BTG plc Announces Fiscal 2003 Interim Results.

Business Editors & Health/Medical Writers

LONDON--(BUSINESS WIRE)--Dec. 3, 2002

BTG plc (LSE: BGC), the global technology commercialization company, today announced its interim results for the six months ended September 30, 2002.

Highlights

- Total first



		

		

		

		

		

		
		
			

 

		
		
		
		
		
	

 half revenues Pounds Sterling 14.2 million (2001: Pounds Sterling 13.9 million)

- Operating loss reduced to Pounds Sterling 15.5 million (2001: Pounds Sterling 16.0 million)

- Net cash at period end Pounds Sterling 83.3 million (2001: Pounds Sterling 114.4 million)

- Strategy update: increasing investment in a smaller number of high-value technology sectors

- to maximize revenue growth and value creation

- annual savings of approximately Pounds Sterling 6 million

- one-off restructuring charge of approximately Pounds Sterling 2.5 million this year

- Ten new license agreements signed (2001: Five)

- Varisolve(R) commences US pilot trial

Ian Harvey, Chief Executive Officer, said:

"Technology commercialization remains a growth area. By selecting the highest value technology sectors and carefully managing our resources, we are confident of delivering revenue growth, profitability in the medium term and a substantial increase in value and returns to shareholders over the long term."

Chairman's statement

The Company has made further progress in the first half of the financial year to September 30, 2002.

Total revenues of Pounds Sterling 14.2 million and net revenues of Pounds Sterling 8.2 million were both slightly ahead of last year 1: Pounds Sterling 13.9 million and Pounds Sterling 7.6 million, respectively). Despite the planned increased investment in Provensis, which is developing the varicose vein procedure Varisolve(R), and other technologies totaling Pounds Sterling 6.5 million (2001: Pounds Sterling 5.1 million), operating losses were reduced to Pounds Sterling 15.5 million (2001: Pounds Sterling 16.0 million). Non-operating items such as interest receivable increased the loss before tax to Pounds Sterling 13.6 million (2001: Pounds Sterling 11.2 million). We expect, as usual, to generate a higher proportion of our annual revenues in the second half.

Our strategy remains to create a steadily rising and substantial stream of income in the long term. However, because of the downturn in global economic activity, to which we are not immune, we have decided to match better our investment activities to near term new business revenues. Accordingly, following a detailed review of our business that started in July, we are concentrating our technology investments in fewer areas. This will result in savings of about Pounds Sterling 6 million per annum and is aimed at returning the Company to profitability by 2006, excluding any contribution from Provensis. Further detail is given in the Chief Executive Officer's review.

Outlook

The Board has no doubt that the Company is operating in a growth area and that it has the resources, capabilities and portfolio of technologies to continue to build an extremely valuable business. We believe that, with an increased focus and careful management of resources, the Company remains in an excellent position to fulfill the expectations raised at the time of the Rights Issue.

Jack Leonard

Chairman

Chief Executive Officer's business review

BTG aims to create a sustainably profitable business by being a long-term investor in a portfolio of technologies. When technologies enter the portfolio, they are usually at a very early stage, often no more than a discovery or raw idea. The timescales from acquisition to market are long and the attrition rates in development and commercialization are high. However, the potential returns are also high and we select technologies which address valuable markets and around which we can build strong intellectual property protection.

We have a record of building a portfolio that forms the basis of a profitable business, and from which the major blockbusters emerge from time to time. These have the potential to yield exceptionally high returns when they occur.

Business model

Acquiring new technologies is central to our business. To balance risk and offset the attrition rate inherent in individual projects, we aim to maintain a sizeable portfolio in which quality not quantity is the objective of our screening process. We have continued to acquire potentially valuable technologies that address significant market opportunities. In the first half, having assessed 170 opportunities in some detail, 22 new technologies were accepted into the portfolio of which 15 were in life sciences and seven in physical sciences.

Once a technology is acquired, we develop a business plan that defines the opportunity more clearly and the steps we need to take to commercialize the technology. Typically, we work on improving the patent position and identifying potential licensees as well as other development partners. We may also commission a development program, for example to generate a prototype device or data on a novel compound. We might spend Pounds Sterling 150,000 or more in cash to develop the technology, but our biggest investment is usually the skill and time of our expert people. Where we invest in a company around one of our technologies, we aim to have venture capital partners co-investing at an early stage.

