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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Vectura Group Plc | LSE:VEC | London | Ordinary Share | GB00BKM2MW97 | ORD 0.0271P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 164.80 | 164.80 | 165.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMVEC
RNS Number : 0414A
Vectura Group plc
21 March 2017
Vectura Group plc
Preliminary Results
Strong business performance in a transformational year with positive outlook for 2017
Chippenham, UK - 21 March 2017: Vectura Group plc (LSE: VEC) ("Vectura", "the Group", "the Company"), an industry-leading device and formulation business for inhaled airways products, today announces its preliminary results for the nine-month period ended 31 December 2016.
Financial Highlights
Strong financial results from a broadened portfolio of on-market products. Excluding milestones and other non-recurring sources of revenue, nine-month proforma([4]) revenue growth of 26.2% and proforma([4]) EBITDA([2]) growth of 57.4% highlights the robust underlying performance of the business.
Hot Features
Premium
Reported Proforma([4]) based
on recurring revenue([1])
------------------ ----------------------------------- -------------------------------------
9 months 12 months Change 9 months 9 months Change
ended ended ended ended
31 31 March 31 December 31 December
December 2016 2016 2015
2016*
------------------ ----------- ---------- ---------- ------------- ------------- -------
Income statement
Revenue GBP126.5m GBP72.0m 75.7% GBP115.6m GBP91.6m 26.2%
Recurring +20.5
revenue%([1]) 80.1% 59.6% ppts
EBITDA([2]) GBP34.1m GBP23.2m 47.0% GBP17.0m GBP10.8m 57.4%
(Loss)/Profit
before tax (GBP40.1m) (GBP1.9m) (2011.0%)
Basic EPS (5.3p) 1.2p (541.6%)
Basic EBITDA
per share([2]) 5.6p 5.7p (1.8%)
------------------ ----------- ---------- ---------- ------------- ------------- -------
-- Revenue up 76.0% to GBP126.5m (2015/16: GBP72.0m)
o Continued momentum from seven recently launched inhaled products with in-market net sales for the year to 31 December 2016 growing 81% to over $2.0bn[1]
o Reported performance also benefits from the addition of Skyepharma following the merger on 10 June 2016
-- EBITDA growth of 47.0% to GBP34.1m reflecting robust underlying performance
-- Revenue from recurring([1]) sources now accounts for 80.1% of total revenue (2015/16: 59.6%)
-- Loss before taxation of GBP40.1m compared to GBP1.9m in the prior period due to a higher amortisation charge of GBP64.0m (2015/16: GBP18.8m) and exceptional items of GBP9.4m (2015/16: GBP5.6m) driven by the merger
-- Year-end cash of GBP92.5m with strong operating inflows of GBP28.2m offset by merger related outflows
Operational highlights
Significant growth across marketed products
-- Strong flutiform(R) demand and product supply volumes in calendar year 2016 at record levels with good progress on capacity expansion initiatives
-- Net sales of Ultibro(R) Breezhaler(R) grew 37% over the period, benefiting from FLAME data
Developments across our novel partnered pipeline
-- Validation of FOX(R) smart nebuliser device
o First EU regulatory progress enabling commercialisation (VR876, partnered with Bayer)
o Ablynx exercised option for continued development of their RSV programme ALX-0171 (VR465) in hospitalised infants triggering a milestone for the Group of EUR1.5m. Phase IIb study initiated with results expected in H2 2018
-- Phase I completed for the inhaled biologic in co-development with UCB (VR942) with a Phase II trial to start in H2 2017
Significant progress across our generics partnered pipeline
-- ANDA filing by Hikma for a generic Advair Diskus(R) ([2]) (VR315 US) accepted by the FDA triggering a $10m
milestone for Vectura. GDUFA action date of 10 May 2017 confirmed
-- Pipeline review completed with development initiating on 3-5 additional generics programmes
Continued development of our wholly-owned pipeline
-- Phase III study for VR475 EU (treatment of severe asthma in adults) progressing well with results expected mid-2018
-- IND filing accepted by FDA for VR647 US (nebulised budesonide for paediatric asthma)
o Phase I study in adults to initiate in H1 2017
o Phase II study in children planned for H2 2017
Business development leveraging existing partnerships and growing pipeline
-- Third US licensing agreement signed with Hikma for VR730 (DPI generic salmeterol) -- Second licensing agreement signed with Mundipharma for VR2076 (pMDI triple combination)
-- US commercial rights for Seebri(TM) Neohaler(R) and Utibron(TM) Neohaler(R) licensed by Novartis to Sunovion and launch expected in 2017
Merger integration and synergy realisation making excellent progress
-- Pipeline review completed -- New organisational structure in place -- Annual synergy savings of at least GBP10 million by 2018
James Ward-Lilley, Chief Executive Officer of Vectura:
"These results reflect the strong organic performance for Vectura in 2016 both before and after the June 2016 merger with Skyepharma which has transformed the outlook for the business.
"As well as strong financial performance, we have made excellent progress on both partnered and wholly owned pipeline projects. In addition, we have executed a number of valuable business development agreements. The merger integration is well advanced and we remain confident of delivering the committed synergy targets as a minimum. The new organisational structure is in place, the portfolio review completed and promising new pipeline projects commenced.
"With its proven formulation, device and development capabilities Vectura is well-positioned to accelerate shareholder value creation, capitalising on changes in the market dynamics of the inhaled respiratory market. The Group has a strong outlook both as a partner for generic and novel development programmes and the opportunity to capture an increasing share of investment value through the future commercialisation of its wholly-owned specialist targeted assets.
"We look forward to 2017 with confidence given the strength of our capabilities and established in-market performance with further newsflow on our generic and novel programmes alongside further additional business development partnering."
Analyst briefing
James Ward-Lilley, Chief Executive Officer, and Andrew Derodra, Chief Financial Officer, will present the Preliminary Results and provide an update on the Group's performance for the nine-month period ended 31 December 2016 at a briefing for analysts at 9.30am to 10.30am GMT on 21 March 2017. 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 3364 5729 Participant free phone dial-in : 0800 279 4835 Participant code: 6937967
A live webcast of the meeting, with the presentation slides including pro-forma 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 device and formulation business for inhaled airways products. With our extensive range of technologies, integrated capabilities and collaborations, we are 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, Bayer, 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.
Operational Review
Robust performance of in-market sales of seven recently-launched inhalation 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 nine-months ended 31 December 2016, total revenues from these seven products generated 61.8% of the Group's total revenues (FY 2015/16: 60.4%). All of these products were launched within the last five years and together generated in excess of $2.0bn of in-market net sales[3] in the 12 months to 31 December 2016 (12 months to 31
December 2015: $1.1 billion in-market net sales(3) ).
flutiform(R)
flutiform(R) (fluticasone/formoterol) is a fixed dose combination of an anti-inflammatory (ICS) and a bronchodilator (LABA) in a pMDI device. Vectura earns revenue from product supply in addition to royalties on in-market net sales and is eligible for up to EUR30.0 million in future sales milestones from Mundipharma.
flutiform(R) continues to benefit from strong demand and in-market net sales([4]) for the nine-month period ended 31
December 2016 were 29% ahead of the same period in 2015 at EUR147.0 million (Q2/Q3/Q4 2015: EUR113.8 million) generating total recurring product supply and royalty revenue for the Group of GBP45.6 million during the period. The product is now launched in 34 countries, approved in a further nine and has applications for marketing authorisations under review in 15 other countries.
EUR'm Q2 Q3 Q4 2015 9 months Q2 Q3 2016 Q4 2016 9 months
2015 2015 ended 2016 ended
31 December 30
2015* December
2016*
-------------- ------ ------ ------- ------------- ------ -------- ------- ----------
E.U./ROW
(excluding
America
and Japan) 24.5 24.7 29.4 78.6 32.0 28.0 31.7 91.7
-------------- ------ ------ ------- ------------- ------ -------- ------- ----------
Japan 10.0 10.4 14.8 35.2 16.5 17.3 21.5 55.3
-------------- ------ ------ ------- ------------- ------ -------- ------- ----------
Total 34.5 35.1 44.2 113.8 48.5 45.3 53.2 147.0
-------------- ------ ------ ------- ------------- ------ -------- ------- ----------
Growth vs
prior year
comparative
period 29%
-------------- ------ ------ ------- ------------- ------ -------- ------- ----------
* Figures shown at actual exchange rates applicable for the relevant quarter.
Volumes within the flutiform(R) supply chain were at record levels during the calendar year and the Group continues to make good progress with the previously announced initiatives to expand capacity. In particular, post period, the second manufacturing vessel at the Sanofi facility in Holmes Chapel is now fully commissioned and producing commercial batches for both Mundipharma and Kyorin. Further initiatives to support capacity within previously-guided capital investment levels are planned, including potential investment relating to a second manufacturing line to diversify the supply chain for this important product. In parallel, the Group continues to explore potential initiatives and efficiency measures to manage increases in capacity with a view to minimising or deferring capital outlay without impacting the long-term outlook for flutiform(R) .
flutiform(R) Mundipharma (EU & ROW - excluding North America and Japan)
flutiform(R) continues to grow strongly based on the approved asthma indication and this indication underpins our expectations for future growth from the product. Therefore whilst disappointing, the news that Mundipharma's European Phase III trial of flutiform(R) in COPD did not meet the primary endpoint of annualised exacerbations, it is not expected to have a material impact on our long-term outlook of this product. Mundipharma will publish the results of this study during 2017. The COPD study in China did successfully achieve its primary endpoints. Whilst supportive of the general safety and efficacy of the product, this trial currently has no wider roll-out implications for flutiform(R) in COPD and the current focus for China is the asthma indication. Further details of Mundipharma's planned asthma study in China in H2 2017 are expected once approval of the study protocol is obtained from the Scientific Committee of the Chinese Food and Drug Administration ("CFDA").
Further newsflow is anticipated in respect of flutiform(R) during 2017. Notably, an update on the on-going regulatory review of Mundipharma's application for marketing authorisation in Europe for the breath-actuated version of flutiform(R) (K-Haler(R) ) and continued roll-out into Asia Pacific and Latin America.
During 2016, the value of the European ICS/LABA market declined by 7%. In this challenging market, flutiform(R) grew 17% in value[5] and market share has increased to 3.3% at Q4 2016[6] compared to 2.9% at Q4 2015[7]. In the Rest of World (excluding Japan), the value of the total ICS/LABA market was flat and flutiform(R) in this region grew by 54% in value[8].
flutiform(R) Kyorin (Japan)
As a key element of its new drugs group, Kyorin continues to drive flutiform(R) success in the growing Japanese ICS/LABA market where total value in 2016 increased 16% and flutiform(R) increased its value market share from 8% at Q4 2015 to 10% at Q4 2016[9].
Ultibro(R) Breezhaler(R) and Seebri(R) Breezhaler(R) (Novartis (EU & ROW))
Ultibro(R) Breezhaler(R) and Seebri(R) Breezhaler(R) are now established and substantial global products. In January 2017, Novartis reported 2016 combined net sales in excess of $0.5 billion for these products triggering a sales milestone of $5.0 million to Vectura in addition to combined royalties of GBP12.2 million recorded for the nine-month period (2015/16: GBP10.9 million).
Ultibro(R) Breezhaler(R) (indacaterol/glycopyrronium bromide, QVA149) a first-in-class once-daily fixed dose inhaled dual bronchodilator (LAMA/LABA) indicated as a maintenance bronchodilator treatment to relieve the symptoms of adult patients with COPD.
Ultibro(R) has continued to benefit from strong data from the FLAME study as well as the results of the CRYSTAL study which showed improved lung function and COPD symptoms after direct switch from previous treatment. The product is now approved in over 90 countries including Japan and countries in the EU, and in January Novartis reported net sales of $285 million during the nine-month period, an increase of 37.0% compared to the same period in the prior calendar year.
Following the major revisions announced in November 2016, the GOLD treatment strategy now support the use of bronchodilation as the foundation treatment for COPD patients prior to the use of inhaled steroid containing therapies, as supported by the Novartis FLAME study evidence. Over time, these changes are expected to translate to healthcare 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[10] in preventing COPD exacerbations[11].
Seebri(R) Breezhaler(R) (glycopyrronium bromide, NVA237) is a once-daily fixed dose inhaled bronchodilator (LAMA) indicated as a maintenance bronchodilator treatment to relieve the symptoms of adult patients with COPD.
In January, Novartis reported net sales of $114 million during the nine-month period. As expected this level of sales was consistent with the same period in the prior calendar year as Novartis has continued to focus resource on Ultibro(R) Breezhaler(R) following the positive FLAME results. The product is now approved for use in over 90 countries including Japan and countries in the EU.
Utibron(TM) Neohaler(R) and Seebri(TM) Neohaler(R) (Novartis / Sunovion (US))
As announced in December 2016, Novartis has licensed the US commercial rights to three of their COPD treatments, including Seebri(TM) Neohaler(R) and Utibron(TM) Neohaler(R) , to Sunovion, a partner with an established US respiratory focus and expertise in COPD. With its established US respiratory focus and commercialisation expertise, Sunovion is expected to be a strong partner, providing doctors new treatment options for their COPD patients. The Group expects Sunovion to commercialise the products in 2017. The Group anticipates US sales will generate a further contribution to the substantial and growing recurring royalty stream it receives from Novartis. Novartis will manufacture the medicines for Sunovion.
Utibron(TM) Neohaler(R) (indacaterol/glycopyrrolate) 27.5/15.6 mcg is a twice-daily fixed dose combination dual bronchodilator (LAMA/LABA). In the US, Utibron(TM) Neohaler(R) is a prescription medicine approved as a long-term maintenance treatment of airflow obstruction in patients with COPD, including chronic bronchitis and/or emphysema[12]. It is not approved for the
relief of acute bronchospasm or the treatment of asthma.
Utibron(TM) Neohaler(R) was approved in October 2015 in the US with a dose of indacaterol/glycopyrrolate 27.5/15.6 mcg administered twice-daily, which is different from the product marketed outside the US.
Utibron(TM) Neohaler(R) demonstrated strong efficacy and safety as well as clinically meaningful improvements in health-related quality of life for patients with COPD in clinical studies. Utibron(TM) Neohaler(R) also improved overall quality of life, reduced COPD rescue medication use and improved breathlessness.
Seebri(TM) Neohaler(R)
Seebri(TM) Neohaler(R) (glycopyrrolate) 15.6 mcg is a twice-daily LAMA bronchodilator. In the US, Seebri(TM) Neohaler(R) is a prescription medicine approved as a long-term maintenance treatment of airflow obstruction in patients with COPD, including chronic bronchitis and/or emphysema[13]. It is not approved for the treatment of asthma.
Ultibro(R) , Seebri(R) , Breezhaler(R) , Neohaler(R), are registered trademarks of Novartis AG. Seebri(TM) and Utibron(TM) are trademarks 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 nine-month period up 159.8% to GBP769 million compared to GBP296 million in the comparative period.
During the period under review, Vectura has earned royalties under two separate agreements with GSK.
Legacy Skyepharma agreement with GSK
Vectura receives royalties on sales of these products under the legacy Skyepharma agreement with GSK, subject to a GBP9 million calendar year cap and this cap was reached in 2016, a year earlier than previously guided due to the growth of the products, with Vectura recording royalties of GBP5.4m in respect of this agreement in the nine-month period to 31 December 2016.
Legacy Vectura agreement with GSK
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 July 2016, royalties earned under this contract totalled GBP7.3 million (2015/16: GBP13.0 million). During the period from 1 January to 31 July 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 had 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. The court has scheduled a jury trial commencing on 17 December 2018. 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 over royalties that were, up until July 2016, subject to a cap of GBP13 million per calendar year.
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) (fluticasone propionate, salmeterol) an inhaled anti-inflammatory (ICS) and bronchodilator (LABA) combination delivered using a Vectura proprietary dry powder inhaler ("DPI") for the treatment of asthma and/or COPD. This product has been launched to date in approximately 30 countries, in Europe and elsewhere. Vectura reported royalties and device sales of GBP3.5 million for the 9-month period (2015/16: GBP4.9 million).
In August 2016, Vectura confirmed the announcement made by Sandoz that new data published in a leading medical journal showed for the first time that the probability of a patient persisting with AirFluSal(R) Forspiro(R) after one year is double that with Seretide(R) Diskus(R)[14] . All patients were first time users of salmeterol/fluticasone propionate and persistence to
treatment was analysed for a 12-month period.
AirFluSal(R) and Forspiro(R) are registered trademarks of Novartis AG. Seretide(R) Diskus(R) are trademarks owned by Glaxo Group Ltd. Seretide(R) Diskus(R) is marketed in Germany under the trademarks Viani(R).
Important developments across our novel partnered pipeline validating handheld smart nebuliser technology and industry-leading innovation
Our broad pipeline includes a number of novel partnered assets ranging from pre-clinical programmes to pre-launch assets. Typical novel molecule and/or device partnering arrangements provide Vectura with development services revenues, milestones and low single digit royalties on high-value opportunities balancing financial exposure to programmes with higher molecule risk.
VR876 (EU & ROW ex-US), Vectura's adapted handheld smart nebuliser FOX(R) technology (branded as Breelib(TM) ) used by the Group's partner, Bayer, as an alternative delivery method for their on-market product Ventavis (iloprost solution) for the treatment of pulmonary arterial hypertension.
In December 2016, Bayer confirmed completion of the EU regulatory procedure to allow an alternative device for their on-market product Ventavis(R) (iloprost solution) using an adapted version of Vectura's handheld FOX(R) smart nebuliser device, branded by Bayer as the Breelib(TM) device. Following launch, patients will be able to initiate Ventavis treatment with this device or switch from an alternative device. We expect to confirm the launch of this product during H1 2017.
This regulatory action was particularly significant as it represents the first approval and progression to commercialisation of the FOX(R) smart nebuliser device. Although the financial value for the Group from this programme will be limited, given the small patient population, this external platform validation coincides with sustained interest in multiple potential collaborations seeking to leverage the FOX(R) unique drug device technology.
Ventavis(R) is a registered trademark of Bayer AG. Breelib(TM) is a trademark of Bayer AG.
VR465 (Global) (inhaled biologic), Vectura's adapted handheld FOX(R) smart nebuliser device used to deliver Ablynx's first-in-class, wholly-owned inhaled anti-RSV Nanobody(R) , ALX-0171, for the treatment of respiratory syncytial virus ("RSV") in infants. RSV is the leading cause of infant hospitalisation and the primary viral cause of infant death[15]. Infant RSV
remains an area of high unmet medical need and there are currently no drugs specifically approved for treatment of RSV infections.
ALX-0171 is a potential breakthrough treatment option for RSV infections in vulnerable patient populations and its inhaled method of delivery offers a major platform advantage. 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.
Following positive topline results for their RSV programme, ALX-0171 (VR465), in hospitalised infants Ablynx confirmed their decision to exercise a commercial license option over Vectura's handheld FOX(R) technology for continued development of this programme, triggering a milestone for the Group of EUR1.5million.
