Source - SMW
hVIVO has lowered full year revenue expectations due to the accounting treatment of its joint venture investment in Imutex Limited.  

A trading update says that due to the 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 ("SEEK") to develop vaccines against influenza (flu) and mosquito-borne diseases like Zika.  

hVIVO acquired a 49% equity stake in Imutex for £7.0 million in consideration and SEEK contracted with hVIVO Services Limited to conduct a FLU-v Phase IIa clinical study for £5.5 million.

The statement says: "It remains that Imutex will be accounted for as an investment in joint venture in the Company's balance sheet.  However, contrary to the expectations communicated on 22 April 2016 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.  

"However, the company's revenue expectation for the year ended 31 December 2016 reduces accordingly, due to the requirement for this netting off."

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

The scope of the FLU-v study was expanded over the summer in concert with the National Institute of Allergy and Infectious Diseases (NIAID), in order to better position future government funding options for the vaccine, and will be the main utilisation of hVIVO's quarantine facility in H2'16.  

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

The Company's cash balance is expected to be around £22.0 million as at 31 December 2016.

Chief executive Kym Denny said: "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.  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.

"Although the Imutex transaction will be accounted for in a different manner than we had originally anticipated, the nature of hVIVO's work is not impacted.  We continue to support our customers and collaborators in the advancement of their products, by leveraging the key insight that the hVIVO platform provides in early stage drug development."    

At 8:08am: (LON:HVO) Hvivo Plc share price was -7.37p at 176.13p

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