This investment may not generate any significant return for three to five years for physical science technologies and often longer for life sciences technologies. When a technology does reach the market, we frequently receive recurring annual revenues from royalties on sales until patent expiry.

Business development

In October 2000, BTG raised Pounds Sterling 122 million primarily to invest over a three to four year period in the acquisition, development and commercialization of new and existing technologies. We explained that the immediate impact of this would be to increase reported losses in the medium term. A large proportion of this investment would be expensed as incurred and the timescales of our business are such that a considerable time would elapse between investment and return. At that time, we expected the growth in new business revenues from commercializing technologies already in the portfolio to offset some of the increased investment.

The first step was to put in place people with the appropriate technical, market and commercial skills in target expansion areas. We also improved other aspects of our infrastructure, including upgrading systems. Both were completed during last year.

We also allocated Pounds Sterling 35 million for use by Provensis Ltd to take the Varisolve(R) procedure through clinical trials. Investment in other areas, namely technology purchase and development, ventures and strategic alliances, and co-investment in partner funds, has proceeded but a little more slowly than originally anticipated. We have been selective in choosing where to make these investments, especially in the prevailing market conditions. The economic downturn since the Rights Issue has affected our business. Downpayments for new license agreements tend to be smaller and take longer to obtain than before, in particular for physical science technologies. We aim to offset this by negotiating improved royalty rates, but the net effect is to move the return on investment further out.

Our current priorities are to extract the maximum immediate revenue and value from our current portfolio and to continue to invest in building the new portfolio in areas where we expect the medium and long term revenue potential to be greatest. We are thus continuing to build our portfolio even in currently unfashionable areas, such as photonics, for when the IT sector recovers - as we are sure it will.

Strategy review

In July we announced that we had merged our two operating units (life and physical sciences) into a single grouping to improve transparency, focus and effectiveness. We have assessed the potential of each of the areas where we have previously focused, particularly in light of the impact of current economic conditions on potential licensees and other partners for our technologies. Based on this, we have decided to focus our investment on a smaller number of our current high-value target areas: oncology, diseases of ageing, biopharmaceuticals and semiconductors. We will also continue to build our portfolios in photonics and nanotechnology.

Finding breakthrough technologies is a central part of our business. Yet surprisingly often these occur outside the favored or obvious technology sectors and centers of research excellence. Varisolve(R) is a clear example. Because this is such an important element of our business, we have now added a group whose job it will be solely to focus on finding and commercializing these less predictable, but very important, inventions which fall outside the main focus areas or need a different commercialization approach. This group will be broadly based and appropriately resourced.

We are making these strategic organizational changes carefully, because they are not easily reversed. The changes are to ensure that we both extract value from those technologies in our current portfolio which in future will not be in a focus area, and that we fulfill our obligations to the universities and companies that are the sources of these technologies.

One consequence of these changes is that our cost base will be lower. Already in the first half of the year we have reduced staff numbers by about 10%. We expect the overall reduction in staff numbers to be about 30% by the end of this calendar year. This will reduce our annual costs by about Pounds Sterling 6 million from next year.

Our overall strategy remains unchanged: to create a sustainably profitable business through the acquisition, development and commercialization of early stage life and physical science technologies. It is increasingly important for universities and companies to exploit fully their intellectual property. BTG has the people, the resources, the expertise and the technical and commercial experience to continue to build a global leadership position as the technology commercialization partner of choice.

The viability of the business rests on the strength of the overall portfolio rather than any individual technology. Excluding any contribution from Provensis, we aim to be profitable in the financial year 2005/6. Most of the revenues that will make this happen will come from technologies already in our portfolio at the time of the Rights Issue, the majority of which have already been licensed. Our investments since then have been targeted at generating sustainable returns after 2005/6.

It is clear that the external economic environment is very different from when we raised the Rights Issue funds. However, BTG is in a long-term portfolio investment business. We are managing our investments in people and technologies so that we will remain financially strong even in a continued adverse external climate. By focusing investment in the key high potential areas and managing our resources efficiently, we are continuing to build a valuable operation that will ensure profitability in the medium term and beyond.