Post period end in January 2017, Ablynx confirmed the initiation of a global Phase IIb dose efficacy study, RESPIRE, in 180 infants hospitalised as a result of a RSV infection. Topline results from this study are expected in the second half of 2018.
VR942 (Global) (inhaled biologic), a novel dry powder biologic for uncontrolled asthma in co-development with UCB and utilising Vectura's large molecule formulation expertise and delivered using one of Vectura's proprietary DPI devices. This programme represents an exciting opportunity with biologics currently estimated to be worth $1.2 billion in G7 markets (Omalizumab) and expected to increase to $3-5 billion[16] by 2024. Currently there are over 6 million patients with severe
persistent asthma[17] in major markets, of which 20% are uncontrolled[18]. This programme, which has the potential to be
the first inhaled delivery of a biologic drug for uncontrolled asthma, has the opportunity to displace parenteral biologics with novel medicine that offers similar or better efficacy and a more convenient delivery route.
The programme continued to make good progress during the period and in June the Group announced the successful completion of the Phase I clinical study. The Phase I study 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. Presentation of the detailed study outcomes is targeted for the American Thoracic Society on 22 May 2017. However we believe that the generation of data indicating a positive impact on biomarkers of inflammation represents an exciting prospect for this antibody specifically. Additionally, the successful application of our large molecule formulation technology provides a potential platform for other biologic developments in the future.
Preparation is underway to enable Phase II clinical trial initiation in H2 2017.
QVM149 (EU & ROW) (indacaterol/glycopyrronium bromide/mometasone furoate) is a once-daily fixed dose inhaled dual bronchodilator (LABA/LAMA) and anti-inflammatory (ICS) triple therapy for asthma from Novartis. This Phase III asset has first-to-market potential in the EU as an asthma treatment delivered in a DPI device.
QVM149 is an important programme for the Group with fixed combination triple therapy treatment expected to develop strongly and likely to take significant share from existing use of multiple "free combination" treatments as well as from the large volume of ICS/LABA combination treatment currently used.
Novartis has continued to make good progress with recruitment into their Phase III study and the study read-out is planned for 2018 with a regulatory submission in 2019 and has the potential to be first-to-market triple DPI combination product, in the asthma indication, in Europe.
VR2076 (Global), a fixed dose inhaled dual bronchodilator (LAMA/LABA) and anti-inflammatory (ICS) for asthma partnered with Mundipharma delivered in a pMDI device is a natural extension of flutiform(R) .
In December 2016, Mundipharma and an associated independent US company confirmed that they wished to exercise an option over Vectura technology to develop and commercialise VR2076, initially targeting the asthma indication thus extending the Group's exposure to this important therapy area. The exercise of this option triggered a EUR1.5m payment to Vectura with further potential milestones of up to EUR46.5 million payable dependent upon certain undisclosed pre-defined development and regulatory milestones and subsequent launch of the product. In the event of successful product launches, Vectura will be eligible to receive royalties on future net sales of the product.
The agreement also includes the potential for further development of the triple combination as a COPD treatment should Mundipharma decide to develop the programme in COPD, Vectura is eligible to receive further undisclosed pre-defined development and launch milestones of up to EUR20 million in addition to royalties on any future net sales of the product. Vectura is also eligible to receive one-off undisclosed sales milestones should net sales of both the asthma and COPD products achieve certain predetermined levels.
The first regulatory filings of VR2076 are planned in the EU for late 2022 or early 2023.
Significant progress across our generics partnered pipeline assets further demonstrating Vectura's extensive, proven device and formulation expertise
Our partnered generic assets allow Vectura to access high-volume opportunities whilst managing the significant development cost associated with large generic programmes. Typically Vectura's involvement will include both device and formulation development and as a result the Group can earn development services revenues as well as milestones and mid-teen percentage royalties on net sales of the final marketed products.
VR315 (US), (fluticasone propionate/salmeterol), is the Group's 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 Food and Drug Administration (FDA) accepted an Abbreviated New Drug Application (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 mid-teen percentage royalty on net sales of VR315 in the US.
This programme remains under FDA regulatory review and we continue to work closely with Hikma through this process. VR315 is one of only two generic Advair(R) Diskus(R) ANDAs publicly filed and accepted.
VR730 (US), (salmeterol), a generic inhaled bronchodilator (LABA) for asthma and COPD using Vectura's dry powder inhalation technology and delivered using one of the Group's proprietary DPI devices, partnered with Hikma. VR730 has the potential to address an important market: according to IMS, US sales of inhaled DPI and pMDI LABAs were approximately $128 million in 2016[19].
In November 2016, the Group announced that it had extended its collaboration with Hikma by signing a US development and license agreement for VR730. Under the terms of the agreement Vectura will be responsible for completion of the formulation development and Hikma will be responsible for the clinical development of the programme and the subsequent manufacture and US commercialisation of the product.
Formulation work to be completed by Vectura will largely be funded by Hikma and therefore this programme is not expected to materially impact the Group's level of future R&D investment. Upon signing the agreement, Vectura received an initial payment of $375,000 and is eligible to receive 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 clinical studies.
New generics, three to five significant new generic development opportunities were identified in the pipeline review and work is initiating. Activities will be focused on initial formulation, preclinical development and preliminary regulatory interactions of these new mass-market pMDI and DPI opportunities with significant value potential in parallel with partnering discussions underway.
Continued development of our wholly-owned specialist pipeline assets with further clinical activity planned for 2017
Vectura's wholly-owned specialist assets, VR475 and VR647, provide an opportunity for higher margin capture and greater management control. Risk exposure is managed as these drug/device programmes are in niche indications, targeting specialist patient populations delivering known molecules.
VR475 (EU), Vectura's leading and most advanced wholly-owned specialist pipeline drug/device combination asset using the AKITA(R) JET smart nebuliser technology delivering nebulised budesonide positioned as an add-on maintenance before the initiation of biologics for the treatment of severe uncontrolled adult asthma in Europe.
The AKITA(R) JET smart nebuliser used in the VR475 programme utilises Vectura's innovative proprietary flow rate and volume control (FAVORITE(TM) ) technology. The programme provides an opportunity to show greater efficacy than conventionally nebulised budesonide and to be more cost effective than biologics. Development risk of the programme is balanced since individual components of this drug-device combination are already market-proven and the product concept has already been tested in an OCS ("oral corticosteroid sparing") trial with positive results. Filing is anticipated in H2 2019.
Partnering options are being considered for the commercialisation of this asset in the EU where the opportunity would target the 40-50% of uncontrolled patients (4.2m patients), with severe persistent asthma[20].
VR647 (US), Vectura's second wholly-owned specialist pipeline drug/device combination asset using the AKITA(R) JET smart nebuliser technology as maintenance treatment and prophylactic therapy for paediatric asthma (12 months to 8 years) targeting the US market.
VR647 harnesses Vectura's innovative smart nebuliser technology targeting superior delivery of an existing drug with a proven track record in an established and significant US market where according to IMS, sales of nebulised budesonide are approximately $930m[21] per year. This programme provides an opportunity to significantly improve the currently
available nebulised delivery of budesonide with a faster delivery time, better lung deposition a lower nominal dose whilst maintaining similar efficacy, potentially local and systemic side effects.
Over the longer term, Vectura's commercial priority is to develop strong commercial revenues in the US market by building its own specialist customer coverage with VR647 targeted for the paediatric specialist segment.
During the period, Vectura made an IND filing to the US FDA and post period we were pleased to confirm that this filing had been accepted and that a Phase I pharmacokinetic study in adults is expected to commence in H1 2017. The Phase I study will inform the doses to be explored in a Phase II study in children planned for H2 2017. These studies will be conducted to support initiation of a Phase III study in H2 2018 with the NDA filing anticipated in 2020.
VR588 (Global), 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 planned to be progressed into Phase I/IIa which will start in H2 2017 with the option to out-license or develop further internally.
Excellent progress with merger integration
The new organisational structure is in place. The Board continues to expect annual synergy savings of at least GBP10 million by 2018 and that total merger integration costs will be GBP9 million as announced at the time of the merger, with GBP3.9 million recorded as an exceptional cost in the Group's 2016 results. The 2016 results also include a number of merger-related items, principally a GBP3.9 million inventory fair value uplift included as a cost of sales of the flutiform(R) supply chain which will not recur in 2017. There were also GBP9.4 million of exceptional charges reported in 2016, primarily relating to contingent transaction costs for the Skyepharma merger as well as the initial post-merger integration costs mentioned above.
Oral and Non-inhaled
The core market in which Vectura operates is in inhaled airways disease. Prior to the merger with Skyepharma, Vectura had two legacy revenue-contributing non-inhaled assets partnered with Baxter (ADVATE(R) and Adept(R) ). The Group's ADVATE(R) patent expired at the end of January 2016, however owing to higher than anticipated production of ADVATE(R) inventory by Baxter prior to this expiry, Vectura has continued to receive royalty from sales of the product totalling GBP8.2 million for the period under review (2015/16: GBP12.7 million). Adept(R) continues to make a minor contribution to revenue. Skyepharma also had twelve revenue-contributing oral and other non-inhaled products including the topical product Solaraze(R) , partnered in the US with Sandoz and Almirall in Europe/ROW, and Pacira's injectable, EXPAREL(R) .
The merger with Skyepharma brought significant oral technology and manufacturing expertise and capabilities. Until 30 June 2016, the Group's manufacturing facility in Saint-Quentin-Fallavier, Lyon, France was leased to Aenova France SAS. As expected, this facility transferred back to the Group at the end of June 2016 and since this time a number of initiatives have commenced to maximise the value of the facility, leveraging proven capabilities in multilayer tableting formulation and oral technology innovation.
Of the twelve oral and non-inhaled products, the facility currently manufactures seven for the Group's partners. Five products use the Geomatrix(TM) family of technologies: Diclofenac-ratiopharm(R) -uno, Coruno(R) , ZYFLO CR(R) , Madopar(R) DR(R) /Prolopa(R) and Sular(R) , whilst Lodotra(R) /RAYOS(R) uses the Geoclock(TM) chronotechnology. The facility also manufactures one other oral product, Triglide(R) , which utilises the Group's solubilisation technology. The facility has cGMP status, with approvals from the European Medicines Agency, the FDA, ANVISA (Brazil) and KFDA (South Korea) amongst others.
Vectura's current focus remains maximising the volumes in the Lyon facility. During the period the Group signed four licensing agreements; demonstrating the capability of Lyon as a solution provider for generic development using one of its core competencies, multi-layer tableting.
Kinnovata
The Group's joint venture, Kinnovata, established to create low cost DPI products for the domestic Chinese market, has made further progress during 2016. The final capitalisation of the joint venture is expected to be concluded during 2017 with the relevant assets being contributed to the business by Vectura and its partners. Recognition of the Group's share of Kinnovata's net assets at this point will trigger an exceptional non-cash gain to be recorded in the Group's accounts.
Capital allocation
The Group maintains a disciplined approach to capital allocation in support of its priorities for future growth in shareholder value. The Board reconfirms the issued guidance for 2017 investment in research and development (R&D) and sets out guidance for 2018, as shown below. Typically, 45-50% of investment is for wholly-owned programmes with the remainder for partnered programmes where Vectura has the potential to earn milestone and development services revenues over the period of development which may cover some or all of the Group's costs incurred during that time. In addition, once launched, there is potential for significant further milestones and recurring revenues.
During 2017 the key focus for R&D investment will remain focused upon:
-- Vectura's leading wholly-owned specialist pipeline drug/device asset in severe adult asthma (VR475 EU) will continue its Phase III clinical trial in Europe
-- The second, wholly-owned specialist pipeline drug/device asset in paediatric asthma (VR647 US) will progress into a Phase I and subsequent Phase II trial in the US
-- The innovative inhaled biologic co-development programme with UCB (VR942) is planned to move into a Phase II trial
-- The 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
The Group's development pipeline offers substantial revenue potential to augment the 7 recently-launched and growing on market inhalation products. Assuming successful completion of development and subsequent approval, VR475 could be launched in the EU by 2020, followed by VR647 in the US 2021. Vectura is also developing two inhaled DPI generics with Hikma and a further DPI inhaled generic with Sandoz, which have potential for launch in the 2020-2025 timeframe. QVM149, where Novartis is currently conducting Phase III trials, could be the first DPI fixed dose triple combination for asthma launched in Europe by 2019.
The Board continues to expect that capital expenditure, from a relatively low base of GBP3.1 million in 2016, will peak during 2017 with initiatives to expand manufacturing capacity for a number of our programmes, including the potential cost of establishing a second manufacturing line to meet growing demand for flutiform(R) . In line with the Group's stringent investment criteria, we will continue to explore all potential initiatives and efficiency measures to manage increases in capacity with a view to minimising or deferring capital outlay without impacting the long-term outlook for these key programmes.
Guidance on R&D and capital allocation is summarised below:
2017 2018
-------------------- --------- ---------
R&D GBP65m - GBP65m -
GBP75m GBP75m
Capital expenditure GBP15m - GBP10m -
GBP20m GBP15m
-------------------- --------- ---------
Summary and outlook
Following the merger in June 2016 the Group is well positioned, with its unique, integrated formulation, device and development capabilities, to accelerate shareholder value creation and capitalise on changes in the market dynamics of the inhaled respiratory market. Vectura has a strong track record and outlook as a partner for both novel and generic development programmes and the opportunity to capture an increasing share of value through the future commercialisation of its wholly owned specialist targeted assets.
With established momentum of the 7 recently-launched inhaled products, the Board continues to anticipate strong growth in like-for-like recurring revenues in 2017 compared to the 12-month proforma period to 31 December 2016. Like-for-like revenues exclude royalties from both ADVATE(R) , where the patent expired in January 2016 and is not expected to provide material contribution in 2017, and also from the GSK Ellipta(R) products under the legacy Vectura agreement, as GSK ceased payments after July 2016.
Revenues for the year will be augmented by new recurring royalties from the US launch of Utibron(TM) Neohaler(R) and Seebri(TM) Neohaler(R) by Sunovion and the potential launch of VR315, the US generic Advair(R) Diskus(R) programme partnered with Hikma. The Group will earn an $11 million milestone from Hikma if VR315 is approved, in addition to a mid-teen royalty on net sales of the product.
Validation of the FOX(R) smart nebuliser device with its first regulatory approval as Breelib(TM) in December 2016 will provide relatively modest milestone revenues once launched by Bayer in 2017 but has the potential to lead to the announcement of a number of collaborations with other partners seeking to leverage the unique FOX(R) drug device technology.
Excellent progress has been made with the merger integration and organisation changes and the Group remains on track to deliver at least the GBP10 million committed annual cost synergies from 2018, with 2017 expected to benefit from a significant portion of that annual amount. It is expected that 2017 will include a further GBP3-5 million of exceptional post-merger integration costs.
As Vectura earns the majority of its revenues in US dollars and Euros, any continued volatility of sterling against these currencies may also affect reported results.
Vectura is taking a measured approach to the development of its wholly owned portfolio and commercialisation plans, which the Board believes efficiently leverages the Company's strengths in formulation and device technologies. The Group's wholly-owned programmes, VR475 in Phase III and VR647 in Phase I, limit development risk by using known molecules whilst characterising the clinical value of its own novel device delivery technology.
Vectura is in a strong position entering 2017 and we look forward to the year ahead with confidence.
Financial Review
All-share merger with Skyepharma PLC (the "Merger") and subsequent change of accounting reference date
On 10 June 2016, an all-share merger (the "Merger") of Vectura Group plc ("Vectura") and Skyepharma PLC ("Skyepharma") was completed by way of a scheme of arrangement of Skyepharma. Further details are set out in Note 13 to the consolidated financial statements.
In accordance with International Financial Reporting Standard ("IFRS") 3 Business Combinations, for accounting purposes Vectura acquired Skyepharma and its subsidiaries and therefore the results of Skyepharma have been consolidated into the Group's financial statements from the date of acquisition. Vectura changed its accounting reference date to 31 December to align across the Group post-Merger and also with a number of its partners. As a result, the current financial period presented in the consolidated financial statements is the nine-month period from 1 April to 31 December 2016, with the results of Skyepharma and the impact of any fair value adjustments included for an approximately six-and-a-half month period from 10 June to 31 December 2016. As required by IFRS 3, the comparative financial period in the consolidated financial statements is for the year ended 31 March 2016.
Current financial period comparison with previously-reported results is therefore affected by both the Merger and the change of accounting reference date. To assist in understanding current financial period performance, supplementary unaudited summary proforma financial information is presented. The proforma information is prepared for the nine-month and twelve-month periods ended 31 December 2016 and 31 December 2015 as though the Merger was completed on 1 April 2015 and 1 January 2015 respectively and excludes the impact of the acquisition accounting adjustments which are required by IFRS 3 Business Combinations.
Financial highlights
The strong business performance in a transformational year has delivered a robust set of results in the first financial period end since the Merger, on both reported and underlying like-for-like bases, summarised in the table below.
Reported Reported Reported Proforma Proforma Proforma
(audited) (audited) change (unaudited) (unaudited) change
9 months Year 9 months 9 months
ended ended ended ended
31 31 31 Dec 31 Dec
Dec Mar 2016 2015
2016 2016
GBPm GBPm GBPm GBPm
----------- ----------- --------- ------------- ------------- ---------
Revenue
Royalties 47.5 39.2 21.2% 53.7 44.5 20.7%
Product supply
and device sales 50.3 3.7 > 100% 57.4 43.7 31.4%
Signing and milestone
payments 20.5 24.4 (16.0%) 20.6 30.7 (32.9%)
Development services 4.5 4.7 (4.3%) 5.4 7.2 (25.0%)
Other(b) 3.7 - > 100% 4.9 4.5 8.9%
Total revenue 126.5 72.0 75.7% 142.0 130.6 8.7%
----------------------- ----------- ----------- --------- ------------- ------------- ---------
EBITDA 34.1 23.2 47.0% 43.4 49.8 (12.9%)
----------------------- ----------- ----------- --------- ------------- ------------- ---------
Recurring revenue(a) 101.3 42.9 > 100% 115.6 91.6 26.2%
----------------------- ----------- ----------- --------- ------------- ------------- ---------
EBITDA (based
on recurring
revenue) 8.9 (5.9) > 100% 17.0 10.8 57.4%
----------------------- ----------- ----------- --------- ------------- ------------- ---------
(a) Recurring revenue comprises royalties, product supply and device sales and share of sales from EXPAREL(R) in the United States.
(b) Other revenue includes the share of net sales of EXPAREL(R) in the United States of GBP3.5 for the reported 9 months ended 31 December 2016 and GBP4.5 million and GBP3.4 million for the pro-forma periods ended 31 December 2016 and 2015, respectively.
Reported revenue for the period increased 75.7% to GBP126.5 million (2015/16: GBP72.0 million) with recurring revenue(a) accounting for 80.1% of the total (2015/16: 59.6%). This includes the effect of the Merger and strong organic royalty revenue growth. EBITDA[22] growth was below revenue growth, at 47.0%. This was partly due to a lower margin mix of
total reported revenues as a reduction in milestones was more than compensated by higher product supply revenues with an associated cost of sales, including a one-off GBP3.9 million charge from the unwinding of flutiform(R) inventory fair value uplifts. R&D investment was also GBP3.5 million higher at GBP45.6 million (2015/16: GBP42.1 million).
