THE RARE AND ORPHAN DISEASES SPECIALIST
AMRYT PHARMA
ANNUAL REPORT 2017
1
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 Amryt is a specialty pharmaceutical company focused on developing and
delivering innovative new treatments to help improve the lives of patients
with rare or orphan diseases.
Rare and orphan disease
focused business with strong
and experienced management
team in place
Delivering on strategy
to acquire, develop and
commercialise products
Commercial stage pharma
company with significant
revenues from Lojuxta sales
Our new in-licencing
agreement is an attractive
opportunity for Amryt to be
involved in the area of gene
therapy, which is one of the
most exciting and potentially
transformative areas
of medicine today
Non-dilutive EIB funding
secures Amryt’s near and
mid-term funding needs
for its lead product, AP101
Lead development asset, AP101,
continues to make strong progress
Pivotal Phase III clinical trial,
EASE, to examine AP101’s
efficacy as a new treatment
for EB commenced in March
2017. Top-line data expected
to be read out in Q2 2019
AMRYT PHARMA ANNUAL REPORT 2017
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
CONTENTS
STRATEGIC REPORT
Chairman and CEO’s Statement.................................................................................. 2
Operations and Financial Review............................................................................... 6
Risks and Uncertainties ............................................................................................... 13
CORPORATE GOVERNANCE
Board of Directors .........................................................................................................18
Corporate Governance Statement ..........................................................................20
Directors’ Report ............................................................................................................22
FINANCIAL STATEMENTS
Independent Auditor’s Report ..................................................................................27
Consolidated Statement of Comprehensive Income ........................................32
Consolidated Statement of Financial Position ....................................................33
Consolidated Statement of Cash Flows .................................................................34
Consolidated Statement of Changes in Equity ...................................................35
Company Statement of Financial Position ............................................................36
Company Statement of Cash Flows ........................................................................37
Company Statement of Changes in Equity ..........................................................38
Notes to the Financial Statements ...........................................................................39
Company Information ..................................................................................................65
1
AMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
STRATEGIC REPORT:
Chairman and CEO’s Statement
Introduction
We are pleased to present the annual report and consolidated financial statements
of Amryt Pharma plc for the year ended 31 December 2017. As used herein, references
to “we”, “us”, “Amryt” or the “Group” in this annual report shall mean Amryt Pharma plc
and its world-wide subsidiaries, collectively. References to the “Company” in this annual
report shall mean Amryt Pharma plc.
•
•
In-licencing deal signed in March
2018 with University College Dublin
for exciting non-viral gene therapy
platform technology, which offers
potential treatments for patients with
Epidermolysis bullosa (“EB”) (AP103)
Expansion of key personnel – Amryt
now has in place an exceptionally
strong leadership team with the
necessary commercial, regulatory
and medical infrastructure also in place
The financial results for the year ended
31 December 2017 comprise the results
of the consolidated Group. By contrast,
the financial results for 2016 comprise
the results of Amryt Pharmaceuticals
DAC (“Amryt DAC”) for the period from
1 January 2016 to 18 April 2016 and those
of the new consolidated Group from
19 April 2016 to 31 December 2016.
This reflects the reverse takeover of
Fastnet Equity plc by Amryt DAC on
18 April 2016, the subsequent name
change to Amryt Pharma plc and the
re-admission of the shares to trading
on AIM and ESM.
Following Birken AG’s acquisition by the
Group in 2016, it was renamed Amryt AG
in 2017. All references in the notes to the
accounts to Amryt AG relate to the entity
that was formerly called Birken AG.
Our Business
Amryt is a commercial stage
pharmaceutical company focused on
acquiring, developing and delivering
innovative new treatments that help
improve the lives of patients with rare
and orphan diseases. The Group has
built a diverse portfolio of assets to
treat patients with rare and orphan
diseases through the acquisition of
its AP101 and AP102 assets in April
2016, the in-licencing of Lojuxta in
December 2016 and the in-licencing
of a gene therapy platform in March
2018. The Group continues to review
new opportunities and the Board
is active in seeking to expand the
Group’s commercial product portfolio.
Performance Highlights
Since the reverse takeover on 18 April
2016, the Group has made excellent
progress and 2017 was a very strong
year for Amryt which places us in a
good position to be able to drive further
expansion throughout 2018 and beyond.
Some of the highlights of the Group’s
performance in 2017 and in 2018 to date
are as follows:
•
•
•
•
•
•
•
•
Total revenues for the year increased
to €12.8m (2016: €1.4m)
Revenues from Lojuxta increased
to €11.9m in 2017 compared to €0.8m
in December 2016
Gross profit margin increased
to 58% in 2017 (2016: 57%)
Cash balance at 31 December 2017
was €20.5m (2016: €8.3m) with
€10m undrawn from the European
Investment Bank (“EIB”) facility
Successful equity placing in October
2017 raised gross funds of €15m
One new distribution agreement
signed in 2017 and a further four
agreements signed in the current
financial year to date
Lead development asset, AP101,
continued to make significant progress
Additional market opportunities for
AP101 in partial thickness wound
indications are currently under evaluation
2
AMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Operational Highlights
LOJUXTA
LOJUXTA (lomitapide) is a drug
used to treat a rare life-threatening
disease called Homozygous Familial
Hypercholesterolaemia (“HoFH”). HoFH
is a life threatening disorder that impairs
the body’s ability to remove LDL cholesterol
(“bad” cholesterol) from the blood.
This typically results in extremely high
blood LDL cholesterol levels leading to
aggressive and premature narrowing
and blocking of arterial blood vessels
manifesting as cardiovascular disease.
If left untreated, heart attack or sudden
death may occur in childhood or early
adulthood. Lojuxta is approved in Europe
to treat adults with HoFH.
With the completion of the Lojuxta in-
licencing deal in December 2016, Amryt
is now a commercial pharmaceutical
company, generating sales across Europe,
the Middle East and other licenced
territories. Amryt’s Lojuxta business has
grown significantly in the 13 months
since December 2016, with sales for the
year growing to €11.9m (2016: €0.8m).
This growth was underpinned by strong
demand from existing markets within
Amryt’s licenced territories. In particular,
the Group has experienced positive
momentum in negotiations regarding
the levels of national reimbursement
from certain countries and also an
increase in individual named patients,
who access funding for treatment
on a ‘named patient’ basis in those
countries where there is no national
reimbursement agreement.
Future sales growth will be driven by
existing markets and from new territories.
Since November 2017, Amryt has agreed
five new distributor relationships, which
together cover seventeen new countries.
The Group is actively negotiating
the initiation of reimbursement from
the UK, France, Spain and Turkey and
we are optimistic that some of these
discussions will conclude successfully
during the course of 2018. If successful,
these market-access decisions will allow
Amryt to provide access for a cohort of
HoFH patients in these territories, which
should result in accelerated growth for the
business. We have ambitious plans for the
remainder of 2018 and we look forward to
announcing a series of agreements in the
months to come.
LEAD DEVELOPMENT ASSET –
AP101 (OLEOGEL-S10)
AP101 (Oleogel-S10) is being developed
as a prescription medicine for
Epidermolysis Bullosa (“EB”), for which
there are severely limited treatment
options. EB is a rare genetic skin
disorder that leads to exceptionally
fragile skin, and children with the
disorder are often referred to as
“Butterfly Children”. AP101 is currently
in an investigational global Phase III
clinical trial for this indication; however,
it has already been approved in Europe
for use in the treatment of partial
thickness wounds (“PTW”) in adults.
The Group has continued to make strong
progress with its lead development asset,
AP101, as a new potential treatment for
EB. In February 2017, Amryt was granted
a patent in Japan for AP101. This followed
key patents grants for AP101 in Europe
and the US in 2016. In March 2017, Amryt
completed discussions with both the Food
and Drug Administration (“FDA”) and
the European Medicines Agency (“EMA”)
regarding the design of its pivotal Phase III
clinical trial for AP101 in EB. Subsequently,
on 27 March 2017, we commenced the
pivotal Phase III clinical trial, EASE (efficacy
and safety of AP101 in patients with EB),
to examine AP101’s efficacy for EB
patients. The first patient was enrolled
to EASE in April 2017.
Amicus Therapeutics granted Amryt
detailed access to the data from its
landmark ESSENCE trial of SD101 in EB,
which read out in September 2017.
Based on the insights from these data,
Amryt management is now able to refine
its protocol for the Group’s ongoing
global Phase III EASE study of AP101, with
the potential to increase the probability
of success for the study. The Group is
currently in the process of amending
the protocol for the EASE study and will
discuss any significant changes with the
FDA and the EMA. These amendments
include a modest increase in the size of
the study from 164 to 192 patients and
a restriction on certain wound types, the
ultimate goal of which is to increase the
chances of success in the study. Interim
analysis is now expected to be completed
in Q4 2018, with read out of top-line data
expected in Q2 2019.
3
AMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
In March 2018, Amryt reached an exclusive agreement to in-licence
a new platform technology for gene therapy with potential applicability
across a range of genetic disorders.
EXCITING FUTURE
INDICATIONS FOR AP101
AP101 was approved by the EMA
in Europe in January 2016 for the
treatment of PTW in adults. This
followed three positive Phase III
studies of 280 patients in grade II
burns and split thickness skin graft
donor sites. Amryt has recently
received interest from physicians
to study AP101 in various PTW
indications also with high unmet
medical need. In response to this
interest, the Group is evaluating new
life cycle opportunities for AP101.
Dermatological conditions currently
under consideration include:
•
•
•
•
Toxic Epidermal Necrolysis
Syndrome (TENS) (including
Stevens-Johnson Syndrome (SJS))
Bullous Pemphigoid
Pemphigus Vulgaris
Grade III/IV radiotherapy and
chemotherapy induced dermatitis
The scope of the current EMA
approval for AP101 may offer the
opportunity to launch AP101 in some
of these indications in Europe. Early
indications suggest that collectively
these indications of TENS/SJS,
radiotherapy and chemotherapy
induced dermatitis, and bullous
pemphigoid and pemphigus vulgaris
may have a market potential greater
than the EB opportunity that the
Group is currently investigating in its
EASE Phase III study.
Management intends to file applications
for orphan designation for some of these
new potential orphan indications in the
USA, Europe and Japan and believes that
there is significant scope to maximise the
value of this existing asset through either
a global multi-orphan strategy or via the
current EMA marketing approval to secure
long term growth.
Strategic Developments
since year end
In March 2018, Amryt reached an exclusive
agreement to in-licence a new platform
technology for gene therapy with
potential applicability across a range of
genetic disorders. The technology has
been in-licenced from University College
Dublin (“UCD”) and involves the delivery
of gene therapy using Highly Branched
Poly (β-Amino Ester) (“HPAE”) polymer
technology. The initial focus
of development efforts to date has been
in the area of EB and preliminary data
suggests that the treatment could be
potentially disease-modifying for patients
with Recessive Dystrophic Epidermolysis
Bullosa (“RDEB”). Pre-clinical data in a
xenograft model has shown significant
levels of collagen VII in the skin post
therapy. Patients with RDEB have a
defect in their gene coding for collagen
VII, consequently the replacement of
collagen VII could be transformative
for these patients.
Potential competitors working in the area
of gene therapy in EB are mostly working
with viral vectors to deliver collagen VII
to the cell. The patented technology
which Amryt has exclusively licenced
from UCD involves the use of a novel
gene delivery mechanism using HPAE
polymer technology. If successful, this will
eliminate the requirement for viruses as
delivery vectors and provides a potential
competitive advantage to Amryt.
Amryt intends to conduct various pre-
clinical studies in the coming months and
intends to report initial results in Q4 2018.
If successful, this platform has the potential
to be applicable in other dermatological
conditions and possibly beyond.
The name assigned to this development
project is ‘AP103’.
Corporate and Financial
Revenues for the year to 31 December
2017 totalled €12,778,000 (2016:
€1,351,000). Lojuxta generated revenues
of €11,924,000. Revenues from Imlan,
our dermo cosmetic range of products,
amounted to €830,000 and revenues
generated from consulting fees amounted
to €24,000. In 2016, the Lojuxta revenues
are for the period from the completion
date of the Licence Agreement with
Aegerion Pharmaceuticals Inc (“Aegerion”)
on 2 December 2016 to 31 December 2016
and totalled €775,000. Imlan revenues for
the period from 19 April to 31 December
2016 amounted to €571,000.
The operating loss before finance expense
for the year ended 31 December 2017
amounted to €14,207,000, of which
research and development expenses
4
AMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
and providing commercial direction for
business development. He was previously
responsible for EMEA marketing and
market access within Celgene. Prior
to that, he was Director of Sales and
Marketing Effectiveness at Amgen Ltd.
In June 2017, the Group appointed
Kieran Rooney, Ph.D., as Vice President
of Strategic Alliances and Licencing.
Before joining Amryt, he headed a
pharmaceutical consulting company,
Halo BioConsulting, focusing on business
alliances and management consulting.
Prior to that, Kieran worked as a consultant
for the UK Government and held business
development roles at companies
including Smith & Nephew, F2G Limited,
Pharsight Corporation, and MDS Pharma
Services. Kieran is responsible for
planning and executing an integrated
global business development strategy
and has over 25 years of experience
in the biopharmaceutical industry,
with significant expertise in business
development and commercial strategy.
In December 2017, the Group appointed
Patrick Jordon as Vice President of Global
Distributor Markets. Patrick has worked
in the pharmaceutical industry for the
last 18 years, during which time he held
senior positions in Pfizer and Merck & Co.
(“MSD”). He has significant experience
across sales, marketing, business
development and general management
and has been based in a number of
global territories. Latterly, Patrick was
the Managing Director of MSD’s Saudi
operations and before that served as
MSD’s Regional Managing Director of its
Eastern Europe and North Africa business.
Amryt now has in place an exceptionally
strong leadership team with the necessary
commercial, regulatory and medical
infrastructure also in place in Europe.
Our strategy is to leverage this capacity
to seek to in-licence more commercial
stage assets, which we are actively pursuing.
Having served on Amryt’s Board for
approximately a year, Cathal Friel stepped
down from the Board of Directors
effective from 28 March 2017. Cathal was
one of the original founders of Fastnet
Equity plc and facilitated the reverse
takeover of Fastnet Equity plc and creation
of Amryt in April 2016.
amounted to €10,564,000. This included
depreciation and amortisation of €257,000
and non-cash share based payments of
€565,000. It compares to an operating loss
before finance expense for the year ended
31 December 2016 of €7,683,000 which
included reverse takeover and acquisition
related costs of €1,838,000, depreciation
and amortisation of €194,000 and non-
cash share based payments of €229,000.
Excluding depreciation, amortisation and
once off reverse takeover and acquisition
costs, the operating loss before finance
costs for the year ended 31 December
2017 would have been €13,385,000
(2016: €5,422,000).
The loss on ordinary activities before
taxation of €26,136,000 includes
€11,104,000 relating to a current non-cash
movement on contingent consideration
that arose as part of the acquisition of
Amryt AG in 2016. The fair value of this
contingent consideration was initially
determined by discounting the contingent
amounts payable to their present value
at the date of acquisition. The discount
component is being unwound as a
current non-cash financing charge in the
Statement of Comprehensive Income
over the life of the obligation. This current
non-cash financing charge of €11,104,000
represents the discount component
being unwound to the Statement of
Comprehensive Income during 2017.
As at 31 December 2017, the Group had
cash on hand of €20.5m. On 2 December
2016, Amryt entered into a five year €20m
debt facility agreement with the EIB.
The first tranche of €10m was drawn
down on 3 April 2017. In October 2017,
the Company completed an equity
fundraising resulting in gross proceeds
of €15m (net proceeds: €14.3m).
Board and Senior
Management changes
Amryt is led by an experienced senior
management team which has been
enhanced further in 2017 by the
appointment of a number of
senior managers.
In March 2017, the Group appointed David
Allmond as Chief Commercial Officer.
David has over 20 years’ experience in the
pharmaceutical industry in commercial
roles. He joined the Company from
Aegerion where he was President of
EMEA and, in particular, involved in the
commercialisation of Lojuxta. Prior to
Aegerion, David was Corporate Vice
President of Global Marketing for Celgene
Corporation where he played a pivotal
role in defining strategy for in-line
brands, lifecycle/pipeline prioritisation
Future Developments
and Outlook
The Group achieved significant
milestones in 2017 and we remain
confident of continuing significant
progress over 2018.
We are very positive about the
growth prospects for our Lojuxta
business. Lojuxta revenues in
2017 exceeded management’s
expectations for the period and we
believe that there is a significant
opportunity to further grow revenues
especially with material, untapped
opportunities in our licenced
territories. This will be a major focus
for us over the coming quarters.
The Phase III clinical trial, EASE, for our
lead asset, AP101, has commenced.
The results of our interim analysis
on EASE are due in Q4 2018 and
will provide an assessment of
the progress of our study by an
independent data safety monitoring
board. We are optimistic in this regard
and, should the interim analysis be
positive, expect to report top-line
data Q2 2019.
We are also very excited about the
interest from physicians to study
AP101 in various PTW indications
with high unmet medical need. The
Group will continue to evaluate these
opportunities in 2018.
Our new in-licencing agreement is
an attractive opportunity for Amryt
to be involved in the area of gene
therapy, which is one of the most
exciting and potentially transformative
areas of medicine today. If successful,
this platform has the potential
to be broadly applicable in other
dermatological conditions and
possibly beyond.
In the meantime, Amryt will
continue to seek to in-licence further
commercial stage assets to continue to
grow our revenues and provide cash
resources that will help support these
development assets. Amryt has made
excellent operational and strategic
progress to date and we look forward
to reporting on further progress as we
continue to develop the business.
Harry Stratford
Non-executive Chairman
16 April 2018
Joe Wiley
CEO
16 April 2018
5
AMRYT PHARMA ANNUAL REPORT 2017
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
STRATEGIC REPORT:
Operations and Financial Review
Strategy
Amryt is a commercial stage pharmaceutical company focused on acquiring,
developing and delivering innovative new treatments that help improve the lives
of patients with rare and orphan diseases. The Group has built a diverse portfolio
of assets through the acquisition of AP101 and AP102 in April 2016 and through the
in-licencing of Lojuxta in December 2016 and the AP103 gene therapy product line
in March 2018. The Group continues to review new business opportunities that may
expand the Group’s commercial product portfolio to enhance shareholder value.
Financial review
REVENUES
Amryt generates revenues from sales of Lojuxta, which is used to treat a rare and life-threatening disease called HoFH, and its in-house
dermo cosmetic products, which are sold under the Imlan brand.
The following table outlines the breakdown of revenues in 2017 compared to 2016:
Lojuxta
Imlan
Other
Total
31 December 2017
€’000
31 December 2016
€’000
11,924
830
24
12,778
775
571
5
1,351
% change
1438%
45%
380%
846%
The growth in Lojuxta revenues in 2017 was underpinned by strong demand from existing marketing with Amryt’s licenced territories.
In particular, the Group experienced positive momentum in the reimbursement position in certain countries and also an increase in
individual ‘named patients’ who continue to access funding for treatment in other countries.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses (“SG&A”) increased from €6,104,000 for the year ended 31 December 2016 to €11,048,000
for the year ended 31 December 2017, an increase of €4,944,000.
The following table outlines the breakdown of SG&A expenses in 2017 compared with 2016:
SG&A
Share based payments
Reverse takeover and acquisition related costs
Total
31 December 2017
€’000
31 December 2016
€’000
10,483
565
–
11,048
4,037
229
1,838
6,104
% change
160%
147%
(100%)
81%
SG&A expenses, excluding share based payments and reverse takeover and acquisition costs, increased from €4,037,000 in 2016
to €10,483,000 in 2017, an increase of 160%. This increase is mainly attributable to the growth in the Lojuxta business in 2017.
Following on from the Lojuxta licence agreement signed in December 2016, the Group has put in place a commercial, regulatory
and medical infrastructure to grow this business. We have seen this already with Lojuxta revenues amounting to €11,924,000.
Our strategy is to leverage this capacity to in-licence additional commercial stage assets, which we are actively pursuing.
6
AMRYT PHARMA ANNUAL REPORT 2017
Share based payments represents the fair
value of share options granted to Directors
and employees which is charged to the
Consolidated Statement of Comprehensive
Income over the vesting period of the
underlying options. The Group has used
a Black Scholes valuation model for the
purposes of valuing these share options
with the key inputs to the model being
the expected volatility over the life of the
options, the expected life of the option, the
option price, the dividend yield and the risk
free rate. The Group recorded a total share
based payments charge of €565,000 for
the year ended 31 December 2017
(2016: €229,000). The increase of €336,000
is due to the granting of options to
key employees and Directors in 2017.
For further details, see note 4 to the
consolidated financial statements.
Reverse takeover and acquisition related
costs incurred in 2016 of €1,838,000 relate
to the one-off costs associated with the
transaction and the acquisition of Amryt
AG and SomPhamaceuticals SA and
SomTherapeutics, Corp (together “SOM”).
For further details, see note 5 to the
consolidated financial statements.
RESEARCH AND
DEVELOPMENT EXPENSES
Research and development expenses for
the year ended 31 December 2017 amount
to €10,564,000, compared to €2,344,000
for the year ended 31 December 2016.
The increase of €8,220,000 is primarily due
to the advancement of the Group’s lead
development asset, AP101, in 2017.
The Group announced the commencement
of EASE, its Phase III clinical trial of AP101
in March 2017, with the first patient being
enrolled in April 2017. Following a review
of the Amicus data, the Group is currently
in the process of amending the protocol
for the EASE study. These amendments
include a modest increase in the size of
the study from 164 to 192 patients and a
restriction on certain wound types, the
ultimate goal of which is to increase the
likelihood of demonstrating a statistically
significant treatment effect.
In 2017, the Group also completed various
non-clinical trials, as requested by the FDA,
which will be required as part of an IND
filing to open clinical trial sites in the USA.
No safety signals or concerns were noted
from the preliminary data and the Group
is now hopeful that the combination of
these studies, and safety data from patients
enrolled to date in non-US EASE study sites,
will enable it to request an IND to open trial
sites in the USA, which it anticipates will be
in Q3 2018.
OPERATING LOSS
The operating loss before finance expense
for the year ended 31 December 2017
amounted to €14,207,000, which included
depreciation and amortisation of €257,000
and share based payments of €565,000.
This compares to an operating loss before
finance expense for the year ended 31
December 2016 of €7,683,000, which
included reverse takeover and acquisition-
related costs of €1,838,000, depreciation
and amortisation of €194,000 and share
based payments of €229,000. Excluding
depreciation, amortisation, share based
payments and once off reverse takeover
and acquisition costs, the operating loss
before finance costs for the year ended
31 December 2017 would have been
€13,385,000 (2016: €5,422,000).
The increase in the operating in loss in 2017
is largely due to the costs associated with
the rollout of the Phase III EASE study.
The loss on ordinary activities before
taxation of €26,136,000 includes
€11,104,000 relating to a current non-cash
movement on contingent consideration
that arose as part of the acquisition of
Amryt AG in 2016. The fair value of this
contingent consideration was initially
determined by discounting the contingent
amounts payable to their present value
at the date of acquisition. The discount
component is being unwound as a
current non-cash financing charge in the
Statement of Comprehensive Income
over the life of the obligation. This current
non-cash financing charge of €11,104,000
reflects the impact of the revised financial
forecasts and the discount component
being unwound to the Statement of
Comprehensive Income in 2017.
CASH MANAGEMENT
As at 31 December 2017, the Group had
cash and cash equivalents of €20,512,000.
This compares to cash and cash equivalents
of €8,271,000 at 31 December 2016. Included
in cash and cash equivalents at 31 December
2017 is cash at bank available on demand of
€19,975,000 and restricted cash of €537,000.
Restricted cash is cash held by a third
party distributor at the year-end which
was transferred to Amryt in January 2018.
The total cash and cash equivalents at 31
December 2016 of €8,271,000 relates to
cash at bank available on demand.
In October 2017, the Company completed
an equity fundraising resulting in gross
proceeds of €15,083,000 (net proceeds:
€14,393,000).
7
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
TRADE AND OTHER RECEIVABLES
As at 31 December 2017, the Group had trade and other receivables of €4,729,000. This compares to trade and other receivables
of €2,540,000 at 31 December 2016.