Operating highlights

Varisolve(R)

The European Phase III trial continued throughout the first half, with the treatment phase scheduled to be completed by year-end or shortly after. The study will conclude when the final patient has undergone a three-month follow-up.

In the US, Provensis received approval to conduct a pilot trial, which started a little later than anticipated in September and is scheduled to report in 2003. The target launch dates of 2005 in Europe and 2006 in the US remain in place.

Plans for manufacturing are in hand. The plant for the production of polidocanol is now operational. In early 2003, a pilot manufacturing facility for finished product is expected to be commissioned and the details of the manufacturing supply chain are expected to be finalized.

We have continued to make progress in our planning for the commercialization of Varisolve(R). Before entering negotiations with sales or marketing partners, we want to have data from the European Phase III trial and data from additional market research studies that are in progress. This information will enable us to negotiate from a position of strength with potential partners. This is a sensitive time from a commercial point of view, and because significant commercial activity is taking place, it is probable that the next update will not be until the second half of next year.

Licensed technologies

BTG's revenue growth over the medium term will come from technologies already in the portfolio, both licensed and, as yet, unlicensed.

Established revenue earners such as Factor IX, which contributed Pounds Sterling 5.3 million this period, MRI and the two-part hip cup (for which a license was signed with Wright Medical Technology, Inc. in September) will be augmented by increasing revenues from Campath(R), which contributed Pounds Sterling 1.5 million, especially if approved for additional indications to chronic lymphocytic leukaemia. We also licensed rights for Campath-related diagnostics to ILEX Oncology, Inc. The combination anti-inflammatory analgesic product oxycodone HCl/ibuprofen is also expected to generate significant future revenues. Forest Laboratories, Inc. recently received an approvable letter from the US Food and Drug Administration for this product, as announced by BTG in October.

Another contributor will be the Multilevel cell technology, licensed to Hitachi. Hitachi has recently obtained their first sub-license, from a large flash memory manufacturer, and is actively pursuing further license agreements. Hitachi also signed a license agreement for the Electro-absorption modulator, making a total of five licenses signed to date for this technology from BT plc.

During the first half, we also licensed NQR, the explosives and drug detection technology, to Thorlock International Ltd of Australia. Thorlock plans to exploit this with partners in the aviation, drug and security industries.

The hot compaction technology, Curv, licensed to BP Amoco is being evaluated for a number of applications. Nike plans a worldwide launch in 2003 of soccer shin guards made of Curv, and Mercedes and other leading European automotive manufacturers continue to evaluate the material for use in vehicle undershields. A major European luggage manufacturer is anticipated to launch a new range of luggage using Curv in 2003/4.

Unlicensed technologies

Commercial progress has been made with a number of technologies that are not yet licensed. In July, the European Patent Office upheld a key patent relating to GSM, GPRS and 3G mobile communications. SIM card manufacturers had opposed this since its grant in 1998, and the Company is now actively pursuing licenses from mobile operators and manufacturers. An agreement was signed with Digital Interactive Streams, Inc. in July to market a portfolio of video distribution technologies. This will enable the delivery of near DVD quality digital media at 1 Mbps over existing networks and telephone cables with high in-built security.

Other key technologies that are progressing commercially include: the non-invasive pre-natal diagnostic test; DMDP natural nematicide; influenza vaccine; OLED; ER-CMOS; X-MatchPRO(TM); and the lithium battery.

BTG has made solid progress during the first half of this year, at a time when the economic backdrop presents considerable challenges. I would like to thank all of our people for their professionalism and contribution to the achievements we have made, including those who will not remain with the Company as we implement the business changes described in this report. I look forward to reporting further progress in our full year report.

Ian Harvey

Chief Executive Officer

About BTG

BTG finds, develops and commercializes emerging technologies in the life and physical sciences. These innovations are protected by a strong portfolio of intellectual property that BTG develops and enhances. BTG then captures the value in these technologies through licensing and venturing activities. From the origins of its business in 1949, BTG has commercialized major innovations such as Magnetic Resonance Imaging (MRI), recombinant factor IX blood-clotting protein, Campath(R) (alemtuzumab) and Multi Level Cell (MLC) memory. BTG is quoted on the London Stock Exchange under the symbol "BGC" and operates from offices in London and Philadelphia, with representation in Tokyo. BTG operates through wholly owned subsidiaries, BTG International Ltd. and BTG International Inc. in the UK and USA respectively. Further information on BTG can be found at www.btgplc.com.