Unaudited proforma recurring revenue, which illustrates underlying like-for-like performance, increased 26.2% to GBP115.6 million (2015 proforma: GBP91.6 million). Unaudited proforma EBITDA (based on recurring revenue) grew 57.4% to GBP17.0 million (2015 proforma: GBP10.8 million). This underlying like-for-like growth was driven by royalties from the 7 recently-launched inhaled products, including flutiform(R) and Ultibro(R) , as well as flutiform(R) product supply.
Revenue
Revenue comprises royalties, product supply and device sales, signing and milestone payments, development services and other income. Revenue for the period increased by 75.7% to GBP126.5 million compared to GBP72.0 million for the year ended 31 March 2016, as described above. The inclusion of Skyepharma from 10 June 2016 contributed GBP78.4 million to Group revenue including further substantial recurring revenue from royalties and flutiform(R) product supply.
Recurring revenue, which comprises royalties, product supply and device sales and share of sales from EXPAREL(R) in the United States, has grown 136% to GBP101.3 million during the period under review and accounted for 80.1% of total revenue (2015/16: GBP42.9 million, 59.6%). On a proforma unaudited basis, recurring revenue was GBP115.6 million and accounted for 81.4% of total revenue, an increase of 10 percentage points over the 70.1% for the comparative proforma period. This increase was principally from the growth of recurring revenue of the 7 recently-launched inhaled products including flutiform(R) and Ultibro(R) .
Revenue has also benefitted from the continued weakness of sterling against the Group's main trading currencies, in particular the US Dollar and Euro. The favourable translation impact in the nine-month period to 31 December 2016 had exchange rates remained unchanged from the nine-month period to 31 December 2015 is GBP14.0 million.
Royalties
Royalty revenue for the nine months ended 31 December 2016 of GBP47.5 million increased by 21.2% (2015/16: GBP39.2 million) and 20.7% on an unaudited proforma basis. Following the Merger, the Group now earns royalties from 21 marketed products (2015/16: 8 products), 7 of which were launched since 2012 (2015/16: 6).
Net sales of Ultibro(R) Breezhaler(R) , as reported by Novartis, have grown by 37.0% to $285 million for the nine-month period ended 31 December 2016 (nine-month period to 31 December 2015: $208 million). Net sales of Seebri(R) Breezhaler(R) , as reported by Novartis, have remained consistent with the comparable prior period at $114 million (nine-month period to 31 December 2015: $113 million). As a result of this continued strong sales growth of Ultibro(R) , total royalties earned from Novartis for both products have increased to GBP12.2 million in the nine-month period (2015/16: GBP10.9 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 nine-month period ended 31 December 2016 up 159.8% to GBP769 million compared to GBP296 million for the nine months ended 31 December 2015.
Royalties for the nine months ended 31 December 2016 in respect of Vectura's legacy licence agreements were GBP7.3 million (2015/16: GBP13.0 million). 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 continued to receive royalties from GSK for sales of the Ellipta(R) products under the legacy Skyepharma licence with GSK which totalled GBP5.4 million in the period 10 June to 31 December 2016. Due to the strong performance of these products, and as announced on 16 February 2017, the GBP9.0m calendar year royalty cap was reached in 2016, a year earlier than previously guided.
Royalties from flutiform(R) , which continue to benefit from strong growing demand, have contributed GBP3.0m to the Group's reported royalty revenue in the post-Merger period. These royalties are impacted by a cap which limits the aggregate amount of revenues from Mundipharma for royalties and product supply to 35% of Mundipharma's net sales of the product in the same period. Accordingly, the effective royalty rate in respect of Mundipharma during the period was a low single digit percentage. However, when combined with the margin generated by flutiform(R) product supply to Mundipharma and excluding fair value adjustments recognised under IFRS 3 Business Combinations, the effective contribution is a low teens percentage of in-market net sales.
Total in-market net sales[23] for all territories covered by both the Group's partners, Mundipharma and Kyorin, for the nine-
month period ended 31 December were EUR147 million, 29.0% higher than the same period in the prior year (nine months to 31 December 2015: EUR114 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 GBP8.2 million (2015/16: GBP12.7 million) reflect the run-off sales of inventory produced by Baxter prior to the patent expiry in January 2016. The Directors believe that the majority of stock has now been sold and do not expect a material contribution in 2017. Solaraze(R) royalties were GBP3.3 million for the period of which GBP2.3 million relates to US sales which benefited from short-term market factors.
Signing and milestone payments
Product and technology licensing milestones of GBP20.5 million were recognised in the nine months ending
31 December 2016 (2015/16: GBP24.4 million).
In April 2016, the Group received a $10 million (GBP7.1 million) milestone from Hikma Pharmaceuticals, the Group's 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-teen 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 to use Vectura's FOX(R) handheld smart nebuliser technology to progress its ALX-0171 infant RSV programme into a Phase IIb dose-ranging efficacy study and the Group received a EUR1.5 million (GBP1.1 million) milestone. Vectura is eligible to receive further milestones linked to development and regulatory progress of the programme and low/mid-single digit percentage royalties on any future net sales of the product.
In August 2016, the Group recorded receipt of an $8 million (GBP6.1 million) sales milestone from Pacira following their confirmation that worldwide annual net sales of EXPAREL(R) (on a cash-received basis) to 30 June 2016 had reached $250 million. Vectura is also eligible to receive a further sales milestone of $32 million when worldwide annual net sales of the product reach $500 million (on a cash-received basis), the receipt of this milestone is not dependent on patents. 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.
In December 2016, following the successful completion of feasibility work, which the Group was responsible for, Mundipharma and a US independent associated company exercised their option to develop and commercialise the VR2076 pressurised Metered Dose Inhaler ("pMDI") ICS/LABA/LAMA triple programme and the Group recognised a EUR1.5 million (GBP1.3 million) milestone.
Ultibro(R) Breezhaler(R) and Seebri(R) Breezhaler(R) are now established and substantial global products. Novartis reported 2016 combined net sales in excess of $0.5 billion for these products triggering a sales milestone of $5.0 million (GBP4.1 million) to the Group which was recorded in the nine-month period.
Product supply and device sales
Product supply and device sales revenues were GBP50.3 million for the nine-month period
(2015/16: GBP3.7 million), mainly due to GBP42.4 million from the supply of flutiform(R) to Mundipharma and Kyorin and GBP4.2 million from the supply of oral products from Lyon to the Group's partners. In addition to the royalty earned on net sales by Sandoz of AirFluSal(R) Forspiro(R) , recorded within royalty revenues, Vectura also received device sales revenue for the supply of its 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.
Development services
Development services revenues were GBP4.5 million during the nine months ended 31 December 2016 (2015/16: GBP4.7 million) and mainly relate to the on-going development of the breath actuated version of flutiform(R) for Mundipharma, support for Hikma on the US filing for VR315 and work for Janssen on VR096.
Other revenue
Other revenue of GBP3.7 million (2015/16: GBPnil) is largely comprised of the Group's three percent share of Pacira's cash receipts from net sales of EXPAREL(R) . For the nine-month period to 31 December 2016, Pacira reported net sales of EXPAREL(R) increased by 11% compared to the same period in 2015. Other revenue also includes 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 terminated.
Cost of sales
Cost of sales increased to GBP41.9 million (2015/16: GBP3.3 million) mainly due to the inclusion of flutiform(R) supply chain from 10 June 2016. Gross profit from flutiform(R) product supply was GBP9.4 million, which equates to a margin of 22.2%, including a GBP3.9 million charge for the unwinding of the fair value uplift on inventory recognised under IFRS 3 Business Combinations on the Merger date. If the GBP3.9 million charge is excluded from cost of sales, the gross margin from flutiform(R) would be 31.3%. Inventories for the flutiform(R) supply chain were GBP17.6 million at the balance sheet date.
Research and development (R&D)
The Group maintains a disciplined approach to capital allocation in managing its R&D portfolio. Total investment in R&D was GBP45.6 million, GBP3.5 million higher than the previous reporting period (2015/16: GBP42.1 million).
Expenditure during the period comprised GBP21.1m on the Group's wholly owned specialist assets including VR475 and VR647, GBP15.0m on novel-patented molecule partnering projects, GBP8.7m of generic/analogue and device partnering projects and GBP0.8m on other oral projects. Recruitment into the Phase III study for VR475 is progressing well and an IND filing for VR647 has been made to the US FDA and post period, this filing has been accepted.
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 focused 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.
Other income
Other income mainly comprises a GBP1.3 million R&D expenditure credit (2015/16: GBPnil). Following the Merger, the UK entities within the Group are no longer eligible for the R&D tax credit for small and medium-sized enterprises (SMEs) but are able to claim the R&D expenditure credit for large enterprises. As this is effectively a taxable grant, it is booked within operating profit. For the year ended 31 March 2016, the SME R&D tax credit of GBP2.0 million was recorded within the taxation line in the consolidated income statement.
Amortisation of intangible assets
The amortisation charge for the nine months ended 31 December 2016 was GBP64.0 million (2015/16: GBP18.8 million). The increase in the period is due to the initial amortisation of the GBP379.5 million of intangible assets recognised as a result of the Merger in accordance with IFRS 3 Business Combinations.
The amortisation charge in the 2017 income statement will increase significantly from the GBP64.0 million reported for the 9 months to 31 December 2016 reflecting a full twelve months amortisation of the Skyepharma intangibles recognised on the 10 June 2016 merger date.
Exceptional items
EBITDA is stated before GBP9.4 million of exceptional items (2015/16: GBP5.6 million). These comprise GBP6.1 million for professional advice payable on completion of the Merger, GBP3.9 million of post-Merger integration activities, mainly redundancy and third-party consultancy costs, a GBP1.1 million credit for the pension curtailment of Swiss employees who are leaving the Group and GBP0.5 million for restructuring costs at the Group's manufacturing facility in France and legal fees incurred from initiating legal proceedings against GSK to enforce Vectura's patents in respect of the Ellipta(R) products.
Net finance income
Net finance income totalled GBP4.0 million (2015/16: GBP3.8 million) largely comprising foreign exchange gains on settlement of receivables for royalty and milestones and on funding to non-UK based subsidiaries. Net finance income for the comparative period mainly relates to contingent consideration for the sale of ProFibrix BV to the Medicines Company in 2013.
Loss before taxation
The Group has reported an increased loss before tax of GBP40.1 million (2015/16: GBP1.9 million) as a result of the significant increase in amortisation of intangible assets as well as exceptional items associated with the Merger, as noted above.
Taxation
The Group's effective tax rate ("ETR") is a 20% credit. The ETR is driven by the mix of tax credits on losses in the UK and Germany (16%) and tax charges on profits in Switzerland (12%) and the US (28%). It is significantly impacted by deferred tax credits on the amortisation of acquired intangibles (19%).
The Group's ETR is a tax credit on an overall loss driven by significant amortisation of acquired intangibles, a mix of losses in the UK and profits in Switzerland and the US. The long term trend for the ETR is likely to be a mid to high teens percentage, assuming there are no significant changes to tax legislation in the jurisdictions where the Group operates and depending on the timing of EXPAREL(R) revenues in the US where the tax rate is expected to be in the range of 30 - 35%. In addition, as the Group moves into a pre-tax profit position, there may be opportunities to utilise unrecognised tax assets related to losses in prior periods which may have a material short term impact on the ETR. The Group continues to monitor the anticipated tax reforms in the US and Switzerland as the introduction of new tax legislation would likely impact the ETR in future years.
Net result
Loss after taxation was GBP32.1 million (2015/16: GBP5.0 million profit).
Earnings per share
Basic EPS reflects the increased amortisation charges and exceptional costs which were associated with the Merger, as noted above, and was a 5.3p loss per share for the nine-month period ended 31 December 2016 (2015/16: 1.2p profit per share). Basic EBITDA per share for the nine-month period was 5.6p profit per share (2015/16: 5.7p profit per share).
Balance sheet
Synergies
A new organisation structure has been largely implemented and the Group remains on track to deliver at least GBP10 million synergy savings per annum by 2018.
Goodwill
At 31 December 2016, goodwill increased by GBP105.4 million to GBP162.8 million (31 March 2016: GBP57.4 million) due to the goodwill recognised on the Merger of GBP100.8 million and GBP4.6 million of foreign exchange gains, largely from the date of acquisition to the balance sheet date.
Intangible assets
At 31 December 2016, intangible assets of GBP456.8 million have increased by GBP364.6 million during the period (31 March 2016: GBP92.2 million). Intangible assets of GBP379.5 million have been recognised due to the Merger, 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 which range from two to seven years, with an average life of six years.
Property, plant and equipment
Vectura has invested GBP3.1 million during the nine-month period mainly comprising of laboratory and manufacturing equipment. In addition, assets with a fair value of GBP39.5 million were acquired as a result of the Merger.
In January 2017, the Group's investment in expanding capacity of flutiform(R) at the Sanofi manufacturing facility in Holmes Chapel, classified as an asset under construction at 31 December 2016, became fully operational.
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 Sterling, Swiss Francs, Euros and US Dollars. In accordance with accounting standards, the Group has recognised a net foreign exchange gain of GBP49.0 million (2015/16: GBP5.4 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 31 December 2016 of GBP92.5 million (31 March 2016: GBP99.8 million). The Group generated a net cash inflow of GBP28.2 million from operating activities (2015/16: GBP32.9 million). Cash flow benefits from strong and sustainable cash receipts from growing recurring revenue from inhaled products and a continued focus on cost control and capital allocation throughout the business. Increased working capital from timing differences in production and shipments in the expanded supply chain post-Merger and lower milestone receipts impact on cash flow generated from operating activities in the period.
During the period, Vectura paid GBP52.1 million to the former shareholders of Skyepharma, being the partial cash alternative offered as part of the consideration for the Merger. Skyepharma's cash holdings on the date of acquisition were GBP27.1 million, such that the net cash outflow before transaction costs 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
20 March 2017
Consolidated Proforma Income Statement
Nine-month period to 31 December 2016
This information is provided to illustrate underlying comparative performance following the Skyepharma merger. This information is presented because it is deemed necessary to understand reported performance and is in accordance with requirements of DTR 4.09 - 4.11.
This information is unaudited and does not form part of the audited annual financial statements.
Selected income statement information has been extracted from the Group's management accounts for the nine months ended 31 December 2016 and for the nine months ended 31 December 2015. This information is prepared as if the merger had occurred on or before 1 April 2015 and hence excludes the impact of acquisition accounting adjustments which are required by IFRS 3 Business Combinations.
9 months ended 31 9 months ended
December 2016 31 December 2015
Vectura Skyepharma Total Vectura Skyepharma Total
(Unaudited) GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- ----------- --------- --------- ----------- ---------
Revenue
Royalties 29.7 24.0 53.7 26.1 18.4 44.5
Product supply
and device sales 3.5 53.9 57.4 2.7 41.0 43.7
Signing and milestone
payments 12.8 7.8 20.6 22.9 7.8 30.7
Development services 2.0 3.4 5.4 3.2 4.0 7.2
Other revenues
(1) - 4.9 4.9 - 4.5 4.5
--------- ----------- --------- --------- ----------- ---------
48.0 94.0 142.0 54.9 75.7 130.6
Cost of sales (1.8) (41.1) (42.9) (2.3) (32.0) (34.3)
--------- ----------- --------- --------- ----------- ---------
Proforma gross
profit 46.2 52.9 99.1 52.6 43.7 96.3
Expenses
Selling and marketing (1.8) (1.4) (3.2) - (1.0) (1.0)
Research and development (38.8) (10.0) (48.8) (28.8) (11.2) (40.0)
Corporate and other
administrative (5.0) (3.5) (8.5) (3.5) (5.0) (8.5)
Other
Other income 1.4 0.1 1.5 - 0.6 0.6
Add back depreciation 1.0 2.3 3.3 1.0 1.4 2.4
Proforma EBITDA(2) 3.0 40.4 43.4 21.3 28.5 49.8
---------------------------- --------- ----------- --------- --------- ----------- ---------
Proforma recurring
revenue(3) 33.2 82.4 115.6 28.8 62.8 91.6
---------------------------- --------- ----------- --------- --------- ----------- ---------
Proforma gross
profit (based on
recurring revenue) 31.4 41.3 72.7 26.5 30.8 57.3
---------------------------- --------- ----------- --------- --------- ----------- ---------
Proforma EBITDA
(based on recurring
revenue) (11.8) 28.8 17.0 (4.8) 15.6 10.8
---------------------------- --------- ----------- --------- --------- ----------- ---------
(1) Proforma gross profit includes other revenue being GBP4.5 million (2015: GBP3.4 million) from Skyepharma's share of net sales of EXPAREL(R) in the
United States and GBP0.4 million (2015: GBP1.1 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.
(2) Proforma EBITDA represents pro-forma operating profit before exceptional items and amortisation adding back charges for share-based payments and depreciation.
(3) Recurring revenue comprises royalties, product supply and device sales and share of net sales from EXPAREL(R) in the United States.
Consolidated Proforma Income Statement
Twelve-month period to 31 December 2016
This information is provided to illustrate underlying comparative performance following the Skyepharma merger. This information is presented because it is deemed necessary to understand reported performance and is in accordance with requirements of DTR 4.09 - 4.11.
This information is unaudited and does not form part of the audited annual financial statements.
Selected income statement information has been extracted from the Group's management accounts for the twelve months ended 31 December 2016 and for the twelve months ended 31 December 2015. This information is prepared as if the merger had occurred on or before 1 January 2015 and hence excludes the impact of acquisition accounting adjustments which are required by IFRS 3 Business Combinations.
12 months ended 12 months ended
31 December 2016 31 December 2015
Vectura Skyepharma Total Vectura Skyepharma Total
(Unaudited) GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- ----------- --------- --------- ----------- ---------
Revenue
Royalties 42.7 29.7 72.4 35.3 22.5 57.8
Product supply
and device sales 4.6 68.0 72.6 3.0 53.0 56.0
Signing and milestone
payments 14.4 8.0 22.4 40.3 7.8 48.1
Development services 3.4 4.1 7.5 4.4 6.4 10.8
Other revenues
(1) - 6.6 6.6 - 6.2 6.2
--------- ----------- --------- --------- ----------- ---------
65.1 116.4 181.5 83.0 95.9 178.9
Cost of sales (2.9) (52.2) (55.1) (2.8) (42.1) (44.9)
--------- ----------- --------- --------- ----------- ---------
Proforma gross
profit 62.2 64.2 126.4 80.2 53.8 134.0
Expenses
Selling and marketing (1.8) (1.7) (3.5) - (1.3) (1.3)
Research and development (52.0) (13.1) (65.1) (42.6) (13.5) (56.1)
Corporate and other
administrative (6.2) (4.8) (11.0) (4.7) (6.5) (11.2)
Other
Other income 1.4 0.2 1.6 - 0.8 0.8
Add back depreciation 1.4 2.8 4.2 1.4 2.0 3.4
Proforma EBITDA(2) 5.0 47.6 52.6 34.3 35.3 69.6
---------------------------- --------- ----------- --------- --------- ----------- ---------
Proforma recurring
revenue(3) 47.3 103.5 150.8 38.3 80.2 118.5
---------------------------- --------- ----------- --------- --------- ----------- ---------
Proforma gross
profit (based on
recurring revenue) 44.4 51.3 95.7 35.5 38.1 73.6
---------------------------- --------- ----------- --------- --------- ----------- ---------
Proforma EBITDA
(based on recurring
revenue) (12.8) 34.7 21.9 (10.4) 19.6 9.2
---------------------------- --------- ----------- --------- --------- ----------- ---------
(1) Proforma gross profit includes other revenue being GBP5.8 million (2015: GBP4.7 million) from Skyepharma's share of net sales of EXPAREL(R) in the United
States and GBP0.8 million (2015: GBP1.5 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.
