TIDMVEC
RNS Number : 8903P
Vectura Group plc
23 November 2016
Vectura Group plc
Interim Results
Step-change in financial performance and uniquely positioned for
future growth
Strengthened pipeline includes seven late stage assets
Chippenham, UK - 23 November 2016: Vectura Group plc (LSE: VEC)
("the Group"), an industry-leading device and formulation business
for inhaled airways products, today announces its unaudited interim
results for the six months ended 30 September 2016.
Financial Highlights
Step-change in revenue profile following completion of
Skyepharma merger, substantial revenue growth from
recently-launched inhaled products and significant milestone
achievements. Proforma([4]) revenue growth of 31% and proforma([4])
EBITDA([3]) growth of 63% reflects robust underlying
performance.
6 months ended 6 months Change
30 September ended
2016(*) 30 September
2015
-------------------------- ---------------- -------------- -------
Income statement
Revenue GBP73.9m GBP26.1m 183%
Recurring revenue([1])
% 76% 72% +4ppts
Proforma([4])
revenue GBP89.5m GBP68.1m 31%
EBITDA([2]) GBP21.5m GBP4.7m 357%
Proforma EBITDA GBP30.8m GBP18.9m 63%
Basic EPS (3.2p) (0.7p) (357%)
Adjusted EPS([3]) 3.7p 1.2p 208%
Balance sheet At 30 September At 31 March
2016* 2016
Cash and cash
equivalents GBP92.0m GBP99.8m (8%)
Net assets GBP696.0m GBP237.2m 193%
-------------------------- ---------------- -------------- -------
-- Strong operating cash generation and period end cash of
GBP92.0m after a net outflow of GBP36.9m relating to the Skyepharma
merger
-- Loss before taxation of GBP18.6m compared to GBP2.7m in the
comparative period after amortisation of GBP33.0m (H1 2015:
GBP9.3m) and exceptional costs of GBP9.6m (H1 2015: nil)
Operational highlights
Strong underlying performance from marketed products and
significant progress across both the late stage pipeline and
innovative earlier stage assets
-- Sustained in-market sales from recently-launched inhaled
products including flutiform(R) and Ultibro(R) Breezhaler(R) .
Ultibro(R) Breezhaler(R) growth has been fuelled by the positive
results of the FLAME study. The recent publication of the 2017
revised Global Initiative for Chronic Obstructive Lung Disease
(GOLD) strategy are expected to translate to health care
professionals moving away from the historical reliance on inhaled
corticosteroid combinations for the treatment of COPD and therefore
further support future growth for dual bronchodilators such as
Ultibro(R) Breezhaler(R)
-- Significant pipeline progress across all late stage assets
highlights industry-leading device and formulation expertise:
-- Recruitment into the Phase III study is progressing well for
Vectura's leading wholly-owned "smart" nebulised drug/device asset
(VR475) for the treatment of severe asthma in adults. Phase III
results are expected in mid-2018
-- Recruitment is continuing into Novartis' Phase III studies in
their asthma triple programme (QVM149). The study read-out is
planned for 2018 with a planned submission in 2019
-- Hikma's ANDA filing for Generic Advair Diskus(R)[1] (VR315
US) was accepted by the FDA triggering a $10m milestone receipt for
Vectura. A GDUFA date of 10 May 2017 has been confirmed
-- Regulatory progress has been made for VR876, a leading
programme for serious lung disease using our handheld nebuliser
FOX(R) device, and action is expected in Q4 2016
-- Innovative first-in-class assets progressing to Phase II leveraging our partnerships:
-- The innovative inhaled biologic programme in co-development
with UCB (VR942) successfully completed its Phase I study.
Publication of the Phase I results is targeted for the American
Thoracic Society in May 2017 with a Phase II trial scheduled to
start in H2 2017
-- Ablynx NV ("Ablynx") exercised its commercial license option
over Vectura's smart nebuliser technology and confirmed a decision
to progress its wholly-owned inhaled anti-RSV Nanobody(R) ,
ALX-0171, into Phase IIb dose-ranging efficacy study in infants
hospitalised for a RSV infection
Merger implemented with integration and synergy realisation
making excellent progress:
-- Review of enlarged portfolio is complete and pipeline has
been refocused to balance risk and returns and to increase value
capture opportunities
-- Commenced development on VR588, Vectura's wholly-owned
innovative inhaled pan JAK inhibitor.
-- Commenced initial formulation work and initial early
development on three to five generic inhaled development
opportunities with significant value potential
-- Ceased development of pre-clinical SKP-2075 as previously announced
-- Group continues to be on track to deliver at least GBP10m annual synergy savings by 2018
-- Operational and business development initiatives are underway
to maximise the value of Vectura's high quality manufacturing
facility in Lyon. Post period in October:
-- Two new contracts have been signed leveraging the site's
multilayer oral tablet development and manufacturing capability and
capacity
Post period progress
On 22 November the Group announced a further strengthening of
its existing partnership with Hikma (through its wholly owned
subsidiary West-Ward Pharmaceuticals) through the signing of a
development and licence agreement for Vectura's VR730, a generic
salmeterol for the US, and the third generic development programme
with Hikma.
James Ward-Lilley, Chief Executive Officer of Vectura:
"These strong results represent a step-change for Vectura
following the merger with Skyepharma during the period. We have
continued to see sustained momentum in recurring revenues from
recently-launched inhaled products. Vectura now owns or is
partnered with seven assets that are currently in Phase III
development or under regulatory review and we have made substantial
pipeline progress with our innovative and generic assets at both
late and earlier stages. We are making excellent progress with the
merger integration process including completing the portfolio
review, adding new programmes and implementing the new organisation
structure. We remain on course to at least deliver the identified
synergy savings and look forward to strong financial performance
and continued progress across our pipeline in the remainder of the
year and beyond.
Vectura's unique breadth of device platforms, expertise in
formulation and track record of delivering medicines to market
means the Group is well placed to deliver significant further
shareholder value capitalising upon changes in market dynamics,
both as a potential partner for both generic and novel development
programmes and through the future commercialisation of wholly-owned
niche assets targeting specific patient populations."
Analyst briefing
James Ward-Lilley, Chief Executive Officer, and Andrew Derodra,
Chief Financial Officer, will present the Interim Results and
provide an update on the Group's progress and the Skyepharma
integration at a briefing for analysts at 9.30am to 11.00am GMT on
23 November 2016. The presentation will be held in the Guildhall
Room, 85 Gresham Street, London, EC2R 7HE. There will be a
simultaneous live conference call. Dial-in details are:
Participant local dial-in: +44(0)20 3427 1909
Participant free phone
dial-in : 0800 279 4977
Participant code: 9628584
A live webcast of the meeting, with the presentation slides
including pro-forma half year financial information, will be
available on Vectura's website:
http://www.vectura.com/investors/presentations-webcasts/
- Ends -
Enquiries
Vectura Group plc +44 (0)1249 667700
Andrew Derodra - Chief Financial Officer
Fleur Wood - Director Communications
Elizabeth Knowles - Director Investor Relations and Analysis
Consilium Strategic Communications +44 (0)20 3709 5700
Mary-Jane Elliott / Sue Stuart / Jessica Hodgson vectura@consilium-comms.com
About Vectura
Vectura, a FTSE250 company listed on the London Stock Exchange
(LSE: VEC), is an industry-leading inhaled airways disease focused
business with proprietary formulation and devices across DPI, pMDI
and smart nebulisation platforms. With our extensive range of
technologies, capabilities and collaborations, we believe we can
become a leader in the development of inhalation products,
increasing our ability to help patients suffering from respiratory
diseases. In June 2016 Vectura completed a merger with Skyepharma
PLC.
Vectura has seven inhaled, four non-inhaled and ten oral
products marketed by partners with growing global royalty streams,
and a portfolio of drugs in clinical development, a number of which
have licence agreements with several global pharmaceutical and
biotechnology companies including Hikma, Novartis, Sandoz,
Mundipharma, Kyorin, Baxter, GSK, UCB, Ablynx, Grifols, Chiesi,
Almirall, Janssen, and Tianjin KingYork.
For further information, please visit Vectura's website at
www.vectura.com.
Forward-looking statements
This press release contains forward-looking statements,
including statements about the discovery, development and
commercialisation of products. Various risks may cause Vectura's
actual results to differ materially from those expressed or implied
by the forward-looking statements, including: adverse results in
clinical development programmes; failure to obtain patent
protection for inventions; commercial limitations imposed by
patents owned or controlled by third parties; dependence upon
strategic alliance partners to develop and commercialise products
and services; difficulties or delays in obtaining regulatory
approvals to market products and services resulting from
development efforts; the requirement for substantial funding to
conduct research and development and to expand commercialisation
activities; and product initiatives by competitors. As a result of
these factors, prospective investors are cautioned not to rely on
any forward-looking statements. We disclaim any intention or
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise.
Overview
Vectura is ideally placed to capture growing share of evolving
respiratory market
Thanks to its unique device platforms (dry powder devices,
pressurised metered dose inhalers and smart nebulised devices) and
range of novel and generic assets in its own and partnered
portfolio Vectura is well placed to benefit from the continued
market evolution which is underway. The significant acceleration in
the number of new therapies in development and further generics
provide the Group with multiple opportunities to partner and
selectively develop its portfolio and drive shareholder value
creation.
Market overview
The respiratory market, worth over $40 billion([2]) in 2015, is
expected to continue to grow in low single digit percentages
through 2025([3]) . Within this the dynamics of the classes of
products are forecast to change significantly with further generic
penetration of core classes such as ICS/LABA and LAMA and with
newer classes such as LAMA/LABA, triple therapies and biologics
expected to gain momentum. Specifically:
-- The respiratory market share of generics is expected to grow
to 25% of value and 33% of the volume of major inhaled classes by
2025. There will be further penetration of ICS/LABA in Europe/RoW
and first entry into the US expected in 2017
-- The new first biologics, after Xolair(R) , Nucala(R) and Cinqair(R) were launched in 2016
-- The first COPD triple (LABA/LAMA/ICS) is expected to launch
in 2017([4]) with the first asthma triple to launch in 2019/20
Novels
-- LAMA/LABA and LAMA: Ultibro(R) Breezhaler(R) and Seebri(R)
Breezhaler(R) partnered with Novartis(,) in Europe and rest of
world territories where sales are already reaching significant
levels (Q2/Q3 YTD: $195m and $76m respectively). The launch of
Utibron(TM) and Seebri(R) in the US will provide additional
value
-- ICS/LABA: flutiform(R) is enabling Vectura to compete in the branded ICS/LABA market
-- Triple therapies: asthma triple therapies QVM149 (DPI) and
SKP-2076 (pMDI) give Vectura exposure to this important therapy
area. QVM149 is partnered with Novartis and has the potential to be
first-to-market in the asthma indication in Europe
-- Biologics: the Group's innovative co-development programme
with UCB for a novel dry powder biologic for uncontrolled asthma
delivered using one of Vectura's proprietary DPI devices (VR942)
has the potential to be the first inhaled delivery of a biologic
drug and is moving into Phase II
Generics
-- ICS/LABA: exposure to this class through AirFluSal(R)
Forspiro(R) , partnered with Sandoz in Europe and rest of world
territories and Hikma's generic Advair(R) programme (VR315) which
is currently in a regulatory process following the FDA's acceptance
of an ANDA filing
-- Vectura has the opportunity to further leverage its assets to
develop inhaled generic products through strategic relationships
with key generics players including Hikma, where the Group has
announced a third collaboration on 22 November 2016
Exposure to a range of specialist respiratory diseases
-- Ablynx's ALX-0171 programme in RSV which utilises Vectura's
smart nebuliser technology (VR465)
-- A programme in serious lung disease (VR876, undisclosed
partner) which also utilises Vectura's smart nebuliser technology
and is expecting regulatory action in Q4 2016
-- Technology platforms and early stage assets such as VR588
have multiple potential applications in a number of different
indications
Operational Review
Increasing momentum of in-market sales of recently-launched
products
Vectura's portfolio of revenue-generating on-market inhalation
products partnered with Novartis and Sandoz has been strengthened
by the merger and the Group now earns revenues from seven key
inhaled products (flutiform(R) , Seebri(R) /Ultibro(R)
Breezhaler(R) , AirFluSal(R) Forspiro(R) and the three GSK
Ellipta(R) products). During the first half of 2016 these products
generated 55% of the Group's total revenues. All of these products
were launched within the last five years and together generated in
excess of $1.2bn of in-market net sales in the 12 months to 30
September 2016 (H1 2015/16: six products, $544 million 12-month
in-market net sales, 49% of total revenue).
flutiform(R) (Mundipharma (EU & ROW - excluding North
America and Japan) and Kyorin (Japan))
flutiform(R) a fixed dose combination of fluticasone, an inhaled
corticosteroid (ICS), and formoterol, a long-acting beta agonist
(LABA) in a pressurised metered dose inhaler. flutiform(R)
continues to benefit from strong demand and in-market net
sales([5]) for the six month period to 30 September 2016 were 34%
ahead of the same period in 2015 at EUR93.8 million (Q2/Q3 2015:
EUR69.6 million).
EUR'm Q2 Q3 6 months Q2 2016 Q3 6 months
2015 2015 ended 2016 ended
30 September 30 September
2015 2016
--------------------- ------ ------ -------------- -------- ------ --------------
E.U./ROW (excluding
America and
Japan) 24.5 24.7 49.2 32.0 28.0 60.0
--------------------- ------ ------ -------------- -------- ------ --------------
Japan 10.0 10.4 20.4 16.5 17.3 33.8
--------------------- ------ ------ -------------- -------- ------ --------------
Total 34.5 35.1 69.6 48.5 45.3 93.8
--------------------- ------ ------ -------------- -------- ------ --------------
Growth to prior
year comparative
period 35%
--------------------- ------ ------ -------------- -------- ------ --------------
The product is now launched in 33 countries, approved in a
further nine and has applications for marketing authorisations
under review in 15 other countries.