CONSOLIDATED PROFIT & LOSS ACCOUNT
for the six months ended September 30, 2002

                                               Pounds Sterling million
                             Six months ended          Year ended
                         September    September           March
                            2002         2001              2002
                                       restated
----------------------------------------------------------------------
Total revenue (note 3)      14.16         13.94           33.15
----------------------------------------------------------------------
Turnover                    14.16         13.94           30.85
Revenue sharing             (5.97)        (6.31)         (13.26)
                        ----------------------------------------
Provensis development
(note 4)                    (6.08)        (4.83)         (12.56)
Other development            (.38)         (.26)          (1.00)
                        ----------------------------------------
Total development           (6.46)        (5.09)         (13.56)
Other operating expenses
(note 5)                    (2.52)        (2.50)          (4.35)
Administrative expenses    (14.72)       (15.99)         (31.54)
----------------------------------------------------------------------
Operating loss             (15.51)       (15.95)         (31.86)
Profit on disposal -
 Trust investment in
 own shares (note 7)          .02          1.46            1.48
Profit on disposal of /
 amounts written off
 investments (note 8)           -          (.08)           2.30
----------------------------------------------------------------------
Loss on ordinary
 activities before
 interest and taxation     (15.49)       (14.57)         (28.08)
Interest receivable          1.86          3.44            5.58
Interest payable and
 similar charges                -          (.03)           (.11)
----------------------------------------------------------------------
Loss on ordinary
 activities before
 taxation                  (13.63)       (11.16)         (22.61)
Taxation on loss on
 ordinary activities
(note 9)                     (.24)         (.11)           (.14)
----------------------------------------------------------------------
Loss for the financial
 period- retained for
 equity shareholders       (13.87)       (11.27)         (22.75)
----------------------------------------------------------------------
Basic and diluted loss
 per share (note 10)       (13.22p)      (10.98p)        (22.15p)
----------------------------------------------------------------------


CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the six months ended September 30, 2002
----------------------------------------------------------------------
Loss for the financial
 period                    (13.87)       (11.27)         (22.75)
Currency translation
 differences on foreign
 currency net
 investments                 (.29)         (.25)           (.10)
----------------------------------------------------------------------
Total recognized gains
 and losses relating to
 the period                (14.16)       (11.52)         (22.85)
----------------------------------------------------------------------

The 2001 figures have been restated to include accrued money market
within short-term deposits, rather than prepayments and accrued
income, to the extent that it has been realized. In the opinion of the
Directors this gives a fairer presentation.


CONSOLIDATED BALANCE SHEET
as at September 30, 2002

                                               Pounds Sterling million
                         September    September           March
                            2002         2001              2002
                                       restated
----------------------------------------------------------------------
Fixed assets
Intangible assets -
 patents and other IPR      10.66         11.25           11.28
Tangible assets              6.36          6.15            6.55
Investments                 14.09          6.31            7.95
----------------------------------------------------------------------
                            31.11         23.71           25.78
----------------------------------------------------------------------
Current assets
Debtors: amounts falling
 within one year             5.02          6.59           11.79
Short-term deposits         78.93        107.30           90.02
Cash at bank and in hand     5.24          7.15            8.97
----------------------------------------------------------------------
                            89.19        121.04          110.78
Creditors: amounts
 falling due within one
 year                      (15.83)       (15.07)         (18.06)
----------------------------------------------------------------------
Net current assets          73.36        105.97           92.72
----------------------------------------------------------------------
Total assets less
 current liabilities       104.47        129.68          118.50
Creditors: amounts
 falling due after more
 than one year                  -          (.04)              -
Provisions for
 liabilities and charges    (1.24)        (1.33)          (1.24)
----------------------------------------------------------------------
Net assets                 103.23        128.31          117.26
----------------------------------------------------------------------

Capital and reserves
Called up share capital     10.53         10.49           10.52
Share premium account      159.90        159.28          159.78
Capital reserve              7.31          7.31            7.31
Profit and loss account    (74.51)       (48.77)         (60.35)
----------------------------------------------------------------------
Equity shareholders'
 funds                     103.23        128.31          117.26
----------------------------------------------------------------------

The 2001 figures have been restated to include accrued money market
within short-term deposits, rather than prepayments and accrued
income, to the extent that it has been realized. In the opinion of the
Directors this gives a fairer presentation.


