Company Announcements

26 April 2022

Midatech Pharma PLC

("Midatech" or the "Company" or, together with its subsidiaries, the "Group")

Preliminary Results for the Year Ended 31 December 2021

Midatech Pharma PLC (AIM: MTPH.L; Nasdaq: MTP), a drug delivery technology company focused on improving the bio-delivery and biodistribution of medicines, announces its audited preliminary results for the year ended 31 December 2021.

2021 HIGHLIGHTS

Operational

·    In June 2021, in an R&D update we announced:

o  Breakthrough data on the successful encapsulation of a biologic using Q-Sphera technology. We believe no other commercial or academic organisation has been able to successfully deliver therapeutic proteins over extended periods using methods capable of commercial scale up.

o  Delivery of proof of concept formulations of MTX214 and MTX216 to our collaboration partner Janssen for them to undertake in vivo studies.

o  Successful development of a long-acting formulation of MTD211 (Q-brexpiprazole) which, in in vivo studies, demonstrated that a single injectable dose could deliver therapeutic blood levels of brexpiprazole over a period of three months.

·    In July 2021, we closed a Placing of 35.1m new ordinary shares with investors in the UK to raise gross proceeds of £10m (£9m net of expenses).

·    In August 2021, we announced that the Company had moved its headquarters, including offices and custom built laboratories to new facilities at Caspian Point in Cardiff. The new premises were officially opened by Vaughn Gething MS, Welsh Government Minister for the Economy.

·    In December 2021, we announced the successful completion of the 30-day FDA review period of our Investigational New Drug Application for a planned Phase I study of MTX110 in recurrent Glioblastoma Multiforme.

Post period end

·    In January 2022, we announced an extension of our R&D collaboration with Janssen. Under the extended collaboration we will focus on maximizing drug loading and optimizing in vitro duration of release for Janssen's undisclosed experimental molecule using our Q-Sphera technology.

·    In February 2022, we announced Janssen had added a second molecule to the collaboration with the same objectives of maximizing drug loading and optimizing in vitro duration of release.

Financial

·    Total gross revenue⁽¹⁾ for the year of £0.58m (2020: £0.34m).

·    Customer revenue⁽²⁾ for 2021 of £0.58m (2020: £0.18m).

·    UK Placing in July 2021 raised £9.0m, net of expenses.

·    Cash and deposits at 31 December 2021 of £10.06m (2020: £7.55m).

·    Net loss from continuing operations of £5.46m (2020: £22.19m loss).

·    Net cash inflow in the year of £2.52m (2020: £3.64m outflow).

·    Tax credit receivable of £0.67m (2020: £1.16m).

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INTRODUCTION

Headquartered in Cardiff, UK, and quoted on the AIM market of the London Stock Exchange and on NASDAQ in the US, Midatech is an R&D biotechnology company focused on improving the bio-delivery and biodistribution of medicines using its three proprietary drug delivery technologies.

STRATEGY

Our strategy is based on two key themes: multiple shots on goal and time and cost to partnerability.

Since the announcement of a Strategic Review in March 2020, we have sought to broaden our R&D pipeline by initiating internal programmes, collaborating with third party pharmaceutical companies on their proprietary active pharmaceutical ingredients, or APIs, and adding new indications to MTX110, our novel formulation and delivery system for panobinostat.

Our realigned strategy is to advance our development programmes to proof of concept stage before seeking licensee partners to fund further development, manufacturing scale-up and commercialisation.

BUSINESS MODEL

Since our Strategic Review in March 2020, we have reverted to a traditional biotech business model. We aim to deploy our proprietary technologies to develop proof of concept formulations and then enter into licensing agreements with third party pharmaceutical companies.

Development

Our intention is to build a balanced portfolio of Q-Sphera programmes employing a bi-fold strategy to create an:

·    internal pipeline of long-acting injectable products by re-formulating existing, approved therapies; and

·    external pipeline by entering into research collaborations with partners to formulate their proprietary products into long-acting injectable products.

We have applied our MidaSolve technology to panobinostat to create our proprietary product, MTX110. Our development strategy for MTX110 is to demonstrate its utility in a range of intractable brain cancers with a series of pilot proof of concept studies before seeking licensee partners.

Once a licensing partner has been secured, we would expect any future development costs to be reimbursed by that partner and for Midatech to receive milestone payments and, ultimately, royalties on sales of the product.

Manufacturing

To establish proof-of-concept in pre-clinical studies for potential licensees, we are able to manufacture non-GMP Q-Sphera products at pilot scale at our Cardiff facility. Our intention is to technology transfer GMP manufacture of clinical trial supplies and ultimately full GMP commercial manufacture to a third party CMO. We would expect a licensee to assume the cost of manufacturing GMP product and commercial scale-up pursuant to a technology transfer agreement.

MTX110 is currently being manufactured to GMP standards at a CMO.

Commercialisation

Once proof-of-concept has been established, we intend to seek to license our products to a partner who would complete the clinical development and subsequently market and sell them in the licensed territory. In addition to reimbursement of development costs, the partner would be expected to make milestone payments based on sales targets and royalty payments.