The following table outlines the breakdown of trade and other receivables at 31 December 2017 compared to 31 December 2016:
Trade receivables
Other receivables
Total
31 December 2017
€’000
31 December 2016
€’000
2,929
1,800
4,729
844
1,696
2,540
% change
247%
6%
86%
The increase in trade debtors at 31 December 2017 arises from the growth of the Lojuxta business in 2017. The in-licencing agreement for
Lojuxta was signed in December 2016, hence there was only one month of Lojuxta revenue in 2016 compared with 12 months in 2017.
Included in other receivables at 31 December 2017 is €1,306,000 (2016: €1,548,000) in relation to prepaid Phase III clinical trial costs.
TRADE AND OTHER PAYABLES
As at 31 December 2017, the Group had trade and other payables of €9,799,000. This compares to trade and other payables
of €3,550,000 at 31 December 2016.
The following table outlines the breakdown of trade and other payables at 31 December 2017 compared to 31 December 2016:
Trade payables
Other payables
Total
31 December 2017
€’000
31 December 2016
€’000
4,698
5,101
9,799
1,918
1,632
3,550
% change
145%
213%
176%
The increase in trade payables reflects the increased commercial and R&D activity in the Group in 2017. The increase in the other
payables arises primarily from the reclassification of the first milestone payment arising from the acquisition of Amryt AG from
contingent consideration to accruals. This amounts to €2,000,000 and is payable 24 months after receipt of EMA approval for PTW.
This amount was paid in January 2018.
CONTINGENT CONSIDERATION
Contingent consideration at 31 December 2017 amounted to €32,418,000 compared to €23,314,000 at 31 December 2016.
At the date of acquisition, the fair value of the royalty payments was determined using probability weighted revenue forecasts
and the fair value of the milestones payments was determined using probability adjusted present values. At each reporting date it
is necessary to review the fair value of the contingent consideration. The increase in the contingent consideration in 2017 arises as
a result of (i) part of the probability adjusted fair values being unwound to the Consolidated Statement of Comprehensive Income
during 2017 as financing expenses and (ii) a revision of the estimates used in the revenue forecast resulting from the revisions to
the AP101 launch timelines.
The increase in the contingent consideration balance was partially offset by the reclassification of €2,000,000 which was included
in contingent consideration at 31 December 2016 but was reclassified to accruals at 31 December 2017. This relates to the first
milestone payment which is payable 24 months after receipt of EMA approval for PTW. This amount was paid in January 2018.
8
AMRYT PHARMA ANNUAL REPORT 2017 FINANCIAL STATEMENTS
DEBT FINANCING
In December 2016, Amryt DAC entered
into a €20m debt facility agreement with
the EIB. The facility is significant because
it provides non-dilutive funding that
secures the Group’s near and mid-term
funding needs for its lead development
asset, AP101.
The facility is split into three tranches,
with €10m available immediately and
two further tranches of €5m each
available upon the achievement of
certain milestones. In April 2017, the Group
drew down the first tranche of €10m.
In October 2017, the terms of the second
tranche of €5m were amended by the
EIB so the Group has the option to draw
this amount down any time it wishes.
The Group had not drawn down this
second tranche of €5m as at 31 December
2017. The third tranche is conditional on
the primary clinical endpoints for the
EASE Phase III clinical trials in the US or
EU being achieved and therefore it can
be concluded that the Phase III clinical
trial has been successfully completed.
The facility is secured and there is also
a negative pledge whereby Amryt cannot
permit any security to be granted over
any of its assets over the course of the
loan period.
The facility has a five-year term from
drawdown. The facility has an interest
rate of 3% to be paid on an annual basis,
with the first instalment due in April
2018. A further annual fixed rate of 10%
is payable together with the outstanding
principal amount on expiry of the facility.
At 31 December 2017, the Group has a
short term accrual for €227,000 which is
repayable in April 2018 and a long term
accrual of €603,000 which represents the
discounted present value of the long term
interest accrued but not payable until
April 2022.
Lojuxta
In December 2016, Amryt was delighted
to reach an agreement with Aegerion,
a NASDAQ-listed biopharmaceutical
company, for the exclusive rights to
sell Aegerion’s drug, Lojuxta in certain
territories. These territories comprise the
EEA, Middle East and MENA, Switzerland,
Turkey and Israel and our exclusive licence
became effective on 2 December 2016.
As anticipated, the licence agreement
has been immediately cash generative
for Amryt.
Lojuxta is used to treat a rare life-
threatening disease called HoFH and was
approved in the EU in late 2013. Current
treatment options include statin drugs,
PCSK9 inhibitors and apheresis (a blood
filtration technique similar to dialysis).
However, they are not adequate to control
LDL cholesterol levels in some patients,
particularly those with the most severe
genetic mutations. HoFH was historically
estimated to occur in about 1 in 1,000,000
people worldwide although more recent
studies suggest it may affect up to 1 in
300,000 people. Amryt believes that there
is significant potential for the drug to
become a mainstay treatment for patients
with HoFH. Lojuxta is currently licenced
for use in adults and as part of the post
approval commitments with the EMA we
will be conducting a paediatric study that
if successful could extend the label to
children also.
LICENCE AGREEMENT TERMS
Under the terms of our licence agreement,
Amryt has the exclusive right to sell Lojuxta
across its licenced territories in return for
which Amryt will:
•
•
make royalty payments to Aegerion, paid
quarterly, based on a percentage of net
sales during a calendar year. The royalty
percentage is currently 18% of net sales
of the product less than US$15,000,000
and 20% of net sales more than
US$15,000,000. This royalty may increase
to 20% and 22% respectively in the
event that the marketing authorisation
is formally transferred to Amryt;
make once off commercial milestone
payments, subject to achieving certain
sales targets. A one-off milestone
payment of US$1,000,000 is due the
first time that aggregate net sales in a
calendar year equals US$20,000,000 with
a further one-off US$1,500,000 milestone
payment due on reaching US$30,000,000
net sales in a calendar year; and
•
take on the ongoing regulatory
and post-marketing obligations
and commitments in support of
Lojuxta as above.
Our licence agreement has an initial term
until 1 January 2024 and Amryt may, at
its own discretion, extend the licence
agreement for a further five years, with
the right to extend in further five year
periods thereafter.
2017 REVENUE AND PLANS
For the 12 months ended 31 December
2017, Lojuxta generated revenues of
€11,924,000 (2016: €775,000 for the
month of December 2016). This growth
arose from strong demand in existing
markets in our territories, in particular,
2017 experienced positive momentum
in the reimbursement position in certain
countries and also an increase in “named
patient” sales.
Future growth will be driven by existing
markets and also through expansion into
new territories. Since November 2017, the
Group has completed five new distributor
relationships, covering 17 countries:
•
•
In November 2017, Amryt signed
a distributorship agreement,
with Faisal Musaed El Seif Saudi
Pharmaceutical Company (“El Seif”),
for Amryt’s products in the Kingdom
of Saudi Arabia (“Saudi Arabia”). El
Seif, an affiliate of El Seif Development
Company, is a leading distributor of
medical devices and pharmaceuticals in
Saudi Arabia and has a strong presence
in the rare and orphan diseases drug
sector. Amryt estimates that there are
currently in excess of 150 patients with
HoFH in Saudi Arabia. The agreement
with El Seif covers AP101 in anticipation
of a successful conclusion of the Phase
III clinical trials.
In January 2018 Amryt signed an
exclusive distributor agreement for
Lojuxta in Switzerland. The agreement
is with RCC Pharma AG, a leading
Swiss pharmaceutical company with
expertise in early access programs in
rare and orphan diseases. The Company
currently estimates that there are
approximately 15 patients with HoFH
in Switzerland. It has received requests
from clinicians for access to Lojuxta for
Swiss patients and this agreement will
now enable Amryt to respond more
effectively to such requests.
9
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
aims to demonstrate efficacy specifically
in EB, a condition that also causes partial
thickness wounds.
CLINICAL TRIALS UPDATE
In March 2017, the Group commenced
the pivotal Phase III clinical trial, EASE,
to examine AP101’s efficacy for EB
patients. Adult and paediatric patients
with EB are being enrolled into a
randomised double blind placebo
controlled trial. The proportion of
patients with completely healed
target wounds within 45 days will be
evaluated as the primary endpoint.
Secondary endpoints include the
time to achieve wound healing and
changes in pain and pruritus (itch).
In March 2018, Amicus Therapeutics
granted Amryt detailed access to
the data from its landmark ESSENCE
trial of SD101 in EB, which read out in
September 2017. Based on insights
from these data, Amryt management
is now able to refine its protocol for
the Group’s ongoing global Phase
III (EASE) study of AP101, with the
potential to increase the probability of
success for the study.
•
•
•
In January 2018, Amryt also signed
an exclusive distribution agreement
covering Central and Eastern Europe with
GryNumber Health, one of the leading
healthcare consultancy and distribution
companies in the region. The agreement
covers Austria, Croatia, Czech Republic,
Estonia, Finland, Hungary, Latvia, Poland,
Slovakia, and Slovenia. Amryt estimates
that there are approximately 100 patients
with HoFH in these countries.
Amryt signed a further exclusive
distribution agreement in January 2018
covering Romania and Bulgaria with
Romastru Trading SRL, a Bucharest
pharmaceutical services company,
part of Pharaon Healthcare Europe,
a conglomerate which provides a wide
range of services, including medical,
market research and distribution.
In March 2018, Amryt announced that
it has further expanded its market
coverage for Lojuxta with an exclusive
distribution agreement for Lebanon,
Jordan and Syria. The agreement is with
Pharaon Healthcare-Droguerie Mercury
S.A.L., one of the leading full-service
distributors in the region. The Group
estimates that there are approximately
40 patients with HoFH in the countries
covered by this agreement.
The Group has now established the
commercial, medical and regulatory
infrastructure required to support the
commercialisation of Lojuxta across our
licenced territories using affiliates, third
party consultants and distributors. This
infrastructure can also be leveraged to
support additional products such as AP101
if approval is received from the regulatory
authorities, and other products that may be
acquired or in-licenced in the future.
AP101 (Oleogel-S10)
Amryt’s lead product, AP101, received
marketing approval for the treatment of
partial thickness wounds (“PTW”) from the
European Commission in January 2016.
In Q1 2017, we completed discussions with
the FDA and EMA regarding the design of
our pivotal Phase III clinical trial for AP101
(Efficacy and Safety of Oleogel-S10 in EB,
the “EASE Study”) as a potential treatment
for EB and on 27 March 2017, commenced
a pivotal Phase III trial, EASE, to examine
AP101’s safety and efficacy.
EB is a chronic and debilitating condition
for which there is currently no approved
product and significant unmet medical
need. All forms of the disorder are
considered serious and the most severe
are disfiguring and cause intense suffering.
The patient advocacy group, DEBRA
International, estimates that there are
approximately 500,000 people living
with EB worldwide, with some 30,000 in
Europe. The Department of Dermatology
at Stanford University estimates that there
are 25,000 people living with EB in the US.
The combined US and European market
for the treatment of EB is estimated by
management to be in excess of €1.3 billion.
AP101 has already demonstrated
encouraging preliminary data in EB in
a Phase 2a clinical trial completed in 2011.
In addition, three successful Phase
III clinical studies in the broad PTW
indication have been conducted with
AP101. In each of these studies, AP101
successfully demonstrated faster healing
in both recent wounds and chronic
wounds compared with standard of care
therapy. Amryt commenced a single Phase
III pivotal study in EB in March 2017 which
10
AMRYT PHARMA ANNUAL REPORT 2017 The Group is currently in the process
of amending the protocol for the EASE
study and will discuss any significant
changes with the FDA and the EMA.
These amendments include a modest
increase in the size of the study from
164 to 192 patients and a restriction on
certain wound types.
Based on the analysis of the Amicus
Therapeutics data, the Group will maintain
the current primary endpoint which is the
proportion of patients with first complete
closure of the target EB wound treated
with AP101 versus placebo within 45 days
of treatment. The exclusion of EB Simplex
patients for the EASE study will help to
ensure that patients with likely faster
spontaneous healing rates will not be
included in the study and is expected to
increase the likelihood of demonstrating
a statistically significant treatment effect.
These changes will result in a slight delay
of the interim analysis which the Company
expects will be complete in early Q4 2018.
Assuming a positive interim analysis, the
Group expects read out of top-line data
from our AP101 Phase III study in Q2 2019.
The incremental cost of these changes
is expected to be approximately €1m.
The unblinded interim analysis will be
conducted by an independent data safety
monitoring board and will result
in three possible outcomes:
•
•
continue the study with no change
to sample size, which would reflect
conditional statistical power of at least
80% or better;
increase the number of patients in the
study to maintain an 80% conditional
statistical power;
•
or discontinue the study for futility.
The unblinded interim analysis read
out potentially represents a significant
milestone for the Group. In 2017, the Group
agreed with the regulatory authorities to
conduct some further non-clinical studies
in parallel with this Phase III study. In 2018,
various non-clinical studies, requested by
the FDA as part of an investigational new
drug (“IND”) filing to open clinical trial sites
in the USA, have recently been successfully
completed. No safety signals or concerns
were noted from the preliminary data
and the Company is now hopeful that the
combination of these studies, and safety
data from patients enrolled to date in
non-US EASE study sites, will enable it to
request an IND to open trial sites in the
USA, which it anticipates will be in Q3 2018.
EXTENDED PATENTS AND
REGULATORY APPROVALS
In January 2016, we secured approval
from the EMA for the use of AP101 in
the European Union for the treatment
of all PTWs. We subsequently secured
a European method of use patent
for the treatment of PTW in March
2016 and obtained a US method of
use patent for the treatment of EB in
September 2016. In February 2017,
Amryt was granted a patent in Japan
by the Japanese Patent Office for
AP101 for the treatment of EB. All
these patents expire in 2030.
FUTURE INDICATIONS
FOR AP101 ASSET
Amryt has recently received interest
from physicians to study AP101 in various
PTW indications also with high unmet
medical need. In response to this interest,
the Group is evaluating new life-cycle
opportunities for AP101. Dermatological
conditions under consideration include:
•
Toxic Epidermal Necrolysis Syndrome
(TENS) (including Stevens-Johnson
Syndrome (SJS))
• Bullous Pemphigoid
• Pemphigus Vulgaris
•
Grade III/IV radiotherapy and
chemotherapy induced dermatitis
Toxic Epidermal Necrolysis Syndrome
(TENS) (including Stevens-Johnson
Syndrome (SJS)) is a rare, acute, serious
and potentially fatal skin reaction in which
there is sheet-like skin and mucosal loss.
Amryt has recently agreed to facilitate
a compassionate use protocol in this
area, which may generate valuable
data in the coming quarters. One of
the most common effects of radiation
or chemotherapy is acute skin reaction
that ranges from a mild rash to severe
ulceration. Approximately 10% of patients
treated with radiation therapy will
experience severe skin reaction resulting
in grade III/IV wounds.
The scope of the current EMA approval
for AP101 may offer the opportunity to
launch AP101 in some of these indications
in Europe. Early indications suggest that
collectively these indications of TENS/SJS,
radiotherapy and chemotherapy induced
dermatitis, and bullous pemphigoid and
pemphigus vulgaris may have a market
potential greater than the EB opportunity
which the Group is currently investigating
in its EASE Phase III study.
AP102
AP102 is an early stage drug asset,
which may represent a novel, next
generation somatostatin analogue
(“SSA”) peptide medicine for patients
with rare neuroendocrine diseases,
where there is a high unmet medical
need, including acromegaly.
Acromegaly is a rare endocrine
disorder in which the body produces
excessive growth hormone, leading
to abnormal growth throughout the
body over time.
In November 2016, we secured orphan
drug designation for AP102 from
the FDA. The FDA’s Orphan Drug
Designation program provides orphan
status to drugs and biologics that
are being developed to address rare
diseases or disorders that affect fewer
than 200,000 people in the United
States. With orphan designation,
AP102 qualifies for various incentives,
including tax credits for qualified
clinical trials and market exclusivity
upon regulatory approval.
In February 2017, we received
positive results from a pre-clinical
study that compared AP102 with
pasireotide, an approved product
for treating patients with resistant
acromegaly. Significantly, AP102 did
not demonstrate the potential to
cause diabetes, an observation which,
if replicated in clinical studies, could
be clinically beneficial in treating
acromegaly. Amryt’s study used a
well-established diabetic rat model
to examine whether or not AP102 has
an effect on glucose levels or on food/
water intake compared with controls.
The study results showed that AP102
had no effect on either in diabetic
rats compared with controls. This
indicates no impairment in glucose
control in these diabetic animals when
treated with AP102. Throughout 2017,
the Group initiated and conducted
various other pre-clinical studies.
These studies are ongoing and the
Group expects to complete these pre-
clinical studies in 2018.
11
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
UK’s Referendum Decision
to leave the European Union
(“Brexit”)
In June 2016, the UK held a European
Union (“EU”) referendum where a majority
of votes were cast in favour of leaving
the EU. This puts the UK on a course to
leave the EU in 2019. Brexit has led to
a depreciation in the value of Pound
Sterling (“GBP”) to EURO of approximately
17% from 1 January 2016 to 31 December
2017. It is too early for the Group to predict
the potential long term impact of Brexit
in advance of the finalisation of Article 50
negotiations. These negotiations could
have wide ranging implications for all
UK adoption of European regulations,
including those for the orphan drug
market where the EMA plays a central
role in facilitating the development and
authorisation of orphan medicines within
the EU.
The Group did not generate any revenue
within the UK during the current year and
does not expect a significant contribution
from that market in the medium term.
The Group has exposure to costs
denominated in GBP due to its quotation
on the AIM market of the London Stock
Exchange and due to having its parent
holding company incorporated in the
UK. As a whole, the majority of the
Group’s costs and operations are outside
the UK. The Group raised gross funds
of £13m/€15m in an equity fundraising
in October 2017 which has since been
converted to Euro. The Group has access
to a €20m loan facility from the European
Investment Bank, €10m of which has
been drawn. This is unaffected by Brexit
related concerns as the loan facility is
available to the main operating entity
within the Group, Amryt Pharmaceuticals
DAC, an Irish registered company.
The Group will continue to monitor
developments in relation to Brexit and
will take appropriate actions to mitigate
any potential consequences.
Key Performance Indicators
A qualitative review of the performance
during the year is provided in the
Chairman and CEO’s Statement and the
results for the year are presented in the
consolidated financial statements.
The key indicators of performance for the
Group include its success in identifying,
acquiring and developing drug candidates
to create shareholder value. The Group
has moved quickly to assemble a portfolio
of products. The Lojuxta business has
been extremely successful for Amryt
to date, being cash flow positive from
day one. In the thirteen months since
the Group entered into this licence
agreement, we have seen growth in the
business culminating in annual revenues
for 2017 of €11.9m. Amryt is now a fully-
fledged pharmaceutical company with
sales across Europe and the Middle East.
This has enabled us to put significant
infrastructure in place, combining
new affiliates with other key European
territories managed through existing
third party consultants/distributors.
This infrastructure will also be utilised by
Amryt when we roll out other products
including AP101 upon approval from
the EMA.
Control of cash balances is a priority of
the Group and these are budgeted and
monitored closely to ensure that the
Group has access to sufficient funds to
finance the Phase III clinical trial of AP101
(the EASE Study). Operational progress in
relation to AP101, AP102 and AP103 are
reviewed by the Board on a regular basis
and actual costs are compared to Board
approved budgets.
Achieving regulatory clarity is an
important step in the pharmaceutical
development cycle. The completion of
discussions with the FDA and EMA on the
structure of the AP101 Phase III EASE study
in early 2017 enabled the Company to
commence enrolment of its first patients
in the EASE study. The rate of enrolment
into this study will be a key performance
indicator in 2018.
AP103
(Gene therapy platform)
In March 2018, Amryt completed a new
exclusive in-licencing of a new platform
technology for gene therapy with
potential applicability across a range
of genetic disorders. This technology
has been exclusively in-licenced from
University College Dublin (“UCD”) and
involves the delivery of gene therapy
using HPAE polymer technology.
The initial focus of development efforts
to date has been in the area of EB and
preliminary data suggests that the
treatment could be potentially disease-
modifying for patients with Recessive
Dystrophic Epidermolysis bullosa
(“RDEB”). Pre-clinical data in a xenograft
model has shown significant levels of
collagen VII in the skin post therapy.
Patients with RDEB have a defect in their
gene coding for collagen VII, consequently
the replacement of collagen VII could be
transformative for these patients.
Potential competitors working in the area
of gene therapy in EB are mostly working
with viral vectors to deliver collagen VII
to the cell. The patented technology
which Amryt has exclusively licenced
from UCD involves the use of a novel gene
delivery mechanism using HPAE polymer
technology. If successful, this could
eliminate the requirement for viruses as
delivery vectors and provides a potential
competitive advantage to Amryt. Amryt
intends to conduct various pre-clinical
studies in the coming months and will
report initial results in Q4 2018.
Imlan
Amryt has a range of dermo cosmetic
products that we acquired with the Amryt
AG transaction, which are sold under
the Imlan brand. Completely free of
emulsifiers, preservatives, colorants and
fragrances and other additives or irritants,
Imlan is marketed as a treatment for
sensitive, allergy-prone and dry skin.
It is also recommended for the basic care
of eczema or psoriasis.
Revenues for the year ended 31 December
2017 amounted to €830,000 compared to
revenues of €571,000 in the period from
the acquisition of Amryt AG in April 2016
to 31 December 2016.
12
AMRYT PHARMA ANNUAL REPORT 2017 FINANCIAL STATEMENTS
STRATEGIC REPORT:
Risks and Uncertainties
Risks and Uncertainties
The Company is subject to risk factors relating to the business and operations
of the Company in the healthcare industry. The success of the Company depends
on its ability to engage in appropriate product selection and to attract sufficient
funding to successfully develop these products. The following summarises the principal
risks and uncertainties of the Group:
a very high incidence of delay or failure
to produce valuable scientific results
in relation to the present development
pipeline. Further to this, the Group
may not be successful in developing
new products based on the scientific
discoveries developed by the Group.
The ability of the Group to develop
new products relies on, inter alia, the
recruitment of sufficiently qualified
research and development partners with
expertise in the biopharmaceutical sector.
The Group may not be able to develop
its relationships and/or recruit research
partners of a sufficient calibre to satisfy its
growth rate and develop its future pipeline.
Additionally, product development
timelines are at risk of delay as the timing
of regulatory approvals is uncertain and
it is not always possible to predict the
rate of patient recruitment into clinical
trials. There is therefore a risk that product
development could take longer than
presently expected by the Group.
Furthermore, there can be no guarantee
that the Group will be able to, or that it
will be commercially advantageous for
the Group to, develop its intellectual
property through entering into licencing
deals with emerging, midsize and large
pharmaceutical companies.
THE COMPANY HAS INCURRED
LOSSES SINCE ITS INCEPTION
AND ANTICIPATES THAT
IT MAY CONTINUE TO
INCUR LOSSES FOR THE
FORESEEABLE FUTURE
To date, the Company has no positive
operating cash flow and its ultimate
success will depend on, inter alia,
the Board’s ability to implement the
Group’s strategy, generate cash flow
and access equity markets. Whilst the
Board is optimistic about the Group’s
prospects, there is no certainty that
anticipated outcomes and sustainable
revenues or profits can be achieved.
In the meantime, the Group will
continue to expend its cash reserves.
There can be no assurance that the
Group’s operations will be profitable
or produce a reasonable return, if any,
on investment.
THE GROUP MAY NOT BE
SUCCESSFUL IN ITS EFFORTS
TO BUILD A FURTHER
PIPELINE OF PRODUCT
CANDIDATES AND DEVELOP
MARKETABLE PRODUCTS
The Group operates in the
biopharmaceutical development sector
and has a number of drug candidates in
various stages of clinical development.
In addition, the Group may continue
to exploit other opportunities within
the sector in order to expand its
present development pipeline. Industry
experience indicates that there may be
CLINICAL TRIALS ARE EXPENSIVE,
TIME CONSUMING AND DIFFICULT
TO DESIGN AND IMPLEMENT AND
INVOLVE UNCERTAIN OUTCOMES.
FURTHERMORE, RESULTS OF
EARLIER PRE-CLINICAL STUDIES
AND CLINICAL TRIALS MAY NOT
BE PREDICTIVE OF RESULTS OF
FUTURE PRE-CLINICAL STUDIES
OR CLINICAL TRIALS
To obtain the requisite regulatory
approvals to market and sell any of
the Group’s product candidates, it
must demonstrate, through extensive
preclinical studies and clinical trials,
that its product candidates are safe and
effective in humans. Clinical testing is
expensive and can take many years to
complete and its outcome is inherently
uncertain. Failure can occur at any time
during the clinical trial process and in
addition regulatory authorities may
require further studies at additional cost.