CONSOLIDATED CASH FLOW STATEMENT
for the six months ended September 30, 2002

                                               Pounds Sterling million
                             Six months ended          Year ended
                         September    September           March
                            2002         2001              2002
                                       restated
Net cash outflow from
 operating activities
                        ----------------------------------------
Provensis                   (5.81)      (4.84)           (12.55)
Other                       (2.63)     (10.04)           (18.54)
                        ----------------------------------------
                            (8.44)     (14.88)           (31.09)
Net cash inflow from
 returns on investments
 and servicing on
 finance                     2.82        3.48              4.17
Tax (paid) received          (.25)        .14              (.13)
Net cash outflow from
 capital expenditure and
 financial investments      (8.54)      (2.70)            (4.34)
----------------------------------------------------------------------
Net cash outflow before
 use of liquid resources
 and financing             (14.41)     (13.96)           (31.39)
Net cash inflow from
 management of liquid
 resources                  11.09        9.28             26.56
Financing
Issue of ordinary share
 capital                      .13         .57              1.10
Capital element of
 finance lease payments         -        (.08)             (.05)
----------------------------------------------------------------------
Decrease in cash in the
 period                     (3.19)      (4.19)            (3.78)
----------------------------------------------------------------------

Reconciliation of net cash outflow to movement in net funds

                                               Pounds Sterling million
                             Six months ended          Year ended
                         September    September           March
                            2002         2001              2002
----------------------------------------------------------------------
Decrease in cash in the
 period                     (3.19)      (4.19)            (3.78)
Cash inflow from
 reduction in liquid
 resources                 (11.09)      (8.70)           (26.56)
Cash outflow from
 decrease in debt             .03         .04               .06
----------------------------------------------------------------------
Decrease in net funds
 resulting from cash
 flows                     (14.25)     (12.85)           (30.28)
Net funds brought
 forward                    97.55      127.25            127.83
----------------------------------------------------------------------
Net funds at period end     83.30      114.40             97.55
----------------------------------------------------------------------

The 2001 figures have been restated to include accrued money market
within short-term deposits, rather than prepayments and accrued
income, to the extent that it has been realized. In the opinion of the
Directors this gives a fairer presentation.


    NOTES TO THE ACCOUNTS

1.  The interim statement, which is unaudited and has been prepared on
    the basis of the accounting policies set out in the Group's 2002
    annual report and accounts, was approved by the Board of Directors
    on December 3, 2002.

2.  The financial information for the year ended March 31, 2002 is an
    abridged version of the statutory accounts which have been filed
    with the Registrars of Companies. The auditors' report on those
    accounts was unqualified.

3.  Total revenue

                                               Pounds Sterling million
                             Six months ended          Year ended
                         September    September           March
                            2002         2001              2002
----------------------------------------------------------------------
Royalties from launched
 products                   10.86       10.72             22.09
Milestone payments            .69         .90              1.59
Income from new
 agreements                  1.57        1.05              5.19
----------------------------------------------------------------------
License income              13.12       12.67             28.87
Audit revenues               1.04        1.27              1.98
----------------------------------------------------------------------
Turnover                    14.16       13.94             30.85
Income from sale of
 investments                    -           -              2.30
----------------------------------------------------------------------
Total revenue               14.16       13.94             33.15
----------------------------------------------------------------------


Geographical analysis of turnover
                                               Pounds Sterling million
                             Six months ended          Year ended
                         September    September           March
                            2002         2001              2002
----------------------------------------------------------------------
USA                          9.32        9.44             19.27
UK                           2.09        1.60              5.07
Japan                        1.35        1.80              4.19
European Union
(excluding UK)                .89        1.00              1.95
Other                         .51         .10               .37
----------------------------------------------------------------------
                            14.16       13.94             30.85
----------------------------------------------------------------------

Income from the sale of patents of Pounds Sterling 2.30 million in the
year ended March 31, 2002 has been excluded from turnover.