In 2020 Midatech pivoted from a largely singular focus on the clinical development and manufacturing scale up of MTD201 to a strategy based on a broader, but earlier stage, pipeline. The two strategic drivers behind Midatech's development pipeline, "multiple shots on goal" and "time and cost to partnerability", are designed to provide optimal opportunities for partnering success while focusing our resources on those projects that will deliver near term data that could attract a development partner.

Our development pipeline includes eight projects of which two are partnered with Janssen:

TECHNOLOGIES

Q-Sphera

Technology

Our Q-Sphera technology employs 3-D printing techniques to encapsulate medicines in polymer-based bioresorbable microspheres. The microspheres may be injected to form depots in the body which release drug over predictable, sustained periods from one week up to several months. The features and benefits of Q-Sphera technology offer numerous potential advantages to patients and payors compared with immediate release products and other polymer-based technologies:

In addition, Q-Sphera products offer the possibility for targeted delivery to the site of disease including intra tumoral, intra articular and intra ocular applications, in each case offering the potential for reduced dose and reduced systemic toxicity.

Pipeline

We have an internal Q-Sphera pipeline including MTD211, a long-acting injectable formulation of brexpiprazole. Brexpiprazole, marketed as Rexulti®, is indicated for schizophremia and as an adjunct in the treatment of Major Depressive Disorder, or MDD.

We are also developing MTD219, a long-acting injectable formulation of tacrolimus, marketed as ProGraf for the prophylaxis of transplant rejection.

In addition, we are working to optimise the drug loading and dissolution profiles of two large molecules, MTX213 and MTX223 under collaboration agreements with our partner Janssen.

MidaSolve

Technology

Our MidaSolve technology increases the aqueous solubility of certain classes of anti-cancer drugs using complexes that solubilize these agents in water, thereby enabling them to be injected in liquid form directly into tumours.

The MidaSolve complexation agents (cyclodextrins) comprise a hydrophobic inner surface and a hydrophilic outer surface, and as a result are capable of forming host-guest complexes with normally water-insoluble molecules. The hydrophobic, poorly water-soluble drug associates with the inner, more hydrophobic surface of the MidaSolve host, while the hydrophilic outer surface allows the complex to dissolve at biological pH.

MTX110

Using our MidaSolve technology in combination with panobinostat, an otherwise insoluble drug, MTX110 is designed for direct-to-tumour treatment of intractable brain cancers. Panobinostat is currently marketed under the brand Farydak® which is used orally in combination therapy for the treatment of multiple myeloma. We are currently researching the utility of MTX110 to proof of concept stage in three indications:

Glioblastoma Multiforme (GBM):

GBM is the most common and aggressive form of brain cancer in adults, usually occurring in the white matter of the cerebrum. Treatments include radiation, surgical resection and chemotherapy although, in almost all cases, tumours recur. There are approximately 2-3/100,000⁽¹⁾ population diagnoses of GBM per annum.  Survival with standard of care treatment ranges from approximately 13 months in unmethylated MGMT patients to approximately 30 months in highly methylated MGMT patients⁽²⁾.

Following IND approval in December 2021, we are in the process of planning for enrolment of patients in a Phase I exploratory study to assess the utility of MTX110 in recurrent GBM.

Diffuse Intrinsic Pontine Glioma (DIPG):

DIPG tumours are located in the pons (middle) of the brain stem and are diffusely infiltrating. Occurring mostly in children, approximately 1,000 patients⁽³⁾ worldwide are diagnosed with DIPG per annum and median survival is approximately 10 months⁽⁴⁾. There is no effective treatment since surgical resection is not possible.  The standard of care is radiotherapy, which transiently improves symptoms and survival.  Chemotherapy does not improve survival and one likely reason is that many anti-cancer drugs cannot cross the blood-brain barrier to access the tumour.

In October 2020, we reported the first-in-human study by the University of California, San Francisco ("UCSF") of MTX110 in DIPG using a convection enhanced delivery ("CED") system. The Phase I study established a recommended dose range for Phase II, a good safety and tolerability profile but also encouraging survival data in the seven patients treated.

We are in the process of planning for a Phase II study to confirm the safety and efficacy of MTX110 in DIPG.

Medulloblastoma:

Medulloblastomas are malignant embryonal tumours that start in the cerebellum. They are invasive and, unlike most brain tumours, spread through the cerebrospinal fluid ("CSF") and frequently metastasize to different locations in the brain and spinal cord. Treatments include resection, radiation and chemotherapy. Approximately 350 patients⁽⁵⁾ are diagnosed with medulloblastoma per annum and 3,800 people are living with the disease in the US. The cumulative survival rate is approximately 60%, 52%, and 47% at 5 years, 10 years, and 20 years, respectively⁽⁶⁾; however, recurrence is nearly always fatal with no established standard of care.

The University of Texas is undertaking a Phase I exploratory study in recurrent medulloblastoma patients using direct administration of MTX110 into the fourth ventricle, enabling it to circulate throughout the CSF.