The regulatory review of Mundipharma's application for marketing
authorisation in Europe for the breath-actuated version of
flutiform(R) (K-Haler(R) ) is ongoing.
Mundipharma continues to prepare for a clinical trial in China
for asthma which is planned to start once approval is obtained from
the Chinese Food and Drug Administration ("CFDA"). The analysis of
the results of the COPD study in China/Asia is continuing.
In August 2016, Vectura announced that Mundipharma confirmed its
European Phase III trial of flutiform(R) in COPD did not meet the
primary endpoint. However, flutiform(R) continues to grow strongly
based on the approved asthma indication, that underpins our
expectations for future growth from the product.
Vectura earns revenue from flutiform(R) from both product supply
and royalties on product sales. This comprises a high-single digit
royalty on sales of flutiform(R) in Japan and currently a low
single digit percentage in Europe and rest of world territories due
to the effect of a cap in total royalty and product supply revenues
in the agreement with Mundipharma. Under these agreements the
aggregate amount of royalties on sale of flutiform(R) and product
supply revenue to Mundipharma are capped to a maximum of 35% of
Mundipharma's net sales.
Ultibro(R) Breezhaler(R) and Seebri(R) Breezhaler(R)
(Novartis)
Ultibro(R) Breezhaler(R) (indacaterol/glycopyrronium bromide,
QVA149) a first-in-class once-daily fixed dose dual bronchodilator,
long-acting beta2-adrenergic agonist (LABA)/long-acting muscarinic
antagonist (LAMA). Ultibro(R) has continued to grow strongly,
fuelled by the positive results of the FLAME study. The product in
now approved in over 90 countries (including Japan and EU
countries) with total net sales reported by Novartis during the
period up 48% to $195 million, compared to $132 million in the
comparative period.
The FLAME trial data were published in the New England Journal
of Medicine in May 2016 and additional analyses of these data were
subsequently presented at the European Respiratory Society (ERS)
Congress in September 2016. These analyses showed that, relative to
Seretide(R) , Ultibro(R) Breezhaler(R) reduced the rate of all COPD
exacerbations across different patient sub-groups, lowered
patients' need for rescue medication, and demonstrated an improved
benefit-risk profile with less evidence of systemic effects.
More recently on 16 November 2016, major revisions to the GOLD
treatment guidelines for COPD were announced recommending broad use
of dual bronchodilators to treat COPD and recommending the
first-line use of dual bronchodilators, such as Ultibro(R)
Breezhaler(R) in the treatment of the majority of COPD patients.
The publication supports bronchodilation as the foundation
treatment for COPD patients prior to the use of inhaled steroid
containing therapies, as supported by Novartis' FLAME study
evidence. These guidelines are expected to translate to health-care
professionals moving away from the historical reliance on inhaled
corticosteroid combinations for the treatment of COPD. Ultibro(R)
Breezhaler(R) is currently the only steroid-free treatment to offer
prescribers clinically proven superiority over the most prescribed
ICS/LABA combination([6]) in preventing COPD exacerbations([7])
.
Seebri(R) Breezhaler(R) (glycopyrronium bromide, NVA237) a
once-daily fixed dose inhaled long-acting muscarinic antagonist
(LAMA). Seebri(R) achieved total net sales reported by Novartis of
$76 million for the period, in line with the prior period. This
comes as Novartis focus resource on Ultibro(R) Breezhaler(R) given
the positive FLAME results. The product is now approved for use in
over 90 countries (including Japan and countries in the EU).
QVM149 is a once-daily combination of indacaterol (LABA),
glycopyrronium bromide (LAMA) and mometasone furoate (ICS) for
asthma, made good progress with Novartis continuing recruitment in
their Phase III study. The study read-out is planned for 2018 with
a planned submission in 2019.
Ultibro(R) , Seebri(R) , Breezhaler(R) are registered trademarks
of Novartis AG. Utibron(TM) is a trade mark of Novartis AG.
GSK Ellipta(R) products
GSK has reported continued strong performance of their
Ellipta(R) products (Breo(R) /Relvar(R) Ellipta(R) , Anoro(R)
Ellipta(R) and Incruse(R) Ellipta(R) ) with total net sales in the
period up 188% to GBP455 million compared to GBP158 million in the
comparative period.
Vectura receives royalties on sales of these products under the
legacy Skyepharma agreement with GSK, subject to a GBP9 million
calendar year cap. Based on market expectations for sales of the
Ellipta(R) products, the Board continues to expect these royalties
to reach this cap in 2017.
Until the end of July 2016, the Group also earned royalties from
GSK under a legacy Vectura agreement, capped at GBP13 million in
any calendar year. From April to September 2016, royalties earned
under this contract totalled GBP7.0 million. During the period from
1 January to 30 September 2016 the Group received substantially all
of the royalties that would have been due under the calendar year
cap of GBP13 million.
In July, Vectura announced that it has initiated legal
proceedings against GSK in the US following GSK's decision not to
extend the term of its legacy agreement with Vectura beyond 31 July
2016, by licensing additional patent families under the terms of
the 2010 option-to-licence patent agreement between the parties.
Whilst Vectura intends to enforce its patent rights to the fullest
extent it remains open to finding a mutually acceptable solution in
order to avoid costs and potential uncertainty. Until the outcome
of the litigation is known, or a compromise is reached, the Group
is not reflecting the receipt of further income from GSK in
relation to the patent rights covered by the expired 2010 option-to
license patent agreement.
Anoro(R) Ellipta(R) . Relvar(R) Ellipta(R) /Breo(R) Ellipta(R)
and Incruse(R) Ellipta(R) are registered trademarks of GSK
AirFluSal(R) Forspiro(R) (Sandoz)
An innovative inhaler with inhaled combination therapy
fluticasone propionate (ICS) and salmeterol (LABA) for asthma
and/or COPD. The product has been launched to date in approximately
30 countries, in Europe and elsewhere.
In August 2016, Vectura confirmed the announcement made by its
partner that new data published in a leading medical journal showed
for the first time that the probability of treatment persistence
for patients using the innovative Sandoz AirFluSal(R) Forspiro(R)
respiratory inhaler is more than twice as high as the reference
product at 12 months. All patients were first time users of
salmeterol/fluticasone propionate and persistence to treatment was
analysed for a 12 month period.
AirFluSal(R) andForspiro(R) are registered trademarks of
Novartis AG.
Significant pipeline progress across a broad range of late stage
assets
VR315 US, (fluticasone proprionate/salmeterol), our partnered
programme with Hikma for a generic version of Advair(R) Diskus(R)
for the treatment of asthma and COPD in adolescents and adults for
the US. In April 2016, the US FDA accepted an ANDA filing made by
Hikma and Vectura recognised a milestone receipt of $10 million.
The FDA has provided Hikma with a GDUFA goal date of 10 May 2017.
Vectura will receive $11 million on approval of the file plus a
royalty on net sales of VR315 in the US.
Our partner Hikma, is currently one of only two companies to
have publicly filed and had accepted a generic ANDA filing for
Advair(R) Diskus(R) . Both companies' applications have been
accepted and are in a FDA regulatory review process.
VR475 EU, Vectura's leading wholly-owned drug/device combination
using the AKITA(R) JET smart nebuliser technology delivering
nebulised budesonide for the treatment of severe uncontrolled adult
asthma in Europe. Recruitment in to the Phase III study is
progressing well; the majority of study sites have now been
initiated and over 450 patients have been enrolled. Study results
are anticipated in mid-2018.
VR647 US, Vectura's second wholly-owned drug/device combination
using the AKITA(R) JET smart nebuliser technology as a maintenance
treatment for paediatric asthma in the US. An IND filing is
anticipated by the end of 2016. A supply chain for sterile product
is required by the US market and this is being established. Once in
place, a Phase I study will be conducted to support initiation of
Phase III in mid-2018 with filing anticipated in mid-2020.
VR876, regulatory progress has been made and action is expected
in Q4 2016. This programme is the most advanced smart nebuliser
partnered programme using FOX(R) and is being developed as a
nebulised version of a currently marketed drug for the treatment of
serious lung disease to improve the patient acceptance of the
product.
Innovative first-in-class assets with potential to progress to
Phase II
VR942, a novel dry powder biologic for uncontrolled asthma being
co-developed with UCB and utilising Vectura's large molecule
formulation expertise and delivered using one of Vectura's
proprietary DPI devices. This programme, which has the potential to
be the first inhaled delivery of a biologic drug, continued to make
significant progress and in June the Group announced the successful
completion of the Phase I clinical study which showed that the
study met its primary objective of evaluating the safety and
tolerability of once daily VR942 single or repeat doses,
administered as a dry powder via inhalation, in healthy volunteers
and mild asthmatics respectively. Initiation of the Phase II trial
is expected in H1 2017.
This is an exciting opportunity with biologics currently
estimated to be worth $1.2 billion in G7 markets (Omalizumab) and
is expected to increase to $3-5 billion([8]) . There are over 6
million patients with severe persistent asthma([9]) in major
markets, of which 20% are uncontrolled.([10]) The opportunity for
this programme is to displace parenteral biologics with novel
medicine that offers similar or better efficacy and a more
convenient delivery route.
VR465, Vectura's FOX(R) smart nebuliser technology used to
deliver Ablynx's wholly-owned inhaled anti-RSV Nanobody(R) ,
ALX-0171, for the treatment of respiratory syncytial virus ("RSV")
in infants.
ALX-0171 is a first-in-class new treatment option for RSV
infections in vulnerable patient populations. The FOX(R) device
used in this programme has been adapted for use with neonates and
infants, demonstrating the utility of the Vectura smart nebuliser
technology.
As announced during the period, Ablynx exercised its commercial
licence option on Vectura's smart nebuliser technology and
confirmed their intention to progress their ALX-0171 programme into
a Phase IIb dose-ranging efficacy study in RSV-infected
hospitalised infants.
Progressing additional programmes
VR588, Vectura's wholly-owned novel broad-based, potent and
selective inhaled pan-JAK (Janus Kinase) inhibitor as an inhaled
therapy, with potential application in multiple indications.
Following completion of the pipeline review, this programme is
being progressed into Phase I/IIa which will start in H1 2017 with
the option to out-license or develop further internally.
New generics, three to five significant new generic development
opportunities were also identified in the pipeline review and work
is planned to commence shortly. Activity will focus on initial
formulation and preclinical development of these new mass-market
pressurised metered dose (pMDI) and dry powder (DPI) opportunities
with significant value potential.
Post period progress
On 22 November the Group announced a further strengthening of
its existing partnership with Hikma (through its wholly-owned
subsidiary West-Ward Pharmaceuticals) through the signing of a
development and licence agreement for Vectura's VR730, a generic
salmeterol for the US, and the third generic development programme
with Hikma
-- VR730 is a generic long acting beta-agonist (LABA) for the
treatment of Asthma and COPD delivered using Vectura's proprietary
dry powder inhalation technology and device
-- According to IMS, US sales of inhaled DPI and pMDI LABAs were
approximately $150 million in 2015([11])
-- Under the terms of this agreement, Hikma will be responsible
for the US commercialisation and manufacture of the product
together with clinical development. Vectura will complete the
formulation development of VR730 which will largely be funded by
Hikma and there is no material impact on the level of the Group's
R&D investment.
-- Vectura will receive an initial payment of $375,000 and
potential further development, filing, approval and launch
milestones up to an aggregate of $1.125 million. The Group is also
eligible for a share of future returns of the product in line with
its existing generic agreements, subject to certain recoveries by
Hikma for the costs of the clinical endpoint pivotal trial.
Merger integration on track
A new organisation structure is being implemented and Vectura
remains on track to deliver at least GBP10 million synergy savings
per annum by 2018.
Oral and Non-inhaled
Total revenues from oral and non-inhaled products are ahead of
previous expectations with Solaraze(R) in the US continuing to
benefit from short-term exceptional market factors. Higher than
anticipated production of ADVATE(R) inventory by Baxter prior to
expiry of Vectura's patents in January 2016 has also resulted in
increased royalty receipts for the product, which is likely to
continue as this stock will supply the market into Q4 2016.
On 2 November 2016, Pacira Pharmaceuticals, Inc. ("Pacira")
announced net sales of EXPAREL(R) of $64.9 million in Q3 2016, an
increase of 9% compared with the third quarter of 2015. The Group
earns 3% of net sales (on a cash received basis) of EXPAREL(R) . In
addition, on 5 August 2016 the Group reported that a sales
milestone receipt of $8 million was triggered following
confirmation by Pacira that worldwide annual net sales of
EXPAREL(R) (on a cash-received basis) to 30 June 2016 were above
$250 million. The Group is also eligible to receive a sales
milestone payment of $32 million when worldwide annual net sales of
the product reach $500 million (on a cash-received basis). In
addition, whilst currently the product is only launched in the US,
the Group would also be entitled to a milestone payment of $4
million if EXPAREL(R) is launched in a major European market.
Post period in October, Pacira's partner, Aratana Therapeutics,
announced the US launch of EXPAREL(R) in dogs; NOCITA(R)
(bupivacaine liposome injectable suspension) is a CVM (US FDA's
Center for Veterinary Medicine) approved product for local
post-operative analgesia for cranial cruciate ligament surgery in
dogs.
Lyon
A number of operational and business development initiatives are
underway to maximise the value of Vectura's high-quality
manufacturing facility in Lyon. Post period in October:
-- Vectura signed two new contracts which leverage the sites
multilayer oral tablet development and manufacturing capability and
capacity. A collaboration agreement was signed with Jiangsu
Sinoyoung Biopharmaceutical Co. Ltd for the development of
SKP-1041, a sleep maintenance therapy, for the Chinese market. In
addition, a development contract was signed for an undisclosed
generic product launch in Europe, leveraging the Lyon site, and its
biopharmaceutical capabilities and capacity.
