hVIVO revises expectations after accounting anomaly

Specialty biopharma company with clinical testing capabilities, hVIVO, announced a trading update regarding the accounting treatment of the company's joint venture investment in Imutex on Wednesday.

The AIM-traded firm said that due to accounting rules, revenue from the Phase IIa FLU-v study will be netted off on consolidation in the income statement.

On 22 April, hVIVO announced its joint venture investment in Imutex with the SEEK Group to develop vaccines against influenza and mosquito-borne diseases like zika.

hVIVO acquired a 49% equity stake in Imutex for £7m in consideration, and SEEK contracted with hVIVO Services to conduct a FLU-v Phase IIa clinical study for £5.5m.

On Wednesday, the company said it remains that Imutex will be accounted for as an investment in joint venture in the company's balance sheet, although contrary to the expectations communicated on 22 April and based on a balance of accounting judgements, the revenue and costs attributable to the FLU-v study should net off on consolidation and only the net “gain on provision of services to joint ventures" should be presented as a separate line item in the income statement.

“This is only a revenue measurement and presentation difference with no net effect, no change in underlying economic value, no change in net income statement and no cash flow impact,” the board said in a statement.

“However, the company's revenue expectation for the year ended 31 December reduces accordingly, due to the requirement for this netting off.”

The company said it now expects reported revenue for the year ending 31 December 2016 to be approximately £16.0 million.

With a greater mix of quarantine unit utilisation from engagements with its equity investments, together with the change in the accounting treatment of Imutex, 2016 gross margin is expected to be approximately 15.0%.

hVIVO's cash balance is expected to be around £22m as at 31 December.

“The Imutex transaction remains an important cornerstone in our strategic objective to enhance our product pipeline with assets that the hVIVO platform has identified as promising,” said chief executive Kym Denny.

“Since completing the Imutex transaction in April 2016, we have worked closely in collaboration with SEEK and NIAID to create a precedent-setting trial design for universal flu vaccines, which commenced in our platform in August 2016, and positions us favourably to seek non-dilutive financing for FLU-v's Phase III programme.

“In addition, we have agreed on the details of the pre-clinical package and trial design with the FDA for the first-in-man AGS-v vaccine trial in Zika, which is scheduled to begin in the National Institutes of Health's Clinical Center in Bethesda MD in the next couple of months following completion of manufacturing of this important vaccine candidate.”