(1)      American Association of Neurosurgeons

(2)      Radke et al (2019). Predictive MGMT status in a homogeneous cohort of IDH wildtype glioblastoma patients. Acta Neuropathologica Communications 7:89 Online: https://doi.org/10.1186/s40478-019-0745-z

(3)      Louis DN, Ellison DW, et al. The 2016 World Health Organization Classification of Tumors of the Central Nervous System: a summary. Acta Neuropathol 2016; 131:803-820                                        

(4)      Jansen et al, 2015. Neuro-Oncology 17(1):160-166

(5)      Aboian et al (2018). Neuro-Oncology Practice, Volume 5, Issue 4, December 2018

(6)      Smoll NR (March 2012). "Relative survival of childhood and adult medulloblastomas and primitive neuroectodermal tumors (PNETs)". Cancer. 118 (5): 1313-22

MidaCore

Technology

The MidaCore technology platform is based on ultra-small gold nanoparticle (GNP) drug conjugates, which at 2-4nm and among the smallest particles in biomedical use. They are composed of a core of gold salts decorated with an array of therapeutic and/or targeting ligands. The small size and multi-functional arrangement around the gold core underpin the ability to improve biodistribution and target tumour and/or immune sites.

MidaCore design and synthesis GNP technology enables the production of nano-medications, which we believe are five-to-tenfold smaller than any other delivery vehicle in medical use.

MTX114

Using MidaCore technology, we have developed a re-engineered version of methotrexate, an immuno-suppressant for topical application in psoriasis. If successful, MTX114 would be a topical formulation of methotrexate, thus avoiding the need for potentially toxic systemic administration. Pre-clinical data have shown that MTX114 normalises skin thickness in psoriatic skin models. We are continuing the pre-clinical development programme of MTX114 through an in vivo programme looking at the immuno-suppressive effect and local staining.

CHIEF EXECUTIVE'S REVIEW

Introduction

2021 was the first full year since the announcement of our Strategic Review in March 2020 and realignment of our strategy. We have consolidated operations in our new facilities in Cardiff, expanded our R&D pipeline to eight programmes, secured a world-class collaboration partner for two of those programmes and significantly expanded the opportunities for our technology with the successful encapsulation of proteins in Q-Sphera.

Execution on Realigned Strategy

The Strategic Review was a catalyst for a re-evaluation of our priorities in the context of available resources. We quickly pivoted away from a largely single focus on MTD201 towards a more broadly-based collaborative strategy. Our realigned strategy is focused on exploiting our technologies to develop multiple products to proof of concept stage before seeking partners to fund pivotal studies and take those products through to market. Our financial returns will come from development and sales milestone payments and, ultimately, royalties.

Our intention is to maintain a balanced portfolio of internal and external Q-Sphera projects. Internal projects are based on already marketed APIs. External projects may be proposed by partners and based on their proprietary APIs. We have secured two R&D collaborations with Janssen.

Similarly, our re-alignment of the MTX110 clinical programme to prioritise GBM, an opportunity 30-50 times the size of DIPG, significantly enhances the potential for that product.

We retain the capability to manufacture Q-Sphera products to non-GMP pilot scale in our laboratory in Cardiff. Following the closure of our Bilbao operations, we are working to technical transfer our process to a CMO for GMP manufacture of clinical trial supplies and commercial products.

The clarity of our realigned strategy and the simplification of the investment case enabled us to attract new investment in July which, in turn, allowed us to continue executing on our strategy.

Commercial Update

Our commercial strategy is gaining traction. In July 2020 we announced a collaboration with Janssen to explore the feasibility of applying our Q-Sphera technology to Janssen's chosen APIs. Following our success in the encapsulation of an exemplar protein, we announced in January 2022 that Janssen has extended our collaboration to optimise the drug loading and in vitro dissolution of Janssen's proprietary protein.

 In March 2022 we announced that Janssen had further extended the collaboration to include the optimisation of drug loading and in vitro dissolution of a second protein. It is reassuring to have a collaboration partner of Janssen's status validate the work we are doing with Q-Sphera.

R&D Update

With the change in strategic emphasis towards collaborating and partnering at proof-of-concept stage, our R&D portfolio has evolved as follows:

Q-Sphera

Each of the APIs we have developed for our internal Q-Sphera pipeline was identified after a comprehensive evaluation of potential candidates. Both address large markets and, as first in class long-acting injectables, have the potential to offer significant clinical benefits compared with current therapies and, importantly for reimbursement, savings to the healthcare system.

MTD211 (Q-brexpiprazole)

We have successfully developed a long-acting formulation of brexpiprazole. In in vivo studies, MTD211 demonstrated that a single dose is expected to deliver therapeutic blood levels of brexpiprazole over a period of three months. Marketed under the brand name Rexulti®, brexpiprazole is indicated for the treatment of schizophrenia and adjunctive treatment of major depressive disorder (MDD) and is currently only available as an immediate release oral tablet. The market for anti-psychotic drugs is shifting towards long-acting formulations for reasons of improved patient compliance and lowering of payor costs associated with patient hospitalisation events. Sales of long-acting anti-psychotic products in 2020 were approximately US$5.7 billion² globally.

