share awards. On , 84,249 shares were issued, in relation to certain share awards. As at , the Group had 135,551,850 ordinary shares in issue (2018: 134,823,243).
At the year-end date, 5,080,582 of the ordinary shares were subject to restrictions. These shares are not entitled to vote, attend meetings or to receive dividends or other distributions. Consequently, restricted shares have been excluded from the calculation of the weighted average number of shares in issue.
Basic earnings per share is calculated by dividing the profit attributable to equity holders of by the weighted average number of enfranchised shares (as adjusted for capital subscription in accordance with the terms of the restrictive share agreement) in issue during the period.
No adjustment has been made to the basic loss per share in the year ended , as the exercise of share options would have the effect of reducing the loss per ordinary share, and therefore is not dilutive. Potentially dilutive ordinary shares relate to contingently issuable shares arising under the Group’s Executive Incentive Plan.
Transfers from Level 3 to Level 1 reflects companies which have listed during the year. Level 3 investments are valued with reference to either the most recent funding round (£37.6m, 2018: £33.4m); net asset value (£1.4m, 2018: £4.5m); market-based write-up (£22.7m, 2018: £23.8m); discretionary write-down (£2.4m, 2018: £3.2m); or by discounted cash flow (£nil, 2018: £nil). See Note 2(I) for further details on the valuation of Level 3 investments.
As permitted by IAS 28 ‘Investment in Associates’ and in accordance with the accounting policy, investments are held at fair value even though the may have significant influence over the companies. Significant influence is determined to exist when the Group holds more than 20% of the holding or when less than 20% is held but in combination with a certain level of board representation is deemed to be able to exert significant influence. As at , the is deemed to have significant influence over the following entities:
In addition, at , the Group held the following investments in companies where it is not considered to have significant influence:
has an interest in one structured entity, (registered address: , , , CF11 9LJ). The fund has interests in Welsh life sciences opportunities. A structured entity is an entity that is structured in such a way that voting or similar rights are not the dominant factor in deciding who controls the entity. is not deemed to have control over this fund for the reasons disclosed in Note 2(a). The Group’s interest is recognised within both Investments and Receivables, and totals £1.7m at year-end (2018: £5.5m); the Group’s exposure is limited to the carrying value within Investments and Receivables.
12. Intangible Assets
An intangible asset arose on plc’s acquisition of entities, relating to management fees due to as a result of managing . These fees are amortised over the remaining life of the fund. The expected fees to be received over the remaining life of the fund have been reduced, resulting in an impairment to the asset in the period.
13. Property, Plant and Equipment
14. Trade and Other Receivables
The maximum exposure to credit risk at the reporting date is the carrying value of each asset class listed above. does not hold any collateral as security.
15. Cash and Cash Equivalents and Cash on Long-Term Deposit
The carrying value of cash and cash equivalents and cash on long-term deposit approximates to its fair value.
16. Trade and Other Payables
The carrying values of trade and other payables approximates their fair value.
17. Share Capital
On , the Group issued 114,358 ordinary shares, in relation to certain share awards. On , 530,000 shares were issued, in relation to certain share awards. On , 84,249 shares were issued, in relation to certain share awards. As at , the Group had 135,551,850 ordinary shares in issue (2018: 134,823,243).
At the year-end date, 5,080,582 of the ordinary shares were subject to restrictions. These shares are not entitled to vote, attend meetings or to receive dividends or other distributions. Consequently, restricted shares have been excluded from the calculation of the weighted average number of shares in issue. There are no Treasury Shares in issue.
18. Share Options
During 2019, share-based payment expenses have been recognised relating to a range of share schemes operated by the .
Executive Incentive Plan
operates an Executive Incentive Plan for Executive Directors and certain employees of the Company.
In , the Executive Directors and certain employees were awarded options or conditional awards which, in case of options will become exercisable at nil cost and in the case of the conditional share awards, will vest at nil cost on the third anniversary of their grant, on , subject to performance criteria. This requires the share price to have grown by a set percentage over the assessment period, with the quantum of shares vesting dependent on the level of share price growth; 1,486,747 options were unvested at year-end (2018: 1,486,747). In the year ended , a share-based payment charge of £430k (2018: £430k) was recognised in relation to the Executive Incentive Plan.