Furthermore, regulatory authorities such
as the FDA and EMA may not agree on the
same trial design for pivotal studies. The
results of preclinical studies and earlier
clinical trials may not be predictive of the
results of later-stage clinical trials. For
example, the results generated to date
in pre-clinical studies or Phase I or Phase
II clinical trials for the Group’s product
candidates do not ensure that later clinical
trials will demonstrate similar results.
Product candidates in later stages of
clinical trials may fail to show the desired
safety and efficacy traits despite having
progressed through preclinical studies
and initial clinical trials. The Group may
suffer setbacks in advanced clinical trials
13
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
•
•
the EMA, FDA or any other comparable
regulatory agency may fail to approve
the manufacturing processes, test
procedures and specifications or
facilities of third party manufacturers
with which the Group contracts for
clinical and commercial supplies; or
the approval policies or regulations
of the EMA, FDA or any other
comparable regulatory agency may
significantly change in a manner
rendering the Group’s clinical data
insufficient for approval.
Any of the Group’s current or future
product candidates could take
a significantly longer time to gain
regulatory approval than expected
or may never gain regulatory
approval. This could delay or eliminate
any potential product revenue by
delaying or terminating the potential
commercialisation of the Group’s
product candidates.
The Group intends to seek regulatory
approvals to commercialise its product
candidates in Europe and the United
States. To obtain regulatory approval in
other countries, the Group must comply
with numerous and varying regulatory
requirements of such other jurisdictions,
which may include (without limitation)
safety, efficacy, chemistry, manufacturing
and controls, clinical trials, commercial
sales, pricing and distribution of its
product candidates. Even if the Group is
successful in obtaining approval in one
jurisdiction, there can be no guarantee
that it will obtain approval in other
jurisdictions. Failure to obtain marketing
authorisations for its product candidates
will result in the Group being unable
to market and sell such products. If the
Group fails to obtain approval in any
jurisdiction, the geographical market for
its product candidates could be limited.
Similarly, regulatory agencies may not
approve the labelling claims that are
necessary or desirable for the successful
commercialisation of the Group’s
product candidates.
due to lack of efficacy or adverse safety
profiles, notwithstanding promising
results in earlier clinical trials. In addition,
the Group may experience delays in its
on-going or future pre-clinical studies
or clinical trials and it does not know
whether future preclinical studies or
clinical trials will begin on time, need to
be redesigned, enrol an adequate number
of subjects or patients on time or be
completed on schedule, if at all.
THE REGULATORY APPROVAL
PROCESSES OF THE EMA, FDA
AND OTHER COMPARABLE
REGULATORY AGENCIES MAY BE
LENGTHY, TIME-CONSUMING AND
THE OUTCOME IS UNPREDICTABLE
The Group’s future success is dependent
upon its ability to develop successfully,
obtain regulatory approval for and then
successfully commercialise one or more
of its product candidates. There can be
no assurance that any of the Group’s
development drug candidates will be
successful in clinical trials or receive
regulatory approval. Applications for any
of the Group’s product candidates could
fail to receive regulatory approval for
many reasons, including, but not limited
to, the following:
•
•
•
•
the EMA, FDA or any other comparable
regulatory agency may disagree with
the design or implementation of the
Group’s clinical trials or the Group’s
interpretation of data from non-clinical
trials or clinical trials;
the population studied in the clinical
program may not be sufficiently broad
or representative to ensure that the
clinical data can be relied on safely in
the full population for which the Group
is seeking approval;
the data collected from clinical trials of
the Group’s product candidates may
not be sufficient to support a finding
that has statistical significance or
clinical meaningfulness or support the
submission of a new drug application
or other submission, or to obtain
regulatory approval in relevant
jurisdictions, such as Europe and the US;
the Group may be unable to
demonstrate to the EMA, FDA or any
other comparable regulatory agency
that a product candidate’s risk-benefit
ratio for its proposed indication
is acceptable;
THE GROUP’S PRODUCTS MAY
NOT GAIN MARKET ACCEPTANCE,
IN WHICH CASE THE GROUP
MAY NOT BE ABLE TO GENERATE
PRODUCT REVENUES
Even if the EMA, FDA or any other
comparable regulatory agency approves
the marketing of any product candidates
that the Group develops and/or in the
case of existing marketed products,
physicians, healthcare providers,
patients or the medical community
may not accept or use them. Efforts to
educate the medical community and
third party payors on the benefits of the
Group’s product candidates may require
significant resources and may not be
successful. If any product candidate
that the Group develops, in each case if
approved, do not achieve an adequate
level of acceptance, the Group may not
generate significant product revenues or
any profits from operations. The degree
of market acceptance will depend on
a variety of factors, including, but not
limited to:
•
•
•
•
•
•
•
•
•
•
whether clinicians and potential
patients perceive the Group’s product
candidates to have a better efficacy,
safety and tolerability profile, ease
of use, compared with the products
marketed by the Group’s competitors
and the prevailing standard of care;
the timing of market introduction;
the number of competing products;
the Group’s ability to provide
acceptable evidence of safety
and efficacy;
the prevalence and severity of any side
effects and a continued acceptable
safety profile following approval;
relative convenience and ease of
administration;
cost effectiveness;
patient diagnostics and screening
infrastructure in each market;
marketing and distribution support;
the availability of healthcare coverage,
reimbursement and adequate payment
from health maintenance organisations
and other third party payors, both
public and private; and
•
competition from other therapies.
In addition, the potential market
opportunity for the product candidates
that the Group may develop is difficult
to estimate precisely, particularly given
that the orphan drug markets which
the Group is targeting are, by their
nature, relatively small and unknown.
The Group’s estimates of the potential
market opportunity for each of these
14
AMRYT PHARMA ANNUAL REPORT 2017 FINANCIAL STATEMENTS
The Group intends to seek regulatory approvals to commercialise its product candidates
in Europe and the United States. To obtain regulatory approval in other countries,
the Group must comply with numerous and varying regulatory requirements of such
other jurisdictions, which may include (without limitation) safety, efficacy, chemistry,
manufacturing and controls, clinical trials, commercial sales, pricing and distribution
of its product candidates.
product candidates are predicated
on several key assumptions, such as
industry knowledge and publications,
third party research reports and other
surveys. Although the Board believes
that the Group’s internal assumptions are
reasonable, these assumptions may prove
to be inaccurate. If any of the assumptions
proves to be inaccurate, then the actual
market for Lojuxta, AP101 and AP102 or
the Group’s other product candidates
from time to time, could be smaller than
the Group’s estimates of the potential
market opportunity. If that turns out to
be the case, the Group’s product revenue
may be limited and it may be unable to
achieve or maintain profitability.
THE COMPANY FACES
SIGNIFICANT COMPETITION FROM
OTHER BIOTECHNOLOGY AND
PHARMACEUTICAL COMPANIES
The biotechnology and pharmaceutical
industries are very competitive. The
Company’s competitors include major
multinational pharmaceutical companies,
biotechnology companies and research
institutions. Many of its competitors
have substantially greater financial,
technical and other resources, such as
larger research and development staff.
The Company’s competitors may succeed
in developing, acquiring or licencing
drug product candidates that are earlier
to market, more effective or less costly
than any product candidate which the
Company is currently developing or
which it may develop and this may have a
material adverse impact on the Company.
THE GROUP’S LICENCE
PARTNERS MAY NOT BE
SUCCESSFUL IN THEIR
EFFORTS TO DEVELOP
MARKETABLE PRODUCTS
Revenue from any licencing and
collaboration deals entered into is
dependent on future progression
of programs through development
of and into the market. If these
programs transfer to a partner for
progression, there is a risk that a
licencing deal may not deliver all
the indicated milestones and terms
due to product failure or a partner
deprioritising a product.
PROTECTION OF
INTELLECTUAL PROPERTY
The Group’s success and ability to
compete effectively are in large part
dependent upon exploitation of
proprietary technologies and candidates
that the Group has developed internally
or has in-licenced, the Group’s ability
to protect and enforce its intellectual
property rights so as to preserve
its exclusive rights in respect of its
technologies and candidates, and its
ability to preserve the confidentiality of
its know-how. The Group relies primarily
on exclusivity granted by a combination
of orphan drug approval, data
exclusivity, patent laws and trade secrets/
confidentiality to protect its intellectual
property rights. There can be no
assurance that patents pending or future
patent applications will be issued, nor that
the lack of any such patents will not have
a material adverse effect on the Group’s
ability to develop and market its proposed
candidates, or that, if issued, the Group
would have the resources to protect any
such issued patent from infringement.
Also, no assurance can be given that
the Group will develop technologies or
candidates which are patentable or that
patents will be sufficient in their scope
to provide protection for the Group’s
intellectual property rights against third
parties. Nor can there be any assurance
as to the ownership, validity or scope of
any patents which have been, or may in
the future be, issued to the Group or that
claims with respect thereto would not be
asserted by other parties. Furthermore,
there are some areas of technology that
are important for the Group’s business
which cannot be patented due to the
existence of prior disclosures or rights.
AP102 currently has no patent protection
in Europe and intends to rely on
exclusivity from a possible future orphan
drug approval. In addition, there can be
no assurance that the Company will be
able to obtain and/or maintain its orphan
drug designation or orphan drug approval
for its product candidates.
15
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
To date, the Group has also relied on
copyright, trademark and trade secret
laws, as well as confidentiality procedures,
non-compete and/or work for hire
invention assignment agreements
and licencing arrangements with its
employees, consultants, contractors,
customers and vendors, to establish
and protect its rights to its technology
and other developments and, to the
best extent possible, control the access
to and distribution of its technology,
software, documentation and proprietary
information. Despite these precautions,
it may be possible for a third party to
copy or otherwise obtain and use its
technology without authorisation.
Once granted, a patent can be challenged
both in the patent office and in the
courts by third parties. Third parties
can bring material and arguments
which the patent office granting the
patent may not have been aware of.
Therefore, issued patents may be found
by a court of law or by the patent office
to be invalid or unenforceable or in
need of further restriction.
ORPHAN DRUG DESIGNATION
In the European Union, orphan drug
designation under Regulation (EC) No.
141/2000 by the EMA’s Committee for
Orphan Medicinal Products provides
regulatory and financial incentives for
companies to develop, promote and
market products that are intended for the
diagnosis, prevention, or treatment of a
life-threatening or chronically debilitating
condition affecting not more than five in
10,000 persons in the European Union
and for which no satisfactory treatment
is available or where such treatment is
already available, the new treatment must
be of significant benefit to those affected
by the condition. Additionally, designation
is granted for products intended for the
diagnosis, prevention or treatment of a
life-threatening, seriously debilitating
or serious and chronic condition when,
without incentives, it is unlikely that sales
of the drug in the European Union would
be sufficient to justify the necessary
investment in developing the drug or
biological product or where there is
no satisfactory method of diagnosis,
prevention or treatment, or, if such a
method exists, the medicine must be
of significant benefit to those affected
by the condition. In Europe, the first
product candidate to obtain approval for
a given indication would benefit from
a 10 year period of market exclusivity
from the date of approval. Subsequent
candidates for the same condition may
also be granted orphan drug designation
where the underlying molecule used
in the treatment is different, where the
method of action is different or where the
new treatment shows clinical superiority
over the existing treatment. The 10 year
exclusivity period referred to above may
be reduced to six years if the orphan
drug designation criteria are no longer
met, including where it is shown that the
product is sufficiently profitable not to
justify maintenance of market exclusivity.
In the United States, under the Orphan
Drug Act of 1983, the FDA may designate a
product as an orphan drug if it is intended
to treat an orphan disease or condition,
defined as a patient population of fewer
than 200,000 in the United States, or a
patient population greater than 200,000
in the United States where there is no
reasonable expectation that the cost of
developing the drug will be recovered
from sales in the United States within
7 years following FDA approval.
In the United States, orphan drug
designation entitles a party to financial
incentives, such as opportunities for
grant funding towards clinical trial costs,
tax advantages and user fee waivers. In
addition, if a product receives the first FDA
approval for the indication for which it has
orphan drug designation, the product is
entitled to orphan drug exclusivity, which
means the FDA may not approve any other
application to market the same drug for
the same indication for a period of seven
years, except in limited circumstances,
such as a showing of clinical superiority
over the product with orphan exclusivity
or where the manufacturer is unable to
assure sufficient product quantity.
16
AMRYT PHARMA ANNUAL REPORT 2017 FINANCIAL STATEMENTS
However, whilst the Group has obtained
orphan drug designation for certain of its
product candidates (and may do so for
others in the future), there are limits on
the extent of protection provided.
For example, in the EU, a new product
cannot be designated if it is similar to
an orphan drug which has already been
approved. Similarity in this context
is defined as having a similar active
substance (identical or having an active
substance with the same or similar
principal molecular structural features)
and which acts via the same mechanism.
Additionally, orphan drug exclusivity will
not apply if there is a second medicinal
product that is safer, more effective or
otherwise clinically superior.
Furthermore, it is important to note
that there can be multiple orphan drug
designations for each indication and
more than one entity can receive orphan
drug designation for the same product
candidate for the same use. However, the
exclusivity period is granted to the first
entity (with orphan drug designation for
the relevant product candidate) who has
obtained marketing approval. As such,
only the first product candidate to be
approved for a given indication will enjoy
the exclusivity benefits of orphan drug
approval. It is therefore possible that the
Group may not obtain market exclusivity
because another product for the same
indication was approved earlier, even if
the Group ultimately obtains marketing
approval for its product candidates.
Moreover, orphan drug designation rarely
shortens the development time nor the
regulatory review time of a drug nor does
it give the drug any formal advantage in
the regulatory review or approval process.
FUTURE FUNDING
REQUIREMENTS
The Group will likely need to raise
additional funding to undertake
future development work and
marketing of any successful drug.
If additional funds are raised
through the issuance of new equity
or equity linked securities of the
Group other than on a pro rata
basis to existing Shareholders, the
percentage ownership of the existing
Shareholders may be reduced.
Shareholders may also experience
subsequent dilution and/or such
securities may have preferred rights,
options and pre-emption rights
senior to the Ordinary Shares.
The Company may also issue Ordinary
Shares as consideration shares on
acquisitions or investments that
would also dilute Shareholders’
respective shareholdings.
There is also no certainty that any
future fund raising will be possible
at all or on acceptable terms. If the
Group is unable to obtain additional
financing as required, it may be
required to reduce the scope of its
operations or anticipated expansion.
The Company has a €20 million
debt facility with the European
Investment Bank and may seek
further debt financing in future.
Such debt financing may have
adverse consequences for the Group
including placing restrictions on
the Group’s financial and operating
activities as a consequence of the
covenants to which the Group is
subject and requiring it to dedicate a
portion of its cash flows to repay the
debt and to pay interest due, which
may materially reduce funds available
for planned development activities
and will expose the Group to interest
rate fluctuations to the extent that
the borrowings are subject to variable
interest rates. Debt financing may
also require assets of the Group to
be secured in favour of the lender,
which security may be enforced if
the Group were unable to comply
with the terms of the relevant debt
facility agreement.
INABILITY TO SCALE UP
MANUFACTURING CAPABILITY
AND/OR OUTSOURCING
The Group is investing in new
biopharmaceutical manufacturing
equipment which will require significant
investment, installation and calibration
activities to be undertaken. The Directors
may underestimate the cost or time of
installing such manufacturing equipment.
There is also a risk that the new
equipment may not function as expected
once installed. The Group may outsource
manufacturing but may be unable
to find sufficient demand for its new
manufacturing capabilities. Scaling-up
production may be negatively impacted
as a result of these factors.
EXIT OF UK FROM THE
EUROPEAN UNION
The UK has voted in an advisory
referendum to leave the European Union
(commonly referred to as “Brexit”).
The impact of the referendum and
consequent triggering of Article 50 of the
Lisbon Treaty is not yet clear, but it may
significantly affect the fiscal, monetary
and regulatory landscape in the United
Kingdom, and could have a material
impact on its economy and the future
growth of its various industries, including
the pharmaceutical and biotechnology
industries. Depending on the exit terms
negotiated between EU Member States
and the UK following Brexit, the UK
could lose access to the single European
Union market and the global trade deals
negotiated by the European Union on
behalf of its members. Such a change in
trade terms could affect the attractiveness
of the UK as an investment centre and, as
a result, could have a detrimental effect
on UK companies. This may impact the
Group’s ability to access funding in the
future, and its prospects. Although it is
not possible at this point in time to predict
fully the effects of an exit of the UK from
the European Union, it could have a
material effect on the Group’s business,
financial condition and results
of operations.
The Strategic Report on pages 6 to 12 was
approved by the Board on 16 April 2018
and signed on its behalf by:
Rory Nealon
Director
17
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
CORPORATE GOVERNANCE:
Board of Directors
Joe Wiley
CEO
Joe Wiley founded Amryt. Mr Wiley
has over 20 years of experience in the
pharmaceutical, medical and venture
capital industries. Mr Wiley opened and
led Sofinnova Ventures’ European office.
He was previously a medical director at
Astellas Pharma. Prior to joining Astellas,
he held investment roles at Spirit Capital,
Inventages Venture Capital and Aberdeen
Asset Managers (UK).
Mr Wiley trained in general medicine
at Trinity College Dublin, specialising in
neurology. He is also a Member of the
Royal College of Physicians in Ireland
and also has an MBA from INSEAD.
Harry Stratford OBE
Non-Executive Chairman
Harry Stratford has over 40 years’
experience in the pharmaceutical industry
and has built two successful publicly listed
pharmaceutical companies. Mr Stratford
founded Shire Plc in 1986 and was CEO
for almost a decade. Shire Plc grew from
humble beginnings to be one of the
world’s largest specialty pharmaceutical
companies and its stock is a constituent
of the FTSE100 index. Mr Stratford then
went on to be founder, CEO and Executive
Chairman of Prostrakan Plc, another
international specialty pharmaceutical
company, which was subsequently
acquired by Kyowa Hakko Kirin of
Japan in 2011.
Mr Stratford holds a BSc. in Chemistry
from the University of London and was
awarded an OBE in the 2007 New Year’s
Honours list for his contribution to the
Scottish Life Sciences Industry.
Rory Nealon
CFO/COO
Rory Nealon was previously a Board
member of Trinity Biotech Plc joining as
Chief Financial Officer in January 2003.
He was subsequently appointed Chief
Operations Officer in November 2007.
Mr Nealon left Trinity Biotech plc in 2014.
Prior to joining Trinity Biotech Plc, he was
Chief Financial Officer of Conduit plc,
an Irish directory services provider with
operations in Ireland, the UK, Austria and
Switzerland. Prior to joining Conduit plc
he was an Associate Director in AIB Capital
Markets, a subsidiary of AIB Group plc, the
Irish banking group.
Mr Nealon holds a Bachelor of Commerce
degree from University College Dublin,
is a Fellow of the Institute of Chartered
Accountants in Ireland, a member of
the Institute of Taxation in Ireland and
a member of the Institute of Corporate
Treasurers in the UK.
18
AMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
CORPORATE GOVERNANCE:
Board of Directors
James Culverwell
Non-Executive Director
James Culverwell has over 30 years’
experience in analysing and valuing
pharmaceutical companies. Mr Culverwell
joined Hoare Govett in 1982, and then
moved to Merrill Lynch in 1995, where he
became global head of pharmaceutical
equity research. In 2004, Mr Culverwell
set up Sudbrook Associates, a healthcare
corporate adviser. Mr Culverwell currently
sits on the Board of two other companies
in the drug development and diagnostic
fields, including HOX Therapeutics where
he is the CEO.
Mr Culverwell has an MSc from the
University of Aberdeen.
Ray Stafford
Non-Executive Director
Ray Stafford has worked in the
pharmaceutical industry for thirty years.
He was Chairman, CEO and majority
shareholder of the Tosara Group who
owned, manufactured and marketed the
successful international brand Sudocrem.
Following the integration of Tosara Group
into the U.S. based NYSE listed company
Forest Laboratories in 1988, Mr Stafford
held numerous senior positions within
that corporation including CEO Forest UK
and Ireland, CEO Forest Europe and since
1999 to him retiring from the business
in 2014, Mr Stafford was Executive Vice
President Global Marketing. Separately
Mr Stafford was founder of what is today
one of Ireland’s leading multi-channel
sales, marketing and distribution service
providers approved by the Irish Medicines
Board to service the wholesale and
retail trade.
Markus Ziener
Non-Executive Director
Markus Ziener joined Software AG Stiftung
in 2013 as a Director of Asset Management
before becoming Chief Financial Officer
in August 2014. Prior to joining Software
AG Stiftung, a 22.3% shareholder in Amryt
at 31 December 2017, Mr Ziener worked
in a number of senior roles across a broad
range of industries including as Managing
Director of Handelskontor Willmann für
Naturprodukte.
Mr Ziener was previously a supervisory
Board member of Birken AG before it was
acquired by Amryt and is also a supervisory
Board member of Software AG.
19 AMRYT PHARMA ANNUAL REPORT 2017
19
AMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
CORPORATE GOVERNANCE:
Corporate Governance Statement
Compliance Statement
The Board seeks to follow best practice in corporate governance appropriate to the
Company’s size and in accordance with the regulatory framework that applies to AIM
and ESM companies. The Board intend to comply, so far as practicable and having
regard to the size and nature of the Company’s business, with the principles and
disclosures as set out in the QCA Code. The main features of the Company’s corporate
governance arrangements are:
•
•
•
The Board meets regularly and at least
six times per year for formal Board
meetings. It will consider strategy,
performance and approve financial
statements, dividends and significant
changes in accounting practices and key
commercial matters, such as decisions
to be taken on whether to take forward
or to cancel a research project. There is
a formal schedule of matters reserved
for decision by the Board in place. The
identity, roles and committee members
of the Board are outlined below.
The Company has an audit committee
and remuneration committee, further
details of which are provided below.
The Company does not and will not
have a nomination committee, as the
Board does not consider it appropriate
to establish one at this stage of the
Company’s development. The Board
will take decisions regarding the
appointment of new directors as a
whole and this will follow a thorough
assessment of a potential candidate’s
skill and suitability for the role.
Board Composition
The Company is managed by a Board
of directors and they have the necessary
skills and experience to effectively
operate and control the business.
There are currently six directors as at the
date of this report being; Harry Stratford,
Joe Wiley, Rory Nealon, James Culverwell,
Ray Stafford, and Markus Ziener.
The Board comprises 4 non-executive
directors, including the Chairman, and
2 executive directors. The Board believe
the current split of non-executive and
executive directors is appropriate for
the requirements of the Company.
The Board considers that Harry Stratford,
James Culverwell and Ray Stafford are
independent in character and judgment.
James Culverwell was appointed as the
senior non-executive director on
29 March 2017.
As the business develops, the composition
of the Board will remain under review to
ensure that it remains appropriate to the
managerial requirements of the Company.
All new Directors appointed since the
previous Annual General Meeting are
required to seek election at the next
Annual General Meeting and one third
of the other Directors retire annually
in rotation in accordance with the
Company’s articles of association.
This enables the shareholders to decide
on the election of the Company’s Board.
The Directors required to seek re-election
at the next Annual General Meeting
are Rory Nealon and James Culverwell
by rotation.
Board Committees
The Company has an Audit
Committee and a Remuneration
Committee with formally delegated
duties and responsibilities.
The composition of these committees
may change over time as the
composition of the Board changes.
AUDIT COMMITTEE
The Audit Committee has responsibility
for, among other things, the monitoring
of the financial integrity of the financial
statements of the Company and the
involvement of the Company’s auditors
in that process. It focuses, in particular,
on compliance with accounting policies
and ensuring that an effective system
of internal and external audit and
financial control is maintained, including
considering the scope of the annual
audit and the extent of the non-audit
work undertaken by external auditors
and advising on the appointment of
external auditors.
The Audit Committee meets at least
twice a year at the appropriate times in
the financial reporting and audit cycle.
The Audit Committee is comprised of two
members, who are both non-executive
Directors: James Culverwell and Ray
Stafford. On 28 March 2017, Cathal Friel
resigned as a member of the Board and
was replaced as a member of the Audit
Committee by Ray Stafford on 29 March
2017. The Audit Committee is chaired by
James Culverwell.