(2) Proforma EBITDA represents pro-forma operating profit before exceptional items and amortisation adding back charges for share-based payments and depreciation.
(3) Recurring revenue comprises royalties, product supply and device sales and share of net sales from EXPAREL(R) in the United States.
INDEPENT AUDITORS' REPORT TO THE SHAREHOLDERS OF VECTURA GROUP PLC ON THE PRELIMINARY ANNOUNCEMENT OF VECTURA GROUP PLC
We confirm that we have issued an unqualified opinion on the full financial statements of Vectura Group plc.
Our audit report on the full financial statements sets out the following risks of material misstatement which had the greatest effect on our audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team, together with how our audit responded to those risks and the key observations arising from our work:
Risk How the scope of Key observations
our audit responded
to the risk
--------------------------- ---------------------------------------------------------------- -----------------------
Revenue recognition
- milestones,
royalties
and flutiform(R) We reviewed the We noted that
product sales key licence contracts milestone revenue
The Group's principal for the Group where has been
revenue streams milestone revenue appropriately
are product and had been recognised, recognised
technology licence as well as management's in line with
milestones, royalty assessment for the completion
income and product each milestone of the Group's
supply. to evaluate consistency performance
with the Group's obligations
Recognition of accounting policies and the contractual
revenue on product and compliance terms.
and technology with IAS 18 'Revenue'.
licence milestones We challenged management's We identified
(31 December 2016: assumptions through no material
GBP20.5 million; discussions with instances of
31 March 2016: the development incomplete
GBP24.4 million) team and review revenue recognition
can be subjective of supporting documentation within royalty
and management such as regulatory income from
exercises judgement announcements to the testing
in determining evidence the completion performed.
whether the Group of performance
has fulfilled all obligations and We identified
of its performance assessing whether no material
obligations, such the period of recognition instances of
as completion of for each milestone inappropriate
a clinical milestone, was appropriate. revenue recognition
a regulatory approval from the testing
or transfer of Our audit work of flutiform(R)
intellectual on the completeness product supply
property, of royalty income revenue.
under that contract. involved: understanding
This then determines period-on-period
the relevant period trends in key royalty
over which to streams and investigating
recognise unusual variances;
revenue. These reconciling royalty
milestones are revenues recognised
often individually to quarterly royalty
material and statements from
therefore partners; and reviewing
judgement around Company and partner
the timing of press releases
recognition to identify any
for an individual unrecorded revenue
milestone or streams.
combination
of milestones could Focussed cut-off
have a material testing was performed
impact on the to address the
financial risk surrounding
statements. product supply
revenue. This work
Royalty income involved review
(31 December 2016: of daily sales
GBP47.5 million; trends between
31 March 2016: comparative periods
GBP39.2 million) and investigating
is recognised over unusual variances;
the course of the obtaining customer
period based on forecasts and comparing
information provided to revenue recognised;
to the Group by and substantive
its partners, upon testing of revenue
which it relies. recognised around
As the Group does period end.
not have direct
visibility over
the level of product
sales being made
(upon which royalties
are earned) there
is a material risk
surrounding the
completeness of
this revenue stream.
Within revenue
from product supply
and device sales
(31 December 2016:
GBP50.3 million;
31 March 2016:
GBP3.7 million)
there is a risk
surrounding
recognition
of revenue on supply
of the Group's
flutiform(R) product,
on the basis
management
is reliant on a
third party supplier
notifying them
when goods are
'available for
collection' by
the licensing
partner,
which is the point
at which risks
and rewards transfer.
This is a new key
risk in the current
period reflecting
that this is a
newly acquired
revenue stream
following the merger
with Skyepharma.
Refer to notes
1, 2 and 3 to the
financial statements
and the Audit
Committee
Report in the Annual
Report where the
key assumptions
in relation to
revenue recognition
have been disclosed.
--------------------------- ---------------------------------------------------------------- -----------------------
Acquisition accounting
- fair value judgements
On 10 June 2016, Our primary focus
Vectura completed area was on testing Our audit work
a merger with Skyepharma the fair valuation did not identify
PLC for total of acquired intangibles, any material
consideration given their size exceptions
of GBP475.5 million. and the material and we concluded
Under IFRS 3 Business nature of the judgements that the assumptions
Combinations, the taken. This work used by management
merger is accounted included, but was in determining
for as an acquisition not limited to: the fair value
by Vectura and of the acquired
all assets and * In conjunction with our valuation specialists, assets and
liabilities acquired assessing the appropriateness of the valuation liabilities
at the acquisition methodologies used by management's experts; fell within
date are measured our acceptable
at their fair value. range.
The total fair * Challenging operational management on the research
value of net assets and development programme assumptions through
arising on this detailed testing of forecast cash flows, including
acquisition is comparing forecasts to supporting analyst data;
GBP374.7 million,
reflecting a fair
value uplift of * Assessing the competency and independence of experts
GBP326.2 million. utilised by management;
Intangible assets
recognised total
GBP379.5 million. * Testing of the mechanical accuracy of the underlying
Management utilised earnings models; and
PricewaterhouseCoopers
LLP as lead advisor
on the valuation * Review of the appropriateness of the discount rates
exercise as well used with reference to our independently calculated
as other valuation rates.
experts.
The fair valuation
adjustments made Our audit work
by management rely on other fair value
on a series of adjustments included,
judgements and but was not limited
estimates. In the to:
case of intangible
assets these relate * In conjunction with our valuation specialists,
to forecast product assessing the appropriateness of the property, plant
and development and equipment valuations performed by management's
cash flows (which experts;
include clinical
and regulatory
risk factors), * Detailed testing on assumptions underpinning other
discount rates fair value adjustments; and
and useful economic
lives; reasonably
possible changes * Testing of the consolidation model and reconciliation
to those assumptions of fair value adjustments back to management's fair
could have a material value assessment.
impact on the amounts
recognised. In
the case of property,
plant and equipment
assumptions relate
to rental yields
and market value
for used equipment.
Other fair value
adjustments have
less material assumptions
given their relative
size.
Note 13 to the
financial statements
outlines details
of the business
combination and
the fair value
of the assets and
liabilities acquired.
Notes 1 and 2 to
the financial statements
and the Audit Committee
Report set out
the accounting
policy and the
associated judgement
areas.
--------------------------- ---------------------------------------------------------------- -----------------------
Impairment of goodwill
and intangible
assets
The carrying value We assessed and We concurred
of goodwill and challenged management's with management's
intangible assets assumptions used judgement that
at 31 December in their impairment no impairment
2016 was GBP162.8 model for goodwill was required
million (31 March and intangible at 31 December
2016: GBP57.4 million) assets. This included, 2016. We are
and GBP456.8 million but was not limited satisfied with
(31 March 2016: to: the basis on
GBP92.2 million), which CGUs
respectively. The * Challenging the appropriateness of management's have been
increase is due allocation of goodwill to CGUs; determined
to the merger with and goodwill
Skyepharma in the has been allocated,
period. * Challenging management's impairment review by including the
reviewing regulatory announcements made during the aggregation
Management perform period, assessing the uncertainty in the forecast of the previously
an impairment review cash flows around clinical and market assumptions and independent
under IAS 36 'Impairment assessing the appropriateness of growth trends and UK and Germany
of Assets' on an discount rates; CGUs.
annual basis and
whenever an indication We concluded
of impairment exists. * Applying sensitivities to test whether a 'reasonably that the
possible change' in a key assumption would indicate assumptions
The carrying value impairment; applied in
of goodwill and the impairment
intangible assets models, when
relies on assumptions * Comparing growth trends to external analyst taken in aggregate,
and judgements consensus; are within
made by management our acceptable
concerning the range.
estimated future * Testing the mechanical accuracy of the underlying
cash flows from models; and
a combination of
early and late
stage research * Assessing historical forecasting accuracy.
and development
programmes, future
royalty receipts
and regulatory
milestones, associated
discount rates
and clinical commercial
risk and market
growth rates. Management's
assessment has
also required them
to exercise judgement
in the determination
of cash generating
units ('CGUs'),
including the aggregation
of previously separate
CGUs, and the allocation
of goodwill.
Notes 1 and 14
to the financial
statements and
the Audit Committee
Report in the Annual
Report outline
the basis of management's
impairment review.
--------------------------- ---------------------------------------------------------------- -----------------------
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we did not provide a separate opinion on these matters.
Our liability for this report, and for our full audit report on the financial statements is to the company's members as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's 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 and the company's members as a body, for our audit work, for our audit report or this report, or for the opinions we have formed.
Deloitte LLP
Chartered Accountants and Statutory Auditor
Consolidated Income Statement
For the nine months ended 31 December 2016
9 months 12 months
ended ended
31 December 31 March
2016 2016
Note GBPm GBPm
--------------------------------------- ----- ------------- -----------
Revenue 3 126.5 72.0
Cost of sales (41.9) (3.3)
--------------------------------------- ----- ------------- -----------
Gross profit 84.6 68.7
--------------------------------------- ----- ------------- -----------
Selling and marketing expenses (2.8) -
Research and development expenses 5 (45.6) (42.1)
Corporate and administrative expenses (7.0) (4.8)
Share-based payments 6 (1.8) (2.5)
Other income 1.5 -
Operating profit before exceptional
items and amortisation 28.9 19.3
--------------------------------------- ----- ------------- -----------
Amortisation of intangible assets 6 (64.0) (18.8)
Exceptional items 9 (9.4) (5.6)
--------------------------------------- ----- ------------- -----------
Loss after exceptional items and
amortisation (44.5) (5.1)
Net finance income 10 4.0 3.8
Share of movements in associate 0.4 (0.6)
Loss before taxation (40.1) (1.9)
--------------------------------------- ----- ------------- -----------
Net taxation credit 11 8.0 6.9
(Loss) / profit after taxation (32.1) 5.0
--------------------------------------- ----- ------------- -----------
EBITDA 6 34.1 23.2
(Loss) / earnings per share
Basic 12 (5.3p) 1.2p
Diluted 12 (5.3p) 1.2p
--------------------------------------- ----- ------------- -----------
EBITDA per share
Basic 12 5.6p 5.7p
Diluted 12 5.6p 5.6p
--------------------------------------- ----- ------------- -----------
All results are attributable to shareholders and are derived from continuing operations.
An all-share Merger with Skyepharma PLC ("Skyepharma") completed on 10 June 2016 after which the results of Skyepharma are incorporated in to the Group's reported results.
A shortened nine-month period is presented to align the accounting reference dates of the Merged Group. Comparative disclosures for the 12-month period ended 31 March 2016 reference the latest audited Vectura Group plc Annual Report and Accounts.
To support review of trends in performance, certain unaudited proforma information is presented within the Financial Review. EBITDA represents operating profit before exceptional items and amortisation, adding back share-based payments and depreciation. Refer to Note 6 "EBITDA".
Consolidated Statement of Other Comprehensive Income
For the nine months ended 31 December 2016
9 months 12 months
ended ended
31 December 31 March
2016 2016
GBPm GBPm
--------------------------------------------------- ------------ -----------
(Loss) / profit after taxation (32.1) 5.0
---------------------------------------------------- ------------ -----------
Net foreign exchange gain arising from translating
foreign operations 49.0 5.4
Actuarial gains on re-measurement of pensions 1.1 -
Other comprehensive income 50.1 5.4
---------------------------------------------------- ------------ -----------
Total comprehensive income 18.0 10.4
---------------------------------------------------- ------------ -----------
All results are attributable to shareholders and are derived from continuing operations. All items presented above are net of deferred tax and may be reclassified to profit or loss in subsequent years.
On 23 June 2016, the United Kingdom held a referendum and voted to leave the European Union. Sterling 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 these consolidated financial statements are presented in Sterling, a GBP49.0m foreign exchange gain was recognised on translating overseas subsidiaries into the presentation currency.
Consolidated Balance Sheet
As at 31 December 2016
31 December 31 March
2016 2016
GBPm GBPm
----------- --------
ASSETS
Non-current assets
Goodwill 14 162.8 57.4
Intangible assets 14 456.8 92.2
Property, plant and equipment 15 54.8 11.6
Other non-current assets 4.0 1.9
Total non-current assets 678.4 163.1
------------------------------- ---------------- ----------- --------
Current assets
Inventories 17 18.4 0.7
Trade and other receivables 18 56.6 22.2
Cash and cash equivalents 19 92.5 99.8
------------------------------- ---------------- ----------- --------
Total current assets 167.5 122.7
------------------------------- ---------------- ----------- --------
Total assets 845.9 285.8
------------------------------- ---------------- ----------- --------
LIABILITIES
Current liabilities
Trade and other current
payables 20 (59.8) (26.6)
Corporation tax payable (8.6) -
Provisions 21 (1.9) (0.6)
------------------------------- ---------------- ----------- --------
Total current liabilities (70.3) (27.2)
------------------------------- ---------------- ----------- --------
Non-current liabilities
Other non-current payables 20 (12.2) (1.0)
Provisions 21 (3.5) -
Deferred taxation 22 (76.8) (20.4)
Retirement benefit obligations 23 (5.9) -
Total non-current liabilities (98.4) (21.4)
------------------------------- ---------------- ----------- --------
Total liabilities (168.7) (48.6)
------------------------------- ---------------- ----------- --------
Net assets 677.2 237.2
------------------------------- ---------------- ----------- --------
SHAREHOLDERS' EQUITY
Share capital 25 0.2 0.1
Share premium 26 102.3 101.6
Merger reserve 26 551.9 133.1
Own shares reserve 26 (0.7) -
Share-based payment reserve 26 5.8 17.4
Translation reserve 26 41.4 (7.6)
Retained losses (23.7) (7.4)
------------------------------- ---------------- ----------- --------
Total shareholders' equity 677.2 237.2
------------------------------- ---------------- ----------- --------
These consolidated financial statements and accompanying notes 1 to 29 were approved by the Board of Directors on 20 March 2017 and were signed on its behalf by:
J Ward-Lilley A Derodra
Director Director
Consolidated Statement of Changes in Equity
For the nine months ended 31 December 2016
Own Share-based
Share Share Merger shares payment Translation Retained Total
capital premium reserve reserve reserve reserve losses equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- -------- -------- --------- ----------- ------------ -------- -------
At 1 April 2015 0.1 99.2 133.1 - 14.9 (13.0) (12.4) 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 payments - - - - 2.5 - - 2.5
Exercise of share
awards - 2.4 - - - - - 2.4
At 31 March 2016 0.1 101.6 133.1 - 17.4 (7.6) (7.4) 237.2
----------------------- -------- -------- -------- --------- ----------- ------------ -------- -------
Loss for the period - - - - - - (32.1) (32.1)
Other comprehensive
income - - - - - 49.0 1.1 50.1
----------------------- -------- -------- -------- --------- ----------- ------------ -------- -------
Total comprehensive
income
for the period - - - - - 49.0 (31.0) 18.0
----------------------- -------- -------- -------- --------- ----------- ------------ -------- -------
Skyepharma scheme
of arrangement 0.1 - 424.3 - - - - 424.4
Share transaction
costs - - (2.5) - - - - (2.5)
Share-based payments
(Note 26) - - - - 2.3 - - 2.3
Exercise of vested
share awards - 0.7 - - - - - 0.7
Employee share trust
transactions - - (1.0) (0.7) - - (1.2) (2.9)
Merger relief - - (2.0) - - - 2.0 -
Transfer between
reserves - - - - (13.9) - 13.9 -
At 31 December 2016 0.2 102.3 551.9 (0.7) 5.8 41.4 (23.7) 677.2
----------------------- -------- -------- -------- --------- ----------- ------------ -------- -------
Stamp duty of GBP2.5m payable on acquiring Skyepharma's share capital is presented as a deduction from equity because these costs were directly attributable and unavoidable in the context of the share-for-share exchange. Refer to Note 13 "Business combinations". As 100% of the Skyepharma share capital was acquired through a court-sanctioned share transaction, a merger reserve is recognised in accordance with s612 of the Companies Act. Refer to Note 25 "Shareholders' equity".
Consolidated Cash Flow Statement
For the nine months ended 31 December 2016
12 months
ended
9 months ended 31 March
31 December 2016 2016
GBPm GBPm
---------------------------------------------- ---------
Cash flows from operating
activities
Loss after exceptional items
and amortisation (44.5) (5.1)
Depreciation 14 3.4 1.4
Amortisation 15 64.0 18.8
Share-based payments 27 2.3 2.5
Decrease in inventories 0.8 0.2
(Increase) / decrease in
trade and other receivables (13.0) 7.0
Increase in trade and other
payables 7.1 4.1
Non-recurring transaction
costs paid 6.1 2.1
Foreign exchange movements 3.0 1.6
Other non-cash items (0.8) -
---------------------------------- ------ ---------
Cash inflow from operating
activities 28.4 32.6
Research and development
tax credits received 2.4 0.3
Corporation tax paid (2.6) -
---------------------------------- ------ ---------
Net cash inflow from operating
activities 28.2 32.9
---------------------------------- ------ ---------
Cash flows from investing
activities
Skyepharma Merger, net of
cash acquired 13 (25.0) -
Exceptional Merger costs (11.9) (2.1)
Proceeds from sale of property,
plant and equipment 2.9 -
Purchase of property, plant
and equipment (2.6) (1.5)
Funding provided to ESOP
trusts (1.5) -
Acquisition of Activaero,
net of cash acquired - (24.6)
Deferred consideration from
sale of investment - 2.4
Net cash outflow from investing
activities (38.1) (25.8)
---------------------------------- ------ ---------
Net cash (outflow) / inflow
before financing activities (9.9) 7.1
---------------------------------- ------ ---------
Cash flows from financing
activities
Proceeds from issue of ordinary
shares 0.3 2.4
Repayment of borrowings (0.2) -
Interest (paid) / received
and other finance charges (0.2) 0.3
Net cash (outflow) / inflow
from financing activities (0.1) 2.7
---------------------------------- ------ ---------
Effect of foreign exchange
rate changes 2.7 -
(Decrease) / increase in
cash and cash equivalents (7.3) 9.8
Cash and cash equivalents
at beginning of period 99.8 90.0
Cash and cash equivalents
at end of period 19 92.5 99.8
---------------------------------- ------ ---------
Notes to the consolidated financial statements
For the nine months ended 31 December 2016
1. Basis of preparation
Vectura Group plc (the "Company") is a public limited company incorporated in the United Kingdom. The address of the registered office is One Prospect West, Chippenham Wiltshire, SN14 6FG. The Group's operations and principal activities are described in the Strategic Report. The "Group" is defined as the Company, its subsidiaries and associates.