In , the Executive Directors and certain employees were awarded options or conditional awards which, in case of options, will become exercisable at nil cost and, in the case of the conditional share awards, will vest at nil cost on the third anniversary of their grant, on , subject to performance criteria. This requires the share price to have grown by a set percentage over the assessment period, with the quantum of shares vesting dependent on the level of share price growth; 2,290,499 options were unvested at year-end (2018: 2,290,499). In the year ended , a share-based payment charge of £883k (2018: £427k) was recognised in relation to the Executive Incentive Plan.
In , the Executive Directors and certain employees were awarded options or conditional awards which, in case of options, will become exercisable at nil cost and, in the case of the conditional share awards, will vest at nil cost at the end of the three year performance period, subject to performance criteria. This requires the share price to have grown by a set percentage over the assessment period, on , with the quantum of shares vesting dependent on both the level of share price growth and the level of net asset value growth; 2,524,661 were issued in the period, all of which are unvested at year-end. In the year ended , a share-based payment charge of £448k (2018: £nil) was recognised in relation to the Executive Incentive Plan. The charge relating to net asset value growth was calculated based upon the share price at grant of £1.5750, and the assessed liklehood of vesting. The charge relating to share price growth was calculated using a Monte Carlo simulation model, using assumptions relating to share price at grant (£1.5750); risk free interest rate (0.72%); time to vesting (3 years); and expected volatility based on comparable listed investments (39.6%).
In , the Executive Directors and certain employees were awarded one-off nil cost options or conditional awards in recognition of their contribution to the Company’s initial public offering. The options were granted on ; all options vested after two years, on . 1,409,166 options were unvested at the start of the period; all vested, of which 439,799 were exercised at nil cost; 969,367 were unexercised at year-end. In the year ended , a share-based payment charge of £213k (2018: £1,470k) was recognised in relation to the IPO Awards. The charge was calculated as the total number of options granted, at the IPO share price of £2.07, recognised across the two-year vesting period.
Executive Share Option Plan and Founder Incentive Shares
At the Arix Group’s inception, an Executive Share Option Plan was in operation, in which two Directors participated. Options were granted on with an original exercise price of £1.80 per ordinary share. This was subsequently amended for one Director, with the exercise price reducing by £0.18 per annum for a five year period from to . The number of ordinary shares subject to the options totals 5,520,559. The options vested in four equal proportions on 8 February of 2017, 2018, 2019 and 2020. The options may not be exercised after the tenth anniversary of the grant date and it will lapse on that date if it has not lapsed or been exercised in full before then. All options vest at the end of the vesting period relating to that option or on the occurrence of a contingent event; these include a change of control or cessation of employment in accordance with “good leaver” provisions.
No options have been exercised to date. In the year ended , a share-based payment charge of £567k (2018: £582k) was recognised in relation to the Executive Share Option Plan, calculated using the Black–Scholes model. Assumptions used in the model relating to the risk free interest rate and expected volatility were unchanged from those used in the prior period.
Restricted shares with identical terms, including a £1.80 price for the lifting of restrictions, were offered to the founders of the Company, totalling 5,080,582 shares. As these relate to a former Director, no longer employed by Arix, the full remaining share based payment charge of £179k was recognised in the year ended (2018: £348k). The charge was calculated using the Black–Scholes model. Assumptions used in the model relating to the risk free interest rate and expected volatility were unchanged from those used in the prior period.
Non-Executive Director Awards
Pursuant to their respective letters of appointment, certain Non-Executive Directors received a one-off share award during the year; a share based payment charge of £70k (2018: £76k) was recognised during the period.
19. Net Cash From Operating Activities
20. Financial Commitments
The Group has amounts committed to portfolio companies but not yet invested; at these totalled £8.5m (2018: £21.0m).
21. Financial Instruments
has other receivables and cash that derive directly from its operations. Financial assets at fair value through profit or loss are measured as either Level 1 or Level 3 under the fair value hierarchy, as described in Note 2(i) and disclosed in Note 11.
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. The Arix Group’s cash and cash equivalents are deposited with A+ rated institutions. Investments and other receivables do not have a credit rating. However, the Group does not believe these to be past due nor impaired.