20
AMRYT PHARMA ANNUAL REPORT 2017 REMUNERATION COMMITTEE
The Remuneration Committee has responsibility for the determination of specific remuneration packages for each of the executive
directors, including pension rights and any compensation payments, and recommending and monitoring the level and structure of
remuneration for senior management, and the implementation of the employee share option plan, or other performance related
schemes. It meets at least twice a year.
The Remuneration Committee comprises three members, who are all non-executive Directors: Harry Stratford, Ray Stafford and James
Culverwell. The Remuneration Committee is chaired by Harry Stratford.
Meetings and attendance
The directors’ attendance at Board and Committee meetings during the year is shown below:
Full Board
Audit Committee
Remuneration Committee
Meetings held during the year
Directors’ Attendance:
Harry Stratford
Joe Wiley
Rory Nealon
James Culverwell
Ray Stafford
Markus Ziener
8
8/8
8/8
8/8
7/8
7/8
7/8
Policy on Executive
Directors and Senior
Management Remuneration
When determining the Board policy for
remuneration, the Committee considers
all factors which it deems necessary
including relevant legal and regulatory
requirements and the provisions and
recommendations of relevant guidance.
The objective of this policy is to help
attract, retain and motivate the executive
and senior management of the Company
without paying more than necessary.
The remuneration policy bears in mind
the Company’s appetite for risk and is
aligned to the Company’s long term
strategic goals. A significant proportion of
remuneration is structured to link rewards
to corporate and individual performance
and is designed to promote the long-term
success of the Company.
Internal Controls and
Financial Risk Management
The Directors are responsible for the
Group’s system of internal controls, the
setting of appropriate policies on these
controls, and regular assurance that the
system is functioning effectively and
that it is effective in managing business
risk. Principal risk and uncertainties are
discussed in the Strategic Report and
financial risk management objectives
and policies are detailed in note 22 of
the Notes to the financial statements.
The Audit Committee monitors the
Group’s internal control procedures,
reviews the internal control process and
risk management procedures and reports
its conclusions and recommendations to
the Board.
Risk Management
and Treasury policy
The Board considers risk assessment to
be important in achieving its strategic
objectives, with the Board regularly
reviewing its projects and activities in this
regard. The Group finances its operations
through equity, EIB funding and holds
its cash as a liquid resource to fund the
obligations of the Company. Decisions
regarding the management of these
assets are approved by the Board.
Securities Trading
The Board has adopted a Share
Dealing Code that applies to
Directors, senior management and
any employee who is in possession of
“inside information”. All such persons
are prohibited from trading in the
Company’s securities if they are in
possession of “inside information”.
Subject to this condition and trading
prohibitions applying to certain
periods, trading can occur provided
the relevant individual has received
the appropriate prescribed clearance.
2
2/2
2/2
5
5/5
5/5
5/5
Communications
with Shareholders
Good and effective communication
with shareholders has been given a high
priority by the Board. We regard good
communication with investors (both
institutional and retail) and analysts as an
essential part of the on-going operations
of the Company. Amryt is committed
to providing up to date corporate
information to existing and potential
shareholders. The Group maintains a
website (www.amrytpharma.com) which
contains an Investors & Media section
whereby existing and potential investors
can access Company information and
reports, contact the Company and register
to receive Company news alerts.
During the year, the senior management
team conducted an extensive program
of face-to face communication. This
included both one-on-one and group
meetings with institutional investors
in the UK, Ireland, the USA and across
Europe, as well as attendance at investor
and industry conferences.
21
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
CORPORATE GOVERNANCE:
Directors’ Report
For the year ended 31 December 2017
The Directors of Amryt Pharma plc (the “Company”) present their report
and the financial statements of the Company and its subsidiary undertakings
(together the “Group” or “Amryt”) for the year to 31 December 2017.
Directors
The Directors who served on the Board
during the year and to the date of this
report are as follows:
Harry Stratford
Joe Wiley
Rory Nealon
James Culverwell
Ray Stafford
Markus Ziener
Cathal Friel
(resigned on 28 March 2017)
BASE SALARIES REVIEW
In 2016 and 2017, the Committee
appointed Radford, a part of the AON
Group, to perform a review of executive
and non-executive remuneration. Radford
have no connection with the Company.
The Committee developed its 2017 and
2018 remuneration proposals based
on the recommendations of this report
and what the Committee believe to
be appropriate remuneration levels
for the Company at its current stage
of development. The Company has set
target remuneration for both executive
management and non-executive directors
at the 50th percentile for European
companies as outlined in the report.
BONUS PAYMENTS
All executive directors and senior
management are eligible for a discretionary
annual bonus. Annual cash bonuses
are paid on the achievement of pre-set
strategic objectives. The Committee in
conjunction with the Board reviews and
sets these objectives at the start of each
calendar year.
LONG TERM INCENTIVES
The Company has adopted an Employee
Share Option Plan (the “Plan”) with
all directors, senior management and
consultants to the Company eligible
to receive awards on the Plan. Details
of share options issued under the plan
in 2017 are included in note 4. A total
of 2,885,582 share options were issued
to executive directors during the year.
2,061,130 share options were granted to
Joe Wiley on 29th November at a strike
price of 20.12 pence. 824,452 share options
were granted to Rory Nealon on 29th
November at a strike price of 20.12 pence.
All share options granted to executive
directors during the year contain a 3-year
vesting period. In accordance with UK best
practice on corporate governance, it is the
Company’s current policy not to award
share options to non-executive directors.
The share options granted to employees
during the year all contain 3-year vesting
periods with the options used to motivate
and retain key individuals.
22
AMRYT PHARMA ANNUAL REPORT 2017 DIRECTORS’ REMUNERATION – CURRENT YEAR
The remuneration of Directors for the year ended 31 December 2017 was as follows:
Base Salary
and Fees
€‘000
Bonuses
€‘000
Pension
Contributions
€‘000
Share Based
Payments
€’000
Other
Benefits
€‘000
Harry Stratford
Joe WileyA
Rory NealonA
James Culverwell
Ray Stafford
Markus Ziener
Cathal FrielB
Michael EdelsonB
Michael NolanB
Total
80
331
275
57
44
44
11
_
_
–
172
138
–
–
–
–
–
–
842
310
–
33
28
–
–
–
–
–
–
61
–
7
3
–
–
–
–
–
–
–
24
15
–
–
–
–
–
–
2017
Total
€‘000
80
567
459
57
44
44
11
_
_
2016
Total
€‘000
60
397
296
36
24
16
59
4
4
10
39
1,262
896
A In 2016, the two executive Directors, Joe Wiley and Rory Nealon, offered to take 30% voluntary pay reduction for the 2016 calendar year.
B In 2016, Companies controlled by these Directors, also received payments in respect of consultancy and other services performed outside of their Director’s contract.
These are disclosed as consulting fees, office facilities and administration and other fees in Note 21 Related party transactions. Michael Edelson and Michael Nolan resigned
on 19 April 2016.
Directors and their Interests
INTEREST IN ORDINARY SHARES OF 1p
The Directors of the Company held the following interest in the ordinary shares of Amryt Pharma plc:
Director
Joe Wiley
Rory Nealon
Ray Stafford
Markus Ziener
James Culverwell
Harry Stafford
31 December
2017
Number
31 December
2017
%
20,994,487
9,664,623
2,296,369
232,955
221,592
150,000
7.64
3.52
0.84
0.08
0.08
0.05
31 December
2016
Number
20,772,895
9,443,031
2,296,369
–
–
–
31 December
2016
%
9.97
4.53
1.10
–
–
–
a Markus Ziener represents Software AG-Stiftung’s 22.3% shareholding in the Company.
23
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
SHARE OPTIONS AND WARRANTS
The Directors of the Company held the following warrants of Amryt Pharma plc which were issued to them along with other investors
in the RTO on 18 April 2016:
Director
Joe Wiley
Rory Nealon
Ray Stafford
31 December
2017
Number
165,208
656,250
826,041
Exercise price
Expiry Date
24p
24p
24p
31/12/18
31/12/18
31/12/18
31 December
2016
Number
165,208
656,250
826,041
Exercise price
Expiry Date
24p
24p
24p
31/12/18
31/12/18
31/12/18
The Directors of the Company held the following share options of Amryt Pharma plc which were issued to them in November 2017:
Director
Joe Wiley
Rory Nealon
31 December
2017
Number
2,061,130
824,452
Exercise price
Expiry Date
20.12p
20.12p
28/11/24
28/11/24
31 December
2016
Number
Exercise price
Expiry Date
–
–
–
–
–
–
Dividends
The Directors do not recommend
payment of a dividend (2016: nil).
Share Capital Structure
On 19 April 2016, every 8 ordinary shares
of par value 3.8p in the Company at close
of business on 18 April 2016 became 1
new ordinary share of par value 1p and
1 deferred share of par value 29.4p. The
rights attaching to the new ordinary
shares of 1p are identical in all respects to
those of the old ordinary shares of 3.8p.
The deferred shares created are effectively
valueless as they will not carry any rights
to vote or dividend rights. In addition,
holders of deferred shares will only
be entitled to a payment on a return
of capital or on a winding up of the
Company after each of the holders of
ordinary shares of 1p each have received
a payment of £10,000,000 on each such
share. The deferred shares are not and
will not be listed or traded on the Official
List, AIM, the ESM or any other investment
exchange and are only transferable in
limited circumstances.
The Company’s ordinary shares of 1p are
listed on the AIM Market of the London
Stock Exchange (ticker: AMYT.L) and the
Enterprise Securities Market of the Irish
Stock Exchange (ticker: AYP). At the date
of this report, 274,817,283 ordinary shares
of 1p each were in issue. Details of share
issues and changes to the capital structure
during the year are set out in note 17.
24
AMRYT PHARMA ANNUAL REPORT 2017 Substantial Shareholdings
The Company is aware that the following had an interest of 3% or more in the issued ordinary share capital of the Company:
Rank
Investor
1
2
3
4
5
6
7
8
Software AG-StiftungA
Cathal FrielB
Axa Framlington
Joe Wiley
Legal & General
Rory Nealon
Alan Harris
Amati
31 December
2017
Number
31 December
2017
%
31 December
2016
Number
31 December
2016
%
61,272,930
33,077,347
26,940,370
20,994,487
14,250,000
9,664,623
8,869,090
8,500,000
22.30
12.04
9.80
7.64
5.19
3.52
3.23
3.09
43,545,567
33,077,347
20,625,000
20,772,895
–
9,443,031
8,869,090
–
20.90
15.88
9.90
9.97
–
4.53
4.26
–
A Markus Ziener represents Software AG-Stiftung’s 22.3% shareholding in the Company.
B 32,660,698 of these shares are held by Raglan Road Capital Limited, a company owned by Cathal Friel and his wife, Pamela Tyler.
There were no notified changes in these holdings in the period after year end to the date of signing the financial statements.
Qualifying Indemnity
Provision
The Group has in place insurance
protection, including a Directors and
Officers liability policy, to cover the
risk of loss when management deems
it appropriate and cost effective;
however in some cases risks cannot
be effectively covered by insurance
and the cover in place may not be
sufficient to cover the extent of
potential liabilities.
Going Concern
After making appropriate enquires, the
Directors consider that the Company and
the Group has adequate resources to
continue in business for the foreseeable
future. Accordingly, they continue to adopt
the going concern basis in preparing
the financial statements. As part of their
enquiries the Directors reviewed budgets,
projected cash flows, and other relevant
information for 12 months from the date
of approval of the consolidated financial
statements for the year ended
31 December 2017.
The Board’s strategy is for the Group to
acquire, build, develop and commercialise
a portfolio of medicines focused on rare
and orphan diseases.
As part of the reverse takeover of the
Company in 2016, €12.6m (£10m) before
costs of new funds were introduced to
the Group. In December 2016 the Group
secured a €20m facility agreement from
the European Investment Bank (“EIB”), of
which €10m was drawn down during 2017.
In October 2017, Amryt raised €15m before
costs in equity fundraising. The Board
intends to use these funds to progress a
Phase III clinical trial of AP101 with a view
to obtaining approval for the treatment
of EB in Europe and the US, to increase
the existing manufacturing capacity for
the production of AP101, for the further
commercialisation of Lojuxta and further
development of AP102.
In early December 2016, the Group secured
the exclusive rights to sell Lojuxta across
the EU and other territories. This licencing
deal is immediately cash generative and
resulted in revenues of €11,924,000 for
the year ended 31 December 2017. This
licencing deal is a net cash contributor to
the ongoing running costs of the rest of the
Amryt business.
The Group’s forecasts and projections
reflect the Directors’ plans for the coming
year and include operating expenditures,
revenues and costs associated with the
Lojuxta business, and expenditure on
clinical trials associated with seeking
the approval of AP101 to treat EB, pre-
clinical testing of AP102 and AP103.
The Group performs sensitivity analysis
on its projected cashflows and when
performing sensitivities has taken
into account reasonable changes in
market conditions.
The Group’s forecasts, taking into account
reasonably possible changes as described
above, show that the Group will be able
to operate and have significant financial
headroom for the 12 months from the
date of approval of the consolidated
financial statements for the year ended
31 December 2017.
Events after the
Reporting Period
Events after the reporting period
are set out in note 26 to the financial
statements. Likely future developments
in the business are discussed in the
Strategic Report.
Auditors
The Board are recommending BDO LLP
for re-appointment as auditor of the
Company. BDO LLP have expressed their
willingness to accept this appointment
and a resolution re-appointing them will
be submitted to the forthcoming Annual
General Meeting.
Disclosure of Information
to the Auditors
All of the current Directors have
taken all the steps that they ought
to have taken to make themselves
aware of any information needed
by the Company’s auditors for
the purposes of their audit and to
establish that the auditors are aware
of that information. The Directors
are not aware of any relevant audit
information of which the auditors
are unaware.
25
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
After making appropriate enquires, the Directors consider that the Company and the
Group has adequate resources to continue in business for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the financial
statements. As part of their enquiries the Directors reviewed budgets, projected cash
flows, and other relevant information for 12 months from the date of approval of the
consolidated financial statements for the year ended 31 December 2017.
Directors’ Responsibilities
The Directors are responsible for
preparing the Strategic Report, the
Directors’ Report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the Directors to
prepare financial statements for each
financial year. Under that law the Directors
have elected to prepare the Group
and Company financial statements in
accordance with International Financial
Reporting Standards (IFRSs) as adopted
by the European Union. Under company
law the Directors must not approve the
financial statements unless they are
satisfied that they give a true and fair
view of the state of affairs of the Group
and Company and of the profit or loss
of the Group for that period. The Directors
are also required to prepare financial
statements in accordance with the
Rules of the London Stock Exchange
for companies trading securities on the
Alternative Investment Market and the
ESM exchange of the Irish Stock Exchange.
In preparing these financial statements,
the Directors are required to:
•
•
•
•
select suitable accounting policies and
then apply them consistently;
make judgements and accounting
estimates that are reasonable and
prudent;
state whether they have been prepared
in accordance with IFRSs as adopted
by the European Union, subject to
any material departures disclosed and
explained in the financial statements;
prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
company will continue in business.
The Directors are responsible for keeping
adequate accounting records that
are sufficient to show and explain the
Company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the Company and
enable them to ensure that the financial
statements comply with the requirements
of the Companies Act 2006. They are also
responsible for safeguarding the assets
of the Company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
Website Publication
The Directors are responsible for
ensuring the Annual Report and
the financial statements are made
available on a website. Financial
statements are published on the
Company’s website in accordance
with legislation in the United
Kingdom governing the preparation
and dissemination of financial
statements, which may vary from
legislation in other jurisdictions.
The maintenance and integrity
of the Company’s website is the
responsibility of the Directors.
The Directors’ responsibility also
extends to the on-going integrity
of the financial statements
contained therein.
This report was approved by the Board on
16 April 2018 and signed on its behalf by:
Rory Nealon
Director
26
AMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS:
Independent Auditor’s Report
To the Members of Amryt Pharma plc
For the year ended 31 December 2017
Opinion
We have audited the financial statements of Amryt Pharma plc (the ‘parent company’)
and its subsidiaries (the ‘group’) for the year ended 31 December 2017 which comprise the
consolidated statement of comprehensive income, the consolidated statement of financial
position, the consolidated statement of cash flows, the consolidated statement of changes
in equity, the company statement of financial position, the company statement of cash flows,
the company statement of changes in equity and notes to the financial statements, including
a summary of significant accounting policies.
The financial reporting framework that
has been applied in the preparation of the
group financial statements is applicable
law and International Financial Reporting
Standards (IFRSs) as adopted by the
European Union and as regards the parent
company financial statements, as applied
in accordance with the provisions of the
Companies Act 2006.
In our opinion:
•
•
•
•
the financial statements give a true and
fair view of the state of the group’s and
of the parent company’s affairs as at
31 December 2017 and of the group’s
loss for the year then ended;
the group financial statements
have been properly prepared in
accordance with IFRSs as adopted
by the European Union;
the parent company financial
statements have been properly
prepared in accordance with IFRSs
as adopted by the European Union
and as applied in accordance with
the provisions of the Companies
Act 2006; and
the financial statements have been
prepared in accordance with the
requirements of the Companies
Act 2006.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards
are further described in the Auditor’s
responsibilities for the audit of the
financial statements section of our report.
We are independent of the group and the
parent company in accordance with the
ethical requirements that are relevant to
our audit of the financial statements in the
UK, including the FRC’s Ethical Standard
as applied to listed entities, and we have
fulfilled our other ethical responsibilities in
accordance with these requirements. We
believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Use of our report
This report is made solely 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 this report,
or for the opinions we have formed.
Conclusions relating
to going concern
We have nothing to report in respect
of the following matters in relation to
which the ISAs (UK) require us to report
to you where:
•
•
the directors’ use of the going concern
basis of accounting in the preparation
of the financial statements is not
appropriate; or
the directors have not disclosed in the
financial statements any identified
material uncertainties that may cast
significant doubt about the group’s
or the parent company’s ability to
continue to adopt the going concern
basis of accounting for a period of at
least twelve months from the date
when the financial statements are
authorised for issue.
Key audit matters
Key audit matters are those matters
that, in our professional judgment, were
of most significance in our audit of the
financial statements of the current period
and include the most significant assessed
risks of material misstatement (whether or
not due to fraud) we identified, including
those which had the greatest effect on
the overall audit strategy, the allocation
of resources in the audit and directing the
efforts of the engagement team. 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 do not provide a separate
opinion on these matters.
27
AMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Revenue recognition
Matter
Refer also to Note 1 (Accounting policies) and note
3 (segmental information) in the financial statements
for further details.
The group generates its revenue from two sources: the sale of
Lojuxta and the sale of Imlan. For both types of product sales
revenue is recognised once the risks and rewards of ownership
have transferred which normally occurs on despatch.
Material sales relate to Lojuxta and are made via third party
wholesaler and distributor networks to the end customer which
may vary in specific terms. In respect of Lojuxta there are also a
number of commission arrangements in place with wholesalers.
In the current year the sales of Lojuxta are material for the first
time. We considered there to be a risk of misstatement of the
financial statements relating to transactions occurring close to
the year end as transactions could be recorded within the wrong
accounting period.
Response
In order to address the risk related to cut-off in revenue
recognition we tested the group’s key controls over revenue
recognition. Our testing of such key controls focussed on the
testing of manual controls focussed on the timely and accurate
recording of sales transactions including testing reconciliations
of third party sales listings to internal authorisations.
In addition, we used substantive procedures:
•
•
•
to test the existence of revenue for a sample of individual
transactions which occurred both before and after the
year end;
to trace a sample of individual transactions and invoices
back to third party distributors’ delivery notes; and
to test balances such as trade receivables and accrued /
deferred income recognised on the group’s statement
of financial position.
We also reviewed the material distributor agreements in place
for individual territories and considered whether the accounting
treatment of commissions was in line with the group’s
accounting policy and IAS 18 ‘Revenue’.
We also assessed the adequacy of the group’s disclosures
relating to revenue within the financial statements.
Fair value of contingent consideration
Matter
Response
Refer also to note 1 (Accounting policies) and note 5 (business
combinations) of the financial statements.
In order to address the risk identified our audit procedures
included:
On initial recognition of the acquisition of Amryt AG and as
at 31 December 2016 contingent consideration of €23.3m
was recognised. As at 31 December 2017, Management have
reassessed the fair value of contingent consideration to be
€32m. Contingent consideration is recognised at fair value
based on a probability adjusted net present value model. Key
inputs to the model included the probability of success of trials,
commercialisation of products and the expected timings of
potential revenue streams.
As a liability recorded at fair value in the statement of financial
position and due to the levels of Management estimation and
judgement involved in the valuation, we consider there to be a
significant risk around the completeness, accuracy and valuation
of the contingent consideration recorded in the statement of
financial position as at 31 December 2017.
•
•
•
•
Evaluating the group’s assumptions and judgements
applied in the assessment of the valuation of the contingent
consideration. In particular, we critically challenged the
group’s expected timings of potential revenue streams,
discount rates applied and the chance of success factors
applied given the orphan drug designation of the products.
We evaluated and challenged the group’s assumptions and
judgements against developments in the year alongside our
knowledge of the group’s business.
Performing sensitivity analysis over the group’s model
to assess the impact of the model on key assumptions in
particular around the revenue projections which are the key
driver of the calculation.
Reviewing the inputs and performing integrity checks on the
model used in order to ensure it was considered appropriate
for the purpose of deriving the contingent consideration
liability to be recorded at year end.
Performing a review of the 31 December 2016 conclusions and
updating them based on our knowledge of the group over the
last twelve months and other information publically available
and identified from other aspects of our audit work.
28
AMRYT PHARMA ANNUAL REPORT 2017 Carrying value of intangible assets
Matter
Response
Refer also to note 1 (Accounting policies) and note 5 (business
combinations) of the financial statements.
In order to address the risk identified our audit procedures
included:
Following the acquisition of Amryt AG and SomTheraputics
Corp in the year ended 31 December 2016 the Group recognised
in-process research and development (“IPRD”) of €53m as an
intangible asset. The products to which the IPRD relate, which
are primarily the AP101 development asset, are not yet ready for
use and are therefore required to be tested for impairment on
an annual basis.
The impairment assessment requires the group to make
key assumptions and judgements on the clinical, technical
and commercial viability of the products to which the IPRD
intangible asset relates. For such products in development
the main risk for the group is the outcome of clinical trials
and obtaining required clinical and regulatory approvals for
commercialisation.
The assessment of the carrying value of the IPRD is therefore
based on forecasting and discounting future cash flows, which
are inherently highly judgemental.
•
•
•
•
•
Reviewing the group’s assessment of whether there are
any indications of impairment and performing a further
independent assessment of such based on our knowledge
of the group’s business and activities;
We evaluated and challenged the assumptions and
judgements used in assessing the recoverability of the IPRD
intangible assets against developments in the year alongside
our knowledge of the group’s business, in particular looking
at revenue and cash flow projections and the probability of
obtaining regulatory approval for products in trial. Performing
sensitivity analysis on the key assumptions of the model
prepared by the group to support the IPRD in particular
revenue and cash flow projections and the underlying
discount rates applied;
Assessing the reasonableness of the group’s assumptions
regarding probability of obtaining regulatory approval
through consideration of the current phase of development,
comparison to industry practice and any correspondence with
the group’s regulator;
Interviewing a range of non-financial key research
and development group personnel in order to obtain
a more detailed understanding of the underlying stage
of development and future opportunities for the IPRD;
Reviewing the inputs and performing integrity checks
on the model used in order to ensure it was considered
appropriate for the purpose of the assessment of the
carrying value of the IPRD recorded on the statement
of financial position at year end.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.
We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions
of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the
probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the
extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect
on the financial statements as a whole.
Group Materiality 2017
Group Materiality 2016
How we determined it
Rationale for the materiality
benchmark applied
Group
€660,000
€800,000
Company
€495,000
€560,000
An average of 1% of revenue and 1.5%
of total assets (2016: 1.5% of total assets).
1.5% of total assets,
capped at 75% of group materiality.
Setting materiality as the average of 1%
or revenue and 1.5% of total assets was
considered to be the most appropriate
measure of materiality given the different
aspects of the Group’s current operations,
being a mix of investment in R&D and
revenue generating opportunities.
