Sinclair Pharma Text-only version

Summary of the Business review: Operational

• First year of EBITDA profit since IPO
• Increase in revenues of 31% to £30.3m
• Transformational year with strong performances across the business
• Robust product portfolio with eight products contributing more than £1.0m revenue per annum
• Strong performance of dermo-cosmetics portfolio generating revenues of £6.6m
• Continued growth of own sales and marketing operations with 16% growth in revenues and 31% increase in gross margins
• Continued geographical expansion through marketing partner network realising 17 new partnership agreements, covering 17 markets
• 20 product launches, covering nine products in 17 markets
• Pipeline advancement with seven new product registrations and ten new filings in the EU and US

OVERVIEW

This has been a very successful year, driven by the strong commercial, regulatory and pipeline operations of the business. During the course of the year 17 new marketing agreements were signed and 20 product launches were achieved globally. This resulted in revenues of £13.7m from our own sales and marketing operations and a further £16.6m from our marketing partner network which is now present in over 80 countries.

To date Sinclair has more than 26 products registered in the EU, 10 in the US and an enviable pipeline. Our current product range focuses on Dermatology and Oral Health with a few additional non-core products that fall outside of these two categories. We had seven new product registrations during the year and reported clinical data in several therapeutic areas with nine published in peer reviewed journals or presented at international conferences.

During the course of the year we also realigned our internal capabilities and are well positioned to maximise the potential growth of the Company. With an already established infrastructure for growth, young products and a strong pipeline we are on track to establish Sinclair as a leading specialty pharma company generating sustainable profits.

After guiding the Company for seven years Steve Harris is stepping down as chairman of Sinclair. Steve has played a very active role in developing Sinclair from a small private UK company to an international company listed on two stock exchanges with a solid history of revenue growth, maiden profitability. Steve leaves Sinclair with a sound platform for continued profitable international expansion.

OPERATIONAL REVIEW

Sales and marketing

Sinclair´s sales and marketing operations

We leverage our own sales operations now present in five countries to drive revenue growth by utilising the expertise of our sales force on the ground. We also benefit from access to higher revenues due to enhanced gross margins associated with selling products directly. Sinclair's own sales and marketing has continued to gain momentum this year, contributing £13.7m to total revenues, an increase of 16% on the prior period.

• France, Spain & Portugal

The French market saw the successful launches of Sebclair^®, Papulex^® Eau - a line extension of Papulex^® and also the Méla´Aura products which are designed for ethnic skin. This resulted in a revenue contribution of £9.6m from Sinclair Pharma France which also incorporates the Spanish and Portuguese operation. The export business from France has been moved to our marketing partner network to focus the French company on its domestic market. Christophe Foucher, who has extensive commercial experience in the European dermatology sector, was appointed General Manager. Since joining in January 2008 Christophe has restructured the business to maximise Sinclair´s pipeline by leveraging the strength of the existing French brands dedicated to dermatology. This included the creation of a sell-out team, the addition of four further medical sales representatives and the establishment of internal marketing and finance capabilities.

• Italy

Sinclair Srl contributed £2.6m to Group revenues during the year. It launched Papulex^® cream as well as the B.lift and B.derm range, a line of anti-ageing and anti-wrinkle products, which were acquired from Syrio Pharma SpA in the year.

• UK

The revenue contribution from Sinclair Pharma UK Ltd this year was £1.5m. The integration of the former Ashbourne Pharmaceuticals continued during the second half of the year. Sinclair Pharma UK Ltd also launched Atopiclair^® and Xclair^®. Ashbourne´s core business was sales and promotion to dispensing doctors for third parties. Recent legislation changes have resulted in the practical disappearance of dispensing doctors and as a consequence we have accelerated the conversion of Ashbourne to a specialty pharma operation initially focused on dermatology.

Marketing partner network

In territories where Sinclair does not have a sales and marketing presence, we use the experience and local knowledge of our marketing partners to extend the commercial reach of our product portfolio. This network is carefully managed by our business development and alliance management team and continues to be a very important part of the business.

This year we experienced 46% growth of revenues through marketing partners while 17 new marketing agreements, involving 9 products covering 17 countries provide confidence of accelerated growth for FY2009. The agreements include the distribution of Sebclair^® in the US by Dr Reddy´s and the landmark agreement with Wockhardt for the distribution of a range of skincare products in India.