The Arix Group’s principal financial liabilities comprise trade and other payables. The primary purpose of these financial liabilities is to finance the operations.
The Company has provided a rent deposit guarantee in respect of its former US office, now classified as an Investment Property, for an amount of , (£198,456), unchanged from 2018.
23. Related Party Transactions
Consultancy fees plus expenses amounting to £130,262 (inclusive of VAT) (2018: £544,336) were payable to during the period, a partnership controlled by Sir , a former Director and substantial shareholder of the Company. All contractual arrangements with have ceased. At , £nil (inclusive of VAT) (2018: £nil) was owed to by the Company.
During the period, key management has comprised Executive Directors, whose remuneration is disclosed in the Directors Remuneration Report; and other members of the Executive Committee. These other members received short-term employee benefits of £371,834 in the year, relating to the period in which they were fulfilling key management responsibilities (2018: £nil).
24. Events After the Reporting Date
On , a further (£1.5m) was invested in Iterum Therapeutics plc. The Arix Group’s investment was in the form of convertible loan notes and royalty-linked senior subordinated notes.
On , the participated in the Series A financing. Arix’s aggregate commitment to the company now totals over , and the Group retains a stake in the company of over 20%.
On , closed a public offering. did not participate; its stake in the company now totals 6.5%.
On , the completed the sale of its direct holding in Verona Pharma plc. Proceeds of £1.5m were received, in line with the investment’s valuation as at .
On , a further (£2.1m) was invested in Imara, Inc., in line with existing commitments. The Group’s fully diluted stake in the company now totals 9.9%.
-- Net Asset Value (NAV) of £202 million (: £270 million), per share (: per share). Equates to a 25% decline in NAV per share for the year versus a 32% increase in 2018 -- Gross Portfolio valued at £149 million (: £175 million), and £5m of cash realisations in the period -- Uplifts including Aura (Series D), Harpoon (Nasdaq IPO), Quench Bio (Series A) outweighed by volatility of public holdings, notably a 60% decline in share price -- £36 million of capital deployed into the Gross Portfolio during the period -- Cash of £55 million at (: £91 million)
December 2018 December 2018 December 2018 31 December 2019 December 2018 149 pence 200 pence Autolus'
-- Co-led a Series B financing in new portfolio company Imara, committing (£11.4 million) for a 9.9% stake -- Co-led a €20.0 million Series A in new portfolio company STipe Therapeutics, committing €5.7 million (£4.9 million) for a 19.8% stake. , Arix Entrepreneur in Residence, appointed as STipe’s Executive Chairman
$63.0 million $15.0 million Christian Schetter
-- Harpoon (T cell engagers) raised net proceeds of in a Nasdaq IPO, in which Arix invested (£4.7 million) -- (CAR-T cell immunotherapy) completed a follow-on financing in which Arix invested a further (£3.8 million) -- Aura Biosciences (ocular melanoma) completed a Series D financing, in which Arix committed a further (£3.4 million)
$70.7 million $6.0 million $108.8 million $5.0 million $40.0 million $4.5 million Autolus
-- Aura presented further positive safety and efficacy data from the ongoing AU-011 Phase 1b/2 study for choroidal melanoma -- reported encouraging data from its programme in adult acute lymphoblastic leukaemia (aALL), as well as early results from its AUTO3 programme in diffuse large B-cell lymphoma (DLBCL) -- Amplyx announced positive interim Phase 2 data from its lead programme APX001 in candidemia -- Harpoon initiated a Phase 1/2a clinical trial for HPN536, a mesothelin-targeting T cell engager, for the treatment of ovarian cancer and other mesothelin-expressing solid tumours -- Imara reported interim Phase 2a data from its IMR-687 clinical study for patients with sickle cell disease, showing proof of concept clinical activity -- VelosBio transitioned to a clinical stage company, initiating the VLS-101 Phase 1 clinical study for the treatment of haematological cancers
