ML Labs has hope despite losses

ACCOUNTING CHANGES at ML Laboratories, which now writes off research and development spending in the year it is incurred, converted a modest profit into a loss of pounds 4.55m in the year to the end of September 1997, but losses almost doubled to pounds 8.4m in the year to September 1998 on turnover down from pounds 6.9m to pounds 5.36m.

Spending on research and development rose by pounds 1m to pounds 7.7m,other spending rose pounds 1m to pounds 7m, and income from product licensing and option fees fell from pounds 4.1m to pounds 1.2m. The company's net assets shrank from pounds 21.4m to pounds 12.9m.

The position is less dire than appears from figures alone. Income from "milestone" payments made when licensing agreements are struck is inevitably irregular, and ML's income from royalties and product sales to licensees, which are more consistent and reliable, actually rose from pounds 1.2m to pounds 3.2m in the latest year.

Royalties from Extraneal, the company's renal dialysis product, topped pounds 1m. The worldwide licensee for the product, Baxter Healthcare, has commissioned extra supplies of the active ingredient. These will go a long way to meeting the capital costs of the manufacturing plant, which ML can use to produce for its own purposes.

By biotech standards ML is now a mature business, with four products approved for marketing, three launched and eight in late development. Its track record is also reassuring, with four out of four products to date securing the approvals necessary to convert years of expenditure into future income.

It should provide investors with some comfort that the company's efforts are concentrated on products with higher-than-average hopes of success, chief executive Stuart Sim said.

The product range, including those already being marketed and in the pipeline, is also well spread. It includes treatments for renal disease, respiratory infections, cancer treatments and virology.

The analyst consensus is that the current year will show another loss of around pounds 8m, but there are realistic hopes that it can move into the black in 1999/2000. The shares eased back 9p to 88p yesterday, but they have been edging higher ahead of the results.