Original Source: FD (FAIR DISCLOSURE) WIRE
PETER FELLNER, EXECUTIVE CHAIRMAN, VERNALIS GROUP PLC: Good morning, everybody. Thanks very much for joining us this morning.
What I'd like to do is to initially just make a few comments about the way that we are moving the strategic framework of this business. Then Tony Weir, our CFO, will run through some of the key financials, both in terms of the positions at the end of last year but also some of the changes that we are in the middle of implementing as part of our restructuring. And then I will spend a few minutes just looking at three or four of the key pipeline programs. And obviously, after that, we will be very happy to take any questions, both from the people in here or equally the people on the call.
Looking firstly at the reorientation of the Company and its strategy, it's almost in a way a re-invention of the Company. Clearly, following the non-approval of Frova for menstrual migraine, we have to do this. And the direction in which we're going is to rebuild value. And we think we can rebuild value by focusing down on the key programs in our pipeline and actually some key discovery programs, which I'll mention very briefly at the end. And what we intend to do is to develop these programs up to proof of concept or possibly sometimes further into Phase II, but ultimately part with them; so it is a classical biotech model.
Clearly, in order for this to work for the Company, we've had to undertake a very extensive restructuring of our business, both in terms of monetizing certain assets or in the case of Endo, arriving at an accommodation with them on the US$56 million loan, and indeed, divesting certain assets. So the aim of it is to give us a financial platform, which indeed, is probably going to be in the upper quartile of biotech funding, because it will carry us out for at least two years. And actually, there are not that many companies in the current space which have more than two years' money.
So that is the strategic framework. It is a different strategy and it's the one that we will be running through this morning.
I'll hand over now to Tony, and then I'll come back in a minute and talk about the pipeline.
TONY WEIR, CFO, VERNALIS GROUP PLC: Thank you, Peter. What I'd like to do first of all is just go through a bit of background of where we are with the restructuring, and then talk about today's results and also try and give you some guidance in terms of -- there's quite a lot going on in the results as a result of the restructuring; so just give you some guidance for your models moving forward.
First of all, in terms of business restructuring initiatives, there are really five things that we are working on or have been working on in terms of reorienting the business, in terms of the structure that Peter has just elucidated. Three of these have now been announced and one case, is in the process of being implemented, and two of them remain outstanding.
From a financial basis, the first one was the settlement of the Endo loan, which we announced on the 20th of February. And that was a US$56 million loan that we had outstanding, which came out to the original licensing of Frova. That's been canceled in return for a US$7 million payment. And also an adjustment to the future royalties that we will earn under that agreement, such that there is now a US$0 royalty bond up to US$85 million. And sales of Frova last year were US$52 million for the acute label.
And then in terms of we've also leveraged our European royalties from Frova in doing a deal with Paul Capital, which was announced just this Monday, where we've received EUR18.4 million in return for 90% of the revenues that we received from Menarini. The 10% of the revenues that we retained we will use to meet and they will slightly exceed the costs that we will incur in continuing to supply Menarini with API, which is a responsibility that we retain under that agreement. So those two elements have both been announced and fully implemented.
The third one is the organizational restructuring, which again, we announced on the 20th of February, and is in the process of being implemented from March 2008 onwards after the consultation period. And this will be fully implemented by the beginning of the third quarter this year. That includes reorganizing and re-orienting the Company down to being a UK-based R&D-led business with 90 people. I'll go into that in a bit more detail in a moment.
The 210 that we're moving from includes the U.S. business, which is the fourth part of our restructuring, which is something that we stated publicly that we are working on. It's a divestment to be (inaudible) in the U.S. operations, and our expectation is that we will complete a transaction in respect to that sometime during the second quarter of this year. So, relatively eminently.
The final element of the restructuring is the licensing of V1512, which the rationale for investing in that product was only if we had the commercial infrastructure in the United States ultimately to sell that product. And as the results of the strategic reorientation, we will now longer have that commercial organization. Therefore, it makes more sense to license that. And we've always been clear that that will take a little longer to do and it's probably a transaction that we would do following the divestment of the U.S. operations. So we would expect to complete a transaction on that in the second half of this year.
In terms of what we -- moving onto next slide -- in terms of what we are indeed, with being reorganized, the 90 people, we'll have 75 people in R&D supporting a clinical pipeline of six products; four of which are unpartnered in which we are currently either looking for partnerships or looking to progress ourselves. And there are two partner products, also. And Peter will go through those in a small detail in a few minutes.
Peter will also gave some flavor around the discovery programs, which are now focused entirely on our research facility in Cambridge, based on the structure-based discovery capabilities, which really was the cornerstone of the very successful collaboration that we have with Novartis, which has now moved into the clinic. And also the earlier stage collaboration which we have, which is underway at the moment, with Servier. And the goal of the research organization is to create one to two development candidates within 12 months, in addition to supporting the collaborations that we have.
In terms of the marketed products, just a few words on those before we move on to the financial results. I think all three products actually performed very well and showed significant sales growth in 2007 under the acute label, and in North America sales, increased by 29% to US$52 million. And Endo recently announced -- and we put out an announcement also …