-- Artios expects to initiate a Phase 1 study in ATM-deficient tumours by the end 2020 -- expects to announce results from the ACCUTE Phase 3 clinical study in necrotising soft tissue infections in H1 2020 -- Aura expects to initiate the AU-011 Phase 3 clinical study for choroidal melanoma in the H2 2020 -- Amplyx expects to announce further Phase 2 data for APX001 in candidemia in 2020 -- expects to initiate a Phase 2 registration trial of in adult ALL in H1 2020 and present updated Phase 1 data in H1 and H2 2020 -- expects to make a go/no go decision on Phase 2 initiation of AUTO3 in DLBCL in mid-2020 -- expects to announce interim Phase 1 AUTO4 T cell lymphoma data in H2 2020 -- expects next generation (NG) programmes to enter the clinic in 2020 -- Harpoon expects to present interim data from its HPN424 Phase 1 clinical study in prostate cancer in H1 2020 -- Harpoon expects to present data from its HPN536 Phase1/2a clinical trial for ovarian cancer and other mesothelin-expressing solid tumours in H2 2020 -- Harpoon expects to initiate the HPN217 Phase 1 trial for the treatment of multiple myeloma and the HPN328 Phase 1 clinical study in small cell lung cancer in 2020 -- Imara expects to announce updated results from its IMR-687 Phase 2a clinical study in sickle cell disease (SCD) by the end of 2020 -- Imara expects to initiate Phase 2b trials for SCD and beta thalassemia in H1 2020 -- Iterum expects to announce results from the SURE 1 Phase 3 clinical study in uncomplicated urinary tract Infections and the SURE 2 Phase 3 clinical study in complicated urinary tract infections in H1 2020 -- Pharmaxis expects to announce Phase 1b results from its systemic LOX inhibitor for myelofibrosis and/or pancreatic cancer in H1 2020 -- VelosBio expects to announce Phase 1 data for VLS-101 in haematological cancers in H2 2020
Atox Bio Autolus AUTO1 Autolus Autolus Autolus
Investment Value Investment Realisations Change in FX Value Fully Fully Fully 31 in period in period Valuation Movement 31 Diluted Committed, Funded. Dec £m £m £m £m Dec Equity Not Yet Fully 18 19 Interest Invested Diluted £m £m £m £m Equity Interest, % Core portfolio Amplyx 3.2 1.9 – – (0.2) 4.9 3.0% – 3.0% Pharmaceuticals Artios Pharma 10.9 4.3 – – – 15.2 12.4% – 12.4% Atox Bio 3.2 3.2 – (1.2) (0.2) 5.0 6.4% 0.2 6.5% Aura 3.9 3.4 – 1.2 (0.2) 8.3 7.7% – 7.7% Biosciences Autolus 81.5 3.8 – (50.8) (0.7) 33.8 7.5% – 7.5% Harpoon 23.9 4.7 (4.3) 6.1 (1.5) 28.9 10.4% – 10.4% Therapeutics Imara – 9.3 – 1.4 – 10.7 9.2% 2.1 9.9% Iterum 4.3 – – (0.6) – 3.7 7.3% – 7.3% Therapeutics LogicBio 24.3 – – (7.7) (0.3) 16.3 13.0% – 13.0% Therapeutics Pharmaxis 6.4 – – (2.6) (0.1) 3.7 11.1% – 11.1% VelosBio 5.2 – – 0.5 (0.2) 5.5 8.9% 3.3 11.3% Verona Pharma 2.5 – – (0.9) – 1.6 2.5% – 2.5% 169.3 30.6 (4.3) (54.6) (3.4) 137.6 5.6 Discovery 6.2 5.6 (0.3) 0.5 (0.4) 11.6 2.9 portfolio Gross portfolio 175.5 36.2 (4.6) (54.1) (3.8) 149.2 8.5 Other interests 8.5 3.0 (4.2) (4.5) (0.1) 2.7 – Total 184.0 39.2 (8.8) (58.6) (3.9) 151.9 8.5 Investments
Area Risk Impact Mitigation 1 Clinical trial Arix’s portfolio Negative clinical Arix has an risks typically comprises trial read outs may experienced team companies that are reduce the value of responsible for engaged in clinical the portfolio identifying and trials. company, potentially developing portfolio There is a risk that to nil. This would companies, resulting the trials may therefore result in in a high standard of produce negative or a decrease in Arix’s due diligence before inconclusive profitability, and the commitment of any results. reduce Arix’s capital. ability to generate Post?investment, Arix positive cash flows typically has from future representatives on realisations. the company’s board Inconclusive read of directors, outs may both reduce ensuring it is fully the value of the aware of business portfolio company, developments, and impacting Arix’s allowing for profitability, and mitigation of require further possible issues as capital to fund they arise. additional trials to Arix funds a range of seek further clarity portfolio companies in the results, and continues to adversely impacting develop its portfolio Arix’s cash flow. across a range of therapeutic areas. Its diverse portfolio means that Arix’s financial performance is not overly reliant on any one business. 