The company is primarily a holding
company for the investments in the rest
of the group and has limited trading
operations. As such, total assets was
considered to be the most appropriate
measure in both the current and
prior year. The level of materiality was
capped at 75% of group materiality in
order to mitigate against the risk of an
aggregation of misstatements across
the group.
29
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
The Group benchmark has changed
from the prior year, in order to reflect
the change in the nature of the Group’s
operations from being an investment
focussed Group in the prior year, to
a Group generating revenue and
undertaking trading activity in the
current year.
Performance materiality was set at
€495,000 (2016: €600,000) for the group,
representing 75% of materiality. The level
was set taking into account a number
of factors including our past experience
of adjusted and unadjusted errors,
complexity of the audit and controls
within the group. The same percentage
was applied to each component
materiality including the parent company.
Whilst materiality for the financial
statements as a whole was €660,000 each
significant component of the Group was
audited to a lower level of materiality
ranging from €2 to €475,000 of group
materiality. Such materialities are used to
determine the financial statement areas
that are included within the scope of our
audit and the extent of sample sizes used
during the audit.
We agreed with the Audit Committee
that we would report to the them all
individual audit differences identified
during our audit in excess of €33,000
(2016: €40,000). We also agreed to report
differences below this threshold that,
in our view, warranted reporting on
qualitative grounds.
There were no misstatements identified
during the course of our audit that were
individually or in aggregate considered
to be material in terms of their absolute
monetary value or on qualitative grounds.
Opinions on other
matters prescribed by
the Companies Act 2006
In our opinion, based on the work
undertaken in the course of the audit:
•
•
the information given in the strategic
report and the directors’ report for the
financial year for which the financial
statements are prepared is consistent
with the financial statements; and
the strategic report and the
directors’ report have been
prepared in accordance with
applicable legal requirements.
Matters on which
we are required to
report by exception
In the light of the knowledge and
understanding of the group and the
parent company and its environment
obtained in the course of the audit,
we have not identified material
misstatements in the strategic report or
the directors’ report.
We have nothing to report in respect of
the following matters in relation to which
the Companies Act 2006 requires us to
report to you if, in our opinion:
•
•
•
•
adequate accounting records have
not been kept, or returns adequate for
our audit have not been received from
branches not visited by us; or
the parent company financial
statements are not in agreement with
the accounting records and returns; or
certain disclosures of directors’
remuneration specified by law are not
made; or
we have not received all the information
and explanations we require for our
audit.
An overview of the
scope of our audit
Our group audit scope focussed on the
Group’s principal operating locations and
legal structure. The Group has operating
entities based in Ireland and Germany
with further legal entities located in the
UK, France, Switzerland, Italy and the
USA. All UK and Irish entities, including
the parent company are subject to local
statutorily required audits. Amryt Pharma
DAC and Amryt Research Limited were
considered to be significant components
of the group due to their contribution to
overall revenue and costs.
The remaining overseas entities were
considered to be non-significant
components of the Group and were
primarily subject to analytical procedures
and as considered necessary additional
substantive testing on Amryt AG over
risk areas detailed above as relevant to
that entity. The work performed on Amryt
AG was performed in Germany during
a site visit. All audit work was performed
by the BDO LLP with no component
auditor involvement.
Other information
The directors are responsible for the
other information. The other information
comprises the information included in
the annual report, other than the financial
statements and our auditor’s report
thereon. Our opinion on the financial
statements does not cover the other
information and, except to the extent
otherwise explicitly stated in our report,
we do not express any form of assurance
conclusion thereon.
In connection with our audit of the
financial statements, our responsibility
is to read the other information and, in
doing so, consider whether the other
information is materially inconsistent with
the financial statements or our knowledge
obtained in the audit or otherwise
appears to be materially misstated. If we
identify such material inconsistencies or
apparent material misstatements, we are
required to determine whether there is
a material misstatement in the financial
statements or a material misstatement
of the other information. If, based on the
work we have performed, we conclude
that there is a material misstatement of
this other information, we are required
to report that fact. We have nothing to
report in this regard.
30
AMRYT PHARMA ANNUAL REPORT 2017 Anne Sayers
(Senior Statutory Auditor)
For and on behalf of BDO LLP,
Statutory Auditor
London
United Kingdom
16 April 2018
BDO LLP is a limited liability partnership
registered in England and Wales
(with registered number OC305127).
Responsibilities of directors
As explained more fully in the directors’
responsibilities statement set out on page
26, the directors are responsible for the
preparation of the financial statements
and for being satisfied that they give a
true and fair view, and for such internal
control as the directors determine is
necessary to enable the preparation of
financial statements that are free from
material misstatement, whether due to
fraud or error.
In preparing the financial statements, the
directors are responsible for assessing the
group’s and the parent company’s ability
to continue as a going concern, disclosing,
as applicable, matters related to going
concern and using the going concern
basis of accounting unless the directors
either intend to liquidate the group or the
parent company or to cease operations, or
have no realistic alternative but to do so.
Auditor’s responsibilities
for the audit of the
financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue an auditor’s
report that includes our opinion.
Reasonable assurance is a high level of
assurance, but is not a guarantee that
an audit conducted in accordance with
ISAs (UK) will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or
error and are considered material if,
individually or in the aggregate, they
could reasonably be expected to influence
the economic decisions of users taken on
the basis of these financial statements.
A further description of our
responsibilities for the audit of the
financial statements is located on the
Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities.
This description forms part of our
auditor’s report.
31
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
Note
3
4
5
5
6
5
8
9
Revenue
Cost of sales
Gross profit
Administrative, selling and marketing expenses
Share based payment expenses
Reverse takeover and acquisition related costs
Non-cash deemed cost of reverse takeover
Total administrative, selling and marketing expenses
Research and development expenses
Operating loss before finance expense
Non-cash change in fair value of contingent consideration
Finance expense
Loss on ordinary activities before taxation
Tax on loss on ordinary activities
Loss for the year attributable to the equity holders of the Company
Exchange translation differences which may be reclassified
through the profit or loss
Total other comprehensive profit/ (loss)
Total comprehensive loss for the year attributable to the equity holders of
the Company
31 December
2017
€’000
31 December
2016
€’000
12,778
(5,373)
7,405
(10,483)
(565)
–
–
(11,048)
(10,564)
(14,207)
(11,104)
(825)
(26,136)
–
(26,136)
22
22
(26,114)
1,351
(586)
765
(4,037)
(229)
(867)
(971)
(6,104)
(2,344)
(7,683)
–
(121)
(7,804)
–
(7,804)
(5)
(5)
(7,809)
Loss per share:
Loss per share – basic and diluted, attributable to ordinary equity holders
of the parent (cent)
10
(11.72)
(4.78)
32
AMRYT PHARMA ANNUAL REPORT 2017
Consolidated Statement of Financial Position
As at 31 December 2017
Note
31 December
2017
€’000
31 December
2016
€’000
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Total non-current assets
Current assets
Trade and other receivables
Inventories
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity attributable to owners of the parent
Share capital
Share premium
Other reserves
Accumulated deficit
Total equity
Non-current liabilities
Contingent consideration
Deferred tax liability
Long term loan
Total non-current liabilities
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Total equity and liabilities
11
12
14
15
16
17
17
5
18
19
20
52,606
1,160
53,766
4,729
1,083
20,512
26,324
80,090
21,173
57,334
(21,512)
(35,109)
21,886
32,418
5,384
10,603
48,405
9,799
9,799
58,204
80,090
The financial statements set out on pages 32 to 64 were approved and authorised for issue by the Directors on 16 April 2018.
They are signed on the Board’s behalf by:
Rory Nealon
Director
Company Number
5316808
52,521
1,183
53,704
2,540
770
8,271
11,581
65,285
20,419
43,695
(22,079)
(8,998)
33,037
23,314
5,384
–
28,698
3,550
3,550
32,248
65,285
33
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Consolidated Statement of Cash Flows
For the year ended 31 December 2017
Cash flows from operating activities
Loss on ordinary activities before taxation
Finance expense
Depreciation and amortisation
Share based payment expense
Non-cash change in fair value of contingent consideration
Non-cash deemed cost of reverse takeover
Movements in working capital and other adjustments:
Change in trade and other receivables
Change in trade and other payables
Change in contingent consideration
Change in inventories
Net cash flow used in operating activities
Cash flow from investing activities
Cash consideration on acquisition of Amryt AG
Cash consideration on acquisition of SOM
Cash inflow on acquisition of Amryt AG
Cash inflow on reverse takeover of Fastnet Equity plc
Payments for property, plant and equipment
Payments for intangible assets
Cash inflow on sale of property, plant and equipment
Deposit interest received
Net cash flow (used in)/from investing activities
Cash flow from financing activities
Proceeds from issue of equity instruments - net of expenses
Issue of convertible debenture securities
Proceeds from long term debt
Repayment of short term loans
Net cash flow from financing activities
Exchange and other movements
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Restricted cash at end of year
Cash at bank available on demand at end of year
Total cash and cash equivalents at end of year
Note
8
11, 12
4
5
5
14
5
15
5
5
5
12
11
12
17
19
16
16
16
31 December
2017
€’000
31 December
2016
€’000
(26,136)
825
259
565
11,104
–
(2,189)
6,022
(2,000)
(313)
(11,863)
–
–
–
–
(243)
(87)
9
5
(316)
14,393
–
10,000
(47)
24,346
74
12,241
8,271
537
19,975
20,512
(7,804)
121
194
229
–
971
(1,975)
2,236
–
(83)
(6,111)
(10,150)
(89)
705
11,993
(12)
–
10
1
2,458
11,251
545
–
(47)
11,749
4
8,100
171
–
8,271
8,271
34
AMRYT PHARMA ANNUAL REPORT 2017
Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
Share
capital
€’000
Share
premium
€’000
Note
Share based
payment
reserve
€’000
Merger
reserve
€’000
Reverse
acquisition
reserve
€’000
Exchange
translation
reserve
€’000
Accumulated
deficit
€’000
Balance at
1 January 2016
Loss for the year
Foreign exchange
translation reserve
Total comprehensive
income
Issue of shares by Amryt
DAC on acquisition of
Amryt AG
Issue of shares by Amryt
DAC on acquisition of SOM
Issue of shares by Amryt
DAC on conversion of
convertible debenture
securities
Issue of shares on
acquisition of Amryt DAC
Issue of placing shares –
net of costs
Issue of placing warrants
Share based payments
Reverse acquisition
adjustment
Balance at 31 December
2016
1
_
_
–
–
–
–
–
–
–
–
11,179
3,715
2,600
1,557
–
526
–
–
10,725
(2,251)
–
18,335
17,727
–
–
–
–
–
–
–
–
–
2,251
229
1,735
–
–
–
–
–
–
–
35,818
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(62,107)
20,419
43,695
4,215
35,818
(62,107)
Balance at 1 January 2017
20,419
43,695
4,215
35,818
(62,107)
Loss for the year
Foreign exchange
translation reserve
Total comprehensive
income
Issue of placing shares –
gross of costs
Issue of placing shares –
costs
Share based payments
Share based payments –
lapsed
Balance at 31 December
2017
–
–
–
–
–
–
17
17
4
754
14,329
–
–
–
(690)
–
–
–
–
–
–
–
565
(25)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
€’000
(1,193)
(7,804)
(5)
(1,194)
(7,804)
–
(7,804)
(7,809)
–
–
–
–
–
–
–
–
11,179
3,715
2,600
37,375
11,251
–
229
(24,310)
(8,998)
33,037
(8,998)
(26,136)
33,037
(26,136)
–
27
(26,136)
(26,109)
–
–
–
25
15,083
(690)
565
–
–
–
(5)
(5)
–
–
–
–
–
–
–
–
(5)
(5)
–
27
27
–
–
–
–
21,173
57,334
4,755
35,818
(62,107)
22
(35,109)
21,886
Share capital represents the cumulative par value arising upon issue of ordinary shares of 1p each and deferred shares of 29.4p each.
Share premium represents the consideration that has been received in excess of the nominal value on issue of share capital.
Share based payment reserve relates to the charge for share based payments in accordance with International Financial Reporting Standard 2.
The merger reserve was created on the acquisition of Amryt DAC. Consideration on the acquisition included the issuance of shares. Under section 612 of the Companies Act
2006, the premium on these shares has been included in a merger reserve.
The reverse acquisition reserve arose during the period ended 31 December 2016 in respect of the reverse acquisition of Amryt Pharma plc by Amryt Pharmaceuticals
DAC (“Amryt DAC”). Since the shareholders of Amryt DAC became the majority shareholders of the enlarged group the acquisition is accounted for as though there is a
continuation of Amryt DAC’s financial statements. The reverse acquisition reserve is created to maintain the equity structure of Amryt Pharma plc in compliance with UK
company law.
The exchange translation reserve was created on the retranslation of non-Euro denominated foreign subsidiaries.
Accumulated deficit represents losses accumulated in previous periods and the current year.
35
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Company Statement of Financial Position
As at 31 December 2017
Assets
Non-current assets
Intangible assets
Investment in subsidiaries
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity attributable to owners of the company
Share capital
Share premium
Other reserves
Accumulated deficit – prior years
Accumulated deficit – current year
Total equity
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Total equity and liabilities
Note
31 December
2017
€’000
31 December
2016
€’000
13
14
16
17
17
20
87
58,832
58,919
90
14,441
14,531
73,450
21,173
57,334
40,573
(44,709)
(1,361)
73,010
440
440
440
–
59,454
59,454
95
51
146
59,600
20,419
43,695
40,033
(42,819)
(1,915)
59,413
187
187
187
73,450
59,600
The financial statements set out on pages 32 to 64 were approved and authorised for issue by the Directors on 16 April 2018.
They are signed on the Board’s behalf by:
Rory Nealon
Director
Company Number
5316808
36
AMRYT PHARMA ANNUAL REPORT 2017
Company Statement of Cash Flows
For the year ended 31 December 2017
Note
31 December
2017
€’000
31 December
2016
€’000
Cash flows from operating activities
Loss for the year – continuing operations
Profit for the year – discontinued operations
Loss for the year
Net interest income
Share based payment expense
Impairment of loans advanced
Movements in working capital and other adjustments:
Change in trade and other receivables
Change in trade and other payables
Net cash flow used in operating activities
Cash flow from investing activities
Bank interest received
Expenditure on development of website
Funds received from / (advanced to) subsidiary companies
Net cash inflow on disposal of subsidiaries
Net cash flow from/ (used) in investing activities
Cash flow from financing activities
Proceeds from issue of equity instruments net of expenses
Net cash flow from financing activities
Exchange and other movements
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
24
4
14
20
11
13
17
16
(1,361)
–
(1,361)
(2)
565
–
5
253
(540)
1
(87)
622
–
536
14,393
14,393
1
14,390
51
14,441
(1,955)
40
(1,915)
(5)
243
(40)
188
(262)
(1,791)
2
–
(22,078)
40
(22,036)
11,251
11,251
2
(12,574)
12,625
51
37
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Company Statement of Changes in Equity
For the year ended 31 December 2017
Balance at 1 January 2016
Loss and total comprehensive loss for the year
Issue of shares on acquisition of Amryt DAC
Issue of placing shares – net of costs
Issue of placing warrants
Share based payments
Balance at 31 December 2016
Balance at 1 January 2017
Loss and total comprehensive loss for the year
Issue of placing shares – gross of costs
Issue of placing shares – costs
Share based payments
Share based payments – lapsed
Balance at 31 December 2017
Note
24
17
17
5
24
17
4
Share
capital
€’000
18,336
_
1,557
526
–
–
Share
premium
€’000
Share based
payment
reserve
€’000
35,221
1,721
–
–
10,725
(2,251)
–
–
–
–
2,251
243
4,215
20,419
43,695
Merger
reserve
€’000
Accumulated
deficit
€’000
–
–
35,818
–
–
–
(42,819)
(1,915)
–
–
–
–
Total
€’000
12,459
(1,915)
37,375
11,251
–
243
35,818
(44,734)
59,413
20,419
43,695
4,215
35,818
(44,734)
–
754
–
–
–
–
14,329
(690)
–
–
–
–
–
565
(25)
–
–
–
–
–
(1,361)
–
–
–
25
59,413
(1,361)
15,083
(690)
565
–
21,173
57,334
4,755
35,818
(46,070)
73,010
Share capital represents the cumulative par value arising upon issue of ordinary shares of 1p each and deferred shares of 29.4p each.
Share premium represents the consideration that has been received in excess of the nominal value on issue of share capital.
Share based payment reserve relates to the charge for share based payments in accordance with International Financial Reporting Standard 2.
The merger reserve was created on the acquisition of Amryt DAC. Consideration on the acquisition included the issuance of shares. Under section 612 of the Companies Act
2006, the premium on these shares has been included in a merger reserve.
Accumulated deficit represents losses accumulated in previous periods and the current year.
38
AMRYT PHARMA ANNUAL REPORT 2017
Notes to the Financial Statements
For the year ended 31 December 2017
1. General information
Amryt Pharma plc (the “Company”) is
a company incorporated in England
and Wales. Details of the registered
office, the officers and advisers to
the Company are presented on the
Company Information page at the
end of this report. The Company
is listed on the AIM market of the
London Stock Exchange (ticker:
AMYT.L) and the Enterprise Securities
Market of the Irish Stock Exchange
(ticker: AYP).
Amryt is a development and
commercial stage pharmaceutical
Company focused on acquiring,
developing and delivering innovative
new treatments to help improve
the lives of patients with rare and
orphan diseases.
Following on from its acquisition
by the Group in 2016, Birken AG
was renamed Amryt AG in 2017. All
references in the notes to the accounts
to Amryt AG relate to the entity that
was formerly called Birken AG.
2. Accounting policies
BASIS OF PREPARATION
The consolidated financial statements
consolidate those of the Company and
its subsidiaries (together the “Group”).
The consolidated financial statements
of the Group and the individual financial
statements of the Company have been
prepared in accordance with International
Financial Reporting Standards (“IFRS”) as
adopted by the EU and with those parts
of the Companies Act 2006 applicable to
companies reporting under IFRS.
Consolidation
The consolidated financial statements
comprise the financial statements of the
Company and its subsidiaries for the year
ended 31 December 2017. Subsidiaries
are entities controlled by the Group.
Where the Group has control over an
investee, it is classified as a subsidiary.
The Group controls an investee if all three
of the following elements are present:
power over an investee, exposure to
variable returns from the investee, and
the ability of the investor to use its
power to affect those variable returns.
Control is reassessed whenever facts and
circumstances indicate that there may
be a change in any of these elements of
control. Subsidiaries are fully consolidated
from the date that control commences
until the date that control ceases.
Accounting policies of subsidiaries have
been changed where necessary to ensure
consistency with the policies adopted
by the Group. Intergroup balances and
any unrealised gains or losses or income
or expenses arising from intergroup
transactions are eliminated in preparing
the consolidated financial statements.
Reverse Acquisition
On 18 April 2016 Fastnet Equity plc
(“Fastnet”) became the legal parent
Company of Amryt Pharmaceuticals
DAC (“Amryt DAC”) in a share for share
transaction, and on the same date
changed its name from Fastnet to Amryt
Pharma plc (“Amryt”). On the same date
Amryt DAC completed the acquisitions
of Amryt AG and SomPharmaceuticals
(“SOM”). The acquisition of Amryt AG
by Amryt DAC constitutes a business
combination. Due to the relative size of
Amryt DAC and Fastnet, Amryt DAC’s
shareholders became the majority
shareholders of the enlarged share
capital (before a share placing on the
same date). In addition, the Company’s
continuing operations and executive
management became those of Amryt
DAC. Management considers that
the acquisition constitutes a reverse
acquisition of Fastnet by Amryt DAC.
It would normally be necessary for the
Company’s consolidated accounts to
follow the legal form of the business
combination – with Amryt DAC’s results
from the acquisition date of 18 April 2016
consolidated into the Group results. In
this case, the consolidated accounts have
been treated as being a continuation of
the accounts of Amryt DAC with Fastnet
being treated for accounting purposes as
the acquired entity.
As the consolidated group results
represent a continuation of the financial
statements of the legal subsidiary
(Amryt DAC), the assets and liabilities of
Amryt DAC have been recognised and
measured in the consolidated results at
their pre-combination carrying amounts.
The accumulated deficit and other equity
balances recognised are the accumulated
deficit and other equity balances of Amryt
DAC immediately before the business
combination and the amount recognised
as issued equity instruments has been
determined by adding to the issued
equity of Amryt DAC immediately before
the business combination the cost of the
combination, being the value of notional
shares issued by Amryt DAC. To comply
with UK company law, adjustments have
been made to the consolidated reserves in
2016 to reflect the equity structure of the
legal parent Company, Amryt Pharma Plc.
Merger reserve
The merger reserve was created on
the acquisition of Amryt DAC by Amryt
Pharma plc in April 2016. Ordinary shares
in Amryt Pharma plc were issued to
acquire the entire issued share capital
of Amryt DAC. Under section 612 of
the Companies Act 2006, the premium
on these shares has been included in a
merger reserve.
39
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Presentation of Balances
The financial statements are presented in Euro (”€”) which is the functional and presentational currency of the Group. Balances in the
financial statements are rounded to the nearest thousand (€’000) except where otherwise indicated.
The following table discloses the major exchange rates of those currencies utilised by the Group:
Foreign currency units to 1 €
Average period to 31 December 2017
At 31 December 2017
Average period to 31 December 2016
At 31 December 2016
US$
1.1259
1.1901
1.1024
1.0516
£
0.8715
0.8813
0.8161
0.8521
CHF
1.1082
1.1678
1.0896
1.0715
SEK
9.6085
9.8719
–
–
NOK
9.2979
9.9537
–
–
DKK
7.4411
7.4412
–
–
(US$ = US Dollars; £ = Pounds Sterling, CHF = Swiss Franc, SEK = Swedish Kroner, NOK = Norwegian Kroner, DKK = Danish Kroner)
CHANGES IN ACCOUNTING
POLICIES AND DISCLOSURES
The accounting policies adopted are
consistent with those of the previous
financial period. New standards and
amendments to IFRS effective as of
1 January 2017 have been reviewed by the
Group. These standards and amendments
principally relate to clarifications and
presentation and there has been no
material impact on the recognition,
measurement or classification of amounts
in the financial statements as a result.
STANDARDS ISSUED
BUT NOT YET EFFECTIVE
There were a number of standards and
interpretations which were in issue at 31
December 2017 but were not effective
at 31 December 2017 and have not been
adopted for these financial statements.
These following new standards,
amendments and interpretations are
either not expected to have a material
impact on the consolidated financial
statements or are still under assessment
by the Group.
(a) Not expected to have a material
impact on the consolidated financial
statements:
These standards and amendments
principally relate to clarifications and
presentation and there has been no
material impact on the recognition,
measurement or classification of amounts
in the financial statements as a result.
(b) Subject to ongoing assessment
by the Group:
•
IFRS 15, Revenue from Contracts
with Customers (effective for the
Group’s 2018 Consolidated financial
statements). The Standard provides
a single, principles-based approach
to the recognition of revenue from
all contracts with customers. It focuses
on the identification of performance
obligations in a contract and requires
revenue to be recognised when
or as those performance obligations
are satisfied. Amryt will adopt
IFRS 15 applying the modified
retrospective approach.
Throughout 2017, the Group performed
a detailed analysis of the impact of
IFRS 15 including a review of our sales
arrangements. At this point, we have
concluded that there is no material
impact arising from transition to IFRS 15.
As part of the review of the impact of
IFRS 15, the Group made an assessment
of whether there was any potential
impact of variable consideration
(such as volume discounts), warranty
consideration or loss making
contracts and of whether any agency
considerations were applicable. As
a result of the initial assessment
undertaken, the Group have determined
that no change to the current
accounting treatment would apply as a
result of the adoption of IFRS 15.
IFRS 15 disclosure requirements are
more detailed than under current IFRS.
The Group is in the process of finalising
the disclosures required to be reported
in 2018.
•
IFRS 9, Financial Instruments (effective
for the Group’s 2018 consolidated
financial statements). The Standard
replaces the majority of IAS 39 and
covers the classification, measurement
and de-recognition of financial assets
and financial liabilities, introduces a
new impairment model for financial
assets based on expected losses rather
than incurred losses and provides
a new hedge accounting model.
Management’s initial assessment
indicates there will be no material
impact on the Group’s financial
instruments from the adoption of
IFRS 9. Management continue to
review the potential impact on the
Parent Company.