MTD219 (Q-tacrolimus)

We are refining the development of a long-acting formulation of tacrolimus. In in vivo studies, MTD219 indicated a single dose of MTD29 could deliver therapeutic blood levels of tacrolimus over a period of two to three weeks. Marketed under the brand name ProGraf® among others, tacrolimus is indicated for the prophylaxis of transplant rejection and is currently only available as a once- or twice-daily oral tablet. Tacrolimus has a relatively narrow therapeutic index with potential for negative clinical outcomes from over- or under-dosing. The steady, predictable pharmacokinetics characteristics of Q-Sphera could offer significant advantages to patients and payors. 

In June 2020 we announced, as part of an R&D Review, breakthrough data on the successful encapsulation of a protein using Q-Sphera technology. There are no approved long-acting injectable formulations of biologic products such as monoclonal antibodies (mAbs) or other high molecular weight proteins because they are delicate and easily de-natured in manufacture. We demonstrated encapsulation of an exemplar mAb and most importantly, were able to preserve the functional integrity and antigen binding in vitro. The Company believes no other commercial or academic organisation has been able to successfully deliver therapeutic proteins over extended periods using methods capable of commercial scaling. We believe these results could potentially open up very significant opportunities for our Q-Sphera technology. A significant number of latest generation medicines are protein based and reformulation as long-acting injectables could provide significant benefits to patients, physicians and payors. In 2020, the top 10 mAbs recorded aggregate sales of US$74.9 billion¹ and all mAbs recorded sales of US$154 billion¹ globally.

We are collaborating with Janssen on two large molecule APIs to optimize their respective drug loading and in vitro dissolution profiles.

MidaSolve / MTX110

Employing our MidaSolve technology, MTX110 solubilises panobinostat, a histone deacetylase (HDAC) inhibitor currently used in the treatment of multiple myeloma. In a liquid formulation as MTX110, panobinostat can be delivered directly to a patient's tumour under constant pressure via a catheter system (Convection Enhanced Delivery, or "CED") thereby bypassing the blood-brain barrier and allowing for high drug concentrations and broader drug distribution in and around the tumour while simultaneously minimising systemic toxicity and other side effects.

During 2021, following receipt of promising pre-clinical data from tumour models and in vitro patient-derived cell lines, we re-prioritised our development of our, MTX110, in favour of GBM, potentially a very significant opportunity with annual diagnoses of 2-3/100,000 population and global market potential of US$3-5 billion. In December 2021 we announced the successful completion of the 30-day FDA review period of our IND has been judged safe to proceed with a Phase I study in recurrent GBM. Accordingly, we have begun has preparations for patient enrolment to begin mid-2022 with the possibility of initial progression-free survival data in a limited number of patients by the end of the year.

We initially began developing MTX110 for DIPG, the ultra-rare, highly aggressive and inoperable form of childhood brain cancer. We have an ongoing Phase I study in the US with two more patients required for completion. Thereafter, we plan to initiate a Phase II study in DIPG with safety and efficacy endpoints. We are also evaluating the utility of MTX110 in medulloblastoma in a pilot study at the University of Texas.

As announced in June 2020, we received a letter from counsel to Secura Bio Inc. (Secura Bio), the licensor of panobinostat and API component of MTX110, purporting to terminate the Company's license to panobinostat. Secura Bio three times declined to withdraw its termination of the license. We received a further letter sent on behalf of Secura Bio dated in May 2021 purporting to terminate the Secura License Agreement a second time for alleged material breaches of the agreement, and demanding a non-exclusive, fully paid-up, royalty-free, perpetual license to Midatech's MTX110 intellectual property. This demand was refused based upon, among other things, Secura Bio's previous termination of the license in 2020. We continue to enjoy freedom to use panobinostat for research purposes and believe the relevant Secura Bio patents may marginally delay a launch of MTX110 for DIPG but not MTX110 for GBM.

MidaCore

For MTX114 we have deployed our GNP technology to engineer a formulation of methotrexate for the topical treatment of psoriasis. If successful, MTX114 would be a topical formulation of methotrexate, thus avoiding the need for potentially toxic systemic administration. Pre-clinical data have shown that MTX114 normalises skin thickness in mouse psoriatic skin models. There are estimated to be over 100 million⁽²⁾ people who suffer from psoriasis worldwide.

(1)      Global Data

(2)      Psoriasis.org

Financing

Following the positive news in our R&D Update announcement in June 2021, we raised £10 million gross proceeds through the issue of 35.1 million new ordinary shares via a UK Placing in July. The Company currently has funding, assuming zero incoming license fees, into the first quarter of 2023. The financing was a key strategic decision of the Board. The Board balanced the impact of dilution on existing investors with the opportunities for growth in shareholder value afforded by the fundraise.

COVID-19

In response to the pandemic and government imposed restrictions on movement, we have established a COVID-19 Task Force with the dual objectives of safeguarding the health and wellbeing of our staff members and monitoring the impact of COVID-19 on our vendors and collaborators. We have organised the layout of our offices and laboratories in Cardiff to permit, as far as reasonably practical, social distancing and allow employees to work safely in our offices and laboratories. Notwithstanding these actions, there has been disruption to internal workplans and delays in the recruitment of patients to ongoing clinical trials.