2 Personnel Arix’s success is The financial Arix’s investment predicated on the performance of Arix team have strong quality of its depends on its scientific investment ability to identify backgrounds and are decisions, which in and develop experienced life turn is a product of outstanding sciences investors. the calibre of its portfolio companies Arix has a investment team. and, as such, is market?appropriate There is a risk of reliant on its key remuneration scheme Arix being unable to personnel. for its senior attract or retain Loss of key employees. This staff of sufficient individuals could includes share calibre. reduce the quality incentive schemes, of Arix’s investment which reward decision-making and personnel for therefore negatively long?term service and affect Arix’s performance. financial Arix has three performance and management members future prospects. making up the Executive Committee performing active day?to?day roles who are able to provide emergency cover for each other over a short period. Arix’s Nomination Committee is responsible for appropriate succession planning. 3 Macroeconomic Adverse market An economic Arix’s strategy is to conditions conditions may downturn, triggered deploy capital into impact Arix’s by macroeconomic innovative businesses operational model. factors or a market which have unique, shock such as high impact outcomes; coronavirus, may Arix believes that reduce opportunities such businesses are for Arix to realise less susceptible to capital from macroeconomic cycles. portfolio companies, Arix has funded affecting cash flow portfolio companies and financial across a range of performance if geographies, portfolio valuations including the UK, are reduced. The USA, Europe, Israel availability of and Australia. As capital for any such, it is not external fundraising overly reliant on a by Arix or its downturn or market portfolio companies shock in a single may also be geography. affected. Arix monitors its availability of capital closely, ensuring sufficient funds are available for the investment and operational needs of the business. 4 Legislation & Changes to A change in Arix’s portfolio is regulation government policy or government diversified by regulation in the regulation (for geography, with research, healthcare example CFIUS in the exposure to the UK, or life sciences United States) may USA, Europe, Israel industries could adversely affect the and Australia, impact Arix or its profitability of the protecting the Group portfolio companies. healthcare and life from the adverse sciences industry, actions of any one resulting in a government. reduction in the Arix’s corporate team number of investment actively monitors opportunities, changes to laws and availability of regulation, and where external funding or considered necessary potential exit enlists the advice of opportunities for relevant experts to portfolio companies. consider any company or portfolio impacts. 5 Brexit Brexit may have an Specific impacts Arix has the ability impact beyond the could include: to withstand a risks described a depressed UK depressed capital above in terms of by capital market that market, including but severity of a does not support the not limited to the downturn or the raising of capital ability to dispose of nature of the for the Group or its a portion of its impact. UK-based portfolio listed investments; companies; or withhold funds that a reduction in are reserved for the government-funded existing portfolio; research in biotech, or the ability to leading to reduced issue up to 10% of investment share capital to a opportunities. new investor. Arix also closely monitors available capital and holds cash reserves to cover future operating costs. Both Arix’s portfolio and pipeline of future opportunities has a broad geographic spread, with limited exposure to the UK capital market and government policy. As such, its financial performance is not overly reliant on the UK market.