Outlook
With established momentum particularly from its
recently-launched marketed inhaled products, the Board continues to
expect strong growth in revenues in line with its raised
expectations for the financial year as announced in the AGM Trading
Update on 7 September 2016. As Vectura earns the majority of its
revenues in US dollars and Euros, the continued volatility of
sterling against these currencies may also affect reported
results.
As the Group's wholly-owned specialist programmes progress in
development, we will continue to evaluate options to establish
specialist commercial infrastructure and capture a greater margin
share. There may be opportunities to accelerate this through
targeted acquisitions, particularly in the US, subject to rigorous
evaluation of potential shareholder value creation.
The Board looks forward to a strong end to 2016 and further
growth in revenues in 2017. Added to this are the potential new
launches including Utibron(TM) , Seebri(R) and generic Advair(R)
(VR315) which will build on the existing momentum from on-market
products.
Capital allocation
The Group maintains a disciplined approach to capital allocation
in support of its priorities for future growth in shareholder
value. Investment in research and development (R&D) is expected
to remain within the Board's expectations for 2016 and 2017 (as
shown below) as the Group progresses the following core assets
through development:
-- Our leading wholly-owned "smart" nebuliser asset in severe
adult asthma (VR475) will continue its Phase III clinical trial in
Europe
-- Our second, wholly-owned "smart" nebuliser asset in
paediatric asthma (VR647) will enter Phase I trial in the US
-- Our innovative co-development programme with UCB (VR942) is
planned to move into a Phase II trial
-- Our novel pan-JAK inhibitor programme (VR588) is planned to progress into Phase I/IIa
-- Early formulation work will continue on the three to five new
generic opportunities previously announced
-- On-going potential business development opportunities have
increased since the merger and there are a number of meaningful
prospects under discussion.
In addition the Board expects that capital expenditure, from a
relatively low base in 2016, will peak during 2017 with initiatives
to expand manufacturing capacity and commencing establishment of a
second line to meet growing demand for flutiform(R) .
Guidance on capital allocation is summarised below:
2016 2017
-------------------- --------- ---------
R&D GBP40m - GBP65m -
GBP50m GBP75m
Capital expenditure GBP5m - GBP15m -
GBP10m GBP20m
Financial Review
All-share merger with Skyepharma PLC
Comparison with the previously-reported interim results is
affected by the merger with Skyepharma PLC ('Skyepharma'). As set
out in note 1 to the Condensed Consolidated Financial Statements,
for the purposes of IFRS 3 Business Combinations, it has been
determined that Vectura Group plc ('Vectura') acquired Skyepharma
and therefore Vectura has consolidated Skyepharma from the merger
date of 10 June 2016. The details of the business combination are
set out in note 11 to the Condensed Consolidated Financial
Statements.
Summary of financial results
Results for the six-month period ended 30 September 2016 reflect
the inclusion of Skyepharma from 10 June 2016 and continued strong
organic growth in royalties and receipt of a $10 million milestone
from Hikma following the FDA's acceptance of the ANDA filing for
VR315.
Revenues in the first half of 2016 of GBP73.9 million were 183%
higher compared with the comparative period and combined revenues
from recurring sources comprising royalties, share of sales and
product supply and device sales accounted for 76% of overall
revenue (H1 2015/16: 72%). Adjusted EBITDA grew GBP16.8 million to
GBP21.5 million for the period (H1 2015/16: GBP4.7 million) after a
GBP19.9 million increase in cost of sales due to the inclusion of
Skyepharma, and a GBP8.3m increase in R&D investment as the
Group progressed its development pipeline.
Despite higher Adjusted EBITDA, there was an increased net loss
before tax of GBP22.4 million (H1 2015/16: GBP5.0m loss). This is
due to a significantly higher charge for amortisation of intangible
assets of GBP33.0 million (H1 2015/16: GBP9.3 million) with
GBP375.9 million of intangible assets provisionally recognised in
these interim statements upon completion of the merger. The Group
has also recognised GBP9.6 million of exceptional expenditure
primarily relating to the previously-announced costs for the
completion of the merger and the associated post-merger integration
costs associated with headcount reductions and other business
alignment initiatives.
Vectura has maintained a robust balance sheet with cash and cash
equivalents of GBP92.0 million and an undrawn committed credit
facility of GBP50 million at the balance sheet date. No further
consideration payments are due in respect of the merger with
Skyepharma.
Supplementary unaudited pro-forma financial information is
presented as though the merger with Skyepharma was implemented on 1
April 2015 and excludes acquisition accounting adjustments. This
information is included in order to indicate underlying comparative
performance. Please refer to the Appendix for more details. On a
pro-forma basis, revenues for the first half of 2016 were up 31% to
GBP89.5m (H1 2015/16: GBP68.1 million). Pro-forma Adjusted EBITDA
for the same period was 63% higher at GBP30.8m (H1 2015/16: GBP18.9
million).
Revenues
Revenues for the six months ended 30 September 2016 were GBP73.9
million (H1 2015:16: GBP26.1 million) comprising royalties, product
supply and device sales, product and technology licensing,
development services and other income. The increase compared with
the prior period is due to the inclusion of Skyepharma from 10 June
2016 strong organic royalty growth and a $10 million milestone from
Hikma following the FDA's acceptance of the ANDA filing for VR315.
Pro-forma revenue growth of 31% reflects organic growth in
royalties and flutiform product supply revenues together with the
$10 million milestone from Hikma in respect of VR315 and an $8
million milestone from Pacira as EXPAREL(R) reached $250 million of
annual sales (on a cash-received basis) in June.
Royalties
Royalty income of GBP30.7 million has grown by 84% compared with
the same period in the prior year (H1 2015/16: GBP16.7 million).
Following the merger with Skyepharma, the Group now earns royalties
from 21 marketed products (H1 2015/16: 8 products), 7 of which were
launched since 2012 (H1 2015/16: 6).
Net sales of Ultibro(R) Breezhaler(R) , as reported by Novartis,
have grown by 48% to $195 million for the six-month period ended 30
September 2016 (H1 2015/16: $132 million). Net sales of Seebri(R)
Breezhaler(R) , as reported by Novartis, have remained consistent
with the prior period at $76m (H1 2015/16: $76 million). As a
result of this continued strong sales growth in Ultibro(R) ,
royalties earned from Novartis for sales of these products have
increased by 39% to GBP7.8 million during the six-month period (H1
2015/16: GBP5.6 million).
GSK have reported continued strong performance of their
Ellipta(R) products (Breo(R) /Relvar(R) Ellipta(R) , Anoro(R)
Ellipta(R) and Incruse(R) Ellipta(R) ), with total net sales in the
period up 188% to GBP455 million compared to GBP158 million in the
comparative period.
Royalties for the period in respect of Vectura's legacy licence
agreement were GBP7.0 million (H1 2015/16: GBP4.6 million) and were
GBP2.7 million in respect of the Skyepharma licences. As announced
on 27 July 2016, GSK has decided not to extend its legacy Vectura
agreement beyond 31 July 2016 by licensing additional patent
families under the terms of the 2010 option-to-licence patent
agreement between the parties and accordingly royalty payments to
the Group ceased. Whilst this decision by GSK does not materially
affect the Group's revenue for the period to 31 December 2016, the
impact will be up to GBP13 million per annum from 2017. Vectura has
filed a patent infringement lawsuit against GSK in the US. Whilst
Vectura intends to enforce its patent rights to the fullest extent
it remains open to finding a mutually acceptable solution in order
to avoid costs and potential uncertainty. Until the outcome of the
litigation is known, or a compromise is reached, the Group is not
reflecting the receipt of further income from GSK in relation to
the patent rights covered by the expired 2010 option-to license
patent agreement.
Vectura continues to receive royalties from GSK for sales of the
Ellipta(R) products under the legacy Skyepharma licence with GSK,
subject to a cap of GBP9m per calendar year. Based on market
expectations for sales of the Ellipta(R) products, the Board
continues to anticipate this cap being reached during 2017.
Royalties from flutiform(R) , which continues to benefit from
growing demand, have contributed GBP1.7m to the Group's reported
royalty revenue in the post-merger period. In-market net
sales([12]) for the six-month period ended 30 September 2016 were
EUR93.8 million, 35% higher than the same period in the prior year
(H1 2015/16: EUR69.6 million).
Other royalties largely relate to sales of the non-inhaled
products, primarily ADVATE(R) , Solaraze(R) in the US and the
legacy Skyepharma oral portfolio. ADVATE(R) royalties of GBP6.2
million reflect the run-off sales of inventory produced by Baxter
prior to the patent expiry in January 2016. As previously
communicated, the Directors anticipate that these royalties will
continue through the year, though the majority of stock has now
been supplied into the market. Solaraze(R) royalties were GBP1.2
million for the period as US sales continued to benefit from
short-term market factors.
Royalty rates for Vectura's typical partnered generic
programmes, where Vectura has been responsible for the formulation
development and device development, are a mid-teen percentage and
for a typical novel partnered programme, where Vectura has been
responsible for the formulation development, royalty rates are
typically a low-single digit percentage.
Product and technology licensing
Product and technology licensing milestones of GBP14.6 million
(H1 2015/16: GBP5.1 million) reflect the significant progress of
our partnered programmes during the six-month period.
In April 2016, the Group received a $10m milestone from Hikma,
our partner on VR315 US, following acceptance by the US FDA of
Hikma's ANDA filing. Vectura is eligible to receive further
milestone payments totalling $11m upon approval by the FDA. The
product has an expected GDUFA date of 10 May 2017 and, if approved
and launched, Vectura will receive a mid-teens percentage royalty
from net sales of VR315 in the US.
In May 2016, Ablynx, the Group's partner on VR465, exercised its
commercial licence option on Vectura's smart nebuliser technology
to progress ALX-0171 into a Phase IIb dose-ranging efficacy study
and the Group received a EUR1.5 million milestone. Vectura is
eligible to receive further milestones linked to development and
regulatory progress of the programme and royalties on any future
net sales of the product.
In August 2016, the Group recorded a sales milestone of $8
million following confirmation by Pacira that worldwide annual net
sales of EXPAREL(R) (on a cash-received basis) to 30 June 2016 had
reached $250 million. The Group is also eligible to receive further
milestones as explained earlier.
Product supply and device sales
Product supply and device sales revenues were GBP23.6 million
for the period (H1 2015/16: GBP2.1 million), mainly due to GBP18.2
million from the supply of flutiform(R) to the Group's partners
Mundipharma and Kyorin.
Other device sales grew by 29% to GBP2.7 million (H1 2015/16:
GBP2.1 million), principally due to sales of Vectura's GyroHaler(R)
device to Sandoz to support the continued roll out and growth of
AirFluSal(R) Forspiro(R) in a number of European and Rest of the
World territories. Vectura also earns a royalty on sales of
AirFluSal(R) Forspiro(R) .
Product supply for oral products contributed GBP2.7 million for
the period.
Development services
Development services revenues of GBP2.8 million were recognised
during the half year (H1 2015/16: GBP2.2 million) mainly relating
to the on-going development of the breath actuated version of
flutiform(R) for Mundipharma, and support for Hikma on the US
filing for VR315 and work for Janssen on VR096.
Other revenue
Other revenue of GBP2.2 million (H1 2015/16: GBPnil) is largely
comprised of the Group's three percent share of Pacira's cash
receipts from net sales of EXPAREL(R) . Pacira reported Q3 2016 net
sales of EXPAREL(R) of $64.9 million, an increase of 9% compared
with the third quarter of 2015. Taken together with Q2 2016,
Pacira's total net sales in Q2/Q3 2016 were $130.7 million, an
increase of 12% versus the prior year comparative period.
Other revenues also include the final portion of the annual
rental income from the Lyon facility for the period 10-30 June
2016, after which the Aenova lease of the facility expired.
Cost of sales
Cost of sales increased by GBP19.9m to GBP21.6m reflecting the
inclusion of flutiform(R) supply chain from 10 June 2016. Gross
profit from flutiform(R) product supply was GBP2.6 million, which
equates to a margin of 14%, after inclusion of a GBP3.7 million
charge for the unwinding of the fair value uplift on inventory
recognised on the merger date. Half-year end inventories for the
flutiform(R) supply chain were GBP18.1 million.
Research and development
Total investment in research and development (R&D) was
GBP26.1 million, GBP8.3 million higher than the prior period (H1
2015/16: GBP17.8 million).
Expenditure during the period primarily related to our
wholly-owned programmes VR475 (FAVOLIR(R) EU) and VR647 (SCIPE US).
Recruitment into the Phase III study for VR475 has continued to
progress well during the period and preparations are underway for
an IND filing and subsequent Phase I clinical trial in VR647. We
have continued to invest in our platform technologies in support of
these and other programmes.
The Group has continued to prioritise and manage R&D
investment in support of strategic objectives. As announced on 7
September 2016, the Board has reviewed the Group's combined
development pipeline following the merger to ensure a balanced
portfolio with focussed investment in additional novel and generic
programmes for longer-term value creation funded by halting further
development of SKP-2075. As a result, the pipeline has an increased
number of programmes with an overall lower risk profile, but
similar funding requirements.
Amortisation of intangible assets
The amortisation charge for the six-month period was GBP33.0
million compared with GBP9.3 million in the comparative period.
This increase relates to the amortisation of the intangible assets
provisionally recognised in accordance with IFRS 3 Business
Combinations following the merger with Skyepharma.
Exceptional items
Adjusted EBITDA is stated before GBP9.6 million of exceptional
items. This comprises GBP6.1 million mainly related to professional
advice payable on completion of the merger, GBP3.2 million of
post-merger integration activities and GBP0.3 million largely due
to costs incurred so far from initiating legal proceedings against
GSK relating to enforcement of Vectura's patents in respect of the
Ellipta(R) products.