•
IFRS 16 Leases (effective for the
Group’s 2019 consolidated financial
statements). IFRS 16 sets out the
principles for the recognition,
measurement, presentation and
disclosure of leases and requires lessees
to account for the majority of leases
under a single on-balance sheet model,
similar to the accounting for finance
leases under IAS 17. The standard
includes two recognition exemptions
for lessees – leases of ‘low-value’ assets
(e.g. personal computers) and short-
term leases (i.e. leases with a term of
12 months or less). It also includes an
election which permits a lessee not to
separate non-lease components (e.g.
maintenance) from lease components
and instead capitalise both the lease
cost and associated non-lease cost.
At the commencement date of a lease,
a lessee will recognise a liability to make
lease payments (i.e. the lease liability)
and an asset representing the right to
use the underlying asset during the
lease term (i.e. the right-of-use asset).
Lessees will be required to separately
recognise the interest expense on the
lease liability and the depreciation
expense on the right-of-use asset.
Under IFRS 16 lessees will also be
required to remeasure the lease liability
upon the occurrence of certain events
(e.g. a change in lease term or a change
in future lease payments resulting from
a change in an index or rate used to
determine those payments). The lessee
will generally recognise the amount
of the remeasurement of the lease
liability as an adjustment to the
right-of-use asset.
40
AMRYT PHARMA ANNUAL REPORT 2017
The Group has entered into operating
leases for a relatively small number
of assets, principally relating to two
properties in Ireland and Germany.
The adoption of the new standard
will not have a material impact on the
Group’s Consolidated Statement of
Comprehensive income. Operating
expenses will decrease (€281,000 in 2017)
and depreciation increase, as under the
new standard the right-of-use asset will be
capitalised and depreciated over the term
of the lease with an associated finance
cost applied annually to the lease liability.
With the exemption of the Group’s
property leases, the low value exemption
is likely to apply to all the Group’s
other operating leases are they are
not significant in value. In addition to
the impacts above, there will also be
significantly increased disclosures when
the Group adopts IFRS 16. The Group will
continue to assess its portfolio of leases
to calculate the impending impact of
transition to the new standard during 2018.
CRITICAL ACCOUNTING
JUDGEMENTS AND KEY SOURCES
OF ESTIMATION UNCERTAINTY
The preparation of financial statements
in conformity with IFRS requires
management to make judgements,
estimates and assumptions that affect
the application of policies and amounts
reported in the financial statements and
accompanying notes. The estimates and
associated assumptions are based on
historical experience and various other
factors that are believed to be reasonable
under the circumstances, the results
of which form the basis of making the
judgements about the carrying value of
assets and liabilities that are not readily
apparent from other sources. Actual
results may differ from these estimates.
The estimates and underlying
assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates
are recognised in the period in which the
estimate is revised if the revision affects
only that period or in the period of the
revision and future periods if the revision
affects both current and future periods.
The critical accounting policies which
involve significant estimates, assumptions
or judgements, the actual outcome of
which could have a material impact on
the Group’s results and financial position
outlined below, are as follows:
Impairment of intangible assets
The impairment testing process for
intangible assets requires management
to make significant judgements and
estimates to determine the fair value
of the assets. Management periodically
evaluates and updates the estimates
based on the conditions which influence
these variables. A detailed discussion of
the impairment methodology applied and
key assumptions used by the Group in the
context of long-lived assets and goodwill
is provided in note 11 to the consolidated
financial statements. The assumptions and
conditions for determining impairment
of goodwill reflect management’s best
assumptions and estimates, but these
items involve inherent uncertainties
described above, many of which are not
under management’s control. As a result,
the accounting for such items could
result in different estimates or amounts if
management used different assumptions
or if different conditions occur in future
accounting periods.
Contingent consideration
Contingent consideration arising as
a result of business combinations is
initially recognised at fair value using
a probability adjusted present value
model. The fair value of the contingent
consideration is updated at each
reporting date. The key judgements
and estimates applied by management
in the determination of the fair value
of the contingent consideration relate
to the determination of an appropriate
discount rate, the assessment of
market size and opportunity and
probability assessments based on
market data for the chance of success
of the commercialisation of an
orphan drug. A detailed discussion
of the methodology applied and
key input assumptions used by the
group is provided in note 5 to the
consolidated financial statements.
The fair value of the contingent
consideration uses management’s
best estimates and judgements and
sensitivities have been assessed
by management by considering
movements in the discount rate
applied and movements in revenue
forecasts. The chance of success of
product development is based on
published market data. See note 22
for quantification of these sensitivities.
41
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Research and development expenses
Development costs are capitalised as
an intangible asset if all of the following
criteria are met:
1. The technical feasibility of completing
the asset so that it will be available for
use or sale;
2. The intention to complete the asset and
use or sell it;
3. The ability to use or sell the asset;
4. The asset will generate probable future
economic benefits and demonstrate the
existence of a market or the usefulness
of the asset if it is to be used internally;
5. The availability of adequate technical,
financial and other resources to
complete the development and to use
or sell it; and
6. The ability to measure reliably the
expenditure attributable to the
intangible asset.
In process R&D acquired as part of a
business combination is capitalised at
the date of acquisition. Research costs
are expensed when they are incurred.
Factors which impact our judgement
to capitalise certain research and
development expenditure include
the degree of regulatory approval for
products and the results of any market
research to determine the likely future
commercial success of products being
developed. We review these factors each
year to determine whether our previous
estimates as to feasibility, viability and
recovery should be changed.
The assessment whether development
costs can be capitalized requires
management to make significant
judgements. Management has reviewed
the facts and circumstances of each
project in relation to the above criteria
and in management’s opinion, the
criteria prescribed for capitalising
development costs as assets have not
yet been met by the Group in relation to
AP101 or AP102. Accordingly, all of the
Group’s costs related to research and
development projects are recognised as
expenses in the Consolidated Statement
of Comprehensive Income in the period
in which they are incurred. Management
expects that the above criteria will be met
on filing of a submission to the regulatory
authority for final drug approval or
potentially in advance of that on the
receipt of information that strongly
indicates that the development will
be successful.
Business combination
The Group acquisition of Amryt AG was
completed on 18 April 2016 with Amryt
DAC acquiring the entire issued share
capital of Amryt AG as at this date. In
accounting for this transaction, the
Directors considered the date of when
control of Amryt AG passed to the
Group, the fair value of the consideration
settled and the fair value of the assets
and liabilities acquired. The Group
engaged third party advisers to assist in
the determination of the fair value of the
consideration and the fair value of the
assets and liabilities acquired. See note 5
for further information.
PRINCIPAL
ACCOUNTING POLICIES
The principal accounting policies
are summarised below. They have
been consistently applied throughout
the period covered by the
financial statements.
Revenue recognition
Revenue from the sale of goods is
recognised in the Consolidated Statement
of Comprehensive Income when the
significant risks and rewards of ownership
have been transferred to the buyer.
Imlan revenue is generally recorded as
of the date of shipment, consistent with
typical ex-works shipment terms. For
Lojuxta revenues, the Group sells direct
to customers and also uses third parties
in the distribution of the product to
customers. Where the shipment terms
do not permit revenue to be recognised
as of the date of shipment, revenue is
recognised when the Group has satisfied
all of its obligations to the customer in
accordance with the shipping terms.
Revenue, including any amounts
invoiced for shipping and handling costs
and excluding sales taxes, represents
the value of the goods supplied to
external customers.
Revenue from services rendered
in the Consolidated Statement of
Comprehensive Income is recognised in
proportion to the stage of completion of
the transaction at the reporting date.
Revenue is recognised to the extent that
it is probable that economic benefit will
flow to the Group, that risks and rewards
of ownership have passed to the buyer
and the revenue can be reliably measured.
No revenue is recognised if there is
uncertainty regarding recovery of the
consideration due at the outset of the
transaction or the possible return
of goods.
Financial instruments
Financial instruments are classified
on initial recognition as financial
assets, financial liabilities or equity
instruments in accordance with
the substance of the contractual
arrangement. Financial instruments
are initially recognised when
the Group becomes party to the
contractual provisions of the
instrument. Financial assets are
de-recognised when the contractual
rights to the cash flows from the
financial asset expire or when the
contractual rights to those assets
are transferred. Financial liabilities
are de-recognised when the
obligation specified in the contract is
discharged, cancelled or expired.
Financial assets
All financial assets are categorised as
‘loans and receivables’.
Cash and cash equivalents
Cash comprises cash on hand and bank
balances. Cash equivalents are short-term,
highly liquid investments that are readily
convertible to known amounts of cash,
which are subject to an insignificant risk
of changes in value and have a maturity
of three months or less at the date
of acquisition.
Restricted cash
Restricted cash comprises current cash
and cash equivalents that are restricted as
to withdrawal or usage. Cash held by the
Group’s distribution partner for Lojuxta on
behalf of the Group is treated as restricted
cash in the financial statements.
Trade and other receivables
Trade and other receivables have
fixed or determinable payments
that are not quoted in an active
market, are measured at initial
recognition at fair value, and are
subsequently measured at amortised
costs using the effective interest
method less impairment. Trade and
other receivables are reduced by
appropriate allowances for estimated
irrecoverable amounts. Interest
income is recognised
by applying the effective interest rate,
except for short-term receivables
when the recognition of interest
would be immaterial.
42
AMRYT PHARMA ANNUAL REPORT 2017 FINANCIAL STATEMENTS
Impairment of financial assets
At each statement of financial position
date, financial assets are assessed for
indicators of impairment. Financial assets
are impaired if indications exist that
events have occurred after the initial
recognition of the financial asset that
estimated future cash flows have been
impacted. If any such indication exists,
the recoverable amount of the asset
is estimated in order to determine the
extent of the impairment loss. Where the
asset does not generate cash flows that
are independent from other assets, the
Group estimates the recoverable amount
of the cash-generating unit to which
the asset belongs. Any impairment loss
arising from the review is charged to the
Statement of Comprehensive Income
whenever the carrying amount of the
asset exceeds its recoverable amount.
Financial liabilities
Financial liabilities are categorised as
‘fair value through profit or loss’ or ‘other
financial liabilities measured at amortised
costs using the effective interest method’.
Trade and other payables
Trade and other payables are initially
measured at their fair value and are
subsequently measured at their amortised
cost using the effective interest rate
method except for short-term payables
when the recognition of interest would
be immaterial.
Interest bearing loans and borrowings
Interest-bearing loans and borrowings
are recognised initially at fair value less
attributable transaction costs. Loans and
borrowings are subsequently carried at
amortised cost using the effective
interest method.
Contingent consideration
Contingent consideration arising as a
result of business combinations is initially
recognised at fair value using a probability
adjusted present value model. Key inputs
in the model include the probability
of success and the expected timing of
potential revenues. The fair value of the
contingent consideration will be updated
at each reporting date. Adjustments to
contingent consideration are recognised
in the Consolidated Statement of
Comprehensive Income.
Inventories
Inventories are valued at the lower of
cost or net realisable value. The costs are
calculated according to the first in first out
method (FIFO). Cost includes materials,
direct labour and an attributable
proportion of manufacturing overheads
based on normal levels of activity. Work in
progress valuation is based on the stage
of quality checks successfully performed
during the production process. An
inventory valuation adjustment is made
if the net realisable value is lower than
the book value. Net realisable value is
determined as estimated selling prices less
all costs of completion and costs incurred
in selling and distribution.
Inventories held by third party supply
chain partners are included in inventory
totals when the risks and rewards
of ownership have been deemed as
transferred to the Group under the
contract terms of the distribution
agreement. The cost to acquire the
inventory held by the supply chain
partners is recognised as a liability
of the Group.
Leases
The group has a number of operating
leases, with the Group as lessee.
The ongoing lease payments are stated
as expenses when incurred. There are
no material lease incentives in place.
Foreign currency translation
The Group translates foreign currency
transactions into its presentational
currency, €, at the rate of exchange
prevailing at the transaction date.
Monetary assets and liabilities
denominated in foreign currencies
are translated into the presentational
currency at the rate of exchange
prevailing at the Statement of
Financial Position date. Exchange
differences arising are taken to the
Statement of Comprehensive Income.
Group entities with a functional
currency other than € are translated
into € at: average exchange rates for
income and expenses; and reporting
date exchange rates for assets and
liabilities. Exchange differences arising
on consolidation are recognised in
other comprehensive income.
Property, plant and equipment
Property, plant and equipment comprise
of property and office equipment. Items of
property, plant and equipment are stated
at cost less any accumulated depreciation
and any impairment losses. It is not Group
policy to revalue any items of property,
plant and equipment.
Depreciation is charged to the Statement
of Comprehensive Income on a straight-
line basis to write-off the cost of the assets
over their expected useful lives as follows:
• Property, plant and machinery
5 to 15 years
• Office equipment
3 to 10 years
Business combinations
Business combinations are accounted
for using the acquisition method. The
cost of an acquisition is measured as
the aggregate of the consideration
transferred, measured at acquisition date
fair value and the amount of any non-
controlling interest in the acquiree. Fair
values are attributed to the identifiable
assets and liabilities unless the fair
value cannot be measured reliably, in
which case the value is subsumed into
goodwill. In the consolidated financial
statements, acquisition costs incurred are
expensed and included in general and
administrative expenses.
To the extent that settlement of all
or any part of the consideration for a
business combination is deferred, the
fair value of the deferred component
is determined through discounting the
amounts payable to their present value
at the date of the exchange. The discount
component is unwound as an interest
charge in the Consolidated Statement
of Comprehensive Income over the
life of the obligation. Any contingent
consideration is recognised at fair value at
the acquisition date and included in the
cost of the acquisition. The fair value of
contingent consideration at acquisition
date is arrived at through discounting the
expected payment (based on scenario
modelling) to present value. In general,
in order for contingent consideration to
become payable, pre-defined revenues
and/or milestones dates must be
exceeded. Subsequent changes to the fair
value of the contingent consideration will
be recognised in profit or loss unless the
contingent consideration is classified
as equity, in which case it is not
remeasured and settlement is accounted
for within equity.
43
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Share based payments
The Group issues share options as an
incentive to certain senior management
and staff. The fair value of options
granted is recognised as an expense with
a corresponding credit to the share-
based payment reserve. The fair value is
measured at grant date and spread over
the period during which the awards vest.
For equity-settled share-based payment
transactions, the goods or services
received and the corresponding increase
in equity are measured directly at the fair
value of the goods or services received,
unless that fair value cannot be estimated
reliably. If it is not possible to estimate
reliably the fair value of the goods or
services received, the fair value of the
equity instruments granted as calculated
using the Black Scholes model is used
as a proxy.
The Group may issue warrants to key
consultants, advisers and suppliers in
payment or part payment for services or
supplies provided to the Group. The fair
value of warrants granted is recognised
as an expense. The corresponding credits
are charged to the share-based payment
reserve. The fair value is measured at grant
date and spread over the period during
which the warrants vest. The fair value is
measured using the Black Scholes model
if the fair value of the services received
cannot be measured reliably.
The estimate of the fair value of services
received is measured based on Black
Scholes model using input assumptions,
including weighted average share price,
expected volatility, weighted average
expected life and expected yield. The
expected life of the options is based
on historical data and is not necessarily
indicative of exercise patterns that may
occur. The expected volatility is based on
the historic volatility (calculated based
on the expected life of the options).
The Group has considered how future
experience may affect historical volatility.
When the initial accounting for a business
combination is determined provisionally,
any adjustments to the provisional values
allocated to the consideration, identifiable
assets or liabilities (and contingent
liabilities, if relevant) are made within the
measurement period, a period of no more
than one year from the acquisition date.
Frequently, the acquisition of
pharmaceutical patents and licences
is effected through a non-operating
corporate structure. As these structures do
not represent a business, it is considered
that the transactions do not meet the
definition of a business combination.
Accordingly, the transactions are
accounted for as the acquisition of
an asset. The net assets acquired are
recognised at cost.
Acquired intangible assets
Acquired intangible assets outside
business combinations are stated
at the lower of cost less provision
for amortisation and impairment or
the recoverable amount. Acquired
intangibles assets are amortised over
their expected useful economic life
on a straight line basis. In determining
the useful economic life each
acquisition is reviewed separately
and consideration given to the period
over which the Group expects to
derive economic benefit.
Intangibles assets acquired in 2016
as part of the acquisitions of Amryt
AG and SomPharmaceuticals are
currently not being amortised as the
assets are still under development.
Factors which impact our judgement
to capitalise certain research and
development expenditure include
the degree of regulatory approval
for products and the results of any
market research to determine the
likely future commercial success of
products being developed. We review
these factors each year to determine
whether our previous estimates as
to feasibility, viability and recovery
should be changed.
Investment in subsidiaries
Investments in subsidiaries are stated at
cost less impairment.
Impairment
At each reporting date, the Group
reviews the carrying amounts of its
investments and acquired 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 in order to determine
the extent of the impairment loss.
Any impairment loss arising from the
review is charged to the Statement
of Comprehensive Income.
The Group assesses each asset or
cash-generating unit annually to
determine whether any indication of
impairment exists. Where an indicator of
impairment exists, a formal estimate of
the recoverable amount is made, which
is considered to be the higher of the
carrying value and value in use. These
assessments require the use of estimates
and assumptions such as discount rates,
future capital requirements, general risks
affecting the pharmaceutical industry and
other risks specific to the individual asset.
Fair value is determined as the amount
that would be obtained from the sale of
the asset in an arm’s length transaction
between knowledgeable and willing
parties. Fair value is generally determined
as the present value of estimated future
cash flows arising from the continued use
of the asset, using assumptions that an
independent market participant may take
into account. Cash flows are discounted
to their present value using a pre-tax
discount rate that reflects current market
assessments of the time value of money
and the risks specific to the asset. Assets
are grouped into the smallest group
that generate cash inflows which are
independent of other assets.
Taxes
Tax comprises current and deferred tax.
Current tax is the expected tax payable on
the taxable income for the year, using tax
rates enacted or substantively enacted at
the reporting date and taking into account
any adjustments stemming from prior
years. Deferred tax assets or liabilities are
recognised where the carrying value of
an asset or liability in the Statement of
Financial Position differs to its tax base,
and is accounted for using the statement
of financial position liability method.
Recognition of deferred tax assets is
restricted to those instances where it
is probable that taxable profit will be
available against which the difference
can be utilised.
44
AMRYT PHARMA ANNUAL REPORT 2017 Employee Benefits
Defined contribution plans
The Group operates defined
contribution schemes in various
locations where employees are
based. Contributions to the defined
contribution schemes are recognised
in the Statement of Comprehensive
Income in the period in which the
related services are received from
the employee. Under these schemes,
the Group has no obligation, either
legal or constructive, to pay further
contributions in the event that the
fund does not hold sufficient assets to
meet its benefit commitments.
3. Segmental information
The two identified operating segments
are as follows:
1) Commercial - This operating segment
includes the financial results of the
Group’s two current commercial
product lines, Imlan and Lojuxta.
2) Research and Development (”R&D”) -
This operating segment includes the
financial results of the Group’s two
current research and development
assets, AP101 and AP102.
The analysis by operating segment
includes both items directly attributable
to a segment and those, including
central overheads, which are allocated
on a reasonable basis when presenting
information to the Chief operational
decision maker (“CODM”). Inter-segmental
revenue is not material and thus not
subject to separate disclosure.
The commercial segment derives its
revenues primarily from one source,
being the pharmaceutical sector with
high unmet medical need. The R&D
segment has no revenue stream and
incurs costs relating to R&D in the rare
and orphan disease sector. Segment
performance is predominantly evaluated
based on revenue (commercial segment
only) and operating profit/loss. Total
revenues, cost of sales and selling and
marketing costs with the exception of
some market research costs allocated
to AP101 are allocated entirely to the
commercial operating segment. Research
and development costs are allocated
entirely to the R&D sector. General and
Administration (“G&A”) costs are split
50:50 between the commercial and R&D
operating segments. Given that financing
costs, share based payment expenses,
reverse takeover costs and acquisition
related costs are managed on a centralised
basis, these items are not allocated
between operating segments for the
purposes of the information presented
to the CODM and are accordingly shown
as a separate line item in the segmental
analysis below.
The following presents revenue and
profit/loss information and certain
asset and liability information regarding
the Group’s commercial and R&D
operating segments.
REVENUE BY TYPE – COMMERCIAL SEGMENT
Lojuxta
Other
Total revenue
31 December 2017
€’000
31 December 2016
€’000
11,924
854
12,778
775
576
1,351
Lojuxta is sold through a third party to a number of different countries in the EEA and Middle East.
REVENUE GEOGRAPHICAL INFORMATION – COMMERCIAL SEGMENT
31 December 2017
€’000
31 December 2016
€’000
EEA
Middle East
Total revenue
12,394
384
12,778
The Group generates over 77% of its Lojuxta revenue in Italy, the Netherlands and Greece.
This compares to 90% of Lojuxta revenues in Italy, the Netherlands and Greece for the period in 2016.
The largest customer in 2017 and 2016 is a distributor in Italy.
1,351
–
1,351
45
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
OPERATING PROFIT/ (LOSS) BY SEGMENT
Revenue
Cost of sales
Gross margin
R&D expenses
Sales and marketing expenses
General and administrative expenses
Other expenses
Operating profit/ (loss)
Commercial
€’000
12,778
(5,373)
7,405
–
(3,527)
(3,276)
–
602
31 December 2017
R&D
€’000
–
–
–
(10,564)
(162)
(3,276)
–
(14,002)
Centralised
Costs
€’000
–
–
–
–
–
–
(12,736)
(12,736)
Total
€’000
12,778
(5,373)
7,405
(10,564)
(3,689)
(6,552)
(12,736)
(26,136)
Other expenses include net finance costs, depreciation, fx gains and losses and share based payments and are classified as central office costs.
OPERATING PROFIT/ (LOSS) BY SEGMENT
Revenue
Cost of sales
Gross margin
R&D expenses
Sales and marketing expenses
General and administrative expenses
Other expenses
Operating profit/ (loss)
Commercial
€’000
1,351
(586)
765
–
(431)
–
–
334
31 December 2016
R&D
€’000
–
–
–
(2,344)
–
(3,411)
–
(5,755)
Centralised
Costs
€’000
–
–
–
–
–
–
(2,383)
(2,383)
Total
€’000
1,351
(586)
765
(2,344)
(431)
(3,411)
(2,383)
(7,804)
Other expenses include net finance costs, depreciation, fx gains and losses, share based payments and all once off costs relating to the
reverse takeover in 2016 and are classified as central office costs.
Due to the fact that the Lojuxta agreement was signed in December 2016, the commercial operating profit for 2016 includes Imlan
revenues and costs of sales for the period from 19 April to 31 December 2016 and Lojuxta revenues, cost of sales and selling expenses
for December 2016. G&A costs were allocated entirely to R&D segment in 2016. In 2017, the G&A costs are all allocated 50:50 between
the commercial and R&D operating segments.
TOTAL ASSETS BY SEGMENT
Commercial
R&D
Centralised assets – cash and cash equivalents
Total assets
TOTAL LIABILITIES BY SEGMENT
31 December 2017
€’000
31 December 2016
€’000
4,595
54,983
20,512
80,090
2,081
54,933
8,271
65,285
31 December 2017
€’000
31 December 2016
€’000
Commercial
R&D
Centralised liabilities – long term loan, contingent consideration and tax
Total liabilities
7,650
2,150
48,404
58,204
1,396
2,154
28,698
32,248
46
AMRYT PHARMA ANNUAL REPORT 2017 Contractual life
The term of an option is determined by
the Compensation Committee provided
that the term may not exceed a period
of seven years from the date of grant.
All options will terminate 90 days after
termination of the option holder’s
employment, service or consultancy
with the Group except where a longer
period is approved by the Board of
Directors. Under certain circumstances
involving a change in control of the
Group, the Compensation Committee
may accelerate the exercisability and
termination of options.
4. Share-based payments
The Company has issued share
options as an incentive to certain
senior management and staff. In
addition, the Company has issued
warrants to key consultants, advisers
and suppliers in payment or part
payment for services or supplies
provided to the Group. All share
options granted during the year were
granted under the terms of the Amryt
Share Option Plan and are subject
to vesting conditions. There were
no warrants granted during the year
ended 31 December 2017. All warrants
granted in 2016 were granted under
individual agreements as part of the
April 2016 share placing.
Each share option and warrant converts
into one ordinary share of Amryt Pharma
plc on exercise and are accounted for as
equity-settled share-based payments.