PRODUCT REVIEW

Sinclair has a broad portfolio of products on the market for treating skin and dental conditions, including the growing range of dermo-cosmetics products. The products are available through prescriptions and OTC. From our extensive product portfolio eight of our growth products each generate revenues over £1.0m with this number anticipated to increase during FY2009. With a broad and growing range of products the Company becomes less susceptible to any single product underperformance.

Oral Health
Decapinol^®
Our Oral Health portfolio is spearheaded by the Decapinol^® range, developed for treating and preventing gingivitis and plaque. This continues to evolve into a wide range of products that can meet the needs of dental professionals and patients. During the year Decapinol^® sales increased by more than 100%. It is currently available in six countries, in three formats and generated product revenues of £1.0m this year (2007: £0.4m). The Company launched in Israel, Greece, Finland and Norway and Decapinol^® rinse has also been made available on-line in Europe.

During the past year, Sinclair expanded the product line to include fluoride toothpaste, a gel for use after tooth-cleaning at the dental office, and a spray and a gel that can be applied directly to the gum margin in order to relieve pain associated with dental procedures. A new single-use applicator for professional use has also been developed for application of Decapinol^® into deeper gum pockets to treat more severe cases of periodontitis. A comprehensive suite of products that will provide the patient with the opportunity to incorporate Decapinol^® into their daily oral health regime.

Revenues due to organic growth with existing distributors such as Dompè Pharmaceuticals in Italy and new distributors signed up during FY2008 promise continued strong growth during FY2009. In the US we continue working with Orapharma in relation to the launch of a modified formulation of Decapinol^® required by Orapharma in the US. Due to a longer than expected timeframe related to developing the new formulation and establishing manufacture in Europe we now expect that launch of Decapinol^® in the USA will take place during FY2009.

Aloclair^®

Sinclair´s product for the relief of mouth ulcers is available in a rinse, gel and spray format. During the year, Aloclair^® oral lesion relief spray was launched in the US by OMNI Preventive Care, a 3M ESPE Company, under the brand name Ameseal. Aloclair^® gel is also sold in the US through Sunstar Butler. The Aloclair^® range of products are now sold in 32 countries. It is distributed by Recordati in Italy. Where it is market leader, Italfarmaco in Spain and Antula in Scandinavia. Aloclair^® delivered revenues of £2.3m this year (2007: £2.4m) despite a temporary loss of sales momentum when we changed distributors in a number of countries. This resulted in an additional £1.1m of licence fees bringing the total revenue for Aloclair^® for the year to £3.4m.

Other Oral Health products

Sinclair has a range of smaller products that generate revenues adding to the Company´s favourable risk profile. In the Oral Health portfolio these include:

Gelclair^® is Sinclair´s product for the relief of severe oral ulceration and inflammation from various causes but most significantly as a side effect of cancer therapies (mucositis). Gelclair^® is licensed worldwide to Helsinn Healthcare SA.

SST^® and Salinum^® are Sinclair´s products for the treatment of xerostomia, a dry mouth condition caused by a deficiency of saliva production.

These products contributed revenue of £0.3m in FY2008.

Dermatology
Sinclair´s dermatology portfolio comprises three product groups: prescriptions; OTC and dermo-cosmetics (which may be promoted to doctors, pharmacists and the public). This allows us to develop a tailored strategy for each channel taking into consideration the different patient and promotional needs.

Atopiclair^®

The prescription group contains our flagship product Atopiclair^®, a non steroidal cream, registered as a medical device in the US and EU, for the management of symptoms of atopic dermatitis and contact dermatitis. Atopiclair^® is available in 14 countries including UK, US, Portugal, Turkey, Indonesia, Israel and Jordan. It is also distributed by Intendis GmbH, a company of Bayer Schering AG in Austria, France, Germany, Italy and Spain. During the year, it was launched in five markets including Hungary and Portugal. Atopiclair^® delivered sales of £2.2m this year (2007: £4.7m) following the stockpiling of product by Intendis in Europe during FY2007 and poor performance of the atopic dermatitis market in the US, which have been dampened by economic factors resulting in a 14% decrease in the sector over the last year and 33% decrease in prescriptions for non steroid treatments. However Atopiclair^® is defending its market share and although it has experienced a small drop it outperformed the total atopic dermatitis market and increased its share of the non steroidal sector.