Outlook

The breakthrough data on the encapsulation of a protein using Q-Sphera and retention of its integrity over a significant period is, as far as we know, unique and could offer game-changing opportunities for the Company. We believe we have reasons to view the future with confidence.

FINANCIAL REVIEW

The Strategic Review process which resulted in the restructuring of operations including the termination of further in-house development of MTD201, closure of its Bilbao operations and redundancy of 48 personnel had a material impact on the 2020 comparative numbers referenced below.

Introduction

Midatech Pharma plc (the "Company") was incorporated as a company on 12 September 2014 and is domiciled in England and Wales.

Financial analysis

Key performance indicators

Revenue

In the year ended 31 December 2021, Midatech generated consolidated total gross revenue of £0.58m (2020: £0.34m), an increase of 69% on the prior year.  Customer revenue for the year was £0.58m (2020: £0.18m), the difference between gross and customer revenue in 2020 being grant revenue of £0.16m. Customer revenue was derived entirely from the Company's R&D collaboration agreements with Dr Reddy's laboratories Ltd and Janssen. The R&D collaboration agreement with Dr Reddy's was subsequently terminated by mutual agreement while the R&D collaboration agreement with Janssen has been expanded to include two proteins. Although R&D collaboration revenue in 2021 increased by only £0.4m compared with 2020, the Company regards this as progress and validation of its partnering strategy.

Research and development expenditure

Research and development costs decreased by £1.41m, or 23% to £4.65m (2020: £6.07m) in the year primarily due to £1.81m lower clinical development costs on MTD201 offset by a £0.48m increase in clinical costs on MTX110 and a £1.21m increase in preclinical costs spread across several projects, including those under R&D collaboration agreements. Personnel costs, share based payment charge and other items increased by £0.32m, £0.21m and £0.22m respectively in 2021 compared with 2020. The prior year included certain items related to the restructuring of the Company following the Strategic Review including redundancy costs, accelerated depreciation and foreign exchange of £0.89m, £0.85m and £0.31m, respectively. Although research and development expenditure as a whole decreased in 2021, importantly, it increased as a percentage of total operating costs from 56% in 2020 to 61% in 2021. The Company believes focusing its resources on research and development as opposed to administrative costs is more likely to generate shareholder value.

Administrative costs

Administrative costs in the year decreased by £2.01m, or 41% to £2.95m (2020: £4.96m) and included decreases in legal, professional fees, insurance and other costs of £0.95m and a decrease in personnel costs of £0.51m offset by an increase in share based payments of £0.15m. The prior year included certain items related to the closure of the Company's operations in Bilbao, Spain including £0.55m interest on repaid Spanish soft loans and £0.17m related to the settlement of a lawsuit.

Impairment of intangible assets

There was no impairment of intangible assets in 2021 although in the prior year, in connection with our decision to terminate further in-house development of MTD201, we recognized an impairment loss for in-process research and development of £9.30m. In addition, because no other Q-Sphera products were advanced beyond the formulation stage as of 31 December 2020, we recognised an impairment of goodwill arising from our acquisition of Q Chip Limited in December 2014 of £2.29m. In connection with the purported termination of our license to panobinostat by Secura Bio in June 2020, we recognized an impairment of an intangible asset of £0.78m as of 31 December 2020.

Staff costs

During the year, the average number of staff decreased to 20 (2020: 40), reflecting the closure of Bilbao operations and the redundancy of five UK-based employees following the Strategic Review.  Total staff cost for continued operations fell by 40% to £1.67m (2020: £2.79m).

Capital expenditure

The total cash expenditure on property plant and equipment in 2021 was £0.32m (2020: £0.21m), largely in respect of investment in our laboratory and pilot-scale manufacturing facility in Cardiff. 

Other comprehensive income

Other comprehensive income in 2020 comprised a foreign exchange gain of £0.51m arising on retranslation of Midatech's non-UK operations.

Cash flow

Net cash outflow from operating activities in 2021 was £6.01m (2020: outflow £9.30m) driven by a net loss of £5.46m (2020: loss £22.19m) and after negative movements in working capital of £0.62m (2020: negative £1.56m), taxes received of £1.16m (2020: £1.95m), non-cash impairment of intangible assets of nil (2020: £12.37m) and other net negative adjustments for non-cash items totalling £1.09m (2020: positive £0.12m).

Investing activities outflow in 2021 of £0.28m (2020: inflow of £2.57m) included purchases of property, plant and equipment of £0.32m (2020: £0.21m) offset by proceeds from the disposal of assets of £0.04m (2020: £0.14m). A guarantee deposit of £2.64m in respect of a Spanish government loan repaid during the year was released in 2020.

Financing activities inflow in 2021 of £8.81m (2020: inflow of £3.08m) was driven by receipts from share issues, including exercise of warrants, of £9.04m (2020: £9.74m) offset by the repayment of Spanish government loans of £0.10m (2020: £6.18m). In 2020, Spanish government grants of £0.23m were repaid. The other principal outflows related to interest paid of £0.02m (2020: £0.03m) and payments on lease liabilities of £0.11m (2020: £0.26m).