Loss before tax
The Group has reported an increased loss before tax of GBP22.4
million (H1 2015/16: GBP5.0 million) as a result of a significant
increase in amortisation of intangible assets and exceptional items
associated with the Skyepharma merger.
Taxation
The total taxation credit of GBP3.8 million (H1 2015/16: GBP2.3
million credit) comprises the movement in deferred taxation
liabilities and assets within the Group and a current tax expense
of GBP2.5 million in respect of the Group's UK, Swiss and US income
at a combined effective tax rate of 17%.
Net result
Loss for H1 2016 after tax and exceptional items was GBP18.6
million (H1 2015/16 GBP2.7 million).
Earnings per share
Basic EPS reflects increased amortisation charges and
exceptional costs as above associated with the merger and was 357%
lower at a 3.2p loss per share (H1 2015/16: 0.7p loss per share).
Adjusted EPS, which is calculated using adjusted EBITDA has
increased by 208% to 3.7p (H1 2015/16: 1.2p).
Accounting for the merger with Skyepharma
The consideration transferred to acquire Skyepharma PLC was
GBP475.5 million. The provisional fair value of the net assets
acquired was GBP371.6 million and thus provisional goodwill of
GBP103.9 million has been recognised. The Skyepharma assets and
liabilities acquired consisted of intangible assets of GBP375.9
million, property, plant and equipment of GBP39.5 million, deferred
taxation liabilities of GBP58.6 million (largely related to the
fair value uplifts on the net assets acquired) and other net assets
of GBP14.8 million. In the period from 10 June 2016, Skyepharma has
contributed GBP14.2 million profit to the Group's adjusted EBITDA
and a GBP10.8 million loss to the Group's loss after taxation. The
impact on adjusted EBITDA and loss after taxation in the period,
which resulted from unwinding the fair value uplifts recognised on
the merger date, is a loss of GBP3.7 million and GBP23.3 million,
respectively. The impact on adjusted EBITDA relates largely to
unwinding the fair value uplift on the acquired inventory. Loss
after taxation is also impacted by the amortisation of the
intangible assets recognised upon acquisition and by the reduction
of the deferred tax liability relating to the fair value
uplifts.
Due to the proximity of the merger to Vectura's interim period
end, the initial accounting outlined above is deemed to be
provisional pending finalisation of the fair value exercise.
Accordingly, the assets, liabilities may be restated at any time up
to the anniversary of the completion date in June 2017.
Balance sheet
Intangible assets
Intangible assets as at 30 September 2016 of GBP483.4 million
have increased by GBP391.2 million during the period. This reflects
the merger with Skyepharma as intangible assets with a provisional
value of GBP375.9 million were recognised, with the largest asset
being attributed to flutiform(R) . These assets, which are
denominated in Swiss Francs and US Dollars, will be amortised over
their useful lives.
Property, plant and equipment
Vectura has invested GBP1.7 million (H1 2015/16: GBP1.4 million)
in its inhaled product manufacturing capabilities during the
six-month period and it acquired assets with a fair value of
GBP39.5 million as a result of the merger.
Translation reserve
The assets and liabilities, including goodwill, acquired from
Activaero are denominated in Euros and those arising from the
merger with Skyepharma are denominated in Swiss Francs, Euros and
US Dollars. Therefore, in accordance with accounting standards, the
Group has recognised a net foreign exchange gain of GBP55.7 million
(H1 2015/16: GBP0.9 million gain) within reserves as a result of
the movement in the relevant exchange rates between 1 April 2016
(for the Activaero assets) and 10 June 2016 (for the Skyepharma
assets) and the balance sheet date. In future periods, the movement
in this reserve will be dependent upon the GBP/EUR, GBP/CHF and
GBP/$ exchange rate at the relevant balance sheet dates.
Cash position and liquidity
Vectura continues to maintain a strong cash position with cash
and cash equivalents at 30 September 2016 of GBP92.0 million (31
March 2016: GBP99.8 million). The Group generated a net cash inflow
of GBP24.9 million from operating activities (H1 2015/16: GBP9.4
million), which is reflective of growing and sustainable cash
receipts from recurring revenue from inhaled products and a
continued focus on cost control and capital allocation throughout
the business.
During the period, Vectura paid GBP52.1 million to the former
shareholders of Skyepharma, being the partial cash alternative
offered as consideration for the merger. Skyepharma's cash holdings
on the date of acquisition were GBP27.1 million, such that the net
cash outflow in respect of the merger was GBP25.0 million.
Exceptional acquisition costs of GBP11.9 million were also paid
during the period. The remaining consideration was settled by a
transfer of shares. No further consideration is due in respect of
this transaction.
By order of the Board,
Andrew Derodra
Chief Financial Officer
22 November 2016
Vectura Group plc - Unaudited pro-forma income statement
The following pro-forma information has been prepared as if the
Skyepharma merger occurred on the first day of the comparative
period. This information has been extracted from the Group's
management accounts excluding the impact of acquisition accounting
adjustments as required by IFRS 3 Business Combinations. The
information is non GAAP and unaudited but provided to illustrate
indicative and directly comparable underlying performance.
6 months ended 6 months ended
30 September 2016 30 September 2015
Vectura Skyepharma Total Vectura Skyepharma Total
(Unaudited) GBPm GBPm GBPm GBPm GBPm GBPm
------- -------
Pro-forma Revenue
Royalties 22.4 14.6 37.0 16.7 11.7 28.4
Product supply
and device sales 2.7 28.1 30.8 2.1 24.6 26.7
Signing and milestone
payments 8.4 6.3 14.7 5.1 0.1 5.2
Development services 1.5 2.1 3.6 2.2 2.9 5.1
Other revenues
(note 1) - 3.4 3.4 - 2.7 2.7
---------------------------------------------- ----------- ------- --------------------- ----------- -------
35.0 54.5 89.5 26.1 42.0 68.1
Pro-forma Cost
of sales (1.8) (21.6) (23.4) (1.7) (19.4) (21.1)
Pro forma Gross
profit 33.2 32.9 66.1 24.4 22.6 47.0
-------------------------- ---------------------------------------------- ----------- ------- --------------------- ----------- -------
Selling and marketing
expenses (1.4) (0.8) (2.2) - (0.7) (0.7)
Research and development
expenses (22.1) (7.2) (29.3) (17.8) (6.5) (24.3)
Corporate and other
administrative
expenses (3.2) (2.6) (5.8) (2.5) (2.5) (5.0)
Add back depreciation 0.7 1.3 2.0 0.6 1.3 1.9
Pro forma Adjusted
EBITDA (note 2) 7.2 23.6 30.8 4.7 14.2 18.9
-------------------------- ---------------------------------------------- ----------- ------- --------------------- ----------- -------
Notes:
(1) Other revenue includes GBP3.0 million (2015: GBP2.0 million)
from the share of net sales of EXPAREL in the United States and
GBP0.4 million (2015: GBP0.7 million) in rental income in respect
of the management lease to the Aenova Group of the manufacturing
facility in Lyon, France, which terminated on 30 June 2016 and
transferred back to the Group upon expiry.
(2) Pro forma Adjusted EBITDA represents loss before taxation
adding back non cash movements in depreciation, amortisation,
share-based payments and before exceptional items and also excludes
investment income and share of associate results as if the
transaction had occurred on the first day of the comparative period
and excluding acquisition accounting adjustments to indicate
underlying performance.
Condensed consolidated income statement
for the six months ended 30 September 2016
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Note (unaudited) (unaudited) (audited)
------------------------------ ---- ------------- -------------- ------------
Revenue 2 73.9 26.1 72.0
Cost of sales (21.6) (1.7) (3.3)
Gross profit 52.3 24.4 68.7
------------------------------ ---- ------------- -------------- ------------
Selling and marketing
expenses (1.8) - --
Research and development
expenses (26.1) (17.8) (42.1)
Corporate and administrative
expenses (4.5) (2.5) (4.8)
Share-based payments (1.4) (1.1) (2.5)
Adjusted operating profit 18.5 3.0 19.3
------------------------------ ---- ------------- -------------- ------------
Amortisation of intangibles (33.0) (9.3) (18.8)
Exceptional items 3 (9.6) - (5.6)
Operating loss (24.1) (6.3) (5.1)
------------------------------ ---- ------------- -------------- ------------
Net financing income 4 1.9 1.7 3.8
Share of result of associates (0.2) (0.4) (0.6)
Loss before taxation (22.4) (5.0) (1.9)
------------------------------ ---- ------------- -------------- ------------
Taxation 5 3.8 2.3 6.9
(Loss) / profit after
taxation (18.6) (2.7) 5.0
------------------------------ ---- ------------- -------------- ------------
Adjusted EBITDA 6 21.5 4.7 23.2
(Loss) / earnings per
share for the period
Basic 7 (3.2p) (0.7p) 1.2p
Diluted 7 (3.2p) (0.7p) 1.2p
------------------------------ ---- ------------- -------------- ------------
Adjusted EBITDA per share
for the period
Basic 7 3.7p 1.2p 5.7p
Diluted 7 3.7p 1.1p 5.6p
------------------------------ ---- ------------- -------------- ------------
Notes 1 to 16 form an integral part of these interim financial
statements.
All results are attributable to the shareholders of Vectura
Group plc and are derived from continuing operations with
Skyepharma Group included from 10 June 2016. Refer to note 1 Basis
of preparation and note 11 Business combinations for details of the
merger, the impact on reported performance and the provisional fair
values determined in accordance with IFRS 3 Business
Combinations.
Condensed consolidated statement of other comprehensive
income
for the six months ended 30 September 2016
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- -------------- -------------- ----------
(Loss) / profit after taxation (18.6) (2.7) 5.0
------------------------------------- -------------- -------------- ----------
Items that may be reclassified
to profit or loss in subsequent
years
Foreign currency translation
differences from foreign operations
(net of deferred tax on overseas
permanent funding) 55.7 0.9 5.4
Items that will not be reclassified
to profit or loss in subsequent
years
Actuarial gains and losses
(net of deferred tax) (0.2) - -
Total comprehensive income
/ (expense) 36.9 (1.8) 10.4
------------------------------------- -------------- -------------- ----------
Notes 1 to 16 form an integral part of these interim financial
statements.
On 23 June 2016, the United Kingdom held a referendum and voted
to leave the European Union. Sterling significantly weakened
against a number of currencies, including the functional currencies
of the Group's principal overseas operations - the US Dollar, Swiss
Franc and Euro. As a result, the Group recorded a GBP55.7m foreign
exchange gain on translating overseas operations into the Sterling
presentation currency of the Group. This relates predominantly to
the Skyepharma fair value adjustments, as described in note 11
Business combinations.
Condensed consolidated balance sheet
as at 30 September 2016
30 September 31 March
2016 2016
GBPm GBPm
Note (unaudited) (audited)
------------------------------ ---- ------------ ----------
ASSETS
Non-current assets
Goodwill 11 174.2 57.4
Intangible assets 11 483.4 92.2
Property, plant and equipment 11 55.9 11.6
Other non-current assets 4.0 1.6
------------------------------ ---- ------------ ----------
Total non-current assets 717.5 162.8
------------------------------ ---- ------------ ----------
Current assets
Inventories 19.7 0.7
Trade and other receivables 8 39.2 22.2
Cash and cash equivalents 92.0 99.8
Total current assets 150.9 122.7
------------------------------ ---- ------------ ----------
Assets held for sale - 0.3
------------------------------ ---- ------------ ----------
Total assets 868.4 285.8
------------------------------ ---- ------------ ----------
LIABILITIES
Current liabilities
Trade and other payables 9 (57.4) (26.6)
Corporation tax payable (8.8) -
Provisions 10 (3.5) (0.6)
Total current liabilities (69.7) (27.2)
------------------------------ ---- ------------ ----------
Non-current liabilities
Other payables (10.6) (1.0)
Provisions 10 (1.6) -
Retirement obligations (9.5) -
Deferred taxation (81.0) (20.4)
Total non-current liabilities (102.7) (21.4)
Total liabilities (172.4) (48.6)
Net assets 696.0 237.2
------------------------------ ---- ------------ ----------
SHAREHOLDERS' EQUITY
Share capital 12 0.2 0.1
Share premium 101.9 101.6
Merger reserve 12 421.8 -
Own shares reserve (0.5) -
Share-based payments 18.6 17.4
Translation reserve 48.1 (7.6)
Retained losses (27.2) (7.4)
Other reserves 133.1 133.1
------------------------------ ---- ------------ ----------
Total shareholders' equity 696.0 237.2
------------------------------ ---- ------------ ----------
Notes 1 to 16 form an integral part of these interim financial
statements.