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union ("EU IFRS). These consolidated financial statements also comply with IFRS as issued by the International Accounting Standards Board ("IASB").
These financial statements have been prepared on the going concern basis and are presented in Sterling, rounded to the nearest GBP0.1m, unless otherwise stated.
The Company's ordinary shares are traded on the London Stock Exchange under the ticker VEC.
1.1 Significant events - All-share merger with Skyepharma PLC ("Skyepharma")
On 10 June 2016, an all-share merger between Vectura and 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 before transaction costs was GBP25.0m. Vectura has consolidated Skyepharma from the date that control was obtained, being 10 June 2016. Therefore, comparative information required to be included under IFRS 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 Financial Review.
1.2 Accounting for the merger with Skyepharma (the 'Merger')
IFRS 3 "Business Combinations" ("IFRS3") requires all transactions (even a merger of equals) to be accounted for using the acquisition method which requires an acquirer and an acquiree to be identified. For the purposes of IFRS 3, it has been determined that Vectura acquired Skyepharma because immediately following the Merger the previous shareholders of Vectura owned 61.3% of the enlarged Group on a fully-diluted basis. Furthermore (i) Vectura shares were issued to replace Skyepharma shares; (ii) Skyepharma shares were de-listed from the London Stock Exchange; (iii) Vectura contributed the majority of positions to the new Board; and (iv) the Vectura name was retained for the Group.
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. An overview of the impact is provided below:
10 June
2016
GBPm
Net book value of Skyepharma assets
acquired 48.5
Fair value uplifts 326.2
------------------------------------------ --------
Fair value of Skyepharma assets acquired 374.7
Goodwill recognised 100.8
------------------------------------------ --------
Consideration transferred 475.5
------------------------------------------ --------
Notes to the consolidated financial statements - continued
For the nine months ended 31 December 2016
1.3 Accounting reference date and comparability of financial information
The Group had previously prepared its consolidated financial statements to the accounting reference date of 31 March. Following the Merger, the Group has changed its accounting reference date to 31 December. Accordingly, the current financial period is for the nine months ended 31 December 2016, whilst the comparative period is for the 12 months ended 31 March 2016. These results include the consolidated performance of Skyepharma from 10 June 2016. The comparative results are for a 12-month period and do not include Skyepharma.
Certain line item descriptions within the consolidated income statement and consolidated balance sheet have been amended following the Merger. In addition, IAS 1 "Presentation of Financial Statements" requires line items to be re-ordered where this is necessary to explain the elements of performance. Where there are no materially significant reclassifications, a separate explanatory note has not been presented.
1.4 Critical accounting areas of judgment and estimation
The preparation of these consolidated financial statements requires a number of estimates, assumptions and exercise of judgements in applying the Group's IFRS accounting policies that affect the reported amounts of assets, liabilities, revenues and expenses.
Significant items of accounting judgement:
1.4.1 Acquisition accounting and the fair value of purchased intangible assets
In accordance with the criteria set out in IFRS 3 "Business Combinations", it has been determined that Vectura has acquired Skyepharma.
Accounting for business combinations requires the fair values of acquired net assets arising in a business combination to be determined and the purchase consideration allocated to underlying net assets of the acquirer and acquiree in relation to where post-deal synergies are expected to arise. This involves the use of valuation techniques which include assumptions about future cash flows associated with Skyepharma's intangible assets and those of previous acquisitions.
These estimates have been prepared based on the best information available to management and, where appropriate, in conjunction with advice from independent third-party valuation experts. The actual performance of these assets and liabilities may differ from the valuations derived through this exercise.
1.4.2 Goodwill impairment
In accordance with IFRS 3, 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 ("CGUs") to which goodwill has been allocated. The actual performance of CGUs may differ from the valuations derived through this exercise. Refer to Note 13 "Business Combinations".
1.4.3 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 income requires an assessment of the Group's future obligations under a given contract, which determines the period over which the revenue is recognised.
1.4.4 Depreciation of flutiform(R) supply chain assets
Assets relating to the flutiform(R) supply chain 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 forecasted sales and any output produced for validation testing. The life of the assets is considered a key judgement as it is heavily dependent on the Group's manufacturing partners' contractual obligations and future intentions. Should these change, the Group's estimate of depreciation could be materially altered.
Notes to the consolidated financial statements - continued
For the nine months ended 31 December 2016
1.4 Critical accounting areas of judgment and estimation - continued
The key estimates are set out below:
1.4.5 Carrying value of intangible assets purchased through a business combination
An intangible asset created through a business combination is recognised separately from goodwill if the asset is capable of being sold separately or arises from contractual or other legal rights and its fair value can be reliably measured.
--
-- Following initial recognition, intangible assets separately fair valued on a business combination are carried at deemed cost, less accumulated amortisation and accumulated impairment losses. Intangible assets relating to on-market products are normally amortised with reference to patent lives in the Group's main territories. Intangible assets relating to development projects are normally amortised over the development phase up to planned approval and technology over the expected life of the assets associated with the relevant platform. Carrying values of intangible assets are reviewed for indications of impairment and are subject to a full impairment test at least annually.
1.4.6 Swiss pension benefits
The Group operates a pension scheme in respect of its employees in Switzerland. As some of the risks of the scheme match the criteria under IAS 19 "Employee Benefits" (Revised) for a defined benefit scheme, the scheme is accounted for as a defined benefit plan. Application of IAS 19 involves estimates about uncertain future events based on advice received from independent actuaries.
1.4.7 Taxation and deferred taxation
The Group operates in a number of tax 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, and assessment of provisions against, tax benefits requires management judgement. All provisions are based on management's interpretation of country-specific tax legislation and the likelihood of settlement.
1.5 Amendments to IFRSs
The following amendments to IFRSs became mandatory in this reporting period. The Group has applied the following standards and amendments for the first time for reporting period commencing 1 April 2016:
-- Disclosure initiative - amendments to IAS 1 "Presentation of Financial Statements";
-- Clarification of acceptable methods of depreciation and amortisation - amendments to IAS 16 "Property, Plant and Equipment" and IAS 38 "Intangible Assets";
-- Accounting for acquisitions of interests in joint operations - amendments to IFRS 11; and -- Annual improvements to IFRSs 2012 - 2014 cycle
The adoption of these amendments did not have any impact on the current period or any prior period except for the following:
Disclosure initiative - amendments to IAS 1"Presentation of Financial Statements"
The following amendments to IAS 1 "Presentation of Financial Statements" have been applied to these financial statements:
-- Material information should not be obscured with immaterial information or by aggregating material items that have different natures or functions
-- Where a specific disclosure is required by IFRS, this need not be disclosed if the information is not material
-- In the other comprehensive income section of a statement of profit or loss and other comprehensive income, the amendments require separate disclosures for associates and joint ventures movements
Clarification of acceptable methods of depreciation and amortisation - amendments to IAS 16 "Property, Plant and Equipment" and IAS 38 "Intangible Assets".
Notes to the consolidated financial statements continued
For the nine months ended 31 December 2016
1.5 Amendments to IFRSs - continued
The amendments to IAS 16 "Property, Plant and Equipment" prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 "Intangible Assets" introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation charges.
This may be significant to the estimates associated with intangible assets in future periods. Intangible assets are normally amortised with reference to associated patent lives, as opposed to cash flows, and hence adoption of the amendment is not expected to have a significant impact on depreciation and amortisation.
1.6 New standards not yet adopted
The IASB has published three new accounting standards relevant to the Group that will become mandatory in future periods. These standards have not been early adopted in these consolidated financial statements. The Group's initial assessment of the future impact of these new standards is as follows:
IFRS 9 "Financial Instruments" (Effective for annual periods beginning on or after 1 January 2018)
The new financial instruments standard introduces changes to accounting for credit losses, including related disclosures. The new standard also introduces changes to how financial assets are measured on an ongoing basis to align with the asset's cash flow characteristics and the business model in which the asset is held.
The new standard was developed in response to concerns of investors and other stakeholders, both during and after the global financial crisis, that there was a need for more timely recognition of expected credit losses for loans and other financial instruments. In measuring expected credit losses under the new standard, issuers will be required to use reasonable and supportable information that is available to them without undue cost or effort, including not only past events and current conditions, but also forecasts of future economic conditions.
As the Group does not have any complex financial instruments, this is not expected to impact on reported performance.
IFRS 15 "Revenue from Contracts with Customers" (Effective for annual periods beginning on or after 1 January 2018)
The new revenue standard provides clearer and more detailed principles for revenue recognition and disclosure in a framework that is designed to improve comparability of revenue amounts over a range of industries, companies and geographical boundaries. The standard can significantly change an issuer's timing of recognition of revenue, among other changes.
Revenue is often not only a key performance measure in its own right, but also the starting point for other performance measures, such as operating income, net income, and earnings per share; key analytical ratios such as margins, return on equity, and return on assets; and valuation metrics, such as revenue multiples and price-to-earnings ratios.
As a result, the new revenue standard has the potential to change not only an issuer's revenue, but also its profit and investor analyses that depend on the financial statements. Management is undertaking an assessment and at this stage does not expect the standard to have a significant impact on the Group's aggregated reported revenues.
IFRS 16 "Leases" (Effective for annual periods beginning on or after 1 January 2019)
The new leases standard changes the previous lease accounting model so a lessee will now reflect more assets and liabilities arising from leases on its balance sheet. This can substantially affect key financial ratios, including ratios related to debt covenants or debt-to-equity ratios.
The Group expects to recognise certain assets and liabilities on initial recognition of this standard, although it is not expected to have a major impact on the consolidated income statement as the Group only has four significant off balance sheet leases classified as operating leases under current lease accounting requirements per IAS 17 "Leases".
Notes to the consolidated financial statements continued
For the nine months ended 31 December 2016
1.7 Non-GAAP measures
In the reporting of financial information, the Group uses certain non-statutory alternative performance measures that are not required under IFRS, the generally accepted accounting principles ("GAAP") under which the Group reports. The Group believes that these additional measures, which are also used internally, are useful to the users of the financial information to assist in the understanding of underlying business performance. The principal non-GAAP measures which the Group uses are EBITDA and EBITDA per share.
EBITDA represents operating profit before exceptional items and amortisation, adding back charges for share-based payments and depreciation. Refer to Note 6 "EBITDA".
2 Significant accounting policies
2.1 Basis of consolidation
These consolidated financial statements comprise the consolidated financial statements of Vectura Group plc, its subsidiaries and one equity-accounted associate for the nine-month period ended 31 December 2016.
Subsidiaries are all entities over which the Company has direct or indirect control. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.
Subsidiaries are consolidated from the date on which control is obtained by the Group and are de-consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Accounting policies are consistently applied throughout the Group.
2.2 Associates
Associates are all entities over which the Group has significant influence, but not control or joint control.
There is a rebuttable presumption within IAS 28 "Associates" that this is generally the case where the Group holds between 20% and 49.9% of voting rights.
Investments in associates are accounted for using the equity method of accounting. This method prescribes that investments are initially recognised at cost and are adjusted thereafter to recognise changes in the Group's share of the investee's net assets, less distributions received and less any impairments.
The Group's consolidated income statement and consolidated statement of other comprehensive income reflects the Group's share of any income or expense recognised by the investee. The Group's share of the profits or losses of the investee are disclosed in the consolidated income statement.
When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of any asset transferred.
Accounting policies of equity-accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group.
Notes to the consolidated financial statements continued
For the nine months ended 31 December 2016
2 Significant accounting policies - continued 2.3 Foreign currency translation and transactions
Foreign currency transactions, being transactions denominated in a currency other than an individual Group entity's functional currency, are translated into the relevant functional currencies using the exchange rates ruling at the dates of the underlying transactions. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation of monetary foreign currency assets and liabilities at period-end rates of exchange are recognised in the consolidated income statement, except when deferred in equity on intercompany net investment loans. Non-monetary items arising from foreign currency transactions are not retranslated.
Exchange gains or losses on foreign currency transactions related to loans and borrowings not designated as permanent, technology and product licensing revenues and royalty revenues are recognised within net finance income. Foreign exchange differences on all other foreign currency transactions are recognised in the Group's consolidated income statement.
The income statements and cash flow statements of the Group undertakings expressed in currencies other than Sterling are translated to Sterling using monthly average exchange rates which approximate the actual rates of the underlying transactions. Assets and liabilities of Group undertakings are translated to Sterling at the exchange rates prevailing at the reporting date.
On consolidation, exchange differences arising from the translation of overseas subsidiaries into the Group's presentational currency, permanent net investments in foreign entities and financial instruments designated as hedges of such investments, are recognised in the consolidated statement of other comprehensive income and in the translation reserve.
When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.
Goodwill arising on the acquisition of a foreign operation is treated as an asset of the operation to which the goodwill is allocated for impairment testing purposes per IAS 36 "Impairment of Assets" and translated at the closing rate, where the goodwill is not allocated to a Sterling based cash generating unit. Fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the operation and translated at the closing rate.
2.4 Revenue recognition
Revenue represents the amount receivable for goods and services provided and royalties earned, net of trade discounts, VAT and other sales-related taxes. Revenue is recognised as follows:
2.4.1 Royalty income
Royalty income is recognised on an accruals basis and represents income earned as a percentage of partner product sales in accordance with the terms of each agreement, net of amounts payable to other licensees.
2.4.2 Signing and milestone payments
Signing and milestone payments represent amounts earned for licences provided under licensing agreements, including up-front payments, milestone payments and technology access fees.
Revenues are recognised where they are non-refundable, the Group's obligations related to the revenues have been discharged and their collection is reasonably assured. Refundable licensing revenue is treated as deferred until such time that the above criteria have been met. Milestone payments relating to scientific or technical achievements are recognised as income when the milestone is accomplished.
Contingent sales milestones are recognised when the Group is virtually certain that the contingency has been achieved and recovery from the partner is assured. The revenue is then recognised in the period in which the contingency was met.
Notes to the consolidated financial statements continued
For the nine months ended 31 December 2016
2 Significant accounting policies - continued
2.4 Revenue recognition - continued
2.4.3 Development services
Development services revenues principally comprise contract product development and contract clinical trial manufacturing fees invoiced to third parties. Revenues are recognised upon the completion of agreed tasks or spread over the duration of the task, as appropriate. Development services revenues are recorded in the period to which they relate.
2.4.4 Product supply and device sales
Product supply revenues principally comprise income derived from manufacturing and supply agreements. Revenues are generally recognised upon transfer to the customer of significant risks and rewards, usually upon despatch of goods shipped where the sales price is agreed and collectability is reasonably assured.
Certain goods are sold on a bill-and-hold basis with the customer, whereby amounts have been invoiced and recognised in revenue, but the related goods sold have not yet been delivered to the customer. Revenue from bill-and-hold transactions is recognised when the goods are complete and ready for shipment and the risks and rewards of ownership have transferred.
2.5 Segmental reporting
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.
Notes to the consolidated financial statements continued
For the nine months ended 31 December 2016
2 Significant accounting policies - continued 2.6 Cost of sales
Costs of sales are charged to the consolidated income statement in the period in which the cost is incurred. Cost of sales comprise direct and indirect costs of manufacturing flutiform(R), oral tablets and inhalation devices.
2.7 Research and development ("R&D")
R&D expenditure comprises internal and third-party costs relating to feasibility studies, technical development, costs of chemistry, manufacturing and control development, clinical work and the registration and maintenance of intellectual property. These are charged to the consolidated income statement in the period in which they are incurred unless the criteria for recognising development expenditure as an asset are met, in which case, development expenditure is capitalised. Regulatory and other uncertainties generally mean that the criteria are not met.
2.8 Other income
Other income mainly relates to government grants for qualifying UK R&D under the Research and Development expenditure credit ("RDEC") scheme for large companies. As a result of the Merger, the Group qualifies for the large company scheme. Such grants are taxable and are presented as other income.
There are no unfulfilled conditions or other contingencies attaching to these grants.
2.9 Exceptional items
Exceptional items, which are presented on the face of the income statement, are those material items of income and expense which, because of their nature and expected infrequency of the events giving rise to them, merit separate presentation to allow users of the consolidated financial statements to understand the elements of financial performance in the period, to facilitate comparison with prior periods and to assess trends in performance.
2.10 Current taxation
Taxation is chargeable on the profits of the period, together with deferred taxation. Current tax is the expected tax payable or recoverable on the taxable income or loss for the period using the tax rates and legislation that have been enacted or substantially enacted at the balance sheet date, and any adjustment to tax in respect of previous periods.
2.11 Deferred taxation
Deferred taxation is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions:
-- where the base of the asset is aligned for taxation and accounting purposes;
-- in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and
-- deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred tax assets for R&D tax credits are recognised as the underlying activity occurs. Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and legislation enacted or substantively enacted at the balance sheet date.
Deferred tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise, deferred tax is recognised in the consolidated income statement. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Notes to the consolidated financial statements continued
For the nine months ended 31 December 2016
2 Significant accounting policies - continued
2.12 Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the following:
-- fair values of the assets transferred; -- liabilities incurred to the former owners of the acquired business; -- equity interests issued by the group;
-- fair value of any asset or liability resulting from a contingent consideration arrangement; and
-- fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.
The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the acquired entity's net identifiable assets.
Acquisition-related costs except those directly attributable to the issue of shares are expensed as incurred. The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity and acquisition-date fair value of any previous equity interest in the entity over the fair value of the net identifiable assets acquired is recorded as goodwill.
2.13 Goodwill
On acquisition of a subsidiary or associate, the fair value of the consideration is allocated between the identifiable net tangible and intangible assets and liabilities on a fair value basis, with any excess consideration representing goodwill. At the acquisition date, goodwill is allocated to each CGU expected to benefit from the combination and held in the currency of the operations to which the goodwill relates.
Goodwill is not amortised, but is reviewed for impairment at least annually, or more frequently where there is an indication that the carrying value may be impaired. Impairment is assessed by measuring the future cash flows of the CGU to which the goodwill relates versus the carrying value of the CGU. An impairment loss is recognised for goodwill in the consolidated income statement when the carrying value of the CGU is less than its future cash flows. Impairments of goodwill are not reversed in subsequent periods.
On disposal of subsidiary undertakings and businesses, the relevant goodwill is included in the calculation of the profit or loss on disposal.
Foreign exchange differences on goodwill denominated in a different functional currency to the Group's presentational currency are recognised in the translation reserve.
Goodwill arising on the acquisition of a foreign operation is treated as an asset of the operation to which the goodwill is allocated for impairment testing purposes per IAS 36 "Impairment of Assets" and is translated at the closing spot rate.