As a result of the foregoing, net cash inflow for the year was £2.52m (2020: outflow of £3.64m). 

Capital structure

Following approval by shareholders at a General Meeting of the Company on 2 March 2020, the Ordinary Shares of 0.005 pence each were consolidated on a one for 20 basis with effect from 3 March 2020 and the consolidated shares were issued with a new International Securities Identification Number of GB00BKT14T00. Midatech's capital structure on a post-consolidation basis as of 31 December 2021 was as follows:

(1)      Warrants 2022 expired in February 2022.

In addition, there were 1,000,001 deferred shares of £1 each, unaffected by the consolidation.

As a consequence of the consolidation, per share amounts for 2019 have been restated based on one twentieth of the weighted average number of Ordinary Shares outstanding during the year, being 80,546,881 (2020: 42,839,961).

Restructuring in 2020

In March 2020, the Company announced a wide ranging Strategic Review of its operations. The Board decided to terminate further in-house development of MTD201, close the Company's MTD201 dedicated facilities in Bilbao and make redundant all 43 Bilbao based employees and five UK employees.  The cash and non-cash impact of the restructuring on the financial statements during 2020 may be summarised as follows:

As of 31 December 2020, all loans, grants and subsidies other than one Spanish government loan of £0.10m had been repaid. The remaining loan was repaid in February 2021.

Going Concern

The Group and Company has experienced net losses and significant cash outflows from cash used in operating activities over the past years as it develops its portfolio. For the year ended 31 December, 2021, the Group incurred a consolidated loss from operations of £5.46m and negative cash flows from operating activities of £6.01m. As of 31 December, 2021, the Group had an accumulated deficit of £127.80m.

The Group's future viability is dependent on its ability to raise cash from financing activities to finance its development plans until commercialisation, generate cash from operating activities and to successfully obtain regulatory approval to allow marketing of its development products. The Group's failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. 

The Group's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

As at 31 December 2021, the Group had cash and cash equivalents of £10.06m. The Directors forecast that the Group currently has enough cash to fund its planned operations into the first quarter of 2023.

The Directors have prepared cash flow forecasts and considered the cash flow requirement for the Company for the next three years including the period twelve months from the date of approval of the consolidated financial statements.  These forecasts show that further financing will be required before the first quarter of 2023 assuming, inter alia, that certain development programs and other operating activities continue as currently planned.  This requirement for additional financing in the short term represents a material uncertainty that may cast significant doubt upon the Group and parent company's ability to continue as a going concern.

In addition, the global pandemic COVID-19 virus places increased uncertainty over the Directors' forecasts. The restrictions that have been placed on the movement of people caused delays to some of the Group's plans. The Directors have established a COVID-19 task force internally to monitor the impact of COVID-19 on the business and prioritize activities to minimize its continuing effect.

The Directors are evaluating a number of near-term funding options potentially available to the Group, including fundraising and the partnering of assets and technologies of the Company. After considering the uncertainties, the Directors consider it is appropriate to continue to adopt the going concern basis in preparing these financial statements.

Macro-economic environment

The United Kingdom completed its exit from the European Union ("EU") on 31 January 2020 and the transition period concluded on 31 December, 2020. A new trade agreement with the EU, the EU-UK Trade and Cooperation Agreement,  was negotiated and became effective on 1 January 2021. The impact of the new trade agreement on the general and economic conditions in the United Kingdom remains uncertain. There may, for example be additional costs in materials and equipment sourced from the EU and we have experienced some delays in delivery timelines due to additional administration.

The recent invasion by Russian Federation military in Ukraine has had a destabilising impact on the global economy, including energy prices. Although there has been no immediate impact on the Company, it is not possible to assess the medium and long term impact of the conflict on the Company and the global economy generally.

Environmental matters, community, human rights issues and employees

As at 31 December 2021 the Group had 22 employees, of whom 18 were routinely based at its offices in Cardiff. The Company believes it has a relatively modest environmental impact. All materials imported into the Company's laboratories are assessed for safety purposes and appropriate handling and storage safeguards imposed as necessary.  Any small quantities of hazardous materials are removed by licensed waste management contractors. A number of policies and procedures governing expectations of ethical standards and the treatment of employees and other stakeholders are set out in the Company's Employee Handbook. The Company has also established an anti-slavery policy pursuant to the Modern Slavery Act 2015.

The Company strives to be an equal opportunity employer, irrespective of race or gender. At 31 December 2021; the number of male/female employees was 32%/68%, the number of male/female senior managers was 60%/40% and the number of male/female Directors was 100%/0%.

Annual greenhouse gas emissions

We measure our environmental performance by reporting our carbon footprint in terms of tonne CO₂ equivalent. We report separately on our indirect emissions from consumption of electricity (Scope 2) and emissions consisting of employee travel in cars on company business (Scope 3) estimated on the basis of miles travelled. The Group have elected to monitor and report its energy efficiency using tonnes of CO₂ per employee as an intensity ratio.

Methodology

In calculating the reported energy usage and equivalent greenhouse gas emissions the Group have referred to the HM Government Environment Reporting Guidelines and the GHG Reporting Protocol. A location based allocation methodology was used to calculate electricity usage.