Condensed consolidated statement of changes in equity
for the six months ended 30 September 2016
Own
Share Share Merger shares Share-based Translation Retained Other Total
capital premium reserve reserve payments reserve losses reserves equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- -------- -------- --------- ----------- ----------- -------- ---------- -------
At 31 March
2016 0.1 101.6 - - 17.4 (7.6) (7.4) 133.1 237.2
-------------------- -------- -------- -------- --------- ----------- ----------- -------- ---------- -------
Loss for the
period - - - - - - (18.6) - (18.6)
Other comprehensive
income - - - - - 55.7 (0.2) - 55.5
-------------------- -------- -------- -------- --------- ----------- ----------- -------- ---------- -------
Total comprehensive
income
for the period - - - - - 55.7 (18.8) - 36.9
Skyepharma scheme 0.1 - 424.3 - - - - - 424.4
Share transaction
costs - - (2.5) - - - - - (2.5)
Equity settled
share payments - - - - 1.2 - - - 1.2
Exercise of
vested share
options - 0.3 - - - - - - 0.3
ESOP Trust
transactions - - - (1.5) - - - - (1.5)
Exercise from
ESOP Trust - - - 1.0 - - (1.0) - -
At 30 September
2016 0.2 101.9 421.8 (0.5) 18.6 48.1 (27.2) 133.1 696.0
-------------------- -------- -------- -------- --------- ----------- ----------- -------- ---------- -------
Own
Share Share Merger shares Share-based Translation Retained Other Total
capital premium reserve reserve payments reserve losses reserves equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- -------- -------- --------- ----------- ----------- -------- ---------- -------
At 31 March
2015 0.1 99.2 - - 14.9 (13.0) (12.4) 133.1 221.9
-------------------- -------- -------- -------- --------- ----------- ----------- -------- ---------- -------
Profit for the
year - - - - - - 5.0 - 5.0
Other comprehensive
income - - - - - 5.4 - - 5.4
-------------------- -------- -------- -------- --------- ----------- ----------- -------- ---------- -------
Total comprehensive
income
for the year - - - - - 5.4 5.0 - 10.4
Share-based
compensation - - - - 2.5 - - - 2.5
Exercise of
share options - 2.4 - - - - - - 2.4
At 31 March
2016 0.1 101.6 - - 17.4 (7.6) (7.4) 133.1 237.2
-------------------- -------- -------- -------- --------- ----------- ----------- -------- ---------- -------
Notes 1 to 16 form an integral part of these interim financial
statements.
Through the scheme of arrangement to acquire 100% of the
Skyepharma share capital, merger relief under the UK Companies Act
2006 is available and hence a merger reserve is recognised for the
fair value of the shares issued in the Skyepharma transaction.
Stamp duty of GBP2.5m payable on the acquisition of Skyepharma
share capital is presented as a deduction to equity because these
costs were unavoidable and directly attributable to the share
exchange. Refer to note 11 Business combinations.
Condensed consolidated cash flow statement
for the six months ended 30 September 2016
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------- -------------- ----------
Cash flows from operating activities
Operating loss (24.1) (6.3) (5.1)
Depreciation and amortisation 34.6 9.9 20.2
Share-based payments 1.4 1.1 2.5
(Increase)/decrease in inventories (0.3) 0.2 0.2
Decrease in trade and other
receivables 0.8 6.0 7.0
Increase/(decrease) in trade
and other payables 3.6 (1.1) 4.1
Exceptional acquisition costs 6.1 - 2.1
Foreign exchange movements 0.7 (0.7) 1.6
Other non-cash movements 0.1 - -
------------------------------------- ------------- -------------- ----------
Cash inflow from operating
activities 22.9 9.1 32.6
Research and development tax
credits received 2.4 0.3 0.3
Corporation tax paid (0.4) - -
------------------------------------- ------------- -------------- ----------
Net cash inflow from operating
activities 24.9 9.4 32.9
------------------------------------- ------------- -------------- ----------
Cash flows from investing activities
Acquisition of Skyepharma PLC,
net of cash acquired (25.0) - -
Exceptional acquisition costs (11.9) - (2.1)
Proceeds from sale of property,
plant and equipment 2.8 - -
Purchase of property, plant
and equipment (1.7) (0.5) (1.5)
Acquisition of Activaero GmbH - (24.6) (24.6)
Deferred consideration from
sale of investment - 2.3 2.4
Interest received 0.1 0.1 0.3
Net cash outflow from investing
activities (35.7) (22.7) (25.5)
------------------------------------- ------------- -------------- ----------
Net cash (outflow)/inflow before
financing activities (10.8) (13.3) 7.4
------------------------------------- ------------- -------------- ----------
Cash flows from financing activities
Proceeds from issue of ordinary
shares 0.3 1.8 2.4
Repayment of borrowings (0.1) - -
Interest paid (0.3) - -
Net cash (outflow)/inflow from
financing activities (0.1) 1.8 2.4
------------------------------------- ------------- -------------- ----------
Effect of foreign exchange
rate changes 3.1 - -
------------------------------------- ------------- -------------- ----------
(Decrease)/ increase in cash
and cash equivalents (7.8) (11.5) 9.8
Cash and cash equivalents at
beginning of the period 99.8 90.0 90.0
Cash and cash equivalents at
end of the period 92.0 78.5 99.8
------------------------------------- ------------- -------------- ----------
Notes 1 to 16 form an integral part of these interim financial
statements.
Notes to the condensed consolidated financial statements
for the six months ended 30 September 2016
1. Basis of preparation
These condensed interim financial statements present the
consolidated results of Vectura Group plc and all of its
subsidiaries (together 'the Group') for the six months ended 30
September 2016. The financial information is prepared on the going
concern basis using the historical cost convention, adjusted for
the use of fair values, as required by International Financial
Reporting Standards as adopted by the European Union ('EU IFRS').
The financial information is presented in Sterling and rounded to
the nearest GBP0.1m, unless otherwise stated.
These condensed interim financial statements have been prepared
in accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority and IAS 34 Interim Financial Reporting
as adopted by the EU. Accordingly, these financial statements are
condensed and do not include all the disclosures that are required
for full annual financial statements and should be read in
conjunction with the Group's Annual Report and Accounts as at 31
March 2016.
The Group's auditor, Deloitte LLP, has reviewed the financial
information in accordance with International Standard on Review
Engagements (UK and Ireland) 2410. Their review report is set out
on page 23.
The information for the year ended 31 March 2016 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year
has been delivered to the Registrar of Companies. The auditors
reported on those accounts; their report was unqualified, did not
draw attention to any matters of emphasis and did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
All-share merger with Skyepharma PLC
On 10 June 2016, an all-share merger between Vectura Group plc
('Vectura') and Skyepharma PLC ('Skyepharma') was implemented by
way of a court-sanctioned scheme of arrangement of Skyepharma. The
fully-diluted share capital of Skyepharma was exchanged for
266,073,504 newly issued Vectura shares and GBP52.1m of cash to
settle the partial cash alternative. As Skyepharma had GBP27.1m of
net cash on the acquisition date balance sheet, the net cash
outflow was GBP25m.Vectura has consolidated Skyepharma from the
date that control was obtained, being 10 June 2016 and, as a
result, the comparative information required to be included by IAS
34 is not presented on a like-for-like basis. To allow for
comparison to prior periods, certain unaudited pro forma
information has been made available in the Appendix and within the
analysts' presentation on the Group's corporate website
http://www.vectura.com/investors.
Accounting for the merger with Skyepharma
IFRS 3 Business Combinations requires all transactions (even a
true merger of equals) to be accounted for using the acquisition
method. For the purposes of IFRS 3 Business Combinations, it has
been determined that Vectura acquired Skyepharma because (i)
Vectura shares were issued to replace Skyepharma shares; (ii)
Skyepharma shares were de-listed from the London Stock Exchange;
(iii) Vectura contributed five out of eight positions to the new
Board; (iv) immediately after the merger, the previous shareholders
of Vectura owned 61.3% of the enlarged Group, with the previous
shareholders of Skyepharma owning 38.7% on a fully-diluted basis;
and (v) the Vectura name was retained. As such, the acquisition
method of accounting is applied to Skyepharma with assets and
liabilities recognised at their fair value on the acquisition date,
in accordance with IFRS 3 Business Combinations.
An overview of the impact is provided below:
IFRS 3 Business Combinations acquisition Provisional
accounting requirements impact
GBPm
------------------------------------------ ------------
Consideration transferred 475.5
------------------------------------------ ------------
Net book value of Skyepharma assets
acquired 10 June 2016 48.5
------------------------------------------ ------------
Fair value uplifts 323.1
------------------------------------------ ------------
Fair value of Skyepharma assets acquired
10 June 2016 371.6
------------------------------------------ ------------
Goodwill recognised 103.9
------------------------------------------ ------------
Vectura has a maximum period of up to 12 months from the date of
merger to finalise the fair value accounting. In accordance with
IFRS 3, this period ends when all the necessary fair value
information has been obtained and management does not expect
further information to arise. If new information becomes available
that could not have been known on the acquisition date, the
adjustment will be made in the post-acquisition period and will be
reflected in profit or loss. To the extent new information could
have been known on the acquisition date, any amendments will be
recognised against goodwill within the 12 month period.
Accordingly, the impact of the transaction is presented as
provisional due to the proximity of the reporting period to the
acquisition date.
1. Basis of preparation (continued)
Areas of critical judgements and estimates in the application of
IFRS to the enlarged Group
As a result of the merger, the critical accounting policies,
being those subject to a higher degree of judgement and estimation,
have changed since the latest published Annual Report and Accounts
for the year ended 31 March 2016. In accordance with the disclosure
requirements of IAS 34, where there has been a significant change
to the entity, all critical accounting policies should be
disclosed. Management believes that the merger with Skyepharma
represents a significant change and hence discloses areas of
critical judgements and estimates in the application of IFRS to the
enlarged Group as detailed below.
1.1 Acquisition accounting and the fair value of intangible
assets acquired
The merger requires the application of acquisition accounting as
defined in IFRS 3 Business Combinations. For the purposes of IFRS
3, it has been determined that Vectura acquired Skyepharma.
Applying IFRS 3 involves the use of assumptions relating to the
future cash flows arising from Skyepharma's intangible assets, as
well as valuation techniques used to arrive at the fair value of
other non-current assets and liabilities acquired.
1.2 Goodwill impairment
In accordance with IFRS 3 Business Combinations, goodwill
arising on a business combination is not amortised but is tested
annually for impairment. This testing requires judgement as to the
value in use of the cash generating units to which goodwill is
allocated.
1.3 Revenue recognition relating to collaborative development
arrangements
The Group enters into a wide variety of collaborative agreements
with its partners, which may span several reporting periods and
involve multiple revenue streams. Significant judgements and
estimates may be required in assessing the obligations under such
contracts over time and the revenue allocated to the obligations in
each period. The recognition of milestone revenue requires an
assessment of the Group's future obligations under a given contract
and the period over which the revenue will be recognised.
1.4 Depreciation of flutiform(R) supply chain assets
Assets relating to the flutiform(R) supply chain are recorded at
deemed cost, being the fair value on 10 June 2016 transaction date,
and are depreciated on a units-of-production basis over their
estimated useful lives from the time they are first available for
use. The estimate of units of production is a function of forecast
sales. For prudence, increases in units of production from planned
investments in additional capacity are not included in the
units-of-production estimate until the extra capacity becomes
available. Any change in the estimated units of production or
useful economic lives could affect the future results of the
Group.
1.5 Swiss pension benefits
The Group operates a pension scheme in respect of its employees
in Switzerland. As some of the risks of the scheme meet the
criteria for a defined benefit scheme under IAS 19 (revised)
Employee Benefits, the Swiss pension scheme is accounted for as a
defined benefit plan. Whilst management believes that best practice
is followed, application of IAS 19 (revised) involves estimates
about uncertain future events as determined by independent
actuaries, including life expectancy of scheme members, salary and
pension increases, inflation and discount rates.
1.6 Taxation and deferred taxation
The Group operates in a number of taxation jurisdictions and is
required to estimate, after taking account of external professional
advice, the corporate tax in each of the jurisdictions in which it
operates. The recognition of tax benefits and assessment of
provisions against tax benefits requires management judgement. All
provisions are based on interpretation of country-specific tax law
and the likelihood of settlement.
1. Basis of preparation (continued)
Fair value
A fair value accounting policy has been formalised owing to the
materiality of the fair value adjustments arising upon business
combinations to the Group's reported performance.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. According to the
hierarchy prescribed by IFRS 13 Fair Value Measurement, fair value
is first made with reference to a directly observable quoted price;
secondly, an observable comparable quoted price and, if none still
exist, is estimated using one of the three prescribed valuation
techniques:
-- Market approach (similar comparable transactions)
-- Income approach (value in use)
-- Cost approach (current replacement cost)
In estimating the fair value of an asset or a liability, the
Group takes into account the characteristics of the asset or
liability if a market participant would take those characteristics
into account when pricing the asset or liability at the measurement
date.
Fair value measurements and/or disclosures in these consolidated
financial statements are determined on such basis, except for
share-based payment transactions that are within the scope of IFRS
2 Share-based payment, leasing transactions that are within the
scope of IAS 17 Leases, and measurements that have some
similarities to fair value but are not fair value, such as net
realisable value of Inventory in IAS 2 Inventories or value in use
as defined by IAS 36 Impairment of Assets.
Harmonisation of other accounting policies and disclosures
The accounting policies disclosed in Vectura's Annual Report and
Accounts for the year ended 31 March 2016 remain applicable to the
Group following the merger. Skyepharma's policies disclosed in its
Annual Report and Accounts for the year ended 31 December 2015 were
materially the same, although some differences in application have
been identified that require alignment, as discussed below. Both
reports are published on the Group's website
http://www.vectura.com/investors/financialreports.
IAS 27 Consolidated and Separate Financial Statements paragraph
24 requires that a Group's consolidated financial reporting is
prepared using uniform accounting policies applying accounting
judgements consistent with similar transactions and circumstances.
Therefore, the pre-merger Vectura accounting policies will be
applied to the Skyepharma business, except where:
-- there was an absence of an applicable policy;
-- doing so does not provide fair presentation;
-- acquisition accounting requirements mandate the new policy; or
-- EU endorsement of additional accounting guidance becomes effective in the reporting period.
As a result of an alignment exercise, it was noted that Vectura
did not have an applicable policy in two instances:
-- flutiform(R) and oral product, manufacturing and supply chain transactions; and
-- the Swiss pension scheme accounted for as a defined benefit scheme under IAS 19 (revised).
In these two areas, the Skyepharma policies have been
incorporated into the Group's policies. As part of the accounting
harmonisation process, the accounting policies for exceptional
items and provisions were also amended to better reflect the
disclosure in the enlarged Group.