Sebclair^® also available via prescription, is a non steroidal treatment for seborrheic dermatitis, a common skin condition that affects areas of the body with a particularly high concentration of sebaceous glands. Sebclair^® is at the very beginning of its commercial life and is now sold in five countries. The product has been launched in Italy and France. In the US we partnered with Dr Reddy's Laboratories, Inc. who are scheduled to launch in FY2009. Dr Reddy's is focused on building a presence in dermatology in the US, a sector worth an estimated $5.0bn annually. In addition, Sebclair^® was also registered in Australia during the year.

DermaChronic^® is an emollient non-allergenic moisturiser, developed specifically for long term use in remission by patients with chronic skin conditions. DermaChronic^® is now approved for sale in the EU and has been launched by Sinclair Srl in Italy. This new product is available as a cream and a detergent line extension.

Dermo-cosmetics
In December 2007, Sinclair acquired products from Derma Omnium (Bio-Taches) and Syrio Pharma (B. lift and B.derm) which have strengthened Sinclair's dermo-cosmetic portfolio. These new products in aggregate contributed £2.4m to revenues in their first six months and have experienced strong sales including Portugal and Poland. Core products in the dermo-cosmetics range are:

• B.lift is a range of corrective dermatology products which are applied as creams and gels and which have unique matrices that facilitate the penetration of the active ingredient, Hexapeptide B, a 'botox' mimicking molecule, to reverse skin wrinkles.
• B.derm is a range of patented products containing hyaluronic acid for sensitive and hyper reactive skin.
• The Bio-Taches range has been developed to treat hyperpigmentation. Bio-Taches cream contains biotanoid which is particularly rich in arbutin which promotes the inhibition of the enzyme which is responsible for the synthesis of brown pigment spots.
• Méla'Aura, we believe is the first dermo-cosmetic skincare range designed and manufactured by a pharmaceutical laboratory, specifically for people with darker skin. It gives dermatologists an adapted response to factors such as dryness and dyschromia. The Méla'Aura range contains a variety of creams and lotions for both hair and body.

Anti-acne

• Papulex^® is a line of cosmetic products specifically targeted at cleansing, protecting and keeping acne prone skin in good condition. The patent for this product was granted this year. It has been developed with a unique combination of ingredients making them suitable for use alone or in combination with other acne treatments. The Papulex^® range is available as a cream, lotion, Isocorrexion, gel and cleanser.

RESEARCH AND DEVELOPMENT

Product pipeline & registrations

A healthy product pipeline is imperative to ensure longevity of the business. I am pleased to say that pipeline advancement has continued this year as our pipeline products for herpes simplex, head lice, infant teething and skin infection achieved registration. In total we realised seven new product registrations in the EU and US and filed a further ten licences in the EU and US. These registrations included:

• Aloclair^® PLUS Mouthwash
• Aloclair^® PLUS gel
• Aloclair^® PLUS spray
• Aloclair^® teething gel (SPHO220)
• Head lice treatment (SPHR980)
• Herpes treatment (SPHR900)
• Dermacide plus (SPHD470).

Many of the pipeline projects are now close to reaching the commercialisation phase. Some of the key projects, which we believe will have a great impact on our product portfolio, are summarised below:

SPHR913 is a novel anti-ageing and anti-wrinkle product. It contains an active ingredient called Telmestine, an inhibitor of elastase, collagenese and hyaluronidase. The product has been tested in clinical trials which showed that SPHR913 is effective in managing different parameters related to the onset of wrinkles, improving cutaneous hydration, elasticity and roughness. It will be the first Telmestine medical device on the market, indicated for post filler treatment by prolonging the duration of effectiveness of the filler. It is due to be filed for registration in the EU and US shortly.

SPHR980 Sinclair's product for head lice, was registered as a medical device in the EU in December 2007. This product is designed to meet a market need for a novel, safe and effective treatment for head lice and utilises proprietary barrier technology to coat and suffocate head lice and their eggs, killing them and making them easy to remove. The product can be sold without a prescription in the EU allowing Sinclair to capitalise on the OTC market. We anticipate first revenues in FY2009.

SPHR900 is a topical treatment for the symptoms of herpes simplex cold sores and accelerating the healing process. EU registration as a Class IIa Medical Device was granted in January 2008 and it can be sold without a prescription in the EU. Sinclair plans to begin commercialisation of the product through marketing partners during the next year.

SPHO220 has been designed to meet a market need for symptomatic relief during teething, without the use of topical pharmacological agents in infants. It was registered as a Class IIa Medical Device in December 2007. Sinclair plans to commercialise SPHO220 as an OTC product through marketing partners in most countries.