Note 2019 2018 £’000 £’000 Change in fair value of investments 11 (58,642) 51,173 Revenue 3 506 1,328 Administrative expenses 6 (9,709) (11,698) Operating (loss) / profit (67,845) 40,803 Net finance income 7 769 708 Foreign exchange (losses) / gains (4,443) 4,583 Impairment of right-of-use and intangible assets (1,259) – Share-based payment charge 18 (2,790) (3,333) (Loss) / profit before taxation (75,568) 42,761 Taxation 9 5,883 (5,883) (Loss) / profit for the year (69,685) 36,878 Other comprehensive (expense) / income Exchange differences on translating foreign operations (185) 1,269 Taxation 9 – – Total comprehensive (expense) / income for the year (69,870) 38,147 Attributable to Owners of Arix Bioscience plc (69,870) 38,147 Earnings per share Basic earnings per share (p) 10 (53.8) 32.1 Diluted earnings per share (p) 10 (53.8) 29.7
Note 2019 2018 £’000 £’000 ASSETS Non-current assets Investments held at fair value 11 151,921 183,981 Intangible assets 12 688 1,770 Property, plant and equipment 13 160 313 Right of use asset 249 – Investment property 366 – 153,384 186,064 Current assets Cash and cash equivalents 15 54,638 31,009 Cash on long-term deposit 15 – 60,209 Trade and other receivables 14 1,106 2,174 Right of use asset 90 – 55,834 93,392 TOTAL ASSETS 209,218 279,456 LIABILITIES Current liabilities Trade and other payables 16 (6,154) (3,399) Lease liability (685) – Deferred tax liability 9 – (5,883) (6,839) (9,282) Non-Current Liabilities Lease Liability (271) – TOTAL LIABILITIES (7,110) (9,282) NET ASSETS 202,108 270,174 EQUITY Share capital and share premium 17 188,585 188,585 Retained earnings 15,718 82,018 Other reserves (2,195) (429) TOTAL EQUITY 202,108 270,174
Share Capital and Other Other Retained Earnings Total Premium Equity Reserves £’000 £’000 £’000 £’000 £’000 As at 1 January 188,585 (1,211) 782 82,018 270,174 2019 Loss for the year – – – (69,685) (69,685) Other – – (780) 595 (185) comprehensive (expense)/income Share-based – – – 2,790 2,790 payment charge Acquisition of own – (986) – – (986) shares Issue of own – 443 (443) – – shares to employees As at 31 December 188,585 (1,754) (441) 15,718 202,108 2019
Share Capital and Other Other Retained Earnings Total Premium Equity Reserves £’000 £’000 £’000 £’000 £’000 As at 1 January 105,125 – (768) 42,088 146,445 2018 Profit for the year – – – 36,878 36,878 Other comprehensive – – 1,550 (281) 1,269 income Contributions of 83,460 – – – 83,460 equity, net of transaction costs and tax Share-based payment – – – 3,333 3,333 charge Acquisition of own – (1,211) – – (1,211) shares Issue of own shares – – – – – to employees As at 31 December 188,585 (1,211) 782 82,018 270,174 2018
Note 2019 2018 £’000 £’000 Net cash from operating activities 19 (9,242) (11,018) Finance income 769 – Finance expenses – (12) Tax paid – (28) Net cash from operating activities (8,473) (11,058) Cash flows from investing activities Purchase of equity investments (34,858) (55,228) Disposal of equity and loan investments 8,791 – Purchase of property, plant and equipment (6) (2) Net cash received from / (placed on) long-term deposit 60,209 (60,209) Net cash from investing activities 34,136 (115,439) Cash flows from financing activities Net proceeds from issue of shares – 83,460 Purchase of own shares by Employee Benefit Trust (986) (1,211) Net cash from financing activities (986) 82,249 Net increase/(decrease) in cash and cash equivalents 24,677 (44,248) Cash and cash equivalents at start of year 31,009 74,938 Effect of exchange rate changes (1,048) 319 Cash and cash equivalents at end of year 54,638 31,009