Note: In order to present like-for-like comparative data, consumption by Midatech Pharma (España) SL has been excluded from 2020.

The Company's electricity costs for 2021 were approximately £16,000. The Company has no immediate plans to improve energy efficiency.

Consolidated StatementS of Comprehensive Income

For the year ended 31 December

Consolidated statementS of financial position

At 31 December

Consolidated statements of cash flows

For the year ended 31 December

Consolidated statements of cash flows(continued)

For the year ended 31 December

Consolidated statements of changes in equity

For the year ended 31 December

Consolidated statements of changes in equity(cONTINUED)

Consolidated statements of changes in equity(cONTINUED)

Notes forming part of the financial statements

For the year ended 31 December 2021

1.   Basis of preparation

The consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, and they are prepared in accordance with international financial reporting standards. The consolidated financial statements have been prepared on a historical cost basis except that the following assets and liabilities are stated at their fair value: certain financial assets and financial liabilities measured at fair value, and liabilities for cash-settled share-based payments.

The financial information contained in this final announcement does not constitute statutory financial statements as defined in Section 435 of the Companies Act 2006. The financial information has been extracted from the financial statements for the year ended 31 December 2021 which have been approved by the Board of Directors, and the comparative figures for the year ended 31 December 2020 and 31 December 2019 are based on the financial statements for that year.

The financial statements for 2020 and 2019 have been delivered to the Registrar of Companies and the 2021 financial statements will be delivered after the Annual General Meeting.

The auditor's report for the Company's 2021 Annual Report and Accounts was unqualified but did draw attention to the material uncertainty relating to going concern. The auditor's report did not contain statements under s498(2) or (3) of the Companies Act 2006

Whilst the financial information included in this results announcement has been prepared in accordance with International Financial Reporting Standards (IFRSs) this announcement does not itself contain sufficient information to comply with IFRSs. The information in this results announcement was approved by the board on 12 April 2022.

The Directors confirm that, to the best of their knowledge, this condensed set of consolidated financial statements has been prepared in accordance with the AIM Rules.

Going concern

The Group and Company has experienced net losses and significant cash outflows from cash used in operating activities over the past years as it develops its portfolio. For the year ended 31 December 2021, the Group incurred a consolidated loss from operating activities of £5.5m and negative cash flows from operations of £6.0m. As of 31 December 2021, the Group had an accumulated deficit of £127.8m.

The Group's future viability is dependent on its ability to raise cash from financing activities to finance its development plans until commercialisation, generate cash from operating activities and to successfully obtain regulatory approval to allow marketing of its development products. The group's failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.

The Group's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

As at 31 December 2021, the Group had cash and cash equivalents of £10.1m. The Directors forecast that the Group currently has enough cash to fund its planned operations into the first quarter of 2023.

The Directors have prepared cash flow forecasts and considered the cash flow requirement for the Company for the next three years including the period twelve months from the date of approval of the consolidated financial statements.  These forecasts show that further financing will be required during the first quarter of 2023 assuming, inter alia, that certain development programs and other operating activities continue as currently planned.  This requirement for additional financing in the short term represents a material uncertainty that may cast significant doubt upon the Group and parent company's ability to continue as a going concern.

In addition, the global pandemic COVID-19 virus places increased uncertainty over the Directors' forecasts. The restrictions that have been placed on the movement of people caused delays to some of the Group's plans. The Directors have established a COVID-19 task force internally to monitor the impact of COVID-19 on the business and prioritize activities to minimize its continuing effect.

The Directors are evaluating a number of near-term funding options potentially available to the Group, including fundraising and the partnering of assets and technologies of the Company. After considering the uncertainties, the Directors consider it is appropriate to continue to adopt the going concern basis in preparing these financial statements.

2 Finance income and expense

The gain/(loss) on the equity settled derivative financial liability in 2021, 2020 and 2019 arose as a result of the movement in share price (note 7).

3          Taxation

There was no tax charge relating to discontinued operations for 2021, 2020 and 2019.

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to losses for the year are as follows:

The taxation credit arises on the enhanced research and development tax credits accrued for the respective periods.

An adjustment has been recognised in 2020 in respect of the prior period of £158k, this is as a result of a more detailed review of cost classification prior to the submission of tax returns to HMRC in 2020.

4 Loss per share

On 2 March 2020 a resolution was passed at a general meeting of shareholders of the Company to consolidate its ordinary shares on a one for 20 basis into new ordinary shares of 0.1p each in the capital of the Company. The comparative denominator has been calculated to reflect the share consolidation.

The Group has made a loss in the current and previous years presented, and therefore the options and warrants are anti-dilutive. As a result, diluted earnings per share is presented on the same basis for all periods shown.

5 Property, plant and equipment

In April 2021 the Group signed an agreement to lease new premises in Cardiff to house its corporate offices and laboratories. The agreement to lease allowed the Group to carry out the Cat A works and fit out prior to completion of the lease and its occupation in August 2021. The principal terms of the lease are as follows:

·      Five-year term with no break clause; and

·      Nine months' rent free from commencement of lease.

The lease has been recognised as a right of use asset during the period.