The options and warrants may be
exercised at any time from the date of
vesting to the date of their expiry. The
equity instruments granted carry neither
rights to dividends nor voting rights.
The terms and conditions of the grants are
as follows, whereby all options are settled
by physical delivery of shares:
Vesting conditions
The options vest following a period of
service by the officer or employee. The
required period of service is determined
by the Compensation Committee at the
date of grant of the options (usually the
date of approval by the Compensation
Committee) and it is generally over a three
to four year period. There are no market
conditions associated with the share
option vesting periods.
SHARE OPTIONS AND WARRANTS IN ISSUE:
Balance at 1 January 2016
Granted during the year
Lapsed during the period
Balance at 31 December 2016
Exercisable at 31 December 2016
Balance at 1 January 2017
Granted during the year
Lapsed during the year
Balance at 31 December 2017
Exercisable at 31 December 2017
Share Options1
Warrants1
Units
815,954
15,451,564
(472,204)
15,795,314
343,750
15,795,314
8,894,460
(4,993,188)
19,696,586
3,281,961
Weighted average
exercise price
84.0p
19.1p
110.0p
19.8p
48.0p
19.8p
20.22p
22.98p
19.16p
20.61p
Units
491,512
22,909,951
(94,194)
23,307,269
21,234,014
23,307,269
–
(203,788)
23,103,481
23,103,481
Weighted average
exercise price
102.4p
24.0p
112.0p
25.4p
25.4p
25.4p
–
88.0p
24.74p
24.74p
1 Following the 19 April 2016 share consolidation, as described in note 17, all existing rights attached to share options and warrants were amended to reflect the new share
structure. The rights are now over Amryt Pharma plc new ordinary shares of 1p, with the original units divided by a factor of 8 and the original exercise price increased by a
factor of 8. The pre 19 April 2016 numbers included in the table above have been adjusted to take into account the share consolidation.
The fair value is estimated at the date of grant using the Black Scholes pricing model, taking into account the terms and conditions
attached to the grant. The following are the inputs to the model for the equity instruments granted during the year:
Days to Expiry
Volatility
Risk free interest rate
Share price at grant
2017 Options
Inputs
2,555
44%-48%
0.42%-0.77%
18.18p-25.88p
2017 Warrant
Inputs
–
–
–
–
2016 Options
Inputs
2,555
43%-50%
0.64%-0.82%
15.5p-24p
2016 Warrants
Inputs
1,006-1,844
50%
0.82%
24p
47
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
During the current year a total of 8,894,460 share options exercisable at a weighted average price of £0.202 were granted.
The fair value of share options granted during the year is £1,799,000/ €2,038,000. The share options outstanding as at 31 December 2017
have a weighted remaining contractual life of 5.95 years with exercise prices ranging from £0.155 to £0.48.
The value of share options charged to the Statement of Comprehensive Income during the year is as follows:
Share options
Total
31 December
2017
€’000
565
565
31 December
2016
€’000
229
229
In 2016, in addition to the above charges, a further €2,251,000 was charged to share premium, being the fair value of warrants
granted in 2016.
5. Business combinations
and asset acquisitions
REVERSE ACQUISITION OF
FASTNET EQUITY GROUP PLC BY
AMRYT PHARMACEUTICALS DAC
On 16 October 2015, Fastnet Equity plc
(“Fastnet”) signed non-binding heads of
terms with Amryt Pharmaceuticals DAC
(“Amryt DAC”), for the acquisition of Amryt
DAC’s entire issued and to be issued share
capital. The acquisition was completed on
18 April 2016 and on the same date Amryt
DAC completed the acquisitions of Amryt
AG and SomPharmaceuticals (“SOM”),
for consideration satisfied by the issue
of new ordinary shares in Amryt DAC. To
complete the acquisition of Amryt DAC a
total of 123,495,095 new ordinary shares of
1p in Fastnet were issued at an issue price
of 24p per share (“Consideration Shares”).
As detailed in note 2, the acquisition by
Fastnet of Amryt DAC has been treated
for accounting purposes as a reverse
acquisition by Amryt DAC of Fastnet.
In a reverse acquisition, the cost of the
business combination is deemed to have
been incurred by the legal subsidiary
(Amryt DAC) in the form of notional
equity instruments issued to the owners
of the legal parent. The value of the
notional shares is calculated by reference
to the proportion of shares that would
be needed to be issued by Amryt DAC
to Fastnet if the old shareholder base
of Fastnet was to acquire the same
percentage holding in Amryt DAC as it
received in the combined Group.
The value of these notional shares issued
by Amryt DAC was compared to the
Net Asset value of Fastnet on the date
of acquisition and the excess (€971,000)
was charged to the Statement of
Comprehensive Income in 2016 as
a deemed share based payment cost
of the business combination.
In addition, €867,000 in professional
fees was charged to the Statement of
Comprehensive Income in 2016 as part
of the costs associated with the reverse
acquisition and acquisition of Amryt AG
and SOM (see details below). These costs
include legal, due diligence, accounting
and tax advisory and corporate finance.
ACQUISITION OF AMRYT AG
(PREVIOUSLY “BIRKEN”)
Amryt DAC signed a conditional share
purchase agreement to acquire Amryt AG
on 16 October 2015 (“Amryt AG SPA”). The
Amryt AG SPA was completed on 18 April
2016 with Amryt DAC acquiring the entire
issued share capital of Amryt AG. The
consideration comprises:
•
Initial cash consideration of €1,000,000
(paid by Amryt DAC prior to its
acquisition by the Company);
• Milestone payments of:
– €10,000,000 on receipt of first
marketing approval by the EMA of
Episalvan, paid on the completion
date (18 April 2016);
– Either (i) €5,000,000 once net
ex-factory sales of Episalvan have
been at least €100,000 or (ii) if no
commercial sales are made within
24 months of EMA first marketing
approval (being 14 January 2016),
€2,000,000 24 months after receipt
of such approval which was paid
in January 2018 and €3,000,000
following the first commercial sale;
– €10,000,000 on receipt of marketing
approval by the EMA or FDA of a
pharmaceutical product containing
Betulin as its API for the treatment
of Epidermolysis Bullosa;
– €10,000,000 once net ex-factory
sales/net revenue in any calendar
year exceed €50,000,000;
– €15,000,000 once net ex-factory
sales/ net revenue in any calendar
year exceed €100,000,000;
•
•
•
Cash consideration of €150,000, due
and paid on the completion date
(18 April 2016);
Royalties of 9% on sales of Episalvan
products for 10 years from first
commercial sale; and
Shares in Amryt DAC that equated
to a 30% equity shareholding prior
to the acquisition of Amryt DAC by
the Company. The Amryt AG sellers
received 37,048,622 in Consideration
Shares (valued at €11.2 million) for their
shareholding in Amryt DAC.
Fair Value Measurement
of Contingent Consideration
Contingent consideration comprises
the milestone payments and sales
royalties detailed above. As at the
acquisition date, the fair value of the
contingent consideration was estimated
to be €23,314,000. The fair value of the
royalty payments was determined using
probability weighted revenue forecasts
and the fair value of the milestones
payments was determined using
probability adjusted present values (see
note 22 for fair value hierarchy applied
and impact of key unobservable impact
data). The probability adjusted present
values took into account published
orphan drug research data and statistics
which were adjusted by management
to reflect the specific circumstances
applicable to the drugs acquired in the
Amryt AG transaction. A discount rate
of 28.5% was used in the calculation
of the fair value of the contingent
consideration and this was sense checked
by management against the Implied Rate
of Return (“IRR”) on the project. As noted
earlier in the report the size of the market
for the products under development
provides a real opportunity to the Group
to meet its forecast revenue targets and
therefore the milestone targets which
underpin the contingent consideration
payments. At that time management
48
AMRYT PHARMA ANNUAL REPORT 2017 anticipated that AP101 for EB would
be ready to launch in 2019. However,
management noted that due to issues
outside their control (i.e. regulatory
requirements and the commercial success
of the product) the timing of when such
revenue targets may occur may change.
Such changes may have a material impact
on the assessment of the fair value of the
contingent consideration.
It is necessary to review the contingent
consideration on a regular basis as the
probability adjusted fair values are being
unwound as financing expenses in the
Statement of Comprehensive Income
over the life of the obligation. Contingent
consideration is reviewed on a bi-annual
basis and is disclosed in the published
interim results for the 6 month period
to 30 June and the year end results to
31 December.
The total non-cash finance charge
recognised in the Statement of
Comprehensive Income Statement for
the year ended 31 December 2017 is
€11,104,000. The Group is currently in
the process of amending the protocol
for the EASE study and will discuss any
significant changes with the FDA and
the EMA. These amendments include a
modest increase in the size of the study
from 164 to 192 patients and a restriction
on certain wound types, the ultimate
goal of which is to increase the chances
of success of the study. These changes
will result in a slight delay of the interim
analysis which the Group expects will
be complete in Q4 2018, with read out
of top-line data from the AP101 Phase III
study expected in Q2 2019. Consequently,
the launch date for EB and PTW has now
been delayed to 1 July 2020. Coupled
with this, management has completed
its annual forecast and revenues have
been amended to reflect current
expectations. Both these factors have
resulted in a change to the probability
weighted revenue forecasts and the
probability of the adjusted present values
which are used in the calculation of the
contingent consideration balance and
impact the amount being unwound
to the Consolidated Statement of
Comprehensive Income.
One milestone payment consisted of (i)
€5,000,000 once net ex-factory sales of
Episalvan have been at least €100,000
or (ii) if no commercial sales are made
within 24 months of EMA first marketing
approval, €2,000,000 24 months after
receipt of such approval and €3,000,000
following the first commercial sale. No
commercial sales of Episalvan have been
made since EMA first marketing approval.
However, if no commercial sales occur,
€2,000,000 is due for payment 24 months
after the EMA first marketing approval.
The Group made this payment of
€2,000,000 in January 2018 and does not
consider it to be contingent consideration
at year end. Consequently, at 31
December 2017 €2,000,000 is included in
accruals, thereby reducing the contingent
consideration balance at 31 December
2017 from €34,418,000 to €32,418,000.
Assets acquired and liabilities acquired:
Assets
Intangible assets, in process R&D
Property, plant and equipment
Cash and cash equivalents
Inventories
Trade and other receivables
Total assets
Liabilities
Accounts payable and accrued liabilities
Deferred tax liability
Total liabilities
Total net assets
Consideration
Issue of fully paid ordinary shares
Cash consideration
Contingent consideration
Total consideration
FV of assets acquired
€’000
48,461
1,373
705
687
133
51,359
332
5,384
5,716
45,643
11,179
11,150
23,314
45,643
49
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Amryt AG 2016 Results
Amryt AG’s loss and revenue, after adjusting for intercompany transactions, for the year ended 31 December 2017 were €1,483,000
and €830,000 respectively. The loss and revenues for the period from its acquisition date to 31 December 2016 were €1,179,000 and
€571,000 respectively.
SOM ACQUISITION
Amryt DAC entered into conditional stock purchase agreements to acquire SomPharmaceuticals SA and SomTherapeutics, Corp on
15 December 2015 and 4 December 2015 respectively (“Som SPAs”). The aggregate consideration payable under the Som SPAs was
US$4.25 million which was satisfied by the issue of US$4.15 million in new ordinary shares in Amryt DAC and US$100,000 (€89,000) in
cash to the shareholders of SOM. The SOM SPAs were completed on 18 April 2016. The SOM sellers received 12,277,102 of Consideration
Shares for their shareholding in Amryt DAC. The acquisition of SOM has been treated for accounting purposes as an asset acquisition
with the value of the consideration issued, €4,062,000, recognised as an Intangible Asset.
6. Operating loss for the year
Operating loss for the year is stated after charging/(crediting):
Fees payable to the Company’s auditor for audit of the Company’s annual accounts
Fees payable to the Company’s auditor and its associates for other services:
The audit of the Company’s subsidiaries pursuant to legislation
Tax compliance services
Assurance services on corporate finance transactions
Audit-related assurance services
Changes in inventory of finished goods and work in progress
Share based payments
Pension costs
Depreciation of property, plant and equipment
Amortisation of intangible assets
Operating lease rentals
Foreign exchange gains
7. Employees
31 December
2017
€’000
31 December
2016
€’000
73
2
–
–
12
(280)
565
331
257
2
281
(13)
31
16
9
218
7
(471)
229
173
192
2
83
(4)
Including the Directors, the Group’s average number of employees during the year was 41 (2016: 26). Including the Directors, the
Company’s average number of employees during the year was 3 (2016: 4).
Aggregate remuneration comprised:
Group
Company
31 December
2017
€’000
31 December
2016
€’000
31 December
2017
€’000
31 December
2016
€’000
Other wages and salaries
Social security costs
Pension costs – employees
Directors’ remuneration
Share based payments – directors
Share based payments – employees/consultants
Total employee costs
3,733
655
270
1,252
10
555
6,475
1,356
228
131
896
–
229
2,840
–
22
–
181
10
473
686
–
6
–
156
–
243
405
50
AMRYT PHARMA ANNUAL REPORT 2017 The Directors of the Group and Company held the following share options over shares of Amryt Pharma plc which were issued to them
in November 2017:
Director
Joe Wiley
Rory Nealon
No share options were granted to any of the directors in 2016.
HIGHEST PAID DIRECTOR
Group’s highest paid director for the year to 31 December 2017:
Base Salary
and Fees
€‘000
331
Bonuses
€‘000
172
Pension
Contributions
€‘000
33
Group’s highest paid director for the year to 31 December 2016:
Base Salary
and Fees
€‘000
239
Bonuses
€‘000
120
Pension
Contributions
€‘000
24
31 December
2017
Number
2,061,130
824,452
Exercise
price
20.12p
20.12p
Expiry
Date
28/11/24
28/11/24
Share based
payments
€’000
7
Share based
payments
€’000
–
Other
Benefits
€‘000
24
Other
Benefits
€‘000
14
2017
Total
€‘000
567
2016
Total
€‘000
397
8. Net finance expense
Interest on loans
Interest and fees paid
Deposit interest received
Foreign exchange gains
Fair value of embedded derivatives
Total
31 December
2017
€’000
31 December
2016
€’000
830
13
(5)
(13)
–
825
–
2
(1)
(4)
124
121
9. Tax on ordinary activities
No corporation tax charge arises in the year ended 31 December 2017 and the year ended 31 December 2016. A reconciliation of the
expected tax benefit computed by applying the tax rate applicable in the primary jurisdiction, the Republic of Ireland, to the loss before
tax to the actual tax credit is as follows:
Loss before tax
Tax credit at Irish corporation tax rate of 12.5%
Effect of:
Losses unutilised
Expenses not deductible for tax purposes
Differences in overseas taxation rates
Total tax charge on loss on ordinary activities
31 December
2017
€’000
(26,136)
3,267
3,659
–
(392)
–
31 December
2016
€’000
(7,804)
976
1,663
1
(688)
–
The Group has tax losses of up to €44,155,000 (31 December 2016: €32,449,000) to carry forward against future profits. €38,066,000
(2016: €25,691,000) of the losses relate to subsidiaries acquired by Amryt Pharma plc in 2016. €22,419,000 (2016: €20,938,000) of the
subsidiaries’ losses relate to the German domiciled Amryt AG, these losses will be available to the Group going forward. However,
due to the fundamental change in the Company’s business following the exit of the oil and gas industry in 2016, UK tax losses carried
forward of €4,454,000 may not be fully available for use against the future profits of the Group. The deferred tax asset on tax losses at
12.5% of €5,519,000 (31 December 2016: €4,056,000) has not been recognised due to the uncertainty of the recovery.
51
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
10. Loss per share – basic and diluted
In the current year, the weighted average number of shares in the Loss Per Share (“LPS”) calculation, reflects the weighted average total
actual shares of Amryt Pharma plc in issue at 31 December 2017.
In 2016, the weighted average number of shares in the LPS calculation, reflects the legal subsidiary’s, Amryt Pharmaceuticals DAC
(“Amryt DAC”), weighted average pre-combination ordinary shares multiplied by the exchange ratio established in the acquisition,
and the weighted average total actual shares of the legal parent, Amryt Pharma plc (“Amryt”), in issue after the date of acquisition.
ISSUED SHARE CAPITAL – ORDINARY SHARES OF £0.01 EACH
1 January 2016
18 April 2016 – Issue of shares by Amryt DAC on acquisition of Amryt
18 April 2016 – Issue of shares by Amryt DAC on acquisition of SOM
18 April 2016 – Issue of shares by Amryt DAC on conversion of convertible debentures securities
19 April 2016 – Issue of shares by Amryt Pharma plc – share for share exchange on acquisition of
Amryt DAC B ordinary shares1
19 April 2016 – Issue of shares by Amryt Pharma plc – share consolidation
19 April 2016 – Issue of shares by Amryt Pharma plc – share placing
31 December 2016
11 October 2017 – Issue of shares by Amryt Pharma plc – share placing
31 December 2017
Weighted
average shares
55,638,866
Number of shares
58,075,221
37,048,622
12,277,102
8,590,365
7,503,786
43,171,134
41,673,402
208,339,632
163,336,437
66,477,651
274,817,283
223,075,123
1 As part of the 24 August 2015 share placing, Amryt DAC issued B ordinary shares. These shares have not been included in the pre-acquisition weighted average number of
shares as they did not carry rights to dividends or repayment of capital on the winding up of Amryt DAC.
The calculation of loss per share is based on the following:
Loss after tax attributable to equity holders of the Company (€’000)
Weighted average number of ordinary shares in issue
Fully diluted average number of ordinary shares in issue
Basic and diluted loss per share (cent)
31 December
2017
31 December
2016
(26,136)
223,075,123
223,075,123
(11.72)
(7,804)
163,336,437
163,336,437
(4.78)
Where a loss has occurred, basic and diluted LPS are the same because the outstanding share options and warrants are anti-dilutive.
Accordingly, diluted LPS equals the basic LPS. The share options and warrants outstanding as at 31 December 2017 totalled 42,800,067
(31 December 2016: 39,102,583) and are potentially dilutive.
52
AMRYT PHARMA ANNUAL REPORT 2017 11. Intangible assets
Cost
At 1 January 2016
Acquired on acquisition of Amryt AG
Acquired on acquisition of SOM
At 31 December 2016
At 1 January 2017
Additions
At 31 December 2017
Accumulated amortisation
At 1 January 2016
Amortisation charge 2016
At 31 December 2016
At 1 January 2017
Amortisation charge 2017
At 31 December 2017
Net book value
Net book value at 31 December 2015
Net book value at 31 December 2016
Net book value at 31 December 2017
In process
R&D
€’000
Software
€’000
Website
development
€’000
–
48,453
4,062
52,515
52,515
–
52,515
–
–
–
–
–
–
–
52,515
52,515
–
8
–
8
8
–
8
–
2
2
2
2
4
–
6
4
–
–
–
–
–
87
87
–
–
–
–
–
–
–
–
87
Total
€’000
–
48,461
4,062
52,523
52,523
87
52,610
–
2
2
2
2
4
–
52,521
52,606
In process R&D and software intangible
assets are part of the R&D operating
segment. Website costs can be attributed
equally across both operating segments,
commercial and R&D.
The Group reviews the carrying amounts
of its intangible assets on an annual
basis to determine whether there are
any indications that those assets have
suffered an impairment loss. If any such
indications exist, the recoverable amount
of the asset is estimated in order to
determine the extent of the impairment
loss. Impairment indications include
events causing significant changes in any
of the underlying assumptions used in
the income approach utilised in valuing in
process R&D. These key assumptions are:
the probability of success; the discount
factor; the timing of future revenue
flows; market penetration and peak sales
assumptions; and expenditures required
to complete development.
The income approach uses a four year
strategic plan document which has been
approved by senior management. These
cashflows are projected forward for a
further 10 years to 2032 using projected
revenue and cost growth rates up to 20%
to determine the basis for an annuity-
based terminal values. The terminal values
are used in the value in use calculation.
The value in use represents the present
value of the future cash flows, including
the terminal value, discounted at a rate
appropriate to each CGU. Amryt have
identified one CGU, being the AP101
development assay which is anticipated
to be launched to market in 2020. The
key assumptions employed in arriving
at the estimates of future cash flows are
subjective and include projected EBITDA,
an orphan drug market based probability
chance of success, net cash flows, discount
rates and the duration of the discounted
cash flow model. The assumptions and
estimates used were derived from a
combination of internal and external
factors based on historical experience.
The pre-tax discount rate used was
28.5% (2016: 28.5%). The market based
probability chance of success is based on
market benchmarks for orphan drugs (65
%– 67%). As the Group is currently part of
the way through its pivotal Phase III trial,
the probability applied is consistent with
the prior year.
The value-in-use calculation is subject
to significant estimation, uncertainty
and accounting judgements and key
sensitivities arise in the following areas;
•
•
In the event that there was a variation
of 10% in the assumed level of future
growth in revenues, which would,
in management’s view, represent a
reasonably likely range of outcomes,
this variation would not result in an
impairment loss at 31 December 2017.
In the event there was a 10% increase
in the discount rate used in the
value in use model which would
in management’s view represent a
reasonably likely range of outcomes,
this variation would not result in an
impairment loss at 31 December 2017.
During the year the Group did not identify
any potential changes in the assumptions
used in the assessment of the carrying
value of the assets.
53
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
12. Property, plant and equipment
Property
€’000
Plant and Machinery
€’000
Office Equipment
€’000
Cost
At 1 January 2016
Additions
Disposals
Acquired on acquisition of Amryt AG
At 31 December 2016
At 1 January 2017
Additions
Disposals
At 31 December 2017
Accumulated depreciation
At 1 January 2016
Depreciation charge
At 31 December 2016
At 1 January 2017
Depreciation charge
Depreciation charge on disposals
At 31 December 2017
Net book value
Net book value at 31 December 2015
Net book value at 31 December 2016
Net book value at 31 December 2017
–
–
–
337
337
337
–
–
337
–
61
61
61
87
–
148
–
276
189
–
–
(10)
811
801
801
147
(43)
905
–
88
88
88
116
(35)
169
–
713
736
–
12
–
225
237
237
96
(6)
327
–
43
43
43
54
(5)
92
–
194
235
13. Investment in subsidiaries
Equity in subsidiary companies
€’000
Subsidiary funding
€’000
Cost
At 1 January 2016
Additions
At 31 December 2016
At 1 January 2017
Repayment
At 31 December 2017
Impairment
At 1 January 2016
Impairment charge
At 31 December 2016 and 31 December 2017
Net book value
Net book value at 31 December 2015
Net book value at 31 December 2016
Net book value at 31 December 2017
–
37,376
37,376
37,376
–
37,376
–
–
–
37,376
37,376
–
22,078
22,078
22,078
(622)
21,456
–
–
–
22,078
21,456
Total
€’000
–
12
(10)
1,373
1,375
1,375
243
(9)
1,609
–
192
192
192
257
(40)
449
–
1,183
1,160
Total
€’000
–
59,454
59,454
59,454
(622)
58,832
–
–
–
59,454
58,832
54
AMRYT PHARMA ANNUAL REPORT 2017 Equity in subsidiary companies relates
to the issue price of ordinary shares on
the acquisition of Amryt Pharmaceuticals
DAC in 2016. Subsidiary funding additions
in 2016 relate to the advancement of
loans to Amryt Pharmaceuticals DAC and
its underlying subsidiary companies to
fund the operations of those companies
including the R&D costs of AP101 and
AP102. Under the terms of the agreement
in place, the parent provides funding to
Amryt Pharmaceuticals DAC as required
in order to fund costs. The decrease in
funding in 2017 primarily relates to Euro
and USD denominated invoices paid by
Amryt Pharmaceuticals DAC on behalf of
Amryt plc. Recoverability of the loans and
the carrying value of the investments is
directly linked to Amryt Pharmaceuticals
DAC’s operations including the success
or failure of the development of AP101
and AP102. The carrying value of these
investments are held at cost and will
be reviewed at each reporting date for
signs of impairment. No impairment was
identified by Management.