Entity Country of Registered Address Ownership Incorporation Arix Bioscience England and Wales 20 Berkeley Square, 100% Holdings Limited London, W1J 6EQ Arix Bioscience, Inc United States 214 West 29th Street, 100% 2nd Floor, New York NY 10001 Arix Capital Management England and Wales Sophia House, 28 100% Limited Cathedral Road, Cardiff, CF11 9LJ Arthurian Life Sciences Scotland 16 Charlotte Square, 100% GP Limited Edinburgh, EH2 4DF ALS SPV Limited England and Wales 20 Berkeley Square, 100% London, W1J 6EQ Arthurian Life Sciences England and Wales Sophia House, 28 100% SPV GP Limited Cathedral Road, Cardiff, CF11 9LJ Arix Bioscience plc Jersey 26 New Street, St 100% Employee Benefit Trust Helier, Jersey, JE2 3RA Arthurian Life Sciences Scotland 16 Charlotte Square, 100% Carried Interest Edinburgh, EH2 4DF Partner LP Arix Bioscience Pty Australia Level 27, AMP Centre, 50 100% Limited* Bridge Street, Sydney NSW 2000
Within one year £’000 Total £’000 Trade, Other Payables and Accruals (excluding 6,154 6,154 non-financial liabilities)
2019 2018 £’000 £’000 Fund management fee income 480 866 Other income 26 462 506 1,328
2019 2018 £’000 £’000 Amortisation (287) (287) Depreciation (159) (216) Impairment of right of use asset (464) – Impairment of intangible asset (795) – Auditors’ remuneration Statutory audit services Fees payable for the audit of the Arix Group accounts 141 135 Fees payable for the audit of the accounts of subsidiaries of the 48 40 Arix Group Non-audit services Other assurance and advisory services 36 195 Total auditors’ remuneration 225 370
2019 2018 £’000 £’000 Employment costs 5,637 6,537 Recruitment costs 147 563 Consultancy fees 320 512 Other expenses 3,605 4,086 9,709 11,698
2019 2018 £’000 £’000 Bank interest 769 720 Bank charges – (12) 769 708
2019 2018 £’000 £’000 Salary and bonus 4,808 5,651 Social security costs 532 580 Pension and benefits costs 297 306 5,637 6,537
2019 2018 £’000 £’000 Current year tax charge Current tax – – Deferred tax – current year (5,760) 6,665 Deferred tax – effect of change in tax rates 687 (782) Adjustment in respect of previous periods (810) – Total tax (credit) / charge (5,883) 5,883 Reconciliation of tax charge (Loss) / profit before tax (75,568) 42,761 Expected tax based on 19.00% (2018: 19.00%) (14,358) 8,124 Effects of: Expenses not deductible for tax purposes 12,120 3,101 Adjustment in respect of previous periods (810) – Income not taxable (9,808) (2,926) Impact of rate between deferred tax and current tax 693 (777) Recognition of items previously not recognised – (2,646) Net gains / (losses) (6) – Employee share options 116 23 Deferred tax not recognised 6,170 984 Total tax (credit) / charge (5,883) 5,883 Recognised deferred tax provisions Brought forward 5,883 – Relating to Profit and loss (5,883) 5,883 Relating to Other comprehensive income – – Carried forward – 5,883 Represented by: Unutilised tax losses (8) (2,835) ACAs – (17) Intangibles 276 325 Employee benefits (276) (373) Investments 9 8,784 Other timing differences (1) (1) – 5,883 Unrecognised deferred tax provisions Unutilised tax losses (5,263) (996) Priority profit share outstanding 69 – Other timing differences (299) – (5,493) (996)
As at As at 31 December 31 December 2019 2018 £’000 £’000 (Loss)/profit attributable to equity holders of Arix (69,870) 38,147 Bioscience plc Weighted average number of shares in issue for the 129,948,773 118,787,412 purposes of basic earnings per share Weighted average number of shares in issue for the 129,948,773 128,521,402 purposes of diluted earnings per share Basic (loss)/earnings per share (53.8p) 32.1p Diluted (loss)/earnings per share (53.8p) 29.7p
Level 1 – Level 3 – Total Quoted Unquoted £’000 Investments Investments £’000 £’000 At 1 January 2019 118,982 64,999 183,981 Additions 8,485 30,681 39,166 Disposals (4,277) (4,514) (8,791) Transfers 23,131 (23,131) – Unrealised (loss)/gain on investments (56,475) (2,167) (58,642) Foreign exchange losses (2,002) (1,791) (3,793) At 31 December 2019 87,844 64,077 151,921