6 Borrowings

During 2021 a euro denominated government and research loan of £103k (2020: £6.2m) was repaid. This amount includes £ nil (2020: £1.2m) of government grants, which is included in the amounts disclosed in note 17. This amount translated at year end rate was £107k (2020: £4.8m).

Book values approximate to fair value at 31 December 2021, 2020 and 2019.

Obligations under finance leases are secured by a fixed charge over the fixed assets to which they relate.

Government loans in Spain

MPE previously had four Spanish government loans, three were repaid in 2020 with the final loan repaid in February 2021 prior to the liquidation of MPE.

Three of the loans were provided for the finance of research, technical innovation and the construction of their laboratory. The loans were term loans which carried an interest rate below the market rate and were repayable over periods through to 2024. As a result of the Group's decision on 31 March 2020 to terminate further in-house development of MTD201 and the subsequent closure of its dedicated manufacturing facilities in Bilbao two of these loans were repaid in 2020, with the final loan being repaid in 2021.

The fourth loan received by MPE in September 2019 for €6.6m was awarded under the Spanish Government Reindustrialization programme. The Spanish Government required the company to provide a €2.9 million cash-backed guarantee as security for the loan. The funds were to be used to support Midatech's manufacturing scale-up facilities construction.  This loan was terminated and repaid early in 2020 as a result of the Group's decision on 31 March 2020. As a result of the early termination interest was charged at market rates up to the date of satisfaction of the loan.

The loans carried default interest rates in the event of scheduled repayments not being met. On initial recognition, the loans are discounted at a market rate of interest with the credit being classified as a grant within deferred revenue. The deferred grant revenue is released to the consolidated statement of comprehensive income within research and development costs in the period to which the expenditure is recognised.

The deferred revenue element of the government loans is designated within note 17 as deferred revenue and Government grants, the gross contractual repayment of the loans is disclosed in note 21. As a result of the repayment of the loans these were fully amortised during 2020.

7          Derivative financial liability - current

Equity settled derivative financial liability is a liability that is not to be settled for cash.

May 2020 warrants

In May 2020 the Company issued 9,545,456 warrants in the ordinary share capital of the Company as part of a registered direct offering in the US. The number of ordinary shares to be issued when exercised is fixed, however the exercise price is denominated in US Dollars being different to the functional currency of the Company. Therefore, the warrants are classified as equity settled derivative financial liabilities recognised at fair value through the profit and loss account ('FVTPL'). The financial liability is valued using the Monte Carlo model. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the 'finance income' or 'finance expense' lines item in the income statement. Fair value is determined in the manner described in note 21. A key input in the valuation of the instrument is the Company share price. Exercise price per ADR is $2.05 and $2.0625.

October 2019 warrants

In October 2019 the Company issued 3,150,000 warrants in the ordinary share capital of the Company as part of a registered direct offering in the US. The number of ordinary shares to be issued when exercised is fixed, however the exercise price is denominated in US Dollars. The warrants are classified equity settled derivative financial liabilities and accounted for in the same way as those issued in May 2020.  The financial liability is valued using the Monte Carlo model.  The exercise price per ADR is $6.25.

DARA warrants and share options

The Group also assumed fully vested warrants and share options on the acquisition of DARA Biosciences, Inc. (which took place in 2015). The number of ordinary shares to be issued when exercised is fixed, however the exercise prices are denominated in US Dollars. The warrants are classified equity settled derivative financial liabilities and accounted for in the same way as those detailed above.  The financial liability is valued using the Black-Scholes option pricing model. The exercise price of the warrants and options is $61.03 and $95.17 respectively.

The following table details the outstanding warrants as at 31 December and also the movement in the year:

8 Share capital

On 2 March 2020 a resolution was passed at a general meeting of shareholders of the Company to consolidate its ordinary shares on a one for 20 basis into new ordinary shares of 0.1p each in the capital of the Company. The above table reflects the share consolidation in the comparative figures.

In accordance with the Articles of Association for the Company adopted on 13 November 2014, the share capital of the Company consists of an unlimited number of ordinary shares of nominal value £0.001 each. Ordinary and deferred shares were recorded as equity.

Rights attaching to the shares following the incorporation of Midatech Pharma plc

Shares classified as equity

The holders of ordinary shares in the capital of the Company have the following rights:

(a) to receive notice of, to attend and to vote at all general meetings of the Company, in which case shareholders shall have one vote for each share of which he is the holder; and

(b) to receive such dividend as is declared by the Board on each share held.

The holders of deferred shares in the capital of the Company:

(a) shall not be entitled to receive notice of or to attend or speak at any general meeting of the Company or to vote on any resolution to be proposed at any general meeting of the Company; and

(b) shall not be entitled to receive any dividend or other distribution of out of the profits of the Company.

In the event of a distribution of assets, the deferred shareholders shall receive the nominal amount paid up on such share after the holder of each ordinary share shall have received (in cash or specie) the amount paid up or credited as paid up on such ordinary share together with an additional payment of £100 per share. The Company has the authority to purchase the deferred shares and may require the holder of the deferred shares to sell them for a price not exceeding 1p for all the deferred shares.