A full set of accounting policies will be included in the 31
December 2016 Annual Report and Accounts.
Furthermore certain line item descriptions within the Group's
interim financial statements have been adapted to ensure more
relevant combined disclosures. None of these reclassifications are
considered to individually materially impact the Group.
1. Basis of preparation (continued)
Net cash and undrawn revolving credit facility
The Group had GBP92.0m (31 March 2016: GBP99.8m) of cash and
cash equivalents as at 30 September 2016. In addition, in August
2016, Vectura signed a GBP50m unsecured committed multi-currency
revolving credit facility ('RCF') with Barclays Bank PLC, which
ends in March 2020 and which replaced the previous undrawn RCF with
HSBC. No funds have yet been drawn down under the RCF. The RCF
arrangement fees of GBP0.3m have been expensed as financing costs.
The cost of borrowing under the RCF is 1.0 - 2.0 per cent above the
relevant LIBOR/EURIBOR reference rate. There are two financial
covenants which will be tested at each reporting period if drawings
have been made under the facility in the previous six months.
Going concern
The Group's current forecasts and projections, taking account of
reasonably possible changes in trading performance, show that the
Group will be able to operate within the level of its current cash
and credit facilities. Having assessed the principal risks, the
Directors considered it appropriate to adopt the going concern
basis of accounting in preparing these condensed consolidated
interim financial statements.
Risks and uncertainties
As a result of the merger, the key business risks of the Group
have been amended, principally to reflect the increased scale of
operations, risks associated with the integration, and the fact
that the majority of Skyepharma subsidiaries introduce significant
overseas operations to the Group. Refer to note 16 Risks and
uncertainties.
Amendments to IFRS and interpretations
The relevant amendments to IFRS, effective for periods beginning
on 1 January 2016, are as follows:
-- Annual improvements 2012-2014 (Amendments IFRS 5, IFRS 7, IAS 19, IAS 34)
-- Amendments to IFRS 11 Accounting for acquisitions of interests in joint ventures
-- Amendment to IAS 16 and IAS 38 Clarification of methods of depreciation and amortisation
-- Amendments to IAS 27 Equity method in separate financial statements
-- Amendments to IAS 1 Disclosure initiative
The amendments did not have a significant impact on the
financial position of the Group, or result in changes in accounting
policy or disclosure. The IAS 1 disclosure initiative is being
followed which supports the reduction of immaterial disclosures in
financial reports. The following three standards have been issued
but are not yet effective, and have not been adopted by the
Group:
-- IFRS 9 Financial Instruments effective 1 January 2018
-- IFRS 15 Revenue from contracts with customers effective 1 January 2018
-- IFRS 16 Leases effective 1 January 2019
The Group does not expect the application of IFRS 9 Financial
Instruments to have a material impact on the financial statements
given the limited extent of financial instruments used in the
business. The Group is currently undertaking a project to assess
the impact that the implementation of IFRS 15 Revenue from
contracts with customers will have on reported performance. This is
a complex accounting standard and the project has yet to conclude.
Based on assessments to date, it is not expected that aggregate
revenues will be substantially affected. IFRS 16 Leases is not
expected to come into effect until 1 January 2019, as the IASB has
committed to issue further application guidance. It is, therefore,
too early to conclude on the impact of this standard on reported
performance.
2. Revenue by income stream
The Group derives the following types of revenue by income
stream:
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
-------------------------------- -------------- ------------- ---------
Royalties 30.7 16.7 39.2
Signing and milestone payments 14.6 5.1 24.4
Development services 2.8 2.2 4.7
Product supply and device sales 23.6 2.1 3.7
Other revenue 2.2 - -
-------------------------------- -------------- ------------- ---------
Total revenue by income stream 73.9 26.1 72.0
-------------------------------- -------------- ------------- ---------
2. Revenue by income stream (continued)
Revenue by geographical location is based upon the location of
the customer being invoiced by the Group. For royalties and product
supply revenues, the final customer location is dependent upon the
commercial partner's distribution channel.
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Revenue by customer location (unaudited) (unaudited) (audited)
----------------------------------- ------------- ------------- ----------
UK 22.9 4.7 13.2
Rest of Europe 9.8 5.9 9.4
North America 25.0 9.7 21.4
Japan 8.0 - -
Rest of World 8.2 5.8 28.0
----------------------------------- ------------- ------------- ----------
Total revenue by customer location 73.9 26.1 72.0
----------------------------------- ------------- ------------- ----------
Revenue earned from the Group's major customers and licensees
was as follows: Customer 1 - GBP13.0m, Customer 2 - GBP11.5m and
Customer 3 - GBP10.7m. The Group is managed on the basis of a
single reportable segment, being the development and supply of
pharmaceutical products. This is consistent with the internal
reporting provided to, and regularly reviewed by, the Chief
Operating Decision Maker ('CODM'). The CODM is responsible for
allocating resources and assessing performance of the operating
segments and has been identified as the Board.
3. Exceptional items
Exceptional items presented on the face of the condensed
consolidated income statement, are those items of income and
expense which, because of their nature and expected infrequency,
merit separate presentation to allow shareholders to better
understand reported performance.
The exceptional items for the period are direct costs associated
with the completion of the merger transaction and with post-merger
integration costs.
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------ -------------- -------------- -----------
Merger transaction costs 6.1 - 5.6
Post-merger integration costs 3.2 - -
Other costs 0.3 - -
9.6 - 5.6
------------------------------ -------------- -------------- -----------
As disclosed in the Annual Report and Accounts for the year
ended 31 March 2016, GBP6.0m of legal and professional transaction
costs were incurred contingent upon completion of the merger
transaction, with a further GBP0.1m related to the London Stock
Exchange listing fees. Other costs of GBP0.3m relate mainly to
legal fees incurred from initiating legal proceedings against GSK
relating to enforcement of Vectura's patents in respect of the
Ellipta(R) products.
4. Net finance income
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (unaudited)
-------------------------------- -------------- -------------- -------------
Bank income 0.2 0.1 0.3
Bank expenses (0.4) - (0.5)
-------------------------------- -------------- -------------- -------------
Net interest (expense) / income (0.2) 0.1 (0.2)
Foreign exchange on royalties
and milestones 1.1 (0.7) 1.6
Foreign exchange on net cash 0.4 - -
Investment income - 2.3 2.4
Other finance income, including
unwinding of discount 0.6 - -
Net financing income 1.9 1.7 3.8
-------------------------------- -------------- -------------- -------------
Investment income in the comparative periods comprised payments
to Vectura as part of the deferred consideration arrangements
related to the acquisition of ProFibrix BV by the Medicines Company
in 2013.
5. Taxation
A taxation credit of GBP3.8m has been recognised in the
consolidated income statement, being the net effect of tax expense
in overseas US and Swiss operations offset by deferred tax credits
on the amortisation of acquisition accounting fair value
adjustments.
IAS 34 requires that income tax expense is recognised in each
interim period based upon the best estimate of the weighted average
annual income tax rate expected for the full financial year, which
in this instance is the nine months ending 31 December 2016. The
Group's effective tax rate has been calculated as 17% on the
Group's loss before taxation. This rate is lower than the UK
corporate tax rate of 20% due to permanent differences on
acquisition costs and increases in losses not recognised for
deferred tax, offset by relief for share based payments and the UK
patent box claim.
As a result of the merger, deferred tax liabilities of GBP54.7m
were recognised, predominantly relating to fair value uplifts on
intangible assets and property. These deferred tax liabilities are
book entries that will unwind to partially offset the amortisation
of the intangible assets and property in accordance with the
matching principle of IAS 12 Income Taxes, such that the
amortisation of fair value uplifts does not distort the effective
tax rate.
6. Adjusted EBITDA
Adjusted EBITDA reconciles to loss before taxation as
follows:
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
-------------------------------- -------------- ------------- -----------
Loss before taxation (22.4) (5.0) (1.9)
Amortisation of intangible
assets 33.0 9.3 18.8
Depreciation of property, plant
and equipment 1.6 0.6 1.4
Share-based payments 1.4 1.1 2.5
Exceptional items 9.6 - 5.6
Financing income (1.9) (1.7) (3.8)
Share of result of associates 0.2 0.4 0.6
Adjusted EBITDA 21.5 4.7 23.2
-------------------------------- -------------- ------------- -----------
Adjusted EBITDA represents loss before taxation, adding back
non-cash movements in depreciation, amortisation, share-based
payments, and also excludes exceptional items, investment income
and share of result of associates.
7. (Loss) / earnings per ordinary share
The calculation of (loss) / earnings per ordinary share is based
on the following data:
30 September 30 September 31 March
2016 2015 2016
(unaudited) (unaudited) (audited)
------------------------------------ ------------- ------------- ----------
(Loss) / profit after tax for
the period (GBPm) (18.6) (2.7) 5.0
Adjusted EBITDA for the period
(GBPm) 21.5 4.7 23.2
------------------------------------ ------------- ------------- ----------
Weighted average number of ordinary
shares - basic earnings
per share (m) 574.7 405.2 405.8
------------------------------------ ------------- ------------- ----------
Effect of potentially-dilutive
ordinary shares (share options)
(m) 11.1 9.2 9.6
------------------------------------ ------------- ------------- ----------
Weighted average number of ordinary
shares - diluted earnings
per share (m) 585.8 414.4 415.4
------------------------------------ ------------- ------------- ----------
(Loss) / earnings per ordinary
share
Basic (3.2p) (0.7p) 1.2p
Diluted (3.2p) (0.7p) 1.2p
------------------------------------ ------------- ------------- ----------
Adjusted EBITDA per ordinary
share
Basic 3.7p 1.2p 5.7p
Diluted 3.7p 1.1p 5.6p
------------------------------------ ------------- ------------- ----------
The (loss) / earnings per share is based on the weighted average
number of shares in issue during the period, which includes the
impact of the merger in accordance with note 11 Business
combinations.
8. Trade and other receivables
30 September 31 March
2016 2016
GBPm GBPm
(unaudited) (audited)
---------------------------------- ------------ ----------
Trade receivables 14.8 1.6
Other receivables 5.2 6.2
Prepayments and accrued income 20.2 13.6
VAT recoverable 0.5 0.8
Less: provision for impairment of
receivables (1.5) -
---------------------------------- ------------ ----------
39.2 22.2
---------------------------------- ------------ ----------
It is considered that the carrying values of trade and other
receivables approximate their fair values because these balances
will be cash-settled in the near future. Otherwise, a provision for
impairment has been recognised.
9. Trade and other payables
30 September 31 March
2016 2016
GBPm GBPm
(unaudited) (audited)
----------------------------------- -------------- -----------
Trade payables 18.9 6.4
Other payables 4.4 0.8
Accruals 31.5 18.6
Other taxation and social security
costs 2.6 0.8
57.4 26.6
----------------------------------- -------------- -----------
It is considered that the carrying values of trade and other
payables approximate their fair values because they will be
cash-settled in the near future.
10. Provisions
Restructuring Employee Property Other Total
benefits
GBPm GBPm GBPm GBPm GBPm
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------------------ -------------- ------------ ------------ ------------ ------------
As at 31 March
2016 0.4 - - 0.2 0.6
Skyepharma acquisition - 2.2 1.0 0.1 3.3
Provisions charged
during the period 1.4 1.7 - - 3.1
Provisions utilised
during the period - (2.1) - - (2.1)
Foreign exchange
movements - 0.1 0.1 - 0.2
As at 30 September
2016 1.8 1.9 1.1 0.3 5.1
------------------------ -------------- ------------ ------------ ------------ ------------
Current 1.8 1.7 - - 3.5
------------------------ -------------- ------------ ------------ ------------ ------------
Non-current - 0.2 1.1 0.3 1.6
------------------------ -------------- ------------ ------------ ------------ ------------
Provisions are classified as current if their settlement is
expected within 12 months of the balance sheet date. Details of the
costs provided for under the restructuring provision are set out in
note 3 Exceptional costs and are presented as current, as they are
expected to be settled within 12 months. Employee benefits are
materially related to two items: employer payroll taxes arising
from a participant exercising a vested option under an employee
share plan and a provision for French statutory retirement payments
(one-off lump sum payments) due on retirement of employees at the
Lyon facility.
10. Provisions (continued)
Property provisions relate primarily to a lease of an unused
floor at a previously-owned Swiss property. The building was sold
in April 2016, and one of the conditions of the sale was to lease
back the floor for approximately nine years. As this property is
not used by the Group, the annual rental payments and associated
operating costs are recognised as an onerous lease. This liability
may in future be reduced or eliminated as the Group retains the
right to sub-let to an external party.
11. Business Combinations - merger with Skyepharma PLC
On 10 June 2016, an all-share merger of Vectura and Skyepharma
was completed by way of a scheme of arrangement of Skyepharma.
Immediately following the transaction, the previous shareholders of
Vectura owned 61.3% of the enlarged Group, with the previous
shareholders of Skyepharma owning 38.7% on a fully-diluted basis.
These percentages are proportional with the revised Board
structure, where previous Vectura Board members contribute five out
of eight positions and previous Skyepharma Board members contribute
the remaining three.
Under the terms of the merger, Skyepharma shareholders received
2.7977 Vectura shares in exchange for each Skyepharma share, with
the option to take a partial cash alternative for a portion of
their shareholding, which in aggregate was capped at GBP70.0m. The
final uptake of this partial cash alternative was GBP52.1m. As
Skyepharma had GBP27.1m of net cash on the acquisition date balance
sheet, the net cash outflow was GBP25.0m.
The merged entity creates an industry-leading inhaled airways
disease focused business. The Directors believe that the merger
will deliver significant value to shareholders through a
combination of enhanced commercial opportunities, operating
synergies and growth opportunities. The integration of the two
businesses is being managed by a dedicated integration team,
bringing together the best relevant capabilities of both
businesses, with the aim of facilitating a smooth integration and
delivering synergy targets.