Clinical Data
Supporting clinical data is critical in demonstrating the efficacy of our products and can also be a source of competitive advantage. During the last year Sinclair ran eight clinical studies generating supporting data for its products. New clinical trials of Atopiclair^®, Sebclair^® and Xclair^® were accepted for publication, whilst details of an Atopiclair^® trial and Xclair^® trial were published in peer reviewed journals. Additionally in October 2007, Sinclair presented positive data at the World Congress of Dermatology on the following products; SPHR913, for corrective dermatology; Xclair^®, to treat radiation dermatitis; SPHD400, Sinclair's pipeline psoriasis product and a poster on its atopic dermatitis study.

Intellectual Property Innovation is a central pillar of the product development strategy. Our approach to product pipeline development combines the sourcing and developing of novel technologies externally and combining the newly acquired and existing technologies to create new product concepts. In order to maximise the commercial benefits arising from the innovative advantages inherent in our products, Sinclair invests in the development of strong intellectual property for all of its new products. Currently 35 Sinclair products enjoy patent protection.

Geographical expansion By extending the commercial presence of our product portfolio on a global basis, we aim to provide patients all around the world with an effective solution to their oral health and dermatological needs. With a focus on key brands in core markets, we aim to take existing products into new geographies and new products into existing and new geographies. Sinclair has recognised the potential that lies within the emerging markets, as significant value drivers for future growth. We have, therefore, established a geographical expansion programme that has a special team focused on pursuing opportunities in the BRIC countries and the Middle East. During the financial year we announced Sinclair's first approvals in Australia, and the landmark deal with Wockhardt in India. The Indian pharmaceutical market is currently valued at $7.0bn, with a growth rate of 17% and expected to generate the third largest incremental growth amongst all markets over a decade. We also filed Decapinol^® in Japan, an important step forward towards commercialisation in the world's second largest pharmaceutical market.

DIRECTORS AND ADVISORS

Board changes
Steve Harris steps down as chairman of Sinclair Pharma plc at the Annual General Meeting in December 2008. Steve joined Sinclair as a Non-Executive Director in 2001 and progressed to the role of Non-Executive Chairman in 2003. He has been instrumental in guiding the Company through its transition from a small private UK company with a small presence in Italy into an international publicly traded company with its own sales and marketing presence in five European countries, a broad array of internationally registered products and a network of sales and marketing partners now covering 82 countries and which delivered its maiden full year profit in FY2008. I and the board of Sinclair most appreciate the contribution which Steve Harris has made to the Company, which also utilized his broad experience in the pharmaceutical industry and in particular his extensive experience in business development. We thank Steve for his valued contribution and wish him well for the future.

During November 2007, we welcomed Jean-Charles Tschudin to the Board as a Non-Executive Director, replacing Andrew Sinclair, who has maintained an advisory role as Honorary Life President. Jean-Charles has extensive experience in the pharmaceutical industry at a senior executive level. His considerable expertise is invaluable to Sinclair's commercial development, particularly in relation to the expansion of its European sales and marketing operations.

Change of advisers and Company brokers
In February 2008, the Company appointed Investec as joint broker alongside Landsbanki, now Teathers Limited.

Management
In November 2007 we announced the appointment of Christophe Foucher as General Manager of France, Portugal and Spain. We also announced the promotion of Paul Phull to Managing Director (Europe) and Executive VP to lead Sinclair's growth of European sales and marketing operations. Mariyam Rawat joined the Company in April 2008 to manage Sinclair's Communications and Investor Relations.

OUTLOOK

We continue building our reputation as a world class specialty pharma company, with innovative products that meet the needs of the patient. The refocusing of our business on sales and marketing, and additional emphasis on emerging markets, will provide the platform for our future growth. The hard work put in to enhance our internal capabilities mean we are well positioned to meet the challenges of the market place and ensure consistent delivery of our targets.

The flourishing pipeline has several products close to entering the commercial stage which we believe provide innovative and efficacious solutions to patients' oral health and dermatological needs. This year we also began to reap the benefit of our broad product portfolio which has a number of products contributing healthy revenues and are no longer reliant on two or three key products.

We are delighted to finish the year on a positive note having moved into full year EBITDA profit for the first time since IPO and we look toward the year ahead with enthusiasm as we anticipate capitalising on the exciting array of growth opportunities ahead.