Company Country of Registered % of Net Assets/ Profit/ Date of Incorporation Address Issued (Liabilities) (Loss) Financial Share of Company of Information Capital Company Held Depixus SAS France 3-5 Impasse 20.7% 1,948 (1,439) 31 December (EUR) Reille, 2017 75014 Paris Quench Bio, USA 400 32.4% N/A N/A Not Inc (USD) Technology publicly Square, available Cambridge, MA 02139 Stipe Denmark Lyngsievvej 14.8% N/A N/A Not Therapeutics 18, 8230 publicly Aps (EUR) Abyhoj available
Company Board Seat? % of Issued Share Capital Held Amplyx Pharmaceuticals, Inc. Observer 3.0% Artios Pharma Limited Y 12.4% Atox Bio, Inc. Y 6.4% Aura Biosciences, Inc. Y 7.7% Autolus Therapeutics plc Y 7.5% Harpoon Therapeutics, Inc. Y 10.4% Imara, Inc. Y 9.2% Iterum Therapeutics Limited Y 7.3% LogicBio Therapeutics, Inc. Y 13.0% OptiKira, LLC Y 13.3% Pharmaxis Limited Y 11.1% PreciThera, Inc N 13.9% VelosBio, Inc. Y 8.9% Verona Pharma plc N 2.5%
Year Ended Year Ended 31 December 31 December 2019 2018 Brought forward 1,770 2,057 Amortisation (287) (287) Impairment in period (795) – 688 1,770
Fixtures and Leasehold Improvements Office Total Fittings £’000 Equipment £’000 £’000 £’000 As at 1 January 2019 258 25 30 313 Exchange translation – – – – adjustments Additions – – 6 6 Depreciation charge (120) (10) (29) (159) At 31 December 2019 138 15 7 160
Fixtures and Leasehold Improvements Office Total Fittings £’000 Equipment £’000 £’000 £’000 As at 1 January 2018 410 34 79 523 Exchange translation 2 1 1 4 adjustments Additions – – 2 2 Depreciation charge (154) (10) (52) (216) At 31 December 2018 258 25 30 313
As at As at 31 December 31 December 2019 2018 £’000 £’000 Trade receivables 771 1,734 Prepayments 264 359 VAT receivable 71 81 1,106 2,174
As at As at 31 December 31 December 2019 2018 £’000 £’000 Cash at bank and in hand 54,638 31,009 Cash on long-term deposit – 60,209
As at As at 31 December 31 December 2019 2018 £’000 £’000 Trade payables 123 228 Accruals and other payables 6,031 3,171 6,154 3,399
As at As at 31 December 31 December 2019 2018 £’000 £’000 Allotted and called up 135,551,850 ordinary shares of £0.00001 each (2018: 1 1 134,823,243 shares) 49,671 Series C shares of £1 each (2018: 49,671 shares) 50 50
Year Ended Year Ended 31 December 31 December 2019 2018 £’000 £’000 Executive Incentive Plan 2017 430 430 Executive Incentive Plan 2018 883 427 Executive Incentive Plan 2019 448 – 2017 IPO Award 213 1,470 Executive Share Option Plan 567 582 Founder Incentive Shares 179 348 Non-Executive Director Awards 70 76 2,790 3,333
Year Ended Year Ended 31 December 31 December 2019 2018 £’000 £’000 (Loss)/profit before income tax (75,568) 42,761 Adjustments for: Change in fair value of investments 58,642 (51,173) Foreign exchange losses/(gains) 4,443 (4,583) Share-based payment charge 2,790 3,333 Depreciation and amortisation 446 503 Impairment of assets 1,259 – Finance income (769) (708) Changes in working capital Decrease/(increase) in trade and other receivables 1,068 (908) Decrease in trade and other payables (1,553) (243) Cash used in operations (9,242) (11,018)
Year Ended Year Ended 31 December 31 December 2019 2018 £’000 £’000 Financial assets at fair value through profit or loss Equity investments 151,921 183,981 Loans and receivables Other receivables (excluding prepayments) 771 1,734 Long-term cash on deposit – 60,209 Cash and cash equivalents 54,638 31,009
Year Ended Year Ended 31 December 31 December 2019 2018 £’000 £’000 Trade, other payables and accruals (excluding 6,154 3,399 non-financial liabilities)
Quick facts: Arix Bioscience PLC
Market Cap: £129.45 m
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