Company
Number
Incorporation
2017
% Holding
2016
% Holding
566448
Ireland
LIST OF SUBSIDIARY COMPANIES:
Subsidiary
Ownership
Activities
Amryt Pharmaceuticals DAC
Direct
Holding company and
management services
Amryt Research Limited
Indirect
Pharmaceuticals R&D
Amryt Endocrinology Limited
Indirect
Pharmaceuticals R&D
Amryt Lipidology Limited
Indirect
Licencee for Lojuxta
Amryt Pharma (UK) Limited
Indirect
Management services
10463152
Amryt Pharma France
Indirect
Dormant
824 418 156 00017
Amryt Pharma Italy SRL
Indirect
Management services
Amryt Pharma Spain SL
Indirect
Management services
2109476
B67130567
Amryt AG (previously Birken AG)
Indirect
SomPharmaceuticals SA
SomTherapeutics, Corp
Indirect
Indirect
Product Sales and
Pharmaceuticals R&D
Pharmaceuticals R&D and
management services
HRB 711487
Germany
CHE-435.396.568
Switzerland
Licence holder
P14000071235
USA
571411
572984
593833
Ireland
Ireland
Ireland
UK
France
Italy
Spain
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
LIST OF REGISTERED OFFICES:
Company
Amryt Pharmaceuticals DAC
Amryt Research Limited
Amryt Endocrinology Limited
Amryt Lipidology Limited
Amryt Pharma (UK) Limited
Amryt Pharma France
Amryt Pharma Italy SRL
Amryt Spain SL
Amryt AG (previously Birken AG)
SomPharmaceuticals SA
SomTherapeutics, Corp
Registered Office Address
90 Harcourt Street, Dublin 2
90 Harcourt Street, Dublin 2
90 Harcourt Street, Dublin 2
90 Harcourt Street, Dublin 2
3rd Floor 1 Ashley Road, Altrincham, Cheshire,
United Kingdom, WA14 2DT
17 Avenue George V, 75008 Paris
Milano (MI), Via Dell’Annunciata 23/4
260 calle Diputacio, Barcelona
Streiflingsweg 11, 75223 Niefern-Öschelbronn
Bahnofstrasse 21, 6300 Zug
3795 Coventry Lane, Boca Raton, FL 33496
55
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
14. Trade and other receivables
Trade receivables
Prepayments and accrued income
VAT recoverable
Trade and other receivables
Group
Company
31 December
2017
€’000
31 December
2016
€’000
31 December
2017
€’000
31 December
2016
€’000
2,929
1,643
157
4,729
844
1,652
44
2,540
–
60
30
90
35
35
25
95
Trade receivables at 31 December 2017 includes €503,000 which is due greater than 60 days. No impairment is necessary as payment
was anticipated in early 2018.
The 31 December 2017 prepayments and accrued income balance includes €1,306,000 (2016: €1,548,000) in relation to prepaid Phase III
clinical trial costs.
15. Inventories – Group
Raw materials
Work in progress
Finished goods
Inventories
16. Cash and cash equivalents
31 December
2017
€’000
31 December
2016
€’000
332
429
322
1,083
299
219
252
770
Cash at bank available on demand
Restricted cash
Total cash and cash equivalents
Group
Company
31 December
2017
€’000
31 December
2016
€’000
31 December
2017
€’000
31 December
2016
€’000
19,975
537
20,512
8,271
–
8,271
14,441
–
14,441
51
–
51
Cash and cash equivalents include cash at bank available on demand and restricted cash.
Restricted cash is cash held by a third party distributor at year end. These funds were transferred to Amryt in January 2018.
56
AMRYT PHARMA ANNUAL REPORT 2017 17. Share capital and reserves – Company
Details of ordinary shares of 1p each issued are in the table below:
Date
At 1 January 2016
19 April – Share consolidation
19 April – Issue of new ordinary shares
on share consolidation
19 April – Creation of deferred shares
on share consolidation
19 April 2016 – Issue of ordinary shares at £0.24
on acquisition of Amryt Pharmaceuticals DAC
19 April 2016 – Issue of ordinary shares at £0.24
At 31 December 2016
11 October 2017 – Issue of ordinary shares
at £0.20
Number of
ordinary shares
Number of
deferred shares
43,171,134
(43,171,134)
43,171,134
–
–
–
–
43,171,134
123,495,096
41,673,402
208,339,632
66,477,651
–
–
43,171,134
–
At 31 December 2017
274,817,283
43,171,134
Total Share
Capital
€’000
18,336
(18,336)
603
17,733
1,557
526
20,419
754
21,173
Total Share
Premium
€’000
35,221
–
–
–
–
8,474
43,695
13,639
57,334
On 11 October 2017, 66,477,651 ordinary
shares of 1p were issued as part of a
€15,083,000 (before expenses) fund
raising. Share issue costs amounted to
€690,000. Net proceeds amounted to
€14,329,000.
a payment of £10,000,000 on each such
share. The deferred shares are not and
will not be listed or traded on the Official
List, AIM, the ESM or any other investment
exchange and are only transferable in
limited circumstances.
SHARE PREMIUM
Share premium represents the
consideration that has been received in
excess of the nominal value on issue of
share capital.
On 19 April 2016, every 8 ordinary shares
of par value 3.8p in the Company at close
of business on 18 April 2016 (total shares
345,369,071) became 1 new ordinary share
of par value 1p (total shares 43,171,134)
and 1 deferred share of par value 29.4p
(total shares 43,171,134). The rights
attaching to the new ordinary shares
of 1p are identical in all respects to those
of the old ordinary shares of 3.8p.
The deferred shares created are
effectively valueless as they do not carry
any rights to vote or dividend rights. In
addition, holders of deferred shares are
only entitled to a payment on a return
of capital or on a winding up of the
Company after each of the holders of
ordinary shares of 1p each have received
On 19 April 2016, 123,495,096 ordinary
shares of 1p were issued as part of the
completion of the acquisition of Amryt
Pharmaceuticals DAC by the Company.
Under section 612 of the Companies Act
2006, the premium on these shares has
been included in the merger reserve.
On 19 April 2016, 41,673,402 ordinary
shares of 1p were issued at 24p per share
as part of a £10,000,000 (before expenses)
fund raising.
SHARE CAPITAL
Share capital represents the cumulative
par value arising upon issue of ordinary
shares of 1p each and deferred shares of
29.4p each.
SHARE BASED PAYMENT RESERVE
Share based payment reserve relates to
the charge for share based payments in
accordance with International Financial
Reporting Standard 2.
MERGER RESERVE
The merger reserve was created on
the acquisition of Amryt DAC by Amryt
Pharma plc in April 2016. Ordinary shares
in Amryt Pharma plc were issued to
acquire the entire issued share capital
of Amryt DAC. Under section 612 of the
Companies Act 2006, the premium on
these shares has been included in
a merger reserve.
57
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
18. Deferred tax liability – Group
At 1 January 2016
Recognised on business combinations
At 31 December 2016 and 31 December 2017
Total
€’000
–
5,384
5,384
The deferred tax liability arose in 2016 on the acquisition of Amryt AG (see note 5). An intangible asset was recognised in relation to in
process R&D. As the intangible asset only arises on consolidation and there may not be tax deductions available on sale, its tax base is nil.
When the intangible asset is amortised the tax difference will reduce and the movement in the deferred tax liability will be recognised
in profit or loss. The in process R&D is currently not being amortised.
The Company intends to continue to hold the acquired asset but does not expect it to generate taxable profits in the acquired
subsidiary. The Company expects to incur any taxable benefits in relation to the asset in Ireland. This is the jurisdiction of the acquirer of
Amryt AG and the location where the majority of future R&D work in relation to the asset will be incurred. Ireland’s tax rate of 12.5% has
been used in calculation of the deferred tax liability.
19. Long term loan – Group
Long term loan
Long term loan interest
Long term loan and interest
In December 2016, Amryt DAC entered
into a €20m facility agreement (“facility”)
with the EIB on attractive terms for the
Group. The facility is significant because it
provides non-dilutive funding that secures
the Group’s near and mid-term funding
needs for its lead product, AP101.
The facility is split into three tranches,
with €10 million available immediately
and two further tranches of €5 million
available upon the achievement of
certain milestones. In April 2017, the
Group drew down the first tranche of
€10 million. In October 2017, the terms
of the second tranche of €5 million were
amended by the EIB so the Group has the
option to draw this amount down any
time it wishes. The Group has not drawn
down this second tranche of €5 million
at 31 December 2017. The third tranche
is conditional on the primary clinical
endpoints for the EASE Phase III clinical
trials in the US or EU being achieved
and therefore it can be concluded that
the Phase III clinical trial have been
successfully completed. The facility is
secured and there is also a negative
pledge whereby Amryt cannot permit
any security to be granted over any of its
assets over the course of the loan period.
The facility has a five-year term from
the date of drawdown for each tranche.
The facility has an interest rate of 3% to
be paid on an annual basis, with the first
31 December
2017
€’000
31 December
2016
€’000
10,000
603
10,603
–
–
–
instalment due in April 2018. A further
annual fixed rate of 10% is payable
together with the outstanding principal
amount on expiry of the facility.
At 31 December 2017, the Group has short
term interest payable accrued amounting
to €227,000 which is repayable in April
2018 and long term interest payable of
€603,000 which represents the present
value of the long term interest accrued
but not payable until April 2022.
58
AMRYT PHARMA ANNUAL REPORT 2017 20. Trade and other payables
Trade payables
Accrued expenses
Social security costs and other taxes
Trade and other payables
Group
Company
31 December
2017
€’000
31 December
2016
€’000
31 December
2017
€’000
31 December
2016
€’000
4,698
4,866
235
9,799
1,918
1,499
133
3,550
305
129
6
440
87
94
6
187
The increase in trade payables reflects the increase in R&D activity in the Group. The increase in accrued expenses reflects the
reclassification of the first milestone payment arising from the acquisition of Amryt AG from contingent consideration to accruals
amounting to €2,000,000 and the provision for 2017 staff bonuses and amounts accrued relating to the distribution of Lojuxta. The
milestone payment of €2,000,000 is payable 24 months after receipt of EMA approval for PTW. This payment was made in January 2018
and the Group no longer considers this liability a contingent liability at 31 December 2017.
21. Related party transactions
Amounts included in the financial statements, in aggregate, by category of related party are as follows:
Directors
Directors remuneration (short term benefits)
Directors remuneration (pension cost)
Share based payments
Sub total
Related party transactions with former Directors
Consulting fees
Office facilities and administration costs
Other fees
Total
Group
Company
31 December
2017
€’000
31 December
2016
€’000
31 December
2017
€’000
31 December
2016
€’000
1,191
61
10
1,262
–
–
–
854
42
–
896
113
82
74
1,262
1,165
180
–
–
180
–
–
–
180
156
–
–
156
113
–
74
343
At 31 December 2016, €15,170 (both Group and Company) was due to former Directors in relation to related party transactions. In 2016,
Office facilities and administration costs include €55,000 in relation to office licence fees. The office licence fees were charged on an
arm’s length basis.
SHARES PURCHASED BY DIRECTORS
As part of an October 2017 share placing (see note 17), the Directors of the Company purchased ordinary shares of 1p as follows:
Director
Joe Wiley
Rory Nealon
Harry Stratford
James Culverwell
Markus Zeiner
Total
Markus Zeiner also purchased 100,000 shares on the open market in 2017.
Number
221,592
221,592
150,000
221,592
132,955
947,731
59
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
As part of an April 2016 share placing (see note 17), the Directors of the Company purchased ordinary shares of 1p as follows:
Director
Joe Wiley
Rory Nealon
Ray Stafford
Total
Number
330,417
1,312,500
1,652,083
3,295,000
As part of the share placing, placing warrants were granted to all placees on the basis of one placing warrant for every two placing
shares. The directors received 1,647,500 placing warrants. Share-based payments of €157,000 were charged to share premium in 2016
in relation to these placing warrants.
22. Financial risk management
CATEGORIES OF GROUP AND COMPANY FINANCIAL INSTRUMENTS
Financial assets (all at amortised cost):
Cash and cash equivalents
Trade receivables
Total financial assets
Financial liabilities:
At amortised cost
Trade payables and accrued expenses
Long term loan
At fair value
Contingent consideration
Total financial liabilities
Net
Group
Company
31 December
2017
€’000
31 December
2016
€’000
31 December
2017
€’000
31 December
2016
€’000
20,512
2,929
23,441
9,564
10,603
32,418
52,585
(29,144)
8,271
844
9,115
3,417
–
23,314
26,731
(17,616)
14,441
–
14,441
434
–
–
434
14,007
51
35
86
181
–
–
181
(95)
Financial instruments evaluated at fair
value can be classified according to the
following valuation hierarchy, which
reflects the extent to which the fair value
is observable:
•
•
•
Level 1: fair value evaluations using
prices listed on active markets (not
adjusted) of identical assets or liabilities.
Level 2: fair value evaluations using
input data for the asset or liability that
are either directly observable (as prices)
or indirectly observable (derived from
prices), but which do not constitute
listed prices pursuant to Level 1.
Level 3: fair value evaluations using
input data for the asset or liability that
are not based on observable market
data (unobservable input data).
The initial contingent consideration has
been valued using level 3. The contingent
consideration relates to the acquisition of
Amryt AG (see note 5). The €32,418,000
fair value comprises royalty payments and
milestone payments at 31 December 2017.
The fair value of the royalty payments was
determined using probability weighted
revenue forecasts and the fair value of the
milestones payments was determined
using probability adjusted present values.
It also included a revision to revenue
forecasts since management initial
forecasts completed at the time of the
acquisition in 2016.
Impact of key unobservable
input data
•
An increase of 10% in estimated
revenue forecasts would result
in an increase to the fair value of
€2,222,000. A decrease would have
the opposite effect.
•
A 5% increase in the discount factor
used would result in a decrease
to the fair value of €5,957,000. A
decrease of 5% would result in
an increase to the fair value of
€8,061,000.
•
A 6 month delay in the launch date
for EB would result in a decrease to
the fair value of €2,620,000.
60
AMRYT PHARMA ANNUAL REPORT 2017 POLICIES AND OBJECTIVES
The Group’s operations expose it to some financial risks arising from its use of financial instruments, the most significant ones
being liquidity, market risk and credit risk. The Board of Directors is responsible for the Group and Company’s risk management
policies and whilst retaining responsibility for them it has delegated the authority for designing and operating processes that ensure
the effective implementation of the objectives and policies to the Group’s finance function. The main policies for managing these
risks are as follows:
LIQUIDITY RISK
The Group is not subject to any externally imposed capital requirement, accordingly the Group’s objectives are to safeguard the ability
to continue as a going concern in order to provide returns for shareholders and benefits to other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital. Working capital forecasts are prepared to ensure the Group has sufficient funds
to complete contracted work commitments.
The following table shows the maturity profile of current liabilities of the Group:
31 December 2017
Current liabilities
31 December 2016
Current liabilities
Less than
1 month
8,842
Less than
1 month
3,089
Between
1 and 3 months
Between
3 and 6 months
182
775
Between
1 and 3 months
Between
3 and 6 months
393
68
The following table shows the maturity profile of current liabilities of the Company:
31 December 2017
Current liabilities
31 December 2016
Current liabilities
Less than
1 month
354
Less than
1 month
124
Between
1 and 3 months
Between
3 and 6 months
–
86
Between
1 and 3 months
Between
3 and 6 months
–
63
The following table shows the maturity profile of long term loan of the Group:
31 December 2017
Long term loan
31 December 2016
Long term loan
Less than
1 year
–
Less than
1 year
–
Between
1 and 3 years
Between
3 and 5 years
–
10,750
Between
1 and 3 years
Between
3 and 5 years
–
–
Greater
than 5 years
–
Greater
than 5 years
–
The following table shows the maturity profile of contingent consideration of the Group:
31 December 2017
Contingent
consideration
31 December 2016
Contingent
consideration
Less than
1 year
Between
1 and 3 years
Between
3 and 5 years
Greater
than 5 years
–
13,000
25,000
–
Less than
1 year
2,000
Between
1 and 3 years
Between
3 and 5 years
Greater
than 5 years
13,000
25,000
–
Total
9,799
Total
3,550
Total
440
Total
187
Total
10,750
Total
–
Total
38,000
Total
40,000
61
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Capital management
The Group considers its capital to be its
ordinary share capital, share premium,
other reserves and accumulated deficit.
The Group manages its capital to ensure
that entities within the Group will be
able to continue individually as going
concerns, while maximising the return to
shareholders through the optimisation
of debt and equity balances. The Group
manages its capital structure and makes
adjustments to it, in the light of changes
in economic conditions. To maintain or
adjust its capital structure, the Group may
adjust or issue new shares or raise debt.
On a regular basis, management receives
financial and operational performance
reports that enable continuous
management of assets, liabilities and
liquidity. No changes were made in the
objectives, policies or processes during
the year ended 31 December 2017 and
31 December 2016.
MARKET RISK
Market risk arises from the use of interest
bearing financial instruments and
represents the risk that future cash flows
of a financial instrument will fluctuate as a
result of changes in interest rates. It is the
Group’s policy to ensure that significant
contracts are entered into in its functional
currency whenever possible and to
maintain the majority of cash balances in
the functional currency of the Company.
The Group considers this policy minimises
any unnecessary foreign exchange
exposure. In order to monitor the
continuing effectiveness of this policy the
Board reviews the currency profile of cash
balances and managements accounts.
During the year, the Group earned interest
on its interest bearing financial assets at
rates between 0% and 0.5%. The effect of
a 1% change in interest rates obtainable
during the year on cash and on short-term
deposits would be to increase or decrease
the Group loss before tax by €5,000.
In addition to cash balances maintained
in €, the Group had balances in £ and US$
at year-end. A theoretical 10% adverse
movement in the year end €:£ exchange
rate would lead to an increase in the
Group loss before tax by €1,310,000 with
a corresponding reduction in the Group
loss before tax with a 10% favourable
movement. A theoretical 10% adverse
movement in €:US$ exchange rates would
lead to an increase in the Group loss
before tax by €5,000 with a corresponding
reduction in the group loss before tax
with a 10% favourable movement.
CREDIT RISK
The Group and Company has no
significant concentrations of credit risk.
Exposure to credit risk is monitored on
an ongoing basis. If necessary, the Group
maintains specific provisions for potential
credit losses. To date there has been no
requirement for such provisions. The
Group and Company maintains cash and
cash equivalents with various financial
institutions. The Group and Company
performs regular and detailed evaluations
of these financial institutions to assess
their relative credit standing. The carrying
amount reported in the balance sheet for
cash and cash equivalents approximate
their fair value. Credit risk is the risk
that the counterparty will default on
its contractual obligations resulting in
financial loss. Credit risk arises from
cash and cash equivalents and from
exposure via deposits with the Group
and Company’s bankers. For cash and
cash equivalents, the Group and Company
only uses recognised banks with high
credit ratings.
23. Capital commitments
and contingencies – Group
CONTINGENT LIABILITIES
Amryt AG Share Purchase
Agreement
See note 5 in relation to contingent
consideration as a result of the acquisition
of Amryt AG.
Syneos Services Agreement
(previously INC Research LLC)
In December 2016, the Group entered into
a clinical research and related services
agreement with Syneos for the provision
of services in connection with the support
of the Phase III Clinical trial for AP101 in
the Epidermolysis Bullosa indication.
The total estimated project costs payable
to Syneos are €15.1 million. €3,679,000
costs were incurred in the current year in
relation to the agreement with a further
€1,306,000 prepaid at 31 December 2017.
Costs are expected to be incurred over
the period to completion of the follow
on study, estimated Q2 2021.
Aegerion Pharmaceuticals Inc.
(“Aegerion”) Lojuxta Licence
Agreement
Under the terms of the Lojuxta licence
agreement Amryt has the exclusive
right to sell Lojuxta across the licenced
territories. As part of the agreement,
Amryt will make royalty payments to
Aegerion of 18%-20% of net sales and
will pay one-off milestones payments of
US$1,000,000 and US$1,500,000 if calendar
year net sales targets of US$20,000,000
and US$30,000,000 respectively are
achieved. The Group expects to reach
these net sales targets over the next
5 years.
62
AMRYT PHARMA ANNUAL REPORT 2017 OPERATING LEASE COMMITMENTS – GROUP
Future minimum obligations under operating lease contracts (in €’000):
31 December 2017
Leases for business premises
Leases for equipment
31 December 2016
Leases for business premises
Leases for equipment
Less than
1 year
207
15
Less than
1 year
97
3
1 year to
5 years
409
33
1 year to
5 years
139
–
Greater than
5 years
–
–
Greater than
5 years
–
–
Total
616
48
Total
236
3
The Company had no finance lease commitments in 2017 and 2016.
24. Statement of comprehensive income – Company
In accordance with the provisions under section 408 of the Companies Act 2006, the Company has not presented a Statement
of Comprehensive Income. The Company’s loss for the year was €1,361,000 (2016: €1,915,000).
25. Notes supporting statement of cash flows
Reconciliation of net cash flow to movement in net debt:
Net debt at beginning of year
Cashflows – new debt
Cashflows – repayment of debt
Non-cash flows
Long term interest repayable with long term debt
Short term interest included in trade creditors and accruals
Net debt at end of year
31 December
2017
€’000
(47)
(10,000)
47
(603)
(227)
(10,830)
63
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
DISTRIBUTION AGREEMENTS
Amryt signed five exclusive distribution
agreements for Lojuxta in the period
from January 2018 to April 2018. The
agreements cover Kuwait, Switzerland,
Austria, Croatia, Czech Republic, Estonia,
Finland, Hungary, Latvia, Lithuania,
Poland, Slovakia, Slovenia, Romania,
Bulgaria, Lebanon, Jordan and Syria.
SENIOR MANAGEMENT
APPOINTMENT
In January 2018, Derval O’Carroll was
appointed Head of Regulatory Affairs.
Derval has over 25 years’ experience in
pharmaceutical industry regulatory affairs.
As Amryt continues its pivotal Phase III
trial, EASE, to assess the efficacy of AP101
in EB, Derval will assume responsibility for
engagement with regulatory agencies. In
addition, she will examine opportunities
to pursue new orphan indications for
AP101 and AP102.
26. Events after the
reporting period
NEW IN-LICENCING DEAL
In March 2018, Amryt signed a new
in-licencing agreement with University
College Dublin for a non-viral gene
therapy platform technology, which
offers a potential treatment for
patients with EB, and with potential
applicability across a range of
genetic diseases. The initial focus of
development efforts to date has been
in the area of EB and preliminary data
suggests that the treatment could
be potentially disease-modifying
for patients with RDEB. Pre-clinical
data in a xenograft model has shown
significant levels of collagen VII in the
skin post therapy. Patients with RDEB
have a defect in their gene coding
for collagen VII, consequently the
replacement of collagen VII could be
transformative for these patients.
Potential competitors working in
the area of gene therapy in EB are
mostly working with viral vectors to
deliver collagen VII to the cell. The
patented technology which Amryt has
exclusively licenced from UCD involves
the use of a novel gene delivery
mechanism using HPAE polymer
technology. If successful, this will
eliminate the requirement for viruses
as delivery vectors and provides a
potential competitive advantage to
Amryt. Amryt intends to conduct
various pre-clinical studies in the
coming months and will report initial
results in Q4 2018.
64
AMRYT PHARMA ANNUAL REPORT 2017 Company Information
Registered Office
Ivybridge House
1 Adam Street
London, WC2N 6LE
United Kingdom
Company Number
5316808
Directors
Harry Stratford
Non-executive Chairman
Joe Wiley
CEO
Rory Nealon
CFO/COO
James Culverwell
Non-executive Director
Ray Stafford
Non-executive Director
Markus Ziener
Non-executive Director
Company Secretary
Rory Nealon
Company Website
www.amrytpharma.com
AIM Nominated Adviser
Shore Capital and Corporate Limited
Bond Street House
14 Clifford Street
London, W1S 4JU
United Kingdom
Joint Broker
Shore Capital Stockbrokers Limited
Bond Street House
14 Clifford Street
London, W1S 4JU
United Kingdom
Joint Broker
Stifel Nicolaus Europe Limited
150 Cheapside
London, EC2V 6ET
United Kingdom
ESM Adviser and Joint Broker
J & E Davy
Davy House
49 Dawson Street
Dublin 2
Ireland
Auditors
BDO LLP
55 Baker Street
London, W1U 7EU
United Kingdom
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Kent, BR3 4TU
United Kingdom
65
CORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTAMRYT PHARMA ANNUAL REPORT 2017 Amryt Pharma plc Registered Office:
Ivybridge House, 1 Adam Street, London, WC2N 6LE, United Kingdom
Dublin Office:
90 Harcourt Street, Dublin 2, Ireland
www.amrytpharma.com
66
AMRYT PHARMA ANNUAL REPORT 2017