In accordance with the criteria in IFRS 3 Business Combinations,
it has been determined for these purposes that Vectura acquired
Skyepharma. This is principally because (i) Vectura shares were
issued to replace Skyepharma shares; (ii) Skyepharma shares were
subsequently de-listed from the London Stock Exchange; (iii)
Vectura contributed five out of eight majority to the Board; (iv)
the previous shareholders of Vectura own 61.3% of the enlarged
Group, with the previous shareholders of Skyepharma owning 38.7% on
a fully-diluted basis; and (v) the Vectura name was retained.
a) Skyepharma's contribution to the Group's reported performance
The results of Skyepharma have been consolidated into the
Group's income statement from 10 June 2016, contributing GBP38.7m
(52%) of Group revenues for the period ending 30 September 2016.
The Skyepharma Group contributed GBP13.9m of profit after tax
before non-cash amortisation of intangibles and a loss after tax of
GBP10.8m after the inclusion of non-cash amortisation of
intangibles to the earnings of the merged Group.
If the acquisition had been completed on 1 April 2016, being the
first day of the financial year, the Group's revenue would have
been GBP89.5m and the Group's profit before taxation would have
been enhanced by approximately GBP1.2m (excluding exceptional
transaction costs that were incurred and recognised in the
pre-acquisition income statement of Skyepharma).
b) Consideration transferred
The consideration transferred to acquire Skyepharma PLC was
GBP475.5m as follows:
Skyepharma Vectura Consideration
shares shares
exchanged issued
m m GBPm
------------------------------ ----------- -------- --------------
New Vectura Group plc shares
issued 95.1 266.1 423.4
Uptake of the partial cash
alternative 12.7 - 52.1
107.8 266.1 475.5
------------------------------ ----------- -------- --------------
Under the terms of the scheme of arrangement, there were no
contingent elements of consideration. Acquisition-related costs
amounting to GBP6.1m have been excluded from the consideration
transferred and recognised as an exceptional expense within the
income statement for the current period. Acquisition-related costs
of GBP5.6m were recognised by Vectura in the 31 March 2016
comparative period.
11. Business Combinations - merger with Skyepharma PLC (continued)
c) Provisional fair values of Skyepharma assets and liabilities acquired
The provisional fair value of net assets acquired was GBP371.6m.
Due to the proximity of the acquisition to the interim reporting
period, all values presented below are provisional.
Book Fair Fair
value value value
adjustments acquired
Note GBPm GBPm GBPm
--------------------- -------- ------- ------------- ----------
ASSETS
Non-current
assets
Intangible assets C1 6.5 369.4 375.9
Property, plant
and equipment C2 28.3 11.2 39.5
Deferred taxation C3 2.0 0.7 2.7
Other financial
assets 0.4 (0.4) -
37.2 380.9 418.1
Current assets
Inventories C4 13.2 3.5 16.7
Trade and other
receivables 22.3 - 22.3
Cash and cash
equivalents 27.1 - 27.1
Other financial
assets 0.1 (0.1) -
62.7 3.4 66.1
-------- ------- ------------- ----------
Total assets
acquired 99.9 384.3 484.2
------------------------------- ------- ------------- ----------
LIABILITIES
Current liabilities
Trade and other
payables C5 (25.5) (3.8) (29.3)
Corporate taxation
payables (5.9) - (5.9)
Borrowings (0.2) - (0.2)
Deferred income (0.2) - (0.2)
Provisions (2.2) 0.1 (2.1)
------------------------------- ------- ------------- ----------
(34.0) (3.7) (37.7)
-------- ------- ------------- ----------
Non-current
liabilities
Borrowings (4.1) - (4.1)
Retirement benefit
obligations (8.3) - (8.3)
Provisions and
other payables C5 (1.1) (2.8) (3.9)
Deferred taxation C3 (3.9) (54.7) (58.6)
(17.4) (57.5) (74.9)
-------- ------- ------------- ----------
Total liabilities (51.4) (61.2) (112.6)
------------------------------- ------- ------------- ----------
Net assets acquired 48.5 323.1 371.6
------------------------------- ------- ------------- ----------
C1 Intangible assets: Skyepharma previously did not recognise
internally-generated intangibles. IFRS 3 requires purchased
intangibles to be recognised at fair value. The intangibles
acquired by Vectura were valued by independent external experts on
the basis of the net present value of income streams less costs
associated with those streams.
C2 Property, plant and equipment: On a historical cost
accounting basis, the cost of the buildings is subject to
depreciation. In practice, the fair market value of buildings often
appreciates. As a result, fair value adjustments on land, buildings
and equipment in Switzerland and France were recognised based upon
property valuations obtained from independent external experts.
C3: Deferred taxation: In accordance with IAS 12 Income Taxes, a
deferred tax liability has been recognised in relation to the fair
value uplift on net assets such that the notional tax consequence
of increased future amortisation can be matched to the period in
which the amortisation occurs.
C4: Inventories: Inventories have been uplifted to their fair
value, which for finished goods equates to their subsequent sales
price and for semi-finished goods represents a value based on the
relevant stage of completion of the manufacturing process.
C5: Trade and other payables and provisions relates to the
recognition of contingent liabilities required by IFRS 3. On
acquisition, Skyepharma was committed to make certain payments to a
development partner contingent upon future receipt of sales
milestones and royalties received, with the payments deducted from
these amounts receivable from the partner. Accordingly, a liability
of EUR8.7m was recognised and is expected to unwind by 2019.
11. Business combinations - merger with Skyepharma PLC (continued)
There was no difference between the fair value of receivables
and their carrying value at the acquisition date.
d) Provisional goodwill arising upon the Skyepharma acquisition
Provisional goodwill arising upon the acquisition of Skyepharma
was as follows:
Total
GBPm
---------------------------------- --------
Consideration transferred 475.5
Less: provisional fair value
of identifiable assets acquired (371.6)
Provisional goodwill arising
on acquisition 103.9
------------------------------------ --------
As detailed in accounting policy 1.2, goodwill is not amortised
but will be allocated, from the acquisition date, to the Group's
cash-generating units (CGUs) that are expected to benefit from the
synergies of the merger, in accordance with paragraph 80 of IAS 36
Impairment of Assets. Once allocated, goodwill will be tested for
impairment on an annual basis or more frequently, if there are
indications of potential impairment. The recoverable amounts of the
CGUs are assessed using a value-in-use model. An impairment
provision is recognised only if the goodwill carrying value exceeds
its value in use.
As the post-merger integration activities are ongoing, and as
the fair value of net assets acquired at the balance sheet date is
provisional, management has utilised the exemption within paragraph
84 of IFRS 3 to defer allocation of goodwill to CGUs until the
publication of its Annual Report and Accounts for the current
financial year. Accordingly, all goodwill arising on the merger is
unallocated to CGUs in the interim financial statements.
12. Share capital
Allotted, called up and Number
fully paid GBPm of shares
Ordinary shares of 0.025p,
each at 31 March 2016 0.1 410,530,184
Issued for Skyepharma scheme
of arrangement 0.1 266,073,504
Issued to satisfy Vectura
employee share plans - 865,367
----------------------------- ---- -----------
Ordinary shares of 0.025p,
each at 30 September 2016 0.2 677,469,055
----------------------------- ---- -----------
Redeemable preference shares
of GBP1 each
at 31 March 2016 and 30
September 2016 - 34,000
----------------------------- ---- -----------
A total of 266,073,504 ordinary shares of 0.025p each were
allotted to satisfy the Skyepharma scheme of arrangement. The share
price on the date of the transaction was 159.5p per ordinary share.
As 100% of the Skyepharma share capital was acquired through a
share transaction, merger relief is available under the UK
Companies Act 2006 and accordingly the share premium relating to
the new Vectura ordinary shares issued is presented in a merger
reserve.
13. Related party transactions
As described in note 1 Basis of preparation and note 11 Business
combinations, on 10 June 2016, a court-sanctioned scheme of
arrangement was effected for Vectura to acquire the fully-diluted
share capital of Skyepharma. A total of 266,073,504 newly-issued
Vectura shares, with a fair value of GBP423.4m, were exchanged for
Skyepharma shareholdings in addition to a partial cash payment of
GBP52.1m. The total consideration transferred was GBP475.5m. As a
consequence, where Skyepharma Board members and Skyepharma key
management personnel held shares in Skyepharma, these were
exchanged for Vectura shares. Certain Skyepharma Board members and
key management personnel have continued in similar roles in the
merged Group.
13. Related party transactions (continued)
The share exchange or partial cash payments are not considered
related party transactions as defined by the Disclosure
Transparency Rule 4.8.2 and IAS 24 Related Parties. However, full
details of the share exchange and partial cash payment are provided
in the Prospectus and Scheme Document dated 8 April 2016 and the
Supplementary Prospectus dated 27 May 2016 available on the
corporate website
http://www.vectura.com/investors/all-share-merger/
Therefore, there have been no additional material related party
transactions other than those previously disclosed in the Annual
Report and Accounts for 31 March 2016.
14. Post balance sheet events
On 22 November 2016 Vectura announced it had signed a US
development and license agreement with Hikma Pharmaceuticals PLC
('Hikma'), through its wholly-owned subsidiary West-ward
Pharmaceuticals, for Vectura's VR730 product.
Under the terms of this agreement, Hikma will be responsible for
the US commercialisation and manufacture of the product together
with clinical development. Vectura will complete the formulation
development of VR730 which will largely be funded by Hikma and
there is no material impact on the level of the Group's R&D
investment.
Vectura will receive an initial payment of $0.4m and potential
further milestones up to an aggregate of $1.1m. The Group is also
eligible for a share of future returns of the product in line with
its existing generic agreements, subject to certain recoveries by
Hikma for the costs of the clinical end point pivotal trial.
Furthermore on 22 November 2016, Skyepharma Limited, a wholly
owned subsidiary of Vectura Group plc, passed a special resolution
and made an associated Solvency Statement to reduce its share
capital and share premium to GBP1,000. As part of this process,
Skyepharma Limited's B and C shares will be cancelled before the
December year-end.
15. Harmonisation of accounting policies
As described in note 1 Basis of preparation, subsequent to the
harmonisation of accounting policies with Skyepharma, the following
policies have been added to the Group's accounting policies which
were disclosed in the 31 March 2016 Annual Report and Accounts:
Property, plant and equipment
Depreciation is calculated to allocate the cost of property,
plant and equipment, less their residual values, over their
expected useful lives. The flutiform(R) supply chain assets are
depreciated using the units-of-production method.
Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, if it is
probable that an outflow of resources will be required to settle
the obligation and the amount can be reliably estimated.
Restructuring charges are provided in the period in which
management has committed to a plan and it is probable that an
obligation has been incurred that can be reliably estimated.
Provisions are not recognised for future operating losses.
Provisions differ from other liabilities as the exact timing and
amount of payments is uncertain. Where the time value of money is
material, balances are discounted to current values using
appropriate rates of interest. The unwinding of the discounts is
recorded in finance income and finance expense.
15. Harmonisation of accounting policies (continued)
Retirement benefit obligations
- The costs of providing pensions under defined benefit
retirement funds in Switzerland are calculated using the
projected-unit-credit method and spread over the period during
which benefit is expected to be derived from the employees'
services, consistent with the advice of qualified actuaries.
Pension obligations are measured as the present value of estimated
future cash flows discounted at rates reflecting the yields of
high-quality corporate bonds. Pension scheme assets are measured at
fair value at the balance sheet date.
The costs of other post-employment liabilities, predominately
arising in France, are calculated in a similar way to defined
benefit pension schemes and are charged over the period during
which benefit is expected to be derived from the employees'
services, in accordance with the advice of qualified actuaries.
Actuarial gains and losses and the effect of changes in
actuarial assumptions are recognised in the statement of
comprehensive income in the year in which they arise. The Group
also contributes to the UK defined contribution plans and these
contributions are charged to the income statement as incurred.
16. Risks and uncertainties
There are a number of potential risks and uncertainties that
could have a material impact on the Group's performance over the
remaining three months of the financial period and could cause
actual results to differ materially from expected and historical
results. The majority of key business risks facing the Group remain
unchanged from those set out on pages 22 to 29 of the Annual Report
and Accounts for the year ended 31 March 2016.
Key risks can be divided into the following areas:
- intellectual property risk,
- corporate inexperience of late phase development,
- integration risk,
- retention of key personnel,
- partnership risk,
- operational disruption,
- restricted management bandwidth,
- financial risk (foreign exchange, tax, cash flow, credit, liquidity and price),
- regulatory and operational risks associated with Brexit,
- clinical and regulatory risk,
- commercial risk,
- competition risk, and
- product liability.
As a result of the merger, certain key business risks and
uncertainties have been updated to reflect an increase in the scale
of operations, the delivery of post-merger integration activities
and the assimilation of significant overseas operations. In
accordance with the Disclosure and Transparency rules (DTR), newly
identified business risks and those that have materially changed
since the latest Annual Report and Accounts are required to be
disclosed. In addition, the outcome of the referendum on the UK's
membership of the European Union (EU) is now known, however, the
consequences of the vote are uncertain. As a result, further detail
with respect to the risk that Brexit poses to the Group is provided
below.
As with all businesses operating in such a dynamic environment,
some risks may not yet be known while other low level risks could
become material in the future.
16. Risks and uncertainties (continued)
Risk Description and Potential Examples of Mitigation
Summary Impact
----------------- --------------------------------------- ------------------------
Failure The enlarged Group's future The Group's leadership
to successfully success is dependent upon team is experienced
integrate management's ability to successfully in integration.