4. Provensis development
The costs incurred in respect of the Provensis varicose vein
technology are as follows

                                               Pounds Sterling million
                             Six months ended          Year ended
                         September    September           March
                            2002         2001              2002
----------------------------------------------------------------------

New technology
 development                 3.89        3.44              9.17
Other costs                  2.19        1.39              3.39
----------------------------------------------------------------------
Total                        6.08        4.83             12.56
----------------------------------------------------------------------

5. Other operating expenses

                                               Pounds Sterling million
                             Six months ended          Year ended
                         September    September           March
                            2002         2001              2002
----------------------------------------------------------------------
Patent amortization          1.93        1.98              3.47
Patent renewal fees           .37         .45               .66
Litigation costs
(note 6)                      .22         .07               .22
----------------------------------------------------------------------
                             2.52        2.50              4.35
----------------------------------------------------------------------

6. Litigation
BTG is often involved in contractual disputes relating to unpaid
royalties or the ownership and use of Intellectual Property Rights.
Usually these are resolved to BTG's satisfaction, whether or not
litigation is involved. Total costs incurred in this period amounted
to Pounds Sterling .22 million. This compares with Pounds Sterling .07
million in the same period last year. Any settlements resulting from
litigation take the form of license income and are included in
turnover.

7. Profit on disposal - Trust investment in own shares

                                               Pounds Sterling million
                             Six months ended          Year ended
                         September    September           March
                            2002         2001              2002
----------------------------------------------------------------------
Profit on shares sold by
 BTG Employee Share
 Trust                        .02        1.46              1.48
----------------------------------------------------------------------

8. Profit on disposal /amounts written off investments

                                               Pounds Sterling million
                             Six months ended          Year ended
                         September    September           March
                            2002         2001              2002
----------------------------------------------------------------------

Profit on disposal of
 investments                    -           -              2.38
Amounts written off
 investments                    -        (.08)             (.08)
----------------------------------------------------------------------
                                -        (.08)             2.30
----------------------------------------------------------------------

9. Taxation
Taxation for each six-month period has been provided on the basis of
the anticipated effective rate for the full year.

10. Loss per share
The loss per share, basic and diluted, is based on losses on Pounds
Sterling 13.87 million (September 2001: Pounds Sterling 11.27 million;
March 2002: Pounds Sterling 22.75 million) and the weighted average
number of shares in issue during the half year of 103.05 million
(September 2001: 102.61 million; March 2002: 102.73 million).

The weighted average number of ordinary shares in issue excludes the
shares held by BTG Employee Share Trust. Losses and the weighted
average number of shares are the same in the calculation of the basic
and diluted loss per share.

11. Reconciliation of operating loss to net cash outflow from
operating activities

                                               Pounds Sterling million
                             Six months ended          Year ended
                         September    September           March
                            2002         2001              2002
----------------------------------------------------------------------
Operating loss             (15.51)     (15.95)           (31.86)
Depreciation charge           .72         .56              1.15
Amortization charge          1.93        1.98              3.47
Decrease (increase) in
 debtors                     5.78         .93             (3.71)
(Decrease) increase in
 creditors                  (1.65)      (2.37)              .07
Other                         .29        (.03)             (.21)
----------------------------------------------------------------------
Net cash outflow from
 operating activities       (8.44)     (14.88)           (31.09)
----------------------------------------------------------------------

12. Analysis of net funds

                                               Pounds Sterling million

                         Balance at      Cash           Balance at
                          1 April        Flow          30 September
                            2002                           2002
----------------------------------------------------------------------
Cash at bank and in hand     8.97       (3.73)             5.24
Overdraft                   (1.41)        .54              (.87)
----------------------------------------------------------------------
                             7.56       (3.19)             4.37
Liquid resources            90.02      (11.09)            78.93
Finance leases within
 one year                    (.03)        .03                 -
----------------------------------------------------------------------
                            97.55      (14.25)            83.30
----------------------------------------------------------------------

Liquid resources are comprised on funds placed on the money markets
for periods of up to three months. During the period the Group
suffered Pounds Sterling .38 million exchange loss (September 2001:
Pounds Sterling .34 million; March 2002 Pounds Sterling .01 million).

13. The announcement is being sent to all shareholders on the register
on December 3, 2002 and further copies are available from the
Company's registered office: 10 Fleet Place, Limeburner Lane, London
EC4M 7SB.