Notes to the consolidated financial statements continued
For the nine months ended 31 December 2016
2 Significant accounting policies - continued
2.14 Intangible assets
An intangible asset acquired as part of a business combination is recognised separately from goodwill if the asset is capable of being sold separately or arises from contractual or other legal rights and its fair value can be reliably measured.
Development expenditure on internally-developed intangible assets is expensed in the period in which it is incurred except where the following criteria are met:
-- the project's technical feasibility and commercial viability can be demonstrated;
-- the availability of adequate technical and financial resources and an intention to complete the project have been confirmed;
-- the correlation between development costs and future revenues has been established; and -- the economic benefit is expected to flow to the entity.
Following initial recognition, intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Patents, trademarks and licence agreements are amortised over their useful economic lives, usually between two and eight years. The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
2.15 Impairment of tangible and intangible assets (excluding goodwill)
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the CGU to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs, otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.
An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments for the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
2.16 Property, plant and equipment ("PP&E")
Depreciation of PP&E is calculated to write off the cost less residual value over the expected useful life.
PP&E, other than for the flutiform(R) supply chain, is depreciated on a straight-line basis over their estimated useful lives, as follows:
-- Freehold buildings - 20 to 50 years -- Laboratory, manufacturing and office equipment - 3 to 10 years -- Motor vehicles - 5 years -- Short leasehold property - over the life of the lease
Property, plant and equipment for the flutiform(R) supply chain is depreciated using the units-of-production method.
No depreciation is provided on freehold land or assets classified as held for sale. On disposal of PP&E, the cost and related accumulated depreciation and impairments are removed from the financial statements and the net amount, less any proceeds, is taken to the consolidated income statement.
Notes to the consolidated financial statements continued
For the nine months ended 31 December 2016
2 Significant accounting policies - continued
2.17 Inventories
Inventories comprise goods held for resale and are stated at the lower of cost and net realisable value. Costs include the direct costs and, where applicable, an attributable proportion of distribution overheads incurred in bringing inventories to their current location and condition. Net realisable value is based on estimated selling price, less any further costs expected to be incurred to completion and disposal.
2.18 Leases
Leases are classified as finance leases if they transfer substantially all the risks and rewards incidental to ownership, otherwise they are classified as operating leases. Assets and liabilities arising on finance leases are initially recognised at fair value or, if lower, the present value of the minimum lease payments. The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.
Finance charges under finance leases are allocated to each reporting period so as to produce a constant periodic rate of interest on the remaining balance of the finance liability. Rentals under operating leases are charged to profit on a straight-line basis. Assets leased under operating leases are included in PP&E and non-current assets held for sale and are accordingly depreciated over their estimated useful lives.
2.19 Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument and derecognised when it ceases to be party to such provisions. Financial assets and financial liabilities are initially measured at fair value and subsequently measured at either fair value or amortised cost. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Otherwise transaction costs are recognised immediately in profit or loss.
The Group has the following categories of financial instruments:
Financial assets - Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank and in-hand and short-term deposits with an original maturity of three months or less. For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents, as defined above, net of outstanding bank overdrafts.
Trade and other receivables
Trade receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.
Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). Otherwise, they are presented as non-current liabilities. Trade payables are initially measured at fair value and subsequently measured at amortised cost.
Loans and borrowings
All loans and borrowings are initially recognised at fair value, less directly attributable transaction costs. After initial recognition, loans and borrowings are subsequently measured at amortised cost using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash payments throughout the expected life of the financial liability.
Notes to the consolidated financial statements continued
For the nine months ended 31 December 2016
2 Significant accounting policies - continued
2.20 Provisions
Provisions are liabilities where the exact timing and amount of the obligation is uncertain. Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, when an outflow of resources is probable to settle the obligation and when an amount can be reliably estimated.
Restructuring charges are provided in the period in which management has committed and communicated 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 (other than for unavoidable operating costs associated with an onerous lease). Where the time value of money is material, provisions are discounted to current values using appropriate rates of interest. The unwinding of the discounts is recorded in net finance income or expense.
2.21 Retirement obligations
The costs of providing pensions under IAS19 "Employee Benefits" (Revised) deemed defined benefit retirement arrangements 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, predominantly arising in France, are calculated in a similar way to defined benefit pension schemes and spread 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 other comprehensive income in the period in which they arise. The Group also makes payments to defined contribution plans and these payments are charged to the consolidated income statement as incurred.
2.22 Share-based payments
In accordance with IFRS 2 "Share-based Payments", for all grants of share options and awards, the cost of equity-settled transactions is measured by reference to their fair value at the date at which they are granted. The Black-Scholes model is used to determine fair value for options and the Monte Carlo binomial model for Long-Term Incentive Plan ("LTIP") awards.
The cost of equity-settled share transactions is recognised, together with a corresponding increase in equity, over the period until the award vests. At each reporting date, the cumulative expense recognised for equity-based transactions reflects the extent to which the vesting period has expired and the number of share awards that, in the opinion of the Directors at that date, will ultimately vest.
2.23 Fair value
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; and -- 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.
Notes to the consolidated financial statements continued
For the nine months ended 31 December 2016
2 Significant accounting policies - continued 2.23 Fair value - continued
Fair value measurements and/or disclosures in the Group 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".
3 Revenue
Revenue by income stream
9 months 12 months
ended ended
31 December 31 March
2016 2016
GBPm GBPm
-------------------------------- ------------ ---------
Royalties 47.5 39.2
Signing and milestone payments 20.5 24.4
Development services 4.5 4.7
Product supply and device sales 50.3 3.7
Other revenue 3.7 -
-------------------------------- ------------ ---------
Total revenue by income stream 126.5 72.0
-------------------------------- ------------ ---------
Revenue by geographic location
9 months 12 months
ended ended
31 December 31 March
2016 2016
GBPm GBPm
------------------------------------- ------------ ---------
United Kingdom 45.6 13.2
Rest of Europe 31.4 37.4
United States of America 31.3 21.4
Japan 17.7 -
Rest of world 0.5 -
Total revenue by geographic location 126.5 72.0
------------------------------------- ------------ ---------
The geographic split of revenue is based on the location of the customer being invoiced by the Group and does not reflect the country in which the related products are sold.
Revenue by customer
Revenue earned in the nine-month period to 31 December 2016 from the Group's major customers was as follows: Customer A - GBP31.0m, Customer B - GBP22.4m (2015/16: GBP33.6m), Customer C - GBP17.6m Customer D - GBP13.3m (2015/16: GBP13.0m). Customer A and Customer C are new customers for the Group following the Merger, and therefore no comparatives are presented for the 12-month period to 31 March 2016.
4 Segmental information
IFRS 8 Operating Segments specifies how an entity should report information about its operating segments.
The Group is managed on the basis of a single reportable segment, being the development and supply of pharmaceutical products. It has been determined that there is only one operating segment, because the CODM, represented by the Board, allocates resources on the basis of integrated management information, which is presented to the Board at least every two months, as well as the integrated management information in the annual budget.
4 Segmental information continued
Non-current assets by geographical location
Goodwill Intangible Property, Associates Other Total
assets plant
and
Geographic location equipment
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- --------- ----------- ----------- ----------- ------ ------
442.6
]
Switzerland 63.0 342.0 35.5 - 2.1 ]
United Kingdom 91.4 - 11.4 - 0.2 103.0
Germany 8.4 83.9 0.5 1.7 - 94.5
France - - 7.4 - - 7.4
United States
of America - 30.9 - - - 30.9
At 31 December
2016 162.8 456.8 54.8 1.7 2.3 678.4
--------------------- --------- ----------- ----------- ----------- ------ ------
5 R&D expenses
9 months
ended
31 December 12 months ended
2016 31 March 2016
GBPm GBPm
------------------------------------------------ ------------ ---------------
Wholly-owned specialist assets 21.1 20.0
Novel-patented molecule partnering projects 15.0 17.3
Generic/analogue and device partnering projects 8.7 4.8
Other oral projects 0.8 -
Total R&D expenses 45.6 42.1
------------------------------------------------ ------------ ---------------
6 EBITDA
EBITDA is a non-statutory measure used by the Board, the Executive Leadership Team and managers of the business to monitor the Group's performance as it provides useful information about the business's underlying cash generating performance.
EBITDA is defined as operating profit before exceptional items and amortisation, adding back charges for share-based payments and depreciation as follows:
9 months
ended
31 December 12 months ended
2016 31 March 2016
Note GBPm GBPm
------------------------------------ ---- ------------ ---------------
Operating profit before exceptional
items and amortisation 28.9 19.3
Depreciation of property,
plant and equipment 15 3.4 1.4
Share-based payments 27 1.8 2.5
------------------------------------ ---- ------------ ---------------
EBITDA 34.1 23.2
------------------------------------ ---- ------------ ---------------
Operating profit before exceptional items and amortisation reconciles to loss before taxation as presented on the consolidated income statement. Refer to Note 9 "Exceptional items" for analysis of the exceptional charges of GBP9.4m and Note 14 "Goodwill and intangible assets" for analysis of the amortisation charge of GBP64.0m.
7 Employees
The average number of employees (including Executive Directors) employed by the Group was as follows:
31 December 31 March
2016 2016
Number Number
---------------------------------------- ----------- --------
R&D and related support services 270 211
Business development and administration 46 15
Manufacturing and supply chain 86 44
402 270
---------------------------------------- ----------- --------
Employee numbers at the end of the period were 453 (2015/16: 261). The disclosure above reflects the inclusion of Skyepharma from 10 June 2016.
9 months 12 months
ended ended
31 December 31 March
Aggregate remuneration 2016 2016
GBPm GBPm
----------------------------------------------- ------------ ---------
Wages and salaries 22.8 18.9
Social security costs 3.8 3.1
Payments to defined benefit pension plans 0.7 -
Payments to defined contribution pension plans 0.7 0.9
28.0 22.9
----------------------------------------------- ------------ ---------
Details of Directors' remuneration, including the remuneration of the highest paid Director, is included in the Remuneration Report.
8 Auditor's remuneration
Deloitte LLP were the Group auditors for both reporting periods and their fees were as follows:
9 months 12 months
ended ended
31 December 31 March
2016 2016
GBPm GBPm
---------------------------------- ------------ ---------
Audit of the Group's annual
accounts 0.1 -
Audit of the Group's subsidiaries 0.1 0.1
---------------------------------- ------------ ---------
Total audit fees 0.2 0.1
---------------------------------- ------------ ---------
Other services - Reporting
accountants on Merger prospectus - 0.6
---------------------------------- ------------ ---------
Total non-audit fees - 0.6
---------------------------------- ------------ ---------
Total fees payable to the Group
auditors 0.2 0.7
---------------------------------- ------------ ---------
The audit fee for the Group's Annual Report and Accounts was GBP65,000 (2015/16: GBP30,000). In the 12 months to 31 March 2016, other services performed by the Group's auditors related to their role as Reporting Accountants on the Merger prospectus issued to shareholders on 8 April 2016.
Ernst & Young LLP were retained for the current period as subsidiary auditors for the Skyepharma entities.
An external audit tender is currently underway and it is planned that a single Group and subsidiary auditor from 2017 onwards will be recommended to the shareholders at the Annual General Meeting in May 2017. Total audit fees payable to Ernst & Young LLP were GBP0.3m and fees payable for audit related non-audit services were GBP0.1m.
9 Exceptional items
Exceptional items for the period are predominantly transaction costs associated with the Merger and with post-Merger integration activities:
12 months
9 months ended ended
31 December 31 March
2016 2016
GBPm GBPm
-------------------------------- -------------- ---------
Merger transaction costs 6.1 5.6
Post-Merger integration costs 3.9 -
Post-Merger integration pension
curtailment (1.1) -
Other costs 0.5 -
-------------------------------- -------------- ---------
Total exceptional items 9.4 5.6
-------------------------------- -------------- ---------
Legal and professional transaction costs of GBP6.1m were incurred on completion of the Merger transaction.
Post-Merger integration expenditure comprises mainly redundancy costs and third-party consultancy costs.
In November 2016, as part of the integration activity, 10 employees who participated in the Swiss pension plan were informed of redundancy and accordingly a GBP1.1m curtailment credit was recognised. Refer to Note 23 "Retirement benefit obligations".
Other costs of GBP0.5m relate to legal fees incurred from initiating legal proceedings against GSK relating to enforcement of Vectura's patents in respect of the Ellipta(R) products and restructuring costs at the Group's manufacturing facility in Lyon, France.
10 Net finance income
9 months 12 months
ended ended
31 December 31 March
2016 2016
GBPm GBPm
------------------------------- ------------ -------------------
Bank interest income 0.2 0.3
Bank interest expense (0.4) (0.5)
Foreign exchange gains 4.2 1.6
Income from sale of investment - 2.4
Net finance income 4.0 3.8
------------------------------- ------------ -------------------
11 Taxation
9 months 12 months
ended ended
31 December 31 March
2016 2016
GBPm GBPm
---------------------------- ------------ ---------
Current taxation (4.4) -
Deferred taxation (Note 22) 11.0 4.9
R&D tax credits 1.4 2.0
Net taxation credit 8.0 6.9
---------------------------- ------------ ---------
Current taxation arises from trading profits generated in Switzerland and the US from EXPAREL(R) . Following the Merger, the UK sub-Group of entities is no longer eligible for the R&D tax credits for SMEs but is able to claim the RDEC for large enterprises. The large scheme credit is subject to UK corporation tax and therefore is included within the consolidated income statement and presented as other income. R&D tax credits shown within taxation for this period relate to adjustments to prior year claims under the SME regime for Vectura Limited and Vectura Delivery Devices Limited.
Deferred tax credits arise on the unwinding of tax liabilities on the intangible assets acquired as a result of the acquisition of Activaero and the Merger.
11 Taxation - continued
Effective tax rate ("ETR")
The Group's ETR is a 20% credit. This equates to the applicable UK tax rate of 20%. There are a number of factors which result in this correlation. The UK sub-Group is loss-making and, prior to the Merger, received a tax credit on qualifying R&D expenditure. In addition, the UK companies are able to participate in the UK Patent Box regime, the benefit of which is expected to increase as new products are approved.
In Switzerland and the US, the Group is profitable and for the period the ETRs in these jurisdictions were 12% and 28% respectively. Therefore, the Group's ETR is a weighted average of the Swiss and US rates together with the UK tax credit for the period prior to the Merger.
9 months 12 months
ended ended
31 December 31 March
2016 2016
GBPm GBPm
---------------------------------- ------------ ---------
Loss before tax (40.1) (1.9)
---------------------------------- ------------ ---------
Loss before tax multiplied by
standard rate of UK corporation
tax of 20% (31 March 2016: 20%) 8.0 0.4
Effects of:
UK Patent box benefit 1.2 1.0
Expenses not deductible for tax
purposes* (1.2) (0.4)
Unrecognised deferred tax (1.2) 3.9
Prior year deferred tax (0.6) -
Research and development tax
credits 1.4 2.0
Differences arising from prior
period computations 0.2 -
Differences in effective overseas
tax rates 0.2 -
---------------------------------- ------------ ---------
Total tax credit for the period 8.0 6.9
---------------------------------- ------------ ---------
*Expenses not deductible for tax purposes in the current period relate to Merger transaction costs.
The implementation of OECD guidelines on Base Erosion and Profit Shifting ("BEPS") is not expected to impact the Group's tax position. Beyond any potential changes to the tax regimes in Switzerland and the US, there are no material tax uncertainties and no ongoing tax audits. The UK corporation tax rate will reduce to 19% with effect from 1 April 2017, and 17% from 1 April 2020, both reductions having been substantively enacted.
12 Earnings per share
The calculation of earnings per share is based on the following data:
9 months 12 months
ended ended
31 December 31 March
2016 2016
GBPm GBPm
---------------------------------- ------------ ---------
(Loss) / profit after taxation (32.1) 5.0
EBITDA 34.1 23.2
----------------------------------- ------------ ---------
Million Million
shares shares
---------------------------------- ------------ ---------
Weighted average number of shares
- basic earnings per share 608.9 405.8
Effect of dilutive potential
shares (share options) 5.3 9.6
----------------------------------- ------------ ---------
Weighted average number of shares
- diluted earnings per share 614.2 415.4
----------------------------------- ------------ ---------
(Loss) / earnings per share
Basic (5.3p) 1.2p
Diluted (5.3p) 1.2p
EBITDA per share
Basic 5.6p 5.7p
Diluted 5.6p 5.6p
----------------------------------- ------------ ---------
13 Business combinations
On 10 June 2016, an all-share Merger (the "Merger") between Vectura and Skyepharma was completed by way of a scheme of arrangement of Skyepharma. Immediately following the transaction, on a fully-diluted basis, the previous shareholders of Vectura owned 61.3% of the enlarged Group, with the previous shareholders of Skyepharma owning 38.7%. These percentages are broadly proportional to the revised Board structure.
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 before transaction costs was GBP25.0m.
The results of Skyepharma have been included into the Group's consolidated income statement from 10 June 2016, contributing GBP78.4m (62%) of Group revenues for the period ending 31 December 2016. The Skyepharma Group contributed GBP31.9m of profit after tax before amortisation of intangible assets and a loss after tax of GBP16.9m after the inclusion of amortisation of intangible assets in the earnings of the merged Group.
a) Consideration transferred
The consideration transferred to acquire Skyepharma was GBP475.5m as follows:
Skyepharma Vectura Consideration
shares shares
exchanged issued
GBPm GBPm 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
----------------------- ----------- -------- --------------
There were no contingent elements of consideration.
b) Transaction costs
Merger-related costs amounting to GBP6.1m have been excluded from the consideration transferred and recognised as an exceptional item in the consolidated income statement for the current period. Merger-related costs of GBP5.6m were recognised in the 31 March 2016 comparative period.
Share issue costs of GBP2.5m which were directly attributable to the issue of the shares have been netted against the deemed proceeds and presented in equity.
c) Skyepharma contribution to the consolidated results
If the acquisition had been completed on 1 April 2016, being the first day of the nine months financial period, the Group's revenue would have been GBP142.0m and the Group's loss before taxation would have been increased by approximately GBP4.4m (excluding exceptional transaction costs that were incurred and recognised in the pre-acquisition results of Skyepharma).
d) Goodwill recognised upon the Merger
The fair value of net assets acquired was GBP374.7m. Goodwill arising upon the Merger of Skyepharma represents the excess of the purchase price as follows:
GBPm
---------------------------------- --------
Consideration transferred 475.5
Less: fair value of identifiable
assets acquired (374.7)
Goodwill arising on the Merger
(Note 14) 100.8
------------------------------------ --------
13 Business combinations - continued
Fair values of Skyepharma assets and liabilities acquired
Book Fair Fair
value value value
adjustments acquired
Note GBPm GBPm GBPm
--------------------- ------ ------- ----------------- ----------
ASSETS
Non-current
assets
Intangible assets A 6.5 373.0 379.5
Property, plant
and equipment B 28.3 11.2 39.5
Deferred taxation C 2.0 0.7 2.7
Other financial
assets 0.4 (0.4) -
37.2 384.5 421.7
Current assets
Inventories D 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 99.9 387.9 487.8
----------------------------- ------- ----------------- ----------
LIABILITIES
Current liabilities
Trade and other
payables E (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) - (2.2)
----------------------------- ------- ----------------- ----------
(34.0) (3.8) (37.8)
---------------------------- ------- ----------------- ----------
Non-current
liabilities
Borrowings (4.1) - (4.1)
Retirement benefit
obligations (8.3) - (8.3)
Provisions and
other payables E (1.1) (2.8) (3.9)
Deferred taxation C (3.9) (55.1) (59.0)
(17.4) (57.9) (75.3)
---------------------------- ------- ----------------- ----------
Total liabilities (51.4) (61.7) (113.1)
----------------------------- ------- ----------------- ----------
Net assets acquired 48.5) 326.2 374.7
----------------------------- ------- ----------------- ----------
A: Intangible assets: Skyepharma previously did not generally recognise internally-generated intangible assets. IFRS 3 requires purchased intangible assets to be recognised at fair value. The intangible assets 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.