Skyepharma deliver the pre-planned synergies
may lead and leverage the complementary Structured integration
to increased Vectura and Skyepharma businesses plans were established
costs, to create an industry-leading pre-merger and
loss specialty airways business are being implemented
of key which has the ability to accelerate in line with
personnel, the delivery of strategic pre-established
delays objectives and deliver greater timelines by
in delivering revenues and value. the Integration
strategic Steering Group.
objectives The merger could lead to suboptimal The Group continues
and failure integration resulting in loss to have access
to deliver of key personnel, cost reduction to, and support
communicated synergies not being delivered from, external
cost and failure to achieve the subject matter
synergies desired return on capital. experts and dedicated
internal project
Loss of key personnel could management resource
have a material impact on to support the
the Group's ability to continue implementation
business-as-usual activities of the integration
and drive strategic growth programme.
while integration activities
are taking place. This could A range of benefits,
impose time pressure and capacity including long-term
constraints on management incentive plans,
bandwidth, challenge its ability are utilised
to effectively deliver on to encourage
all responsibilities and lead retention of
to failure to achieve strategic key personnel.
objectives.
----------------- --------------------------------------- ------------------------
Supply As a result of the merger, The Group maintains
chain the Group is now exposed to a system of quality
and product a significant risk from the assurance to
manufacture flutiform(R) supply chain maintain compliance
may be and other manufacturing activities. with pharmaceutical
threatened standards.
by physical The continued success of flutiform(R)
disruption, is dependent on further capacity Where possible,
capacity increases, including scale-up alternative sources
constraints of manufacturing and process of supply are
and reliance validation in order to increase sought and contracts
on a production to meet market are negotiated
limited demand. to include appropriate
supplier provisions for
base The manufacture of flutiform(R) replacement of
is performed by Sanofi under defective goods.
an agreement which continues
until at least 2020. It is The Group has
automatically renewed bi-annually appropriate insurance,
unless terminated by either but it is not
party with 24 months' notice. possible to insure
against all risks
In the scenario in which capacity and not all insurable
at is capacity is insufficient risks can be
to meet future demand or if fully insured
Sanofi does not renew the on an economically
agreement, the Group may need feasible basis.
to rapidly provide additional
capacity elsewhere in the Regular meetings
supply chain. The risk arises are held with
as the Group may be unable all parties involved
to establish alternative and/or in the flutiform(R)
back up capacity in a timely supply chain
manner, if at all. to maintain and
increase the
The Group's products are subject continuing supply
to regulatory pharmaceutical of the product.
standards, consequently the
success of these products The Group has
is dependent on maintenance committed to
of suppliers' and partners' significant investment
capabilities to meet these in increasing
requirements. Disruption to the capacity
the supply chain could impact for production
product availability and therefore of flutiform(R)
the degree of market penetration .
and revenues.
The supply chain network is
exposed to potential risks
from physical disruption and
the solvency or capacity of
key suppliers which could
impact the Group's ability
to meet its obligations to
partners or consumer demand
for commercially launched
products.
Any significant disruption
to, or inability to meet demand
from the Group's research
and development and supply
operations, or those of key
third party suppliers and
partners, could result in
lost revenues and business
opportunities, stock shortages,
liabilities and significant
damage to profitability and
prospects of the Group.
----------------- --------------------------------------- ------------------------
16. Risks and uncertainties (continued)
Risk Description and Potential Examples of Mitigation
Summary Impact
--------------------- ----------------------------------------- -------------------------
Exposure A substantial proportion of Where known foreign
to foreign the Group's income from collaborative currency liabilities
exchange agreements is received in arise, foreign
risk foreign currency whereas expenditure currency revenue
could is predominantly incurred receipts are
materially in the functional currency retained on deposit
impact of its operating entities in the appropriate
the Group's (mainly Sterling and Swiss currency in order
reported Francs). Inflows and outflows to offset the
results from the flutiform(R) supply exchange risk
chain are mainly in Euros. on these liabilities.
To the extent that foreign Where a substantial
currency inflows and outflows net foreign currency
and assets and liabilities liability exists,
of the Group's operating units the Group will
are not matched, fluctuations consider hedging
in exchange rates may impact against it to
the Group's reported operating minimise foreign
margin and may adversely affect currency expense.
its financial condition. However, such
hedging is based
In addition, the financial on estimates
performance and position of of liabilities
the Group could be adversely and future revenues
impacted by fluctuations in and will not
exchange rates used to translate fully eliminate
the results, assets and liabilities future foreign
of its foreign operations currency exchange
into its presentational currency fluctuations.
of Sterling.
Further currency instability
arising from the impact of
the UK seeking to leave the
EU further impacts this risk.
--------------------- ----------------------------------------- -------------------------
Disruption The lease of the Group's manufacturing The Group is
and unexpected facility and oral product looking into
losses business in Saint-Quentin-Fallavier, ways to increase
arising Lyon, France to Aenova France both third party
from SAS terminated on 30 June and internal
the re-assimilation 2016. The facility transferred Group activity
of the back to the Group on this that could be
Lyon date, introducing related undertaken at
facility operational, regulatory and the facility
into financial risks. to increase utilisation
the Group and prospects
The facility is dependent of viability.
on relatively few products An experienced
and is currently loss-making. General Manager
There can be no assurance has been appointed
that losses will not be higher to lead the facility
than anticipated and this following the
could affect the performance transfer of control
of the Group as a whole. back to the Group.
--------------------- --------------------------------------- ---------------------------
Risk The merger has increased the The Group has
related number of different tax jurisdictions access to external
to adverse in which the Group now undertakes tax advisors
tax interpretations its activities. From time in each of the
to time, transactions that jurisdictions
are non-routine in nature within which
may give rise to tax implications it operates in
for which management will order to ensure
need to ensure compliance continued compliance
and correct interpretation with relevant
of local tax legislation. legislation and
to ensure that
There may also be uncertainly the impact of
related to the tax impact potential future
of the merger. changes in tax
legislation are
Adverse interpretations or fully understood
rulings on the tax effect and incorporated
of specific transactions or into strategic
changes in tax rulings which and financial
have been granted could give decision making.
rise to substantial costs
in dealing with the appropriate
tax authorities and/or unfavourable
tax treatments and tax liabilities
not currently envisaged or
accrued, resulting in negative
effects on the financial condition
or prospects of the Group.
Historically, the Group has
been loss-making and therefore
this risk is increasing as
the Group moves towards a
tax-paying position.
--------------------- --------------------------------------- ---------------------------
16. Risks and uncertainties (continued)
Risk Description and Potential Examples of Mitigation
Summary Impact
----------------- --------------------------------------------------------------- ---------------------------
Price Price declines in markets The Group monitors
pressure where the Group's products pricing through
or generic are marketed by its partners analysis of royalty
competition may be faster than expected reports received
erode and may result in these products from partners,
value being less profitable than data from third
of on-market expected or unprofitable. party providers
products This would reduce royalties and via regular
or future receivable by the Group and formal and informal
value the Group may also be required engagement with
of development to lower its agreed royalty its partners.
programmes rates and product supply prices
with its partners in order Where appropriate,
to maintain products on the products may
market. be out-licenced
to partners who
Price competition in Europe have the expertise
has intensified in some of to commercialise
the large inhaled classes products and
such as ICS/LABA where IMS negotiate pricing
value declined by 10% Q2 MAT structures with
2016, with volumes increasing third-party payors.
4% Q2 MAT 2016.
Our business
Pricing pressures arise from model includes
the following: bringing highly
innovative products
* Third-party payors are increasingly attempting to to address unmet
contain healthcare costs by external reference needs and we
pricing systems or other cost containment are also involved
initiatives. If products developed by the Group or in a number of
its partners are not covered by government or other generics programmes
third-party reimbursement schemes, are reimbursed at which support
prices lower than those expected, or become subject government initiatives
to legislation controlling treatments or pricing, the to reduce costs.
Group and/or its partners may not be able to generate This adds balance
sufficient revenue or attain profitability for any to our business
product candidates which are approved for marketing. model in an era
of increasing
cost containment.
Where the Group
* Pressure arising from generic drug manufacturers supplies product
gaining marketing approval for products that compete to to its partners,
for market share with the Group's products may lead the Group pursues
to price pressure or result in the products being initiatives to
exposed to generic competition before the anticipated reduce the cost
expiration date of the Group's and/or Partners' of supply to
patents. ensure that profitability
from product
supply is maintained
or improved.
* Importation from low-priced to high-priced countries
in areas where trade agreements allow such movements
e.g. the European Union.
* The number of generics players is a key factor
defining where generics price levels stabilise.
----------------- --------------------------------------------------------------- ---------------------------
Changes A referendum was held in the The consequences
to regulations UK on 23 June 2016, the result of the vote to
and operational of which was that the UK voted leave the EU
restrictions not to remain as a member is yet to be
that of the EU. The Group faces seen and it will
arise a range of risks associated take a significant
due to with the vote to exit the amount of time
Brexit EU. For example, as a significant before any changes
proportion of the regulatory take effect,
regime applicable to the Group regarding the
is derived from EU directives regulatory framework
and regulations, the vote or any other
in favour of the UK exiting matter. The Group
the EU may lead to material continues to
changes in the regulatory monitor developments
framework applicable to the in relation to
Group's operations. Brexit and will
work internally
In addition, a UK exit from and with external
the EU could result in restrictions advisors to ensure
on the movement of capital that specific
and the mobility of personnel mitigating activities
and significant changes in are put in place
the terms of future trade as they are identified.
agreements between the UK
and the EU. As this remains The continuing
the subject of political negotiations, impact of Brexit
it is not yet certain what primarily relates
impact this will have on the to financial
Group's ability to service risks arising
the EU market and therefore due to volatility
this uncertainly may impact in global currency
upon strategic relationships markets. The
with existing and future customers, existing activities
partners, suppliers and employees identified under
located in the EU. the financial
The announcement of Brexit risk heading
caused significant volatility within the Annual
in global markets, including Report and Accounts
exchange rate fluctuations are already in
that resulted in the weakening place to mitigate
of Sterling against the Group's against this
main trading currencies. Further risk.
volatility as the terms of
Brexit are negotiated are
expected and could impact
on the Group's financial position.
Any of these risks could result
in higher operating costs
and could have a material
adverse effect on the Group's
business operations and financial
conditions. However it is
not anticipated that any further
certainty will be provided
in the three month period
to the end of the current
financial year.
----------------- ------------------------------------------------------------- -----------------------------
Directors' responsibility statement
The Directors' confirm that these condensed interim financial
statements have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and that the interim management report
includes a fair review of the information required by DTR 4.2.7 and
DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and
-- a description of the principal risks and uncertainties for
the remaining three months of the financial year; and
-- material related-party transactions in the first six months and any material changes in the related-party transactions described in the last Annual Report and Accounts.
A list of current Directors is maintained on the Vectura Group
plc website: http://www.vectura.com/company/leadership/
By order of the Board
Andrew Derodra
Director
22 November 2016
Independent review report to Vectura Group plc
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2016, which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the condensed consolidated cash flow statement, the condensed
consolidated statement of changes in equity and related notes 1 to
16. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
- Review of Interim Financial Information Performed by the
Independent Auditor of the Entity, issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the European Union. The condensed
set of financial statements included in this half-yearly financial
report has been prepared in accordance with International
Accounting Standard 34 - Interim Financial Reporting as adopted by
the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 - Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity, issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2016 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
Bristol, United Kingdom
22 November 2016
([1]) Revenue from royalties, share of sales, device sales and product supply
([2]) Earnings before net financing income, tax, depreciation,
amortisation, share-based compensation, share of result of
associates and exceptional items; refer to Note 6
([3]) Calculated using EBITDA and weighted average number of
shares in issue during the period
([4]) Supplementary unaudited proforma revenue and EBITDA, which
exclude acquisition accounting adjustments, are presented as though
the merger with Skyepharma was implemented on 1 April 2015. This
information is provided in order to indicate underlying comparative
performance. Refer to the Appendix for more details
* Includes results of Skyepharma from 10 June 2016
[1] Advair Diskus(R) is a trademark of GSK
[2] Source: Global Data 2016, market defined as Asthma, COPD,
Allergic Rhinitis, IPF, CF, ARDS and RSV
[3] Decision Resources Pharmacare Asthma & COPD 2015
(G7)
[4] Based on press releases from GSK, Novartis, Chiesi,
Clintrial.gov and applied standard timelines for
approvals/fillings
[5] In-market sales are internal calculations using IMS Health
(IMS) data based on sales to pharmacies and excluding certain minor
countries not covered by IMS. In-market sales are not the same as
sales to wholesalers on which royalties are payable to the
Group.
[6] Seretide(R) Accuhaler(R) (salmeterol/fluticasone) 50
microgram /500 microgram /dose inhalation powder. Seretide and
Accuhaler are registered trademarks of the GlaxoSmithKline group of
companies
[7] Wedzicha JA, Banerji D, Chapman KR, et al.
Indacaterol-Glycopyrronium versus Salmeterol-Fluticasone for COPD.
New England Journal of Medicine. 2016. Available at:
www.nejm.org/doi/full/10.1056/NEJMoa1516385 (Accessed 16 November
2016).
[8] Based on Decision Resources 2016, Analyst estimates
[9] Asthma Epidemiology, Decision Resources Group, 2016
[10] Peters S, et al. 2006. Uncontrolled asthma: A review of the
prevalence, disease burden and options for treatment. Respiratory
Medicine.100, pp1139-1151
[11]IMS MIDAS sales data calendar Year 2015
[12] (1) In-market sales are internal calculations using IMS
Health (IMS) data based on sales to pharmacies and excluding
certain minor countries not covered by IMS. In-market sales are not
the same as sales to wholesalers on which royalties are payable to
the Group
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR AKNDDPBDKQDB
(END) Dow Jones Newswires
November 23, 2016 02:01 ET (07:01 GMT)
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