B: 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.
C: 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.
D: 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.
E: 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 GBP6.6m was recognised and is expected to unwind by the end of 2020.
There was no difference between the fair value and the carrying value of receivables at the Merger date.
13 Business combinations - continued e) Fair value of Intangible assets recognised upon acquisition
IFRS 3 requires purchased intangible assets to be recognised at fair value. The intangible assets 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.
These intangible assets represent Skyepharma's intellectual property, patents and technology acquired by the Vectura Group. The intangible assets recognised on 10 June 2016 mainly comprise of flutiform(R) , EXPAREL(R) , GSK's Ellipta(R) products, other marketed products, SKP 2076 (now VR 2076) and Skyepharma's core inhalation technologies. These intangible assets are being amortised over a period of between three and seven years.
As a consequence of the IASB's adoption of Clarification of Acceptable Methods of Depreciation and Amortisation, the IASB has amended IAS 38 "Intangible Assets" to include a rebuttable presumption that the amortisation of intangible assets based on the expected period of revenues is inappropriate. Hence, these amortisation lives are therefore shorter than management's forecasts of when revenues could continue to be generated.
14 Goodwill and intangible assets
Intellectual
Goodwill property Other Total
GBPm GBPm GBPm GBPm
--------------------------- -------- ------------ ------- -------
Cost:
At 1 April 2015 56.8 192.0 - 248.8
Foreign exchange movements 0.6 9.2 - 9.8
At 31 March 2016 57.4 201.2 - 258.6
Skyepharma Merger 100.8 374.4 5.1 480.3
Additions - 0.1 - 0.1
Foreign exchange movements 4.6 52.0 0.6 57.2
---------------------------- -------- ------------ ------- -------
At 31 December 2016 162.8 627.7 5.7 796.2
---------------------------- -------- ------------ ------- -------
Amortisation:
At 1 April 2015 - (87.7) - (87.7)
Charge during the year - (18.8) - (18.8)
Foreign exchange movements - (2.5) - (2.5)
---------------------------- -------- ------------ ------- -------
At 31 March 2016 - (109.0) - (109.0)
Charge during the period - (58.9) (5.1) (64.0)
Foreign exchange movements - (3.6) - (3.6)
---------------------------- -------- ------------ ------- -------
At 31 December 2016 - (171.5) (5.1) (176.6)
---------------------------- -------- ------------ ------- -------
Net book value:
At 31 December 2016 162.8 456.2 0.6 619.6
---------------------------- -------- ------------ ------- -------
At 31 March 2016 57.4 92.2 - 149.6
---------------------------- -------- ------------ ------- -------
Goodwill
The carrying value of goodwill is made up of balances arising on acquisition of the following companies:
31 December 31 March
2016 2016
GBPm GBPm
--------------------------------- ----------- --------
Skyepharma Limited (formerly
Skyepharma PLC) 104.8 -
Vectura Limited (formerly
Co-ordinated Drug Development
Limited) 1.5 1.5
Vectura Delivery Devices Limited 0.5 0.5
Innovata Limited 47.6 47.6
Vectura GmbH (formerly Activaero
GmbH) 8.4 7.8
--------------------------------- ----------- --------
162.8 57.4
--------------------------------- ----------- --------
14 Goodwill and intangible assets - continued
Goodwill is not amortised, but is tested for impairment on an annual basis, or more frequently if there are indications that goodwill might be impaired. Impairment testing is performed by allocating goodwill to CGUs. The recoverable amounts of the CGUs are determined on a value-in-use basis. An impairment provision is recognised if the goodwill carrying value exceeds this value in use.
Prior to the Merger, goodwill was allocated to the following CGUs:
31 March
2016
Cash-Generating Unit GBPm
--------------------- -------------
Vectura 49.6
Activaero 7.8
---------------------- -------------
57.4
--------------------- -------------
Following the Merger, the Group has reorganised its structure, and hence the level at which goodwill is monitored has changed. Goodwill has been re-allocated using a relative value approach to the Group's primary geographical territories as follows:
31 December 2016
Cash-Generating Unit GBPm
--------------------- ------------------
United Kingdom and
Germany 99.8
Switzerland 63.0
162.8
--------------------- ------------------
The key assumptions for the value-in-use calculations are those regarding the discount rates, the amount and level of R&D expenditure and the market potential and growth for a product.
The value-in-use calculations have been based on the most recent cash flow forecasts prepared by management which consist of detailed product-by-product analyses. These forecasts are based on development timings and projected sales volumes using partner forecasts and the Group's own assessment of the market potential for a product using market data. Cash flows are forecast over a 10 year period and no general growth rates are assumed. A terminal value is applied post year 10 based on the year 10 cash flow with no further growth.
IAS 36 "Impairment of Assets" requires use of pre-tax rates when determining value in use. However, as Vectura uses a post-tax weighted-average cost of capital ("WACC") of 9% as a starting point for determining the discount rate, value in use is calculated using post-tax cash flows at a post-tax rate. Applying a post-tax discount rate to post tax cash flows approximates the results from applying a pre-tax discount rate to pre-tax cash flows.
The Group has conducted a sensitivity analysis on the impairment test of each CGU's carrying value. In each case, the valuations indicate sufficient headroom such that a reasonably-possible change in a key assumption is unlikely to result in an impairment of the related goodwill.
15 Property, plant and equipment
Freehold Laboratory Assets
property equipment under
construction Total
GBPm GBPm GBPm GBPm
------------------- --------- ---------- ------------- ------
Cost:
At 1 April 2015 1.2 15.8 6.4 23.4
Additions 0.2 1.6 - 1.8
Transfer to assets
held for sale (0.3) - - (0.3)
Disposals - (0.4) - (0.4)
At 31 March 2016 1.1 17.0 6.4 24.5
Skyepharma Merger 15.5 17.0 7.0 39.5
Additions 0.1 2.1 0.9 3.1
Foreign exchange
movements 1.5 1.8 0.8 4.1
At 31 December
2016 18.2 37.9 15.1 71.2
-------------------- --------- ---------- ------------- ------
Depreciation:
At 1 April 2015 - (11.9) - (11.9)
Charge for the
year - (1.4) - (1.4)
Disposals - 0.4 - 0.4
-------------------- --------- ---------- ------------- ------
At 31 March 2016 - (12.9) - (12.9)
Charge for the
period (0.4) (3.0) - (3.4)
Foreign exchange
movements - (0.1) - (0.1)
At 31 December
2016 (0.4) (16.0) - (16.4)
-------------------- --------- ---------- ------------- ------
Net book value:
At 31 December
2016 17.8 21.9 15.1 54.8
-------------------- --------- ---------- ------------- ------
At 31 March 2016 1.1 4.1 6.4 11.6
-------------------- --------- ---------- ------------- ------
Freehold property includes land valued at GBP5.1m (2015/16: GBP0.2m) which is not depreciated. Office equipment, recognised as part of the Merger, with a net book value of GBP0.4m at 31 December 2016, is included within laboratory equipment.
Assets under construction principally relate to an item of production equipment at a partner production facility in the USA and equipment to increase the capacity of flutiform(R) at the Sanofi manufacturing facility in Holmes Chapel, UK. This additional flutiform(R) capacity became fully operational in January 2017.
16 Group subsidiaries and holdings
At 31 December 2016, the Group's principal subsidiaries and associate are set out in notes 5 and 6 of the separate Company only financial statements. Unless otherwise stated, they have share capital consisting solely of ordinary shares that is held directly or indirectly by the Company. The proportion of ownership interests held directly or indirectly equals the voting rights held by the Company.
17 Inventories
31 December 31 March
2016 2016
GBPm GBPm
------------------------------ ----------- --------
Raw materials 9.0 0.1
Work in progress 7.8 -
Finished goods 4.1 0.6
Less: provision for inventory (2.5) --
------------------------------ ----------- --------
Total inventories 18.4 0.7
------------------------------ ----------- --------
The provision totalling GBP2.5m is allocated as follows: raw materials GBP0.3m and finished goods GBP2.2m.
Inventory primarily relates to the flutiform(R) supply chain but also includes GBP0.9m of oral manufactured products and GBP0.9m of devices. During the nine months to 31 December 2016, certain inventory was written down to net realisable value resulting in a charge to cost of sales in the consolidated income statement of GBP2.2m (2015/16: GBP0.4m). A total of GBP37.4m was included in cost of sales with respect to inventory during the period (2015/16: GBP3.6m).
18 Trade and other receivables
31 December 31 March
2016 2016
GBPm GBPm
----------- --------
Trade receivables 22.2 1.6
Less provision (1.1) -
----------------------------------- ----------- --------
Net trade receivables 21.1 1.6
Other receivables 5.2 2.5
Prepayments and accrued income 25.8 13.6
Research and development tax
credits 4.5 4.5
Total trade and other receivables 56.6 22.2
----------------------------------- ----------- --------
The carrying values of trade and other receivables approximate their fair values because these balances are expected to be cash-settled in the near future unless a provision is made.
Trade receivables past due at 31 December 2016 were GBP4.6m (2015/16: GBP0.1m). None of the outstanding balances were more than 60 days past due. Provisions against trade receivables are recognised in accordance with expectations of recoverability.
19 Cash and cash equivalents
The Group's cash and cash equivalents are denominated in the following currencies:
31 March
31 December 2016 2016
--------------------------
GBPm GBPm
-------------------------- ---------------- --------
Sterling 27.8 85.3
US Dollars 34.0 12.0
Euros 24.2 2.5
Swiss Francs 6.5 -
Cash and cash equivalents 92.5 99.8
---------------------------- ---------------- --------
In August 2016, Vectura arranged a GBP50m unsecured committed multi-currency revolving credit facility ("RCF") with Barclays Bank PLC. 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. At 31 December 2016, the facility remains undrawn.
20 Trade and other payables
31 December 31 March
2016 2016
GBPm GBPm
Trade payables 22.4 6.4
Accruals 31.1 18.6
Other payables 4.4 0.8
Deferred income 1.7 0.8
Property mortgages 0.2 -
Trade and other current liabilities 59.8 26.6
--------------------------------------- ----------- --------
Other payables 6.2 -
Deferred income 1.7 1.0
Property mortgages 4.3 -
--------------------------------------- ----------- --------
Other non-current payables 12.2 1.0
--------------------------------------- ----------- --------
Trade and other payables 72.0 27.6
--------------------------------------- ----------- --------
Due to the short-term nature of current payables, their carrying values approximate their fair value.
Long-term payables of GBP12.2m (2015/16: GBP1.0m) principally relate to Swiss property mortgages and contingent liabilities recognised in accordance with IFRS 3 as a result of the Merger.
As at 31 December 2016, the carrying value of the mortgage relating to the buildings which are in use was GBP4.5m. The mortgage has a fixed rate of interest of 2.6% per annum and an expiry date of 28 February 2019.
The Group does not have any significant borrowings and therefore a separate borrowings note is not disclosed. The details of the undrawn RCF facility are provided in Note 19 "Cash and cash equivalents".
21 Provisions
Employee Property Other Total
benefits
GBPm GBPm GBPm GBPm
---------------------------- ---------- --------- ------ ------
As at 1 April 2016 - - 0.6 0.6
Skyepharma Merger 3.4 1.0 0.1 4.5
Charged during the
period 0.7 0.8 1.0 2.5
Utilised during the
period (2.0) - (0.6) (2.6)
Foreign exchange movements 0.2 0.1 0.1 0.4
At 31 December 2016 2.3 1.9 1.2 5.4
---------------------------- ---------- --------- ------ ------
Current 1.0 - 0.9 1.9
---------------------------- ---------- --------- ------ ------
Non-current 1.3 1.9 0.3 3.5
---------------------------- ---------- --------- ------ ------
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 9 "Exceptional items" and are presented as current as they are expected to be settled within 12 months.
Employee benefits are primarily related to: 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 Group's manufacturing facility in Lyon, France.
Property provisions relate to an onerous lease in Switzerland and a repair and maintenance works required under leasing arrangements for the Group's R&D facilities in Chippenham where the final timing and cost of work to be performed is uncertain.
22 Deferred tax liabilities
The principal deferred tax liabilities relate to differences between the tax and accounting base of intangible assets and buildings uplifted as a consequence of the fair value accounting requirements associated with the Merger and the Activaero transaction as follows:
Skyepharma Activaero Swiss unrealised Total
intangible intangible foreign
assets assets exchange
gains
GBPm GBPm GBPm
GBPm
-------------------------- ------------ ------------ ----------------- -------
At 1 April 2016 - (20.4) - (20.4)
Skyepharma Merger (55.1) - (3.9) (59.0)
Charged / (credited)
to:
- consolidated income
statement 8.5 4.7 (0.7) 12.5
- consolidated statement
of OCI - - (0.7) (0.7)
Prior year movement - (1.0) 0.4 (0.6)
Exchange differences (6.5) (2.0) (0.1) (8.6)
At 31 December 2016 (53.1) (18.7) (5.0) (76.8)
-------------------------- ------------ ------------ ----------------- -------
Deferred tax liabilities associated with the Skyepharma merger and Activaero intangible assets unwind to offset the tax distortion that would otherwise occur as the assets are amortised. Deferred tax liabilities on Swiss unrealised foreign exchange gains arise on permanent funding loans because foreign exchange gains are deferred on the local balance sheet in accordance with Swiss laws. A deferred tax asset on German tax losses of GBP4.3m (2015/16: GBP3.3m) has been offset against the deferred tax liability on Activaero intangible assets.
The expiry profile of the tax losses of the Group is estimated as follows:
Expiry profile 2017 2018 2019 2020 2021 Indefinite Total Tax losses GBPm 9.2 5.2 5.2 5.0 4.7 210.7 240.0 ---------------- ----- ----- ----- ----- ----- ----------- ------
The Group did not recognise deferred tax assets on losses amounting to GBP187.9m (2015/16: GBP56.6m). The majority of the losses presented above are unlikely to offset taxable profits in the foreseeable future. The UK activities continue to be loss making resulting in potential deferred tax assets which are currently not recognised on these losses.
23 Retirement benefit obligations
Following the Merger, a Swiss pension liability of GBP7.1m was recognised after an independent actuarial valuation. This was based on 90 employees in the quasi-governmental Swiss pension scheme. In November 2016, 10 employees who participated in this pension plan were informed of redundancy and hence the pension liability has been curtailed in the period to reflect a reduction in the unit projected liability. Refer to Note 9 "Exceptional items". Pension schemes existing before the Merger were accounted for as defined contribution schemes, and consequently, no pension liabilities existed before 10 June 2016.
Swiss defined benefit pension plan
The Group operates a pension scheme in respect of its employees in Switzerland. The employer and employee contribute to the scheme on a monthly basis. The balance funded will be used to determine pension amount on retirement, based on the conversion rate set by the pension regulator. As explained above, this pension scheme is accounted for as a defined benefit pension scheme as it meets the definition within IAS19 "Employee Benefits" (Revised).
The Group and employees make additional contributions in respect of death or disability benefits. The pension scheme is regulated to require that the funds achieve a minimum investment return, established by the government on a yearly basis, taking into account the relatively conservative investment criteria which must be followed by the pension investment company. The primary obligation to ensure that each pension fund achieves at least the minimum return lies with the pension investment company: a company controlled by its member-employers and member-employees, which pools the funds across many employers and is able to smooth out any under-performance over a number of periods. If the investment target is not met, the effect is usually assessed over a number of periods.
23 Retirement benefit obligations - continued
Swiss defined benefit pension plan
If the deficit persists over this period or is substantial, it will first be met from past reserves (from periods when the investment return has exceeded the minimum required). If a deficit remains, or is significant, members may agree (or be required by the regulator) to make a higher rate of future contribution in order to restore the investment funds to a fully funded level over a number of periods. These additional contributions would be shared equally between the employer and the employee.
The employer and employee members are, therefore, exposed to the following risks:
i. the risk that the minimum investment return is not met, and is not made up from past excess returns or future returns; and
ii. the risks that the assets held by the pension fund are not sufficient to cover payments to pensioners, disability benefit and death-in-service benefit.
As these risks match the criteria for accounting for a scheme as a defined benefit scheme, the Swiss pension plan is accounted for in accordance with IAS 19 "Employee Benefits" (Revised). The liability included in the balance sheet in respect of the Swiss pension plan is, therefore, the present value of the defined benefit obligations less the fair value of plan assets. Defined benefit obligations for the scheme are calculated annually by independent actuaries using the projected-unit-credit method. The present value of the defined benefit obligations is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Service costs are included in staff costs and charged to the consolidated income statement over the remaining average expected service lives of employees. They are set at a level designed to give a charge through the profit and loss account which is a level percentage of salaries. The average conversion rate will decrease over the next three years (until 2019) from 6.4 percent to 6.0 percent.
The Swiss federal law on Occupational Retirement, Survivors' and Disability Pension Plans provides for minimum pension benefits and also a minimum amount for the savings contributions. The amount of contributions to be paid by the employer and employee is determined by the Board of Trustees or the pension fund commission. These can exceed the statutory minimum. The employer contribution must be at least as high as the employee contributions. These contributions are age dependent and based on the pensionable salary.
The amounts recognised in the balance sheet for the Swiss scheme are as follows:
31 December 2016
GBPm
------------------------------------ ---------------------------------------------------
Present value of funded obligations (21.3)
Fair value of plan assets 15.4
Balance sheet liability (5.9)
------------------------------------ ---------------------------------------------------
The movement in the present value of the defined benefit obligation since the Merger date on 10 June 2016 is as follows:
31 December 2016
GBPm
---------------------------------------- ----------------
Recognised upon Skyepharma Merger (19.9)
Foreign exchange (2.3)
Current service cost (0.6)
Benefits paid and withdrawals (0.3)
Actuarial movement from plan experience (0.3)
Actuarial gain arising from change
in assumptions 1.3
Employee contributions (0.3)
Exceptional gain on curtailment
(Note 9) 1.1
---------------------------------------- ----------------
Present value of the defined benefit
obligation as at 31 December 2016 (21.3)
---------------------------------------- ----------------
23 Retirement benefit obligations - continued
Swiss defined benefit pension plan
The movement in the fair value of the plan assets since the Merger is as follows:
31 December
2016
GBPm
----------------------------------- -----------
Recognised upon Merger 12.8
Foreign exchange 1.4
Benefits paid and withdrawals 0.3
Actuarial gains recognised on plan
assets 0.2
Employer contributions 0.4
Employee contributions 0.3
Fair value of the plan assets as
at 31 December 2016 15.4
----------------------------------- -----------
Plan assets as at 31 December 2016 comprise:
GBPm %
------------------ ----------- -----
Equity 4.8 31.2
Bonds 6.9 44.8
Property 2.9 18.8
Cash 0.3 1.9
Other 0.5 3.3
Total plan assets 15.4 100.0
--------------------- ----------- -----
Other includes higher risk investments such as commodities or emerging market investments. The pension fund manages these in accordance with Swiss pension regulations to generate a higher return on the fund.
The current service cost recognised in the consolidated income statement was GBP0.6m. Actuarial gains and losses primarily arise from differences in the key actuarial assumptions of inflation rates, salary increases, discount rates and the Swiss conversion rate published by the Swiss pension regulator. Actuarial gains and losses are recognised within equity.
The cumulative actuarial gain recognised since the Merger is as follows:
31 December
2016
GBPm
----------------------------------------------- -------------
Actuarial gain recognised in the
consolidated statement of other comprehensive
income 1.3
Cumulative actuarial gains recognised
within retained losses 1.3
----------------------------------------------- -------------
23 Retirement benefit obligations - continued
Swiss defined benefit pension plan
At 31 December 2016, actuarial valuations were performed by actuaries on the present value of the accrued liabilities calculated under the projected-unit-credit method. The principal assumptions made by the actuaries were:
%
Inflation rate 0.5
Rate of increase in salaries 1.0
Discount rate 0.6
Expected return on plan assets 0.6
Future pension increases -
------------------------------- -------------------------------
Assumptions regarding future mortality experience are based on published statistics and experience in Switzerland.
Life expectancy at assumed retirement age Years --------------------------------------- ----- Male 22.4 Female 25.4 --------------------------------------- -----
Expected contributions to post-employment benefit plans for the period ending 31 December 2017 are GBP0.6m.
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:
Monetary Monetary
effect effect
of increase of decrease
Change in in assumption in assumption
assumption GBPm GBPm
-------------------- ------------ -------------- --------------
Discount rate +/- 1% (2.0) 2.0
Salary growth +/- 1% 0.4 (0.4)
Pension growth rate +/- 1% 1.2 (1.2)
Life expectancy +/- 1 year (0.2) 0.5
-------------------- ------------ -------------- --------------
The above sensitivity analyses are based on a change in one assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.
24 Financial instruments
Under IFRS 7 "Financial Instruments: Disclosures", and for the purposes of risk management, the following classes of financial assets and liabilities at their carrying values have been identified:
31 March
31 December 2016 2016
---------------------------------------------
GBPm GBPm
--------------------------------------------- ---------------- --------
Cash and cash equivalents held at fair value 92.5 99.8
Financial assets held at amortised cost 56.6 22.6
Financial liabilities at amortised cost (58.0) (26.4)
91.1 96.0
--------
Provisions against impaired assets are disclosed in Note 18 "Trade and other receivables". Trade receivables past due but not impaired at 31 December 2016 were GBP4.6m (31 March 2016: GBPnil).
The majority of financial liabilities fall due within one year and hence there is usually no difference between their invoice value and their amortised cost value. Liabilities in respect of Swiss property mortgages of GBP4.5m are included above with GBP4.3m classified as non-current.
24 Financial instruments - continued
Fair value of financial assets and liabilities
The Directors consider there to be no material difference between the book value and the fair value of the Group's financial assets and liabilities at the balance sheet date.
(a) Capital management
The Group manages its capital to ensure that all entities in the Group will be able to continue as a going concern whilst maximising the return to stakeholders. The capital structure of the Group consists of equity (as disclosed in the consolidated statement of changes in equity), retained earnings, cash and cash equivalents (Note 19 "Cash and cash equivalents"), an RCF (Note 19 "Cash and cash equivalents") and a Swiss property mortgage (Note 20 "Trade and other payables"). The Group seeks to manage its capital through an appropriate mix of these items. As at 31 March 2016, and to the date that these financial statements were issued, no funds were drawn against the RCF.
Subsidiary companies are funded by share capital, retained earnings and intra-Group lending. Certain subsidiaries have capital maintenance obligations under local law and in relation to the Group's RCF. These are reviewed for compliance on a regular basis. The Directors consider that all requirements and covenants have been complied with during the period covered by these consolidated financial statements.
(b) Financial risk management
The primary risks that the Group is exposed to through its use of financial instruments are liquidity risk, market risk (foreign currency risk and interest rate risk) and credit risk. Board authorisation is required for all significant agreements that may affect the Group risk structure. It is, and has been throughout the period, the Group's policy that no speculative trading in financial instruments is undertaken.
The Group is funded principally through equity and invests its funds in short-term bank deposits. The Group has access to the majority of these deposits at a maximum of 24 hours' notice. The Group's policy throughout the period has been to minimise the risk by placing funds in low-risk cash deposits and to ensure liquidity. Maximising the return on funds placed on deposit is considered only after the first two criteria of security and liquidity have been satisfied.
(c) Liquidity risk management
Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they fall due. The Group manages liquidity risk by maintaining adequate reserves and by continually monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group's policy is to maintain continuity of funding through available cash and cash equivalents, an RCF and through the issue of shares where appropriate.
(d) Market risk management
Market risk is the risk that changes in market prices, such as foreign exchange rates or interest rates, will affect the Group's result or the value of its investments.
Currency risk management
The Group's presentation currency is Sterling. The Group is subject to exposure on the translation of the assets of foreign subsidiaries whose functional currencies differ from that of the Group. The Group's primary balance sheet translation exposures are to the Swiss Franc, Euro and US Dollar. The Group aims to minimise balance sheet translation exposures, where it is practical to do so, by funding subsidiaries with long-term loans, on which exchange differences are taken to reserves.
The Group faces currency exposures arising from the translation of profits earned in foreign currency. These exposures are not hedged. Exposures also arise from foreign currency-denominated trading transactions undertaken by subsidiaries. The Group's policy is to offset such currency exposure by matching foreign currency revenues with expenditure in the same foreign currency. Where there are no imminent foreign currency denominated transactions, the surplus foreign currency cash balances are exchanged for the functional currency of the subsidiary. Where it has not been possible to use natural hedges, currency options and forward currency contracts may be used. No options or forward contracts have been entered into in the period (2015/16: none).
A 10 per cent strengthening of the Euro, Sterling, US Dollar and Swiss Franc functional currencies within the Group against non-functional currencies of its subsidiaries would result in the loss before taxation being GBP7.0m lower and items recognised directly in other comprehensive income being GBP14.6m higher. A 10 per cent weakening would have an equal but opposite effect on loss before taxation and other comprehensive income. The Group considers a 10 per cent strengthening or weakening of the functional currency against the non-functional currency of its subsidiaries as a reasonably possible change in foreign exchange rates.
24 Financial instruments - continued
(d) Market risk management
Currency risk management
In the prior year, the Group considered a 15 per cent strengthening or weakening of the functional currencies within the Group against the non-functional currency of its subsidiaries as a reasonably possible change. In the year to 31 March 2016, a 15 per cent strengthening of the Euro and US Dollar, the currencies underlying the Group's translation exposures during the year, against Sterling would result in the loss before taxation being GBP2.2m lower and other comprehensive income being GBP2.2m higher. A 15 per cent weakening would increase the loss before taxation and reduce items directly recognised in other comprehensive income by GBP1.6m.
Interest rate risk management
As the RCF, the Swiss property mortgage and all deposits are at floating rates, the Group is exposed to interest rate risk.
A one per cent increase in interest rates would result in the Group's loss before taxation for the period being GBP0.9m lower (2015/16 GBP1.0m using an interest rate variance of 0.5 per cent). A one per cent decrease in interest rates would result in an equal but opposite effect. These sensitivities currently exclude the impact of the RCF as it is undrawn.
Credit risk management
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is exposed to credit risk primarily through its operating activities, including trade receivables and from its investing activities, including bank deposits.
The creditworthiness of customers is assessed by reference to publicly available information, or information provided by those customers. In view of the nature of the business, most customers are large, profitable, pharmaceutical companies.
Trade receivables are allocated across a number of customers and the balances are monitored on a regular basis with a view to minimising the exposure to bad debts. The maximum exposure is the carrying amount as disclosed in Note 18 "Trade and other receivables". With respect to credit risk arising from other financial assets in the Group, the maximum exposure is equal to the carrying value of the instrument. Significant investments require Board approval before being authorised.
25 Ordinary share capital
Number
Allotted, called up and fully paid GBPm of shares
Ordinary shares of 0.025p, each at 1 April 2016 0.1 410,530,184
Issued for Skyepharma scheme of arrangement 0.1 266,073,504
Issued to satisfy Vectura employee share plans - 1,365,633
Ordinary shares of 0.025p, each at 31 December 2016 0.2 677,969,321
Redeemable preference shares of GBP1 each
at 1 April 2016 and 31 December 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.
During the period, the Group allotted 1,365,633 ordinary shares of 0.025p each related to employee share option awards. For further details refer to Note 27 "Share-based payments".
26 Shareholders' equity (a) Share premium
The share premium account consists of the proceeds from the issue of shares in excess of their par value (which is recorded within share capital) less amounts transferred to distributable reserves through capital conversion. This non-distributable reserve is also reduced by directly attributable share issue costs in accordance with IAS 32 "Financial Instruments".
(b) Merger reserve
When shares are issued as consideration for the acquisition of a subsidiary, the issuing company may benefit from merger relief (section 612 Companies Act), IFRS requires the cost of investment to be recognised at the fair value of the consideration transferred and the Companies Act allows the excess over the nominal value to be recognised as a merger reserve which provides relief from the recognition of non-distributable share premium.
The merger reserve is usually not distributable. However, the merger reserve may become distributable at a later date. For example, if the investment is written down for impairment. The merger reserve primarily relates to the June 2016 Skyepharma Merger, but also to the acquisition of Co-ordinated Drug Development Limited (since renamed Vectura Limited) in August 1999, of Vectura Delivery Devices Limited in February 2002 and of Innovata plc in January 2007.
(c) Own shares reserve
Own shares are a deduction from equity representing shares that have been issued to the Employee Share Trust in advance of future vesting of employee share options. The value represents the cumulative historical cost value of unexercised shares allotted to the trust.
(d) Share-based payment reserve
The share-based payment reserve represents cumulative charges to the consolidated income statement for share-based payments from the grant date of awards to their vesting date. When an award vests, the corresponding portion of this reserve is transferred to retained earnings.
(e) Translation reserve
On consolidation, exchange differences arising from the translation of overseas subsidiaries into the Group's presentational currency, permanent net investments in foreign entities and financial instruments designated as hedges of such investments, are recognised in the consolidated statement of other comprehensive income and in the translation reserve.
When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.
Goodwill arising on the acquisition of a foreign operation is treated as an asset of the operation to which the goodwill is allocated for impairment testing purposes per IAS 36 "Impairment of Assets" and translated at the closing rate, when the goodwill is not allocated to a Sterling-based CGU. Fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the operation and translated at the closing rate.
27 Share-based payments
Share-based payments relate entirely to employee share plans. Following the Merger, a number of exceptional awards were also granted to employees considered critical to the integration process. The share-based payment charge in the consolidated income statement is analysed as follows:
9 months ended 12 months ended
31 December 2016 31 March 2016
GBPm GBPm
Pre-exceptional equity settled plans 1.8 2.5
Share-based payments within exceptional items 0.5 -
Total share-based payments 2.3 2.5
The employee share award plans are designed to support a strong culture of long-term shareholder value creation. Details of the long-term incentive plan, the Group's main plan, are set out below. The Group also operates a share incentive plan ("SIP") and a Save-As-You-Earn Plan ("SAYE"). Further details are provided in the Remuneration Report.
Long-Term Incentive Plan ("LTIP")
Under the approved Group's remuneration policy equity awards are a key component of the overall remuneration package for senior management and executives. The share-based payment costs associated with the LTIPs charged to the consolidated income statement in the period were GBP1.1m (2015/16: GBP1.2m).
Executive compensation awards
These awards were made under the terms of a share award agreement in connection with the recruitment and appointment of the Chief Executive Officer on 1 October 2015. They were made to facilitate recruitment and to compensate for loss of certain benefits and share awards from his previous employment, which were forfeited as a result of his employment by Vectura. The share-based payment costs associated with the Executive compensation award charged to the consolidated income statement in the period were GBP0.6m (2015/16: GBP1.1m).
Exceptional share-based awards
Upon completion of the Merger 1,490,982 exceptional nil cost awards were granted to key members of management, excluding Executive Directors, considered critical to the integration process. These awards vest in full provided that an 18-month or 36-month service condition is met from their date of grant on 22 September 2016. There are no performance conditions associated with these awards. The grant date fair value was GBP1.41 per share and the total share-based payment charge, assuming no lapses occur, will be expensed evenly to 21 March 2018 or 21 September 2019, depending on the applicable service conditions.
Share trusts
The Group operates two share trusts. The Group's own-share reserve represents the weighted average cost of shares in the Estera Employee Benefit Trust and the Vectura Employee Benefit Trust, which are held for the purposes of fulfilling obligations in respect of executive awards and employee share plans.
At 31 December 2016, the Vectura Employee Benefit Trust held 315,293 shares for the purposes of fulfilling obligations under the SIP and SAYE plans open to all employees. The trust is included within the Group results for the first time in the current period as 300,000 free shares were allotted to the trust in December 2016.
A further two Skyepharma share trusts are no longer operational and do not support Vectura Group share schemes. These trusts hold cash of GBP0.9m, which is recognised as a debtor in the Group's consolidated balance sheet.
28 Commitments
Operating leases
The Group is committed to make payments under non-cancellable property leases as follows:
31 December 2016 31 March 2016
GBPm GBPm
Within one year 1.1 0.7
Between two and five years 3.5 1.1
Over five years 2.9 -
Total commitments under operating leases 7.5 1.8
These commitments relate to the Group's operations at Chippenham, Cambridge Science Park and Grosvenor Gardens, London. The over five year's amount above relates to the Chippenham R&D facility. The opportunity to activate a break clause has not been exercised and therefore the leases for these buildings have in effect been extended to July 2027.
29 Related-party transactions
Merger related
As described in Note 1 "Basis of preparation" and Note 13 "Business combinations", on 10 June 2016, the Skyepharma Merger was completed. Under the court-sanctioned scheme of arrangement where Skyepharma Board members and Skyepharma key management personnel held shares in Skyepharma, these were exchanged for Vectura shares and/or the partial cash alternative (if elected). Certain Skyepharma Board members and key management personnel have continued in similar roles in the merged Group.
The share exchange and/or partial cash payments are not considered related-party transactions as defined by the Disclosure Transparency Rule 4.8.2 and because all shareholders were treated equally by the court-sanctioned scheme. 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/
Andrew Oakley stepped down from the role of Chief Financial Officer upon completion of the Merger. Under the terms of his service agreement, Mr Oakley was subject to a 12-month notice period. He received a payment in lieu of notice which was paid in two instalments. A sum of GBP141,882 in lieu of six months' notice was paid shortly after his departure. A further payment of GBP141,882 was made six months later as he had not breached any of the terms of his settlement agreement with the Company or commenced employment or engagement elsewhere. These provided a total remuneration which was equivalent to his 12-month notice entitlement. He was provided with private medical, private dental and life assurance for 12 months from the date of termination. He also received a payment of GBP96,376 by way of compensation and settlement for his other benefits and any potential claims he may have against the Company and the Company agreed to provide up to GBP30,000 towards outplacement fees.
Following the Merger, Vectura share capital with a fair value of GBP8.5m was issued to former members of Skyepharma's Executive and senior management teams to settle the Skyepharma LTIP. This was required by the court-sanctioned scheme of arrangement in order to acquire the fully-diluted Skyepharma share capital. The fair values of the shares to settle the scheme have been included within the GBP475.5m acquisition price for Skyepharma. Refer to Note 13 "Business Combinations".
29 Related party transactions continued
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below.
31 December 2016 31 March 2016
GBPm GBPm
Short-term employee benefits 2.0 2.1
Post-employment benefits 0.2 0.2
Share-based payments 0.4 0.7
Other 0.9 1.3
3.5 4.3
One Director is a member of a money purchase pension scheme (2015/16: two).
Director's responsibilities statement for Vectura Group plc accounts
The Directors' responsibility statement below has been prepared in connection with the Company's full Annual Report for the nine-month period ended 31 December 2016. Certain parts thereof are not included within this announcement. We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
-- the strategic report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties which they face; and,
-- the annual report and financial statements, taken as whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
By order of the Board,
Andrew Derodra
Director
20 March 2017
([1]) Revenue from royalties, share of sales, product supply and device sales
([2]) Operating profit/(loss) before net financing income, tax, depreciation, amortisation, share-based compensation, share of result of associates and exceptional items. Refer to Note 6 of the financial statements
([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 Financial Review.
* Includes results of Skyepharma from 10 June 2016
[1] Based upon royalty reports received from partners
[2] Advair Diskus(R) is a trademark of GSK
[3] Based upon royalty reports received from partners.
[4] 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.
[5] IMS MIDAS Q4 MAT 2016 and constant exchange rates (CER)
[6] IMS MIDAS Q4 2016 (CER)
[7] IMS MIDAS Q4 2016 (CER)
[8] IMS MIDAS Q4 MAT 2016 (CER)
[9] IMS MIDAS Q4 MAT 2016 (CER)
[10] 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
[11] 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).
[12] Utibron Neohaler US Product Information. Available at: www.pharma.us.novartis.com/product/pi/pdf/utibron.pdf . Accessed November 7, 2016
[13] Seebri Neohaler US Product Information. Available at: www.pharma.us.novartis.com/product/pi/pdf/seebri.pdf Accessed November 7, 2016
[14] The study was carried out with 50/500 doses for both AirFluSal(R) Forspiro(R) and Seretide(R) Diskus(R)
[15] Mazur et al, Lancet, 2015
[16] Based on Decision Resources 2016, Analyst estimates
[17] Asthma Epidemiology, Decision Resources Group, 2016
[18] Peters S, et al. 2006. Uncontrolled asthma: A review of the prevalence, disease burden and options for treatment. Respiratory Medicine.100, pp1139-1151
[19] IMS MIDAS sales data Q4 2016 (CER)
[20] Decision Resources 2016
[21] 2016 Sales, IMS MIDAS Q4 2016 (CER)
[22] EBITDA is defined as operating profit before exceptional items and amortisation adding back charges for share-based payments and depreciation
(23) 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
FR JBMFTMBJTMLR
(END) Dow Jones Newswires
March 21, 2017 03:02 ET (